AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 22, 1996
REGISTRATION NO. 333-15501
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT
NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
CALLON PETROLEUM COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 1311 64-0844345
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
200 NORTH CANAL STREET, NATCHEZ, MISSISSIPPI 39120
TELEPHONE: (601) 442-1601
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
FRED L. CALLON
200 NORTH CANAL STREET, NATCHEZ, MISSISSIPPI 39120
TELEPHONE: (601) 442-1601
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------
COPIES TO:
BUTLER & BINION, L.L.P. VINSON & ELKINS L.L.P.
1000 LOUISIANA SUITE 1600 2300 FIRST CITY TOWER
HOUSTON, TEXAS 77002 1001 FANNIN STREET
ATTN: GEORGE G. YOUNG III HOUSTON, TEXAS 77002
TELEPHONE: (713) 237-3605 ATTN: T. MARK KELLY
TELECOPY: (713) 237-3202 TELEPHONE: (713) 758-4592
TELECOPY: (713) 758-2346
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practical following the effective date of this Registration Statement.
If any securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================
PROPOSED PROPOSED AMOUNT OF
MAXIMUM MAXIMUM ADDITIONAL
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Senior Subordinated Notes............ 24,150(3) $1,000 $24,150,000 $2,091
==================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Pursuant to Rule 457(a), the registration fee has been calculated solely on
the basis of the proposed maximum aggregate offering price of the Senior
Subordinated Notes being registered hereby. Fees in the amount of $5,228
have previously been been paid in connection with this Registration
Statement.
(3) Includes $3,150,000 principal amount of Senior Subordinated Notes subject
to the Underwriter's over-allotment option.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
CALLON PETROLEUM COMPANY
------------------------
CROSS REFERENCE SHEET
FORM S-1 ITEM NUMBER LOCATION IN PROSPECTUS
- ------------------------------------- -------------------------------------
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus........ Facing Page of Registration
Statement; Cross Reference
Sheet; Outside Cover Page of
Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus....... Inside Cover Page; Back Cover
Page of Prospectus
3. Summary Information, Risk
Factors and Ratio of
Earnings to Fixed Charges....... Prospectus Summary; Risk Factors;
Selected Financial Data
4. Use of Proceeds................. Prospectus Summary; Use of
Proceeds
5. Determination of Offering
Price........................... Underwriting
6. Dilution........................ Not Applicable
7. Selling Security Holders........ Not Applicable
8. Plan of Distribution............ Front Cover Page of Prospectus;
Underwriting
9. Descriptions of Securities to be
Registered...................... Description of Notes
10. Interests of Named Experts and
Counsel......................... Legal Matters; Experts
11. Information with Respect to the
Registrant...................... Prospectus Summary; Risk Factors;
Capitalization; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business and Properties;
Management; Principal
12. Disclosure of Commission Stockholders
Position on Indemnification for
Securities Act Liabilities...... Not Applicable
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED NOVEMBER 22, 1996
PROSPECTUS
$21,000,000
[LOGO] CALLON PETROLEUM COMPANY
% SENIOR SUBORDINATED NOTES DUE 2001
The % Senior Subordinated Notes due 2001 ("Notes") are being offered by
Callon Petroleum Company, a Delaware corporation ("Company" or "Callon").
The Notes mature on December 15, 2001. Interest on the Notes is payable
quarterly on December 15, March 15, June 15 and September 15, commencing March
15, 1997. The Notes will be redeemable at the option of the Company, in whole or
in part, on or after December 15, 1997, at 100% of the principal amount thereof,
plus accrued interest to the redemption date.
The Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined herein) of the Company. The Notes also will be structurally
subordinated to all liabilities of the Company's subsidiaries. As of September
30, 1996, the Company had $8.9 million of Senior Indebtedness and the Company's
subsidiaries, excluding guarantees of Senior Indebtedness, had liabilities of
$13.0 million. The Notes will be senior to the Company's existing $2.125
Convertible Exchangeable Preferred Stock, Series A ("Series A Preferred
Stock") and any 8.5% Convertible Subordinated Debentures due 2010
("Convertible Debentures") issued in exchange for such Series A Preferred
Stock. The Indenture will prohibit the Company's Restricted Subsidiaries (as
defined herein) from incurring subordinated indebtedness. See "Description of
Notes."
The Notes will be represented by a Global Certificate registered in the
name of the nominee of The Depository Trust Company, which will act as the
Depositary (the "Depositary"). Beneficial interests in the Global Certificate
will be shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its participants. Except as described herein,
Notes in definitive form will not be issued. See "Description of Notes -- Book
Entry Securities."
The Company has been advised by the Underwriter that it intends to make a
market in the Notes. No assurance can be given, however, that an active trading
market for the Notes will develop. The Company has no present intention to have
the Notes authorized for quotation on any automated quotation system or listed
on any securities exchange.
SEE "RISK FACTORS" ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
- --------------------------------------------------------------------------------
Per Note.. % % %
- --------------------------------------------------------------------------------
Total(4).. $ $ $
================================================================================
(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
(4) The Company has granted to the Underwriter an option for 30 days to purchase
up to an additional $3.15 million aggregate principal amount of Notes, at
the Price to Public, less Underwriting Discount, solely to cover
overallotments, if any. If such option is exercised in full, the total Price
to Public, Underwriting Discount and Proceeds to Company will be
$ , $ , and $ , respectively. See
"Underwriting."
------------------------
The Notes are offered by the Underwriter, subject to prior sale, when, as
and if issued to and accepted by it and subject to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the Notes
will be made on or about , 1996 through the facilities of
The Depository Trust Company in New York, New York.
------------------------
MORGAN KEEGAN & COMPANY, INC.
The date of this Prospectus is , 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "SEC"). Reports, proxy and information statements and other
information filed by the Company with the SEC pursuant to the informational
requirements of the Exchange Act may be inspected at the public reference
facilities maintained by the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549-1004, and at the following Regional Offices of the SEC:
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and New York Regional Office, 7 World Trade Center, New York, New
York 10048. Copies of such material may also be obtained from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549-1004 at prescribed rates. The Registration Statement was filed with the
SEC electronically. The SEC maintains a site on the World Wide Web that contains
documents filed with the SEC electronically. The address of such site is
http://www.sec.gov, and the Registration Statement may be inspected at such
site. The Common Stock is traded on the Nasdaq NMS. The Company's registration
statements, reports, proxy and information statements, and other information may
also be inspected at the National Association of Securities Dealers, Inc., 1735
K Street, N.W., Washington, D.C. 20006.
This Prospectus constitutes a part of a Registration Statement on Form S-1
filed by the Company with the SEC under the Securities Act of 1933, as amended
(the "Securities Act"). This Prospectus omits certain of the information
contained in the Registration Statement, and reference is hereby made to the
Registration Statement for further information with respect to the Company and
the securities offered hereby. Any statements contained herein concerning the
provisions of any document filed as an exhibit to the Registration Statement or
otherwise filed with the SEC are not necessarily complete and in each instance
reference is made to the copy of such document so filed. Each such statement is
qualified in its entirety by such reference.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE OVER THE COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE HEREIN. UNLESS OTHERWISE
INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITER'S
OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED. REFERENCES TO "CALLON" OR THE
"COMPANY" HEREIN INCLUDE CALLON PETROLEUM COMPANY AND ITS PREDECESSORS AND
SUBSIDIARIES UNLESS THE CONTEXT OTHERWISE REQUIRES. CERTAIN TERMS RELATING TO
THE OIL AND GAS INDUSTRY ARE DEFINED IN "GLOSSARY."
THE COMPANY
Callon Petroleum Company and its predecessors have been engaged in the
acquisition, development, exploration and production of oil and gas since 1950.
The Company's properties are geographically concentrated in Louisiana, Alabama
and offshore Gulf of Mexico. Callon also manages properties for certain
institutional investors. Callon was formed in 1994 through the consolidation of
a publicly traded limited partnership, a joint venture with a consortium of
European entities and an independent energy company owned by certain members of
current management. As of December 31, 1995, the Company had estimated net
proved reserves of 58.3 Bcfe with a PV-10 Value of $63.8 million, representing
increases of 15% and 54% respectively, from December 31, 1994.
The Company's objective is to enhance stockholder value through sustained
growth in its reserve base, production levels and resulting cash flows from
operations. Over the past two years, the Company has shifted its emphasis from
the acquisition of producing properties to the acquisition of acreage with
development and exploratory drilling opportunities to further increase potential
recoverable reserves. In evaluating drilling opportunities, Callon performs
extensive geological and geophysical studies using computer aided exploration
techniques ("CAEX"), including, where appropriate, the acquisition of 3-D
seismic or high-resolution 2-D seismic data to facilitate these efforts.
EXPLORATION AND DEVELOPMENT OPERATIONS. The Company's exploratory and
development operations are concentrated in two areas in the Gulf of Mexico, the
Shallow Miocene focus area, located in the state waters of Alabama and the
federal outer continental shelf in the Gulf of Mexico ("OCS"), and the outer
regions of the OCS, at depths of between 13,000 and 18,000 feet ("Deep OCS
Prospects"). Wells drilled in the Shallow Miocene focus area seek oil and gas
deposits at from 1,800 to 6,000 feet, and are characterized by relatively low
exploration and development costs, high initial production rates and short
reserve lives. Wells drilled on the Deep OCS Prospects are more expensive to
drill and complete. These wells have greater risks, but seek larger oil and gas
deposits with longer reserve lives.
In 1995 and 1996, the Company acquired an extensive infrastructure of
production platforms, gathering systems and pipelines in the Shallow Miocene
focus area. During 1996, the Company completed four proprietary high resolution
seismic surveys over an eight block area contiguous to Chandeleur Block 40 ("CB
40") in the Shallow Miocene focus area. Based on these surveys, in October and
November of 1996, the Company drilled two gross (1.52 net) successful
development wells and one gross (1.0 net) successful exploratory well in this
area. These wells are expected to be placed on production by the end of November
and, coupled with the replacement of compression equipment at the CB 40 and Main
Pass Block 163 production facilities, the Company anticipates a significant
increase in its gas production rates by year-end 1996. The Company's capital
budget currently anticipates drilling an additional five gross (4.0 net)
development wells and three gross (0.9 net) exploratory wells during late 1996
and 1997 in this area, for aggregate net cost to drill and complete of $15.3
million.
In 1996, the Company joined with Murphy Exploration and Production, Inc.
("Murphy") to acquire 18 blocks in the OCS. Callon owns a 25% working interest
in these Deep OCS Prospects. The Company's capital budget for late 1996 and 1997
contemplates drilling eight gross (2.0 net) exploratory wells jointly with
Murphy at a total cost to Callon to drill and complete of $11.3 million. The
first well commenced drilling in the West Cameron 603 Block in October 1996, and
drilling of the second well is scheduled in November 1996. In addition to the
wells drilled with Murphy, the Company, as operator, plans to drill an
additional two wells in 1997 on Deep OCS Prospects.
3
<PAGE>
In total, the Company's current capital budget contemplates the drilling of
nine gross (5.9 net) development wells and 12 gross (3.9 net) exploratory wells
during late 1996 and 1997 at an estimated net cost to the Company to drill and
complete of $34.9 million. These drilling operations will be financed
through cash flows from operations, the net proceeds of this Offering and
borrowings under the Company's credit facility with a commercial bank ("Credit
Facility"). See "Use of Proceeds."
PRODUCING PROPERTY ACQUISITIONS. Over the past seven years, the Company
has increased its reserves through the acquisition of producing properties that
are geologically complex, have (or are analogous to fields with) an established
production history from stacked pay zones and are candidates for exploitation.
The Company focuses on reducing operating costs and implementing production
enhancements through the application of technologically advanced production and
recompletion techniques. Between 1989 and September 30, 1996, Callon acquired
producing properties in 16 negotiated transactions, on behalf of itself and, in
certain cases, its primary institutional investor, for an aggregate net purchase
price of $194 million and, during that period, the Company had an average
Reserve Replacement Cost of $0.84 per Mcfe. During the nine months ended
September 30, 1996, the Company invested a total of $1.0 million and acquired an
average 73% working interest (55% net revenue interest) in 12 producing wells,
as well as a 100% ownership of one production facility and a 49% ownership in
another, both of which are located in its Shallow Miocene focus area. Estimated
net proved reserves attributable to these properties, as estimated by the
Company's internal reserve engineers as of September 30, 1996, is 10 Bcfe.
Through its acquisition program, the Company has assembled an operational
and technical database in geographical areas at a low cost to the Company. The
relationship with its institutional investors has allowed the Company to pursue
larger acquisitions, while the cost sharing arrangements and ongoing management
fees have enabled the Company to enhance the rate of return on its properties
and to maintain a larger, more experienced team of technical and operating
personnel than otherwise would be feasible for a company of its size.
SIGNIFICANT PRODUCING PROPERTIES. The following table shows the PV-10
Value and estimated net proved oil and gas reserves by major field for the
Company's four largest producing fields and for all other properties combined at
December 31, 1995.
<TABLE>
<CAPTION>
ESTIMATED NET PROVED
PERCENT ----------------------
PV-10 TOTAL OIL GAS
PRIMARY VALUE PV-10 RESERVES RESERVES
FIELD NAME/LOCATION OPERATOR(S) ($000) VALUE (MBBLS) (MMCF)
- ------------------------------------- ------------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Chandeleur Block 40.................. Callon $16,851 26.4% -- 12,161
Federal Waters
Black Bay Complex.................... Callon 10,187 16.0 2,144 684
Louisiana State Waters
North Dauphin Island................. Callon 9,749 15.3 -- 6,879
Alabama State Waters
Big Escambia Creek Field............. Exxon 9,330 14.6 1,053 2,305
Escambia County, Alabama
Other properties..................... Various 17,647 27.7 1,569 7,638
------- -------- --------- ---------
Total........................... $63,764 100.0% 4,766 29,667
======= ======== ========= =========
</TABLE>
4
<PAGE>
THE OFFERING
Securities Offered...... $21,000,000 aggregate principal amount of % Senior
Subordinated Notes due 2001, assuming no exercise of
the Underwriter's overallotment option to purchase up
to $3,150,000 additional aggregate principal amount of
Notes.
Maturity Date........... December 15, 2001.
Interest Payment Dates.. December 15, March 15, June 15 and September 15,
commencing March 15, 1997. The first interest payment
will represent interest from the date of original
issuance through March 15, 1997.
Optional Redemption..... The Notes will be redeemable at the Company's option,
in whole or in part, on or after December 15, 1997 at
100% of the principal amount plus accrued interest to
the date of redemption. See "Description of Notes --
Optional Redemption by Company."
Ranking................. The Notes will be unsecured and subordinated in right
of payment to all existing and future Senior
Indebtedness of the Company. The Notes will also be
structurally subordinated to all liabilities of the
Company's subsidiaries. On September 30, 1996, the
total amount of Senior Indebtedness of the Company was
$8.9 million and the total amount of liabilities of
the Company's subsidiaries as of September 30, 1996
was $13.0 million excluding guarantees of Senior
Indebtedness. The Notes will rank senior to the
Company's existing Series A Preferred Stock and any
Convertible Debentures that may be issued upon the
exchange of such Series A Preferred Stock. The
Indenture pursuant to which the Notes will be issued
will prohibit the Company's Restricted Subsidiaries
from incurring subordinated indebtedness. See
"Description of Notes -- Subordination" and "--
Certain Covenants -- Limitation on Indebtedness for
Money Borrowed" and "Description of Existing
Securities and Debt Instruments."
Principal Covenants..... The Indenture will contain covenants restricting the
Company's ability to incur additional indebtedness if
the ratio of the Company's consolidated Indebtedness
for Money Borrowed (as defined) to Consolidated EBITDA
(as defined) would exceed 10.0:1 or if the ratio of
Consolidated EBITDA to Consolidated Interest Expense
(as defined) would be less than 1.1:1. The Indenture
will also prohibit restrictions on the payments of
dividends by Restricted Subsidiaries and will place
limitations on certain liens, restricted payments and
transactions with Affiliates and the ranking of future
subordinated indebtedness. See "Description of Notes
-- Certain Covenants."
Sinking Fund............ None.
Use of Proceeds......... The Company intends to use the net proceeds from this
Offering to fund a portion of its remaining 1996 and
its 1997 capital expenditure budget. Pending the use
of net proceeds as described herein, the Company will
use net proceeds to repay amounts under its Credit
Facility, which may be reborrowed at a later date, or
invest such net proceeds in short-term liquid
investments.
Trustee................. American Stock Transfer & Trust Company.
RISK FACTORS
See "Risk Factors" for a discussion of certain matters that should be
considered in evaluating an investment in the Notes.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas sales................... $ 18,578 $ 17,400 $ 23,210 $ 13,948 $ 10,048
Interest and other.................. 537 501 627 171 230
--------- --------- --------- --------- ---------
Total revenues................. 19,115 17,901 23,837 14,119 10,278
--------- --------- --------- --------- ---------
Costs and Expenses:
Lease operating expenses............ 5,646 5,201 6,732 4,042 3,713
Depreciation, depletion and
amortization...................... 7,697 7,929 10,376 6,049 3,411
General and administrative.......... 2,352 2,960 3,880 3,717 2,350
Interest............................ 184 1,441 1,794 624 196
--------- --------- --------- --------- ---------
Total costs and expenses....... 15,879 17,531 22,782 14,432 9,670
--------- --------- --------- --------- ---------
Income (loss) from operations......... 3,236 370 1,055 (313) 608
Provision (benefit) for income
taxes............................... -- -- -- (200) 113
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect
of change in accounting principle... 3,236 370 1,055 (113) 495
Cumulative effect of change in
accounting principle(2)............. -- -- -- -- 5,262
--------- --------- --------- --------- ---------
Net income (loss)..................... 3,236 370 1,055 (113) 5,757
Preferred stock dividends............. 2,097 -- 256 -- --
--------- --------- --------- --------- ---------
Net income (loss) available to common
shares.............................. $ 1,139 $ 370 $ 799 $ (113) $ 5,757
========= ========= ========= ========= =========
Net income (loss) per common share:
Income (loss) per share before change
in accounting principle............. $ .20 $ .06 $ .14 $ (.03) $ .13
========= ========= ========= ========= =========
Cumulative effect of change in
accounting principle................ $ -- $ -- $ -- $ -- $ 1.40
========= ========= ========= ========= =========
Weighted average common shares
outstanding......................... 5,755 5,754 5,755 4,346 3,769
========= ========= ========= ========= =========
STATEMENT OF CASH FLOWS DATA:
Net income (loss)..................... $ 3,236 $ 370 $ 1,055 $ (113) $ 5,757
Depreciation, depletion and
amortization........................ 7,913 8,131 10,600 6,328 3,657
Other non-cash items.................. 201 -- 133 (112) (5,114)
Net change in assets and
liabilities......................... 5,772 233 (2,080) (756) 435
--------- --------- --------- --------- ---------
Cash provided by operating
activities.......................... 17,122 8,734 9,708 5,347 4,735
========= ========= ========= ========= =========
Cash provided by (used in) investing
activities.......................... (19,874) (16,780) (24,237) (6,423) (2,710)
========= ========= ========= ========= =========
Cash provided by (used in) financing
activities.......................... 7,196 3,617 11,509 3,916 (1,695)
========= ========= ========= ========= =========
BALANCE SHEET DATA:
Working capital (deficit)............. $ 2,968 $ (7,106) $ 4,712 $ 1,896 $ (687)
Oil and gas properties, net........... 68,415 51,890 57,765 43,920 21,000
Total assets.......................... 99,923 76,048 83,867 73,786 39,825
Total debt............................ 8,950 14,868 100 19,234 2,691
Total stockholders' equity............ 76,268 43,801 75,129 43,431 27,170
OTHER FINANCIAL DATA:
Capital expenditures, net............. $ 19,874 $ 16,780 $ 24,237 $ 10,412 $ 2,710
EBITDA(3)............................. $ 11,318 $ 9,982 $ 13,582 $ 6,727 $ 4,496
Ratio of earnings to fixed
charges(4).......................... 18.6 1.3 1.6 -- 3.6
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
6
<PAGE>
- ------------
(1) The Company succeeded to the business and properties of Callon Petroleum
Operating Company ("Callon Petroleum Operating"), Callon Consolidated
Partners, L.P. ("CCP") and CN Resources ("CN") on September 16, 1994
(the "Consolidation"). Historical information about the Company prior to
September 16, 1994 includes the financial and operating information of the
predecessors of the Company, other than the interest in CN not owned by
Callon Petroleum Operating, combined as entities under common control in a
manner similar to a pooling of interests. See "The Company."
(2) Effective January 1, 1993, the Company adopted the provisions of Financial
Accounting Standards Board Statement No. 109 "Accounting for Income
Taxes," which resulted in the recording of a deferred tax asset of
$5,262,000 at December 31, 1993. See Note 3 of the Notes to Consolidated
Financial Statements.
(3) EBITDA is earnings before interest, taxes, depreciation and amortization.
EBITDA is presented because it is a widely accepted financial indication of
a company's ability to service and incur debt. EBITDA should not be
considered as an alternative to earnings (loss) as an indicator of the
Company's operating performance or to cash flow as a measure of liquidity.
(4) For purpose of computing this ratio, "earnings" represent income (loss)
before income taxes and extraordinary item plus fixed charges. "Fixed
charges" consist of interest expense on all indebtedness and that portion
of rental expense considered to be representative of the interest factor
therein. As a result of the loss incurred for the year ended December 31,
1994 earnings did not cover fixed charges by $313,000.
SUMMARY OPERATING AND RESERVE DATA(1)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PRODUCTION DATA:
Oil (MBbls)..................... 451 430 595 364 369
Gas (MMcf)...................... 4,784 5,279 6,694 4,076 1,659
Total production (MMcfe)........ 7,490 7,860 10,261 6,260 3,870
AVERAGE SALES PRICE PER UNIT:
Oil (per Bbl)................... $ 18.05 $ 16.68 $ 16.68 $ 15.63 $ 16.73
Gas (per Mcf)................... 2.18 1.88 1.96 2.00 2.10
Total production (per Mcfe)..... 2.48 2.18 2.24 2.21 2.49
OTHER OPERATING DATA:
Lease operating expenses/Mcfe... $ 0.56 $ 0.50 $ 0.49 $ 0.49 $ 0.72
Severance taxes/Mcfe............ 0.20 0.16 0.17 0.16 0.24
Capital expenditures (net)
(000's)....................... 19,874 16,780 24,237 10,412 2,710
</TABLE>
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
RESERVE REPLACEMENT COSTS/Mcfe(2).... $ 1.05 $ 0.97 $ 0.58
ESTIMATED NET PROVED RESERVES:
Oil (MBbls)..................... 4,766 4,424 2,842
Gas (MMcf)...................... 29,667 24,102 14,167
Gas equivalent (MMcfe).......... 58,263 50,646 31,219
Estimated future net cash
flows, before income
taxes (000's)................. $ 95,730 $ 59,477 $ 35,814
PV-10 Value (000's)............. $ 63,764 $ 41,383 $ 22,554
- ------------
(1) The Company succeeded to the business and properties of its predecessor
entities on September 16, 1994 pursuant to the Consolidation. Historical
data about the Company prior to September 16, 1994 includes the operating
data of the Company's predecessors, other than the interest in CN not owned
by Callon Petroleum Operating, combined as entities under common control, in
a manner similar to a pooling of interests. See "The Company."
(2) See "Glossary."
7
<PAGE>
RISK FACTORS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS
PROSPECTUS, INCLUDING WITHOUT LIMITATION, STATEMENTS UNDER "PROSPECTUS
SUMMARY", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS", AND "BUSINESS AND PROPERTIES" REGARDING THE COMPANY'S
FINANCIAL POSITION, ESTIMATED RESERVE QUANTITIES AND NET PRESENT VALUES OF
RESERVES, BUSINESS STRATEGY, PLANS AND OBJECTIVES OF MANAGEMENT OF THE COMPANY
FOR FUTURE OPERATIONS AND COVENANT COMPLIANCE, ARE FORWARD-LOOKING STATEMENTS.
ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UPON WHICH SUCH
FORWARD-LOOKING STATEMENTS ARE BASED ARE REASONABLE, IT CAN GIVE NO ASSURANCES
THAT SUCH ASSUMPTIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS
("CAUTIONARY STATEMENTS") ARE DISCLOSED BELOW AND ELSEWHERE IN THIS
PROSPECTUS. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED BY THE CAUTIONARY STATEMENTS. PROSPECTIVE PURCHASERS OF THE NOTES
OFFERED HEREBY SHOULD CAREFULLY CONSIDER, TOGETHER WITH OTHER INFORMATION IN
THIS PROSPECTUS, THE FOLLOWING FACTORS THAT AFFECT THE COMPANY.
SIGNIFICANT LEVERAGE AND DEBT SERVICE
The Company currently anticipates that it will fund its capital expenditure
budget for late 1996 and 1997 substantially with debt. As a result, the Company
expects to be more highly leveraged.
The Company's level of indebtedness will have several important effects on
its future operations, including (i) a substantial portion of the Company's cash
flow from operations must be dedicated to the payment of interest on its
indebtedness and will not be available for other purposes, (ii) covenants
contained in the Company's debt obligations will require the Company to meet
certain financial tests, and other restrictions will limit its ability to borrow
additional funds or to dispose of assets and may affect the Company's
flexibility in planning for, and reacting to, changes in its business, including
possible acquisition activities and (iii) the Company's ability to obtain
financing in the future for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired. The Company's
ability to meet its debt service obligations and to reduce its total
indebtedness will be dependent upon the Company's future performance, which will
be subject to general economic conditions and to financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control.
SUBORDINATION
The Notes will be subordinated in right of payment to all existing and
future Senior Indebtedness of the Company. In the event of bankruptcy,
liquidation or reorganization of the Company, the assets of the Company will be
available to pay obligations on the Notes only after all Senior Indebtedness has
been paid in full, and there may not be sufficient assets remaining to pay
amounts due on any or all of the Notes outstanding. The Notes are also
structurally subordinated to the obligations of the Company's subsidiaries. The
aggregate principal amount of Senior Indebtedness of the Company as of September
30, 1996 would have been $100,000 after giving effect to the sale of the Notes
and the use of proceeds as described under "Use of Proceeds," and the
indebtedness and accounts payable of the Company's subsidiaries as of September
30, 1996 was $13.0 million, excluding guarantees of Senior Indebtedness.
Additional Senior Indebtedness may be incurred by the Company from time to time,
subject to certain restrictions, and the Company's subsidiaries may incur
obligations which are structurally senior to the Notes. See "Description of
Notes -- Subordination."
MARKET FOR THE NOTES
The Company has no present intention to have the Notes authorized for
quotation on any automated quotation system or listed on any securities
exchange. Although the Underwriter has advised the Company that it presently
intends to make a market in the Notes, the Underwriter may discontinue making a
market in the Notes at any time for any reason. Therefore, no assurance can be
given that an active trading market for
8
<PAGE>
the Notes will develop, or if it develops, that the trading market will continue
for any period of time thereafter.
VOLATILITY OF OIL AND GAS PRICES
The Company's revenues, profitability and future growth and the carrying
value of its oil and gas properties are substantially dependent on prevailing
prices of oil and gas. The Company's ability to maintain or increase its
borrowing capacity and to obtain additional capital on attractive terms is also
substantially dependent upon oil and gas prices. Prices for oil and gas are
subject to large fluctuations in response to relatively minor changes in the
supply of and demand for oil and gas, market uncertainty and a variety of
additional factors beyond the control of the Company. These factors include
weather conditions in the United States, the condition of the United States
economy, the actions of the Organization of Petroleum Exporting Countries,
governmental regulation, political stability in the Middle East and elsewhere,
the foreign supply of oil and gas, the price of foreign imports and the
availability of alternate fuel sources. Any substantial and extended decline in
the price of oil or gas would have an adverse effect on the Company's carrying
value of its proved reserves, borrowing capacity, revenues, profitability and
cash flows from operations.
Volatile oil and gas prices make it difficult to estimate the value of
producing properties for acquisition and often cause disruption in the market
for oil and gas producing properties, as buyers and sellers have difficulty
agreeing on such value. Price volatility also makes it difficult to budget for
and project the return on acquisitions and development and exploitation
projects.
RISKS OF EXPLORATION AND DEVELOPMENT
The major focus of the Company's operations over the next two years is
expected to be the exploration for and development of oil and gas properties,
primarily in federal and state waters in the Gulf of Mexico. Exploration and
drilling activities are generally considered to be of a higher risk than
acquisitions of producing oil and gas properties. Additionally, the Company's
wells on its Deep OCS Prospects seek to discover deposits of gas at deep
formations, and have more risk than wells seeking to develop hydrocarbons from
shallow formations. No assurances can be made that the Company will discover oil
and gas in commercial quantities in its exploration and development operations.
Expenditure of a material amount of funds in exploration for oil and gas without
discovery of commercial quantities of reserves will have a material adverse
effect upon the Company.
OPERATING HAZARDS, OFFSHORE OPERATIONS AND UNINSURED RISKS
Callon's operations are subject to risks inherent in the oil and gas
industry, such as blowouts, cratering, explosions, uncontrollable flows of oil,
gas or well fluids, fires, pollution and other environmental risks. These risks
could result in substantial losses to the Company due to injury and loss of
life, severe damage to and destruction of property and equipment, pollution and
other environmental damage and suspension of operations. Moreover, a substantial
portion of the Company's operations are offshore and therefore are subject to a
variety of operating risks peculiar to the marine environment, such as
hurricanes or other adverse weather conditions, to more extensive governmental
regulation, including regulations that may, in certain circumstances, impose
strict liability for pollution damage, and to interruption or termination of
operations by governmental authorities based on environmental or other
considerations.
The Company maintains insurance of various types to cover its operations,
including maritime employer's liability and comprehensive general liability.
Amounts in excess of base coverages are provided by primary and excess umbrella
liability policies with maximum limits of $50 million. In addition, the Company
maintains operator's extra expense coverage, which provides coverage for the
control of wells drilled and/or producing and redrilling expenses and pollution
coverage for wells out of control.
No assurances can be given that Callon will be able to maintain adequate
insurance in the future at rates the Company considers reasonable. The
occurrence of a significant event not fully insured or indemnified against could
materially and adversely affect the Company's financial condition and results of
operations.
9
<PAGE>
ESTIMATES OF OIL AND GAS RESERVES
This Prospectus contains estimates of oil and gas reserves, and the future
net cash flows attributable to those reserves, prepared by Huddleston & Co.,
Inc., independent petroleum and geological engineers (the "Reserve
Engineers"). There are numerous uncertainties inherent in estimating quantities
of proved reserves and cash flows attributable to such reserves, including
factors beyond the control of the Company and the Reserve Engineers. Reserve
engineering is a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact manner. The accuracy of an
estimate of quantities of reserves, or of cash flows attributable to such
reserves, is a function of the available data, assumptions regarding future oil
and gas prices and expenditures for future development and exploitation
activities, and of engineering and geological interpretation and judgment.
Additionally, reserves and future cash flows may be subject to material downward
or upward revisions, based upon production history, development and exploitation
activities and prices of oil and gas. Actual future production, revenue, taxes,
development expenditures, operating expenses, quantities of recoverable reserves
and the value of cash flows from such reserves may vary significantly from the
assumptions and estimates set forth herein. In addition, reserve engineers may
make different estimates of reserves and cash flows based on the same available
data. In calculating reserves on a Mcfe basis, oil was converted to gas
equivalent at the ratio of six Mcf of gas to one Bbl of oil. While this ratio
approximates the energy equivalency of gas to oil on a Btu basis, it may not
represent the relative prices received by the Company on the sale of its oil and
gas production.
The estimated quantities of proved reserves and the discounted present
value of future net cash flows attributable to estimated proved reserves set
forth in this Prospectus were prepared by the Reserve Engineers in accordance
with the rules of the SEC, and are not intended to represent the fair market
value of such reserves.
ABILITY TO REPLACE RESERVES
The Company's future success depends upon its ability to find, develop and
acquire additional oil and gas reserves that are economically recoverable. As is
generally the case in the Gulf Coast region, many of the Company's producing
properties are characterized by a high initial production rate, followed by a
steep decline in production. As a result, the Company must locate and develop or
acquire new oil and gas reserves to replace those being depleted by production.
Without successful exploration or acquisition activities, the Company's reserves
and revenues will decline rapidly. No assurances can be given that the Company
will be able to find and develop or acquire additional reserves at an acceptable
cost.
The exploration for oil and gas requires the expenditure of substantial
amounts of capital, and there can be no assurances that commercial quantities of
oil or gas will be discovered as a result of such activities. The Company's
current capital budget contemplates drilling nine gross (5.9 net) development
wells and 12 gross (3.9 net) exploratory wells during late 1996 and 1997. The
estimated cost, net to the Company, to drill and complete these wells is $34.9
million. The drilling of several unsuccessful wells in this area could have a
material adverse effect on the Company and its ability to repay the Notes. In
addition, the successful acquisition of producing properties requires an
assessment of recoverable reserves, future oil and gas prices and operating
costs, potential environmental and other liabilities and other factors. Such
assessments are necessarily inexact and their accuracy inherently uncertain. In
addition, no assurances can be given that the Company's exploitation and
development activities will result in any increases in reserves. The Company's
operations may be curtailed, delayed or canceled as a result of lack of adequate
capital and other factors, such as title problems, weather, compliance with
governmental regulations or price controls, mechanical difficulties or shortages
or delays in the delivery of equipment. In addition, the costs of exploration
and development may materially exceed initial estimates.
SUBSTANTIAL CAPITAL REQUIREMENTS
The Company makes, and will continue to make, substantial capital
expenditures for the exploitation, exploration, acquisition and production of
oil and gas reserves. Historically, the Company has financed these expenditures
primarily with cash generated by operations and proceeds from bank borrowings.
The
10
<PAGE>
Company's capital budget for the last quarter of 1996 and for 1997 is $69.1
million. The Company believes that it will have sufficient cash provided by
operating activities, the proceeds of this Offering and borrowings under its
Credit Facility to fund such planned capital expenditures. If revenues or the
Company's borrowing base decrease as a result of lower oil and gas prices,
operating difficulties or declines in reserves, the Company may have limited
ability to expend the capital necessary to undertake or complete future drilling
programs. There can be no assurance that additional debt or equity financing or
cash generated by operations will be available to meet these requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
HEDGING OF PRODUCTION
Part of the Company's business strategy is to reduce its exposure to the
volatility of oil and gas prices by hedging a portion of its production. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." In a typical hedge transaction,
the Company will have the right to receive from the counterparty to the hedge,
the excess of the fixed price specified in the hedge over a floating price based
on a market index, multiplied by the quantity hedged. If the floating price
exceeds the fixed price, the Company is required to pay the counterparty this
difference multiplied by the quantity hedged. The Company is required to pay the
difference between the floating price and the fixed price (when the floating
price exceeds the fixed price) regardless of whether the Company has sufficient
production to cover the quantities specified in the hedge. Significant
reductions in production at times when the floating price exceeds the fixed
price could require the Company to make payments under the hedge agreements even
though such payments are not offset by sales of production. Hedging will also
prevent the Company from receiving the full advantage of increases in oil or gas
prices above the fixed amount specified in the hedge.
COMPETITION
The Company operates in the highly competitive areas of oil and gas
exploration, development and production. The availability of funds and
information relating to a property, the standards established by the Company for
the minimum projected return on investment, the availability of alternate fuel
sources and the intermediate transportation of gas are factors which affect the
Company's ability to compete in the marketplace. The Company's competitors
include major integrated oil companies, substantial independent energy
companies, affiliates of major interstate and intrastate pipelines and national
and local gas gatherers, many of which possess greater financial and other
resources than the Company. See "Business and Properties -- Competition,
Markets and Regulation."
ENVIRONMENTAL AND OTHER REGULATIONS
The Company's 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 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
the Company's operations. Moreover, the recent trend toward stricter standards
in environmental legislation and regulation is likely to continue. For instance,
legislation has 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. If such legislation were to be
enacted, it could have a significant impact on the operating costs of the
Company, as well as the oil and gas industry in general. Initiatives to further
regulate the disposal of oil and gas wastes are also pending in certain states,
and these various initiatives could have a similar impact on the Company.
Management believes that the Company is in substantial compliance with current
applicable environmental laws and regulations.
11
<PAGE>
The Company'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. The Company 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, the payment of which could have a material adverse effect on the
Company's financial condition and results of operations. The Company maintains
insurance coverage for its operations, including limited coverage for sudden
environmental damages, but does not believe that insurance coverage for
environmental damages that occur over time is available at a reasonable cost.
Moreover, the Company does 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, the Company may be subject to
liability or may lose substantial portions of its properties in the event of
certain environmental damages. The Company could incur substantial costs to
comply with environmental laws and regulations.
The Oil Pollution Act of 1990 imposes a variety of regulations on
"responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws or
regulations, including regulations promulgated pursuant to the Oil Pollution Act
of 1990, could have a material adverse impact on the Company. See "Business and
Properties -- Competition, Markets and Regulation."
CONTROL OF THE COMPANY, STOCKHOLDERS' AGREEMENT
John S. Callon, Fred L. Callon and members of their families (collectively,
the "Callon Family") and NOCO Enterprises, L.P., a limited partnership owned
by a consortium of European institutional investors ("NOCO"), who collectively
and beneficially own over 60% of the outstanding Common Stock have entered into
a stockholders' agreement (the "Stockholders' Agreement") pursuant to which
members of the Callon Family and NOCO agree (i) to vote for two directors
nominated by each party; (ii) not to support certain changes in control without
the consent of the other party; and (iii) not to sell Common Stock without first
offering it to the other party, except in limited circumstances. As a result of
the Stockholders' Agreement, it is expected that the members of the Callon
Family and NOCO will be able to control the election of at least four directors
of the Company. See "Principal Stockholders -- Stockholders' Agreement."
THE COMPANY
The Company was formed under Delaware law in 1994 to succeed to the
business and properties of Callon Petroleum Operating, an independent energy
company owned by members of the Callon Family, Callon Consolidated Partners,
L.P., a publicly traded limited partnership ("CCP"), and CN Resources, a joint
venture engaged in the oil and gas business ("CN").
The predecessors of Callon Petroleum Operating were formed in 1950 by John
S. Callon. Since that time and until September 16, 1994, Callon Petroleum
Operating or its predecessors were actively engaged in the oil and gas business.
CCP was a publicly traded limited partnership formed in 1987 by the
consolidation of oil and gas limited partnerships formed by Callon Petroleum
Operating. Callon Petroleum Operating was the sole general partner of CCP. CN
was a general partnership formed in April 1992 of which Callon Petroleum
Operating and NOCO were the only partners.
Effective September 16, 1994, pursuant to the Consolidation, CCP was merged
into the Company and the Company acquired all of the capital stock of Callon
Petroleum Operating, as well as the partnership interest in CN formerly owned by
NOCO ("NOCO Interest"). As a result, the Company has acquired the properties
and liabilities of CCP, Callon Petroleum Operating and CN. Because all of the
parties to the Consolidation (other than CN) were under common control, the
financial statements and operating data of the Company include the financial
statements and operating data of CCP and Callon Petroleum Operating, including
Callon Petroleum Operating's ownership interest in CN, which were combined in a
manner similar to a pooling of interests. The acquisition of the NOCO Interest
was recorded as a purchase effective as of the date of the Consolidation
(September 16, 1994). Amounts related to the Company's acquisition of
12
<PAGE>
the NOCO Interest, therefore, are included from the date of the purchase for the
periods presented in the Consolidated Financial Statements.
The Company's principal executive office is located at 200 North Canal
Street, Natchez, Mississippi 39120, and its telephone number is (601) 442-1601.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby
are estimated to be $20.1 million ($23.1 million if the Underwriter's
overallotment option is exercised in full). The Company intends to use all of
such net proceeds, together with internally generated cash flows and borrowings
under its primary credit facility (the "Credit Facility"), to fund a portion
of its 1996 capital expenditure budget and a portion of its 1997 capital
expenditure budget, estimated to be $69.1 million. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." Pending the use of funds to pay capital expenditures, the
Company will use the net proceeds of this Offering to repay borrowings under its
Credit Facility. To the extent proceeds are in excess of amounts outstanding
under the Credit Facility, the Company will invest in short-term investments. As
of September 30, 1996, borrowings of $8.9 million were outstanding under the
Credit Facility, with a weighted average interest rate of 6.875%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted to give effect to the issuance and sale of
the Notes offered by the Company and the application of the net proceeds
therefrom as described in "Use of Proceeds." This table should be read in
conjunction with the Company's Consolidated Financial Statements, including the
Notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" found elsewhere in this Prospectus.
SEPTEMBER 30, 1996
--------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
Cash and cash equivalents............... $ 8,709 $19,926
========== ===========
Long-term debt:
Credit Facility......................... $ 8,950 $ 100
The Notes offered hereby(1)............. -- 21,000
Stockholders' equity:
Preferred Stock, $0.01 par value,
2,500,000 shares authorized; 1,315,500
shares of $2.125 Convertible
Exchangeable Preferred Stock, Series A
issued and outstanding with a
liquidation preference of
$32,887,500........................... 13 13
Common Stock, $0.01 par value,
20,000,000 shares authorized;
5,754,863 shares outstanding.......... 58 58
Capital in excess of par value.......... 73,955 73,955
Retained earnings....................... 2,242 2,242
---------- -----------
Total stockholders' equity.............. 76,268 76,268
---------- -----------
Total capitalization.................... $ 85,218 $97,368
========== ===========
- ------------
(1) Assumes the Underwriter's overallotment option is not exercised.
14
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth, as of the dates and for the periods
indicated, selected financial information for the Company. The financial
information for each of the four years in the period ended December 31, 1995
have been derived from the audited Consolidated Financial Statements of the
Company for such periods. The financial information for the year ended December
31, 1991 has been derived from the audited financial statements of Callon
Petroleum Operating and CCP. The financial information for the nine month
periods ended September 30, 1996 and 1995 has been derived from the Company's
unaudited Consolidated Financial Statements. The information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
Notes thereto. The following information is not necessarily indicative of future
results for the Company.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
Oil and gas sales.................. $ 18,578 $ 17,400 $ 23,210 $ 13,948 $ 10,048 $ 10,015 $ 10,769
Interest and other................. 537 501 627 171 230 232 167
--------- --------- --------- --------- --------- --------- ---------
Total revenues..................... 19,115 17,901 23,837 14,119 10,278 10,247 10,936
--------- --------- --------- --------- --------- --------- ---------
Costs and Expenses:
Lease operating expenses.............. 5,646 5,201 6,732 4,042 3,713 3,702 3,285
Depreciation, depletion and
amortization....................... 7,697 7,929 10,376 6,049 3,411 3,360 3,257
General and administrative............ 2,352 2,960 3,880 3,717 2,350 1,848 2,312
Interest.............................. 184 1,441 1,794 624 196 160 321
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses........... 15,879 17,531 22,782 14,432 9,670 9,070 9,175
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations......... 3,236 370 1,055 (313) 608 1,177 1,761
Provision (benefit) for income
taxes.............................. -- -- -- (200) 113 235 297
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before cumulative effect
of change in accounting principle..... 3,236 370 1,055 (113) 495 942 1,464
Cumulative effect of change in
accounting principle(2)............... -- -- -- -- 5,262 -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)....................... 3,236 370 1,055 (113) 5,757 942 1,464
Preferred stock dividends............... 2,097 -- 256 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) available to common
shares................................ 1,139 370 799 (113) 5,757 942 1,464
Pro forma adjustment (unaudited):
Provision for income taxes(2)........... -- -- -- -- 100 145 302
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income (loss)............. $ 1,139 $ 370 $ 799 $ (113) $ 5,657 $ 797 $ 1,162
========= ========= ========= ========= ========= ========= =========
Net income (loss) per common share:
Income (loss) per share before
accounting principle change........... $ .20 $ .06 $ .14 $ (.03) $ .13 $ .25 $ .39
========= ========= ========= ========= ========= ========= =========
Cumulative effect of accounting
change................................ $ -- $ -- $ -- $ -- $ 1.40 $ -- $ --
========= ========= ========= ========= ========= ========= =========
Pro forma............................... $ .20 $ .06 $ .14 $ (.03) $ 1.50 $ .21 $ .31
========= ========= ========= ========= ========= ========= =========
Weighted average common shares
outstanding........................... 5,755 5,754 5,755 4,346 3,769 3,769 3,769
========= ========= ========= ========= ========= ========= =========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS DATA(1):
Net income (loss)....................... $ 3,236 $ 370 $ 1,055 $ (113) $ 5,757 $ 942 $ 1,464
Depreciation, depletion and
amortization.......................... 7,913 8,131 10,600 6,328 3,657 3,577 3,445
Other non-cash items.................... 201 -- 133 (112) (5,114) 270 331
Net change in assets and liabilities.... 5,772 233 (2,080) (756) 435 (2,758) 2,299
--------- --------- --------- --------- --------- --------- ---------
Cash provided by operating activities... 17,122 8,734 9,708 5,347 4,735 2,031 7,539
========= ========= ========= ========= ========= ========= =========
Cash provided by (used in) investing
activities............................ (19,874) (16,780) (24,237) (6,423) (2,710) (3,817) (1,929)
========= ========= ========= ========= ========= ========= =========
Cash provided by (used in) financing
activities............................ 7,196 3,617 11,509 3,916 (1,695) 233 (3,826)
========= ========= ========= ========= ========= ========= =========
BALANCE SHEET DATA(1):
Working capital (deficit)............... $ 2,968 $ (7,106) $ 4,712 $ 1,896 $ (687) $ (1,011) $ (289)
Oil and gas properties, net............. 68,415 51,890 57,765 43,920 21,000 22,138 22,060
Total assets............................ 99,923 76,048 83,867 73,786 39,825 35,570 36,937
Total debt.............................. 8,950 14,868 100 19,234 2,691 2,975 1,209
Total stockholders' equity.............. 76,268 43,801 75,129 43,431 27,170 22,711 23,067
OTHER FINANCIAL DATA(1):
Capital expenditures, net............... $ 19,874 $ 16,780 $ 24,237 $ 10,412 $ 2,710 $ 3,817 $ 1,929
EBITDA(3)............................... $ 11,318 $ 9,982 $ 13,582 $ 6,727 $ 4,496 $ 4,949 $ 5,561
Ratio of earnings to fixed charges(4)... 18.6 1.3 1.6 -- 3.6 6.6 5.4
</TABLE>
- ------------
(1) The Company succeeded to the business and properties of Callon Petroleum
Operating, CCP and CN on September 16, 1994 pursuant to the Consolidation.
Historical information about the Company prior to September 16, 1994
includes the financial and operating information of the predecessors of the
Company, other than the interest in CN not owned by Callon Petroleum
Operating, combined as entities under common control in a manner similar to
a pooling of interests. See "The Company."
(2) Effective January 1, 1993, the Company adopted the provisions of Financial
Accounting Standards Board Statement No. 109 "Accounting for Income Taxes"
which resulted in the recording of a deferred tax asset of $5,262,000 at
December 31, 1993. See Note 3 of the Notes to Consolidated Financial
Statements.
(3) EBITDA is presented because it is a widely accepted financial indication of
a company's ability to service and incur debt. EBITDA should not be
considered as an alternative to earnings (loss) as an indicator of the
Company's operating performance or to cash flow as a measure of liquidity.
(4) For purpose of computing this ratio, "earnings" represent income (loss)
before income taxes and extraordinary item plus fixed charges. "Fixed
charges" consist of interest expense on all indebtedness and that portion
of rental expense considered to be representative of the interest factor
therein. As a result of the loss incurred for the year ended December 31,
1994, earnings did not cover fixed charges by $313,000.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's revenues, profitability and future growth and the carrying
value of its oil and gas properties are substantially dependent on prevailing
prices of oil and gas. The Company's ability to maintain or increase its
borrowing capacity and to obtain additional capital on attractive terms is also
substantially dependent upon oil and gas prices. Prices for oil and gas are
subject to large fluctuation in response to relatively minor changes in the
supply of and demand for oil and gas, market uncertainty and a variety of
additional factors beyond the control of the Company. These factors include
weather conditions in the United States, the condition of the United States
economy, the actions of the Organization of Petroleum Exporting Countries,
governmental regulation, political stability in the Middle East and elsewhere,
the foreign supply of oil and gas, the price of foreign imports and the
availability of alternate fuel sources. Any substantial and extended decline in
the price of oil or gas would have an adverse effect on the Company's carrying
value of its proved reserves, borrowing capacity, revenues, profitability and
cash flows from operations.
Volatile oil and gas prices make it difficult to estimate the value of
producing properties for acquisition and often cause disruption in the market
for oil and gas producing properties, as buyers and sellers have difficulty
agreeing on such value. Price volatility also makes it difficult to budget for
and project the return on acquisitions and development and exploitation
projects.
The Company uses the full cost method of accounting for the Company's
investment in oil and gas properties. Under the full cost method of accounting,
all costs of acquisition, exploration and development of oil and gas reserves
are capitalized into a "full cost pool." Oil and gas properties in the pool,
plus estimated future expenditures to develop proved reserves and future
abandonment, site remediation and dismantlement costs, are depleted and charged
to operations using the unit of production method based on the ratio of current
production to total estimated proved recoverable oil and gas reserves. To the
extent that such capitalized costs (net of depreciation, depletion and
amortization) exceed the discounted future net cash flows on an after-tax basis
of estimated proved oil and gas reserves, such excess costs are charged to
operations. Once incurred, the writedown of oil and gas properties is not
reversible at a later date even if oil or natural gas prices increase.
RESULTS OF OPERATIONS
The following table sets forth selected operating data for the Company for
the periods and upon the basis indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Production:
Oil (MBbls)........................ 451 430 595 364 369
Gas (MMcf)......................... 4,784 5,279 6,694 4,076 1,659
Total production (MMcfe)........... 7,490 7,860 10,261 6,260 3,870
Average Sales Price:
Oil (per Bbl)...................... $ 18.05 $ 16.68 $ 16.68 $ 15.63 $ 16.73
Gas (per Mcf)...................... 2.18 1.88 1.96 2.00 2.10
Total production (per Mcfe)........ 2.48 2.18 2.24 2.21 2.49
Average Costs (per Mcfe):
Lease operating expenses (excluding
severance taxes)................. $ 0.56 $ 0.50 $ 0.49 $ 0.49 $ 0.72
Severance taxes.................... 0.20 0.16 0.17 0.16 0.24
Depreciation, depletion and
amortization..................... 1.03 1.01 1.01 0.97 0.88
General and administrative (net of
management fees)................. 0.31 0.38 0.38 0.59 0.61
</TABLE>
17
<PAGE>
The following table sets forth selected production data for the Company for
the periods and upon the basis indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(MMCFE) (MMCFE)
<S> <C> <C> <C> <C> <C>
Production attributable to:
Chandeleur Block 40................ 1,158 104 144 37 --
Black Bay Complex.................. 912 1,020 1,351 608 252
North Dauphin Island Field......... 2,514 4,074 5,102 2,524 162
Escambia Minerals properties....... 1,084 399 783 -- --
--------- --------- --------- --------- ---------
5,668 5,597 7,380 3,169 414
Other properties................... 1,822 2,262 2,881 3,091 3,456
--------- --------- --------- --------- ---------
Total......................... 7,490 7,859 10,261 6,260 3,870
========= ========= ========= ========= =========
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1995
For the nine months ended September 30, 1996, total oil and gas revenues
increased by $1.2 million, or 7%, to $18.6 million when compared to $17.4
million for the same period in 1995. This increase is principally the result of
increased sales prices in both oil and gas.
For the nine months ended September 30, 1996, oil production and revenues
increased to 451 MBbls and $8.1 million, respectively. For the comparable period
in 1995, oil production was 430 MBbls while revenues totaled $7.2 million. Oil
prices during the first nine months of 1996 averaged $18.05, compared to $16.68
for the same period in 1995. Total oil revenues have increased 13% over the
September 1995 level as a result of this price increase and increased production
from the Escambia Minerals properties.
Gas production and revenue for the nine-month period ended September 30,
1996, was 4.8 Bcf and $10.4 million, respectively, compaired with gas production
of 5.3 Bcf and gas revenues of $9.9 million in the first nine months of 1995.
The average sales price for natural gas sold in the first nine months in 1996
was $2.18 per Mcf, a $0.30 per Mcf increase over the average price for the same
period in 1995. Revenues gained from the price increase, coupled with the
decreased production, resulted in a net 5% increase in total gas revenues.
Included in gas production and revenue for the nine month period ended September
30, 1996 is 526 MMcf and $996,000, respectively, representing production from
October 1993 to September 1996 attributed to a disputed interest in a lease
which was resolved in the Company's favor during August 1996.
The following table summarizes oil and gas production from the Company's
major producing properties for the comparable periods.
<TABLE>
<CAPTION>
OIL PRODUCTION
(BBLS) GAS PRODUCTION (MCF)
-------------------- ------------------------
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------------
1996 1995 1996 1995
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Chandeleur Block 40.................. -- -- 1,158,000 104,000
Black Bay Complex.................... 152,000 169,000 -- 6,000
North Dauphin Island Field........... -- -- 2,514,000 4,074,000
Escambia Minerals properties......... 144,000 53,000 220,000 81,000
Other properties..................... 155,000 208,000 892,000 1,014,000
--------- --------- ----------- -----------
Total........................... 451,000 430,000 4,784,000 5,279,000
========= ========= =========== ===========
</TABLE>
Lease operating expenses, excluding severance taxes, for the first nine
months of 1996 increased by 5% to $4.2 million from $3.9 million for the 1995
comparable period. This increase is primarily attributable to a corresponding
increase in oil production resulting from the Company's acquisition of the
Escambia Minerals properties acquired subsequent to June 1995. Severance taxes
increased by 18% to $1.5 million during the first nine months of 1996 from $1.3
million for the same period in 1995, primarily as a result of higher prices for
oil and gas.
18
<PAGE>
Depreciation, depletion and amortization for the first nine months of 1996
was $7.7 million, or $1.03 per Mcfe. For the same period in 1995, the total was
$7.9 million and $1.01 per Mcfe.
During the first nine months of 1996, general and administrative expenses
declined by 21% to $2.4 million, compared to $3.0 million for the same period in
1995. This reduction is associated with continued overall improvements in
operational efficiencies and reduced executive incentive compensation payments.
Interest expense as of September 30, 1996 was $184,000 compared to $1.4
million for the same period in 1995. This expense reduction is attributable to
the reduction in the Company's debt using the proceeds from the sale of Series A
Preferred Stock in November 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1994
Oil and gas sales increased $9.3 million, or 66%, during 1995 to $23.2
million compared with $13.9 million in 1994. This increase is partially
attributable to the Company's purchase in September 1994 of NOCO's interest in
CN pursuant to the Consolidation as well as the acquisition of certain
properties from W&T Offshore, Inc. (the "1994 Properties"). The Company's
purchase of the Escambia Minerals properties in June 1995 also contributed $1.9
million to the increase in oil and gas sales.
Oil production attributable to the NOCO Interest, the Escambia Minerals
properties and the 1994 Properties substantially outweighed normal production
declines in previously existing properties, as oil production for 1995 increased
to 594 MBbls from the 1994 level of 364 MBbls. The average price per barrel sold
also increased by $1.05 in 1995 compared to 1994 prices, resulting in a total of
$4.3 million increase in oil revenues.
Total gas production increased 2.6 Bcf to 6.7 Bcf in 1995 compared to 4.1
Bcf in 1994. A substantial portion of this increase in production was
attributable to the Company's acquisition of the North Dauphin Island Field. Gas
production from the North Dauphin Island Field increased from 2.5 Bcf in 1994 to
5.1 Bcf in 1995 and added $5.0 million in revenues in 1995 compared with 1994.
Although spot market gas prices declined in 1995, gas price hedges limited the
effect of the decline to $.04 per Mcf.
Lease operating expenses, including production taxes, increased 67% during
1995 to $6.7 million, compared to $4.0 million for 1994. This increase was
largely attributable to the corresponding increase in oil and gas production
caused by the Company's acquisition of the NOCO Interest, the Escambia Minerals
properties and the 1994 Properties. The Company's purchase of the NOCO Interest
in September 1994 resulted in an increase in combined lease operating expenses
attributable to the North Dauphin Island Field and the Black Bay Complex from
$1.5 million in 1994 to $3.6 million in 1995. Lease operating expenses on a Mcfe
basis increased by less than 2% to $0.66 for 1995 compared to $0.65 for 1994.
Total depreciation, depletion and amortization expense was $10.4 million
for 1995, compared to $6.0 million for 1994. This increase reflects additional
production and reserves resulting from the purchase of the NOCO Interest, the
Escambia Minerals properties and the 1994 Properties.
General and administrative expenses were $3.9 million for 1995, compared to
$3.7 million in 1994. The increase was primarily attributable to the Company's
expanding operations.
The Company had a zero effective tax rate for 1995, compared to an
effective rate of (63)% in 1994. The 1995 rate was primarily due to a reduction
in the deferred tax asset valuation allowance of $551,000. The valuation
allowance was reduced during 1995 due to a reduction in the gross deferred tax
asset. This valuation allowance represents the portion of federal net operating
loss carryforward and other temporary differences which the Company believes
will not be utilized.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1993
Oil production for 1994 decreased 5 MBbls from the 1993 level of 369 MBbls.
In addition, the average price per barrel sold in 1994 declined by $1.10 when
compared to the average price received in 1993. As a result, total oil revenue
declined by $475,000 (including $100,000 related to unfavorable hedging
activities during 1994). Normal production declines for several of the Company's
major oil fields, primarily the Lockhart Crossing Field and several Arkansas
fields, were partially offset by the Company's purchase of a 4.9% average net
revenue interest in the West Delta 30 Field and NOCO's interest in CN, which
owned a
19
<PAGE>
9.5% average net revenue interest in the Black Bay Complex. Average daily oil
production, net to the Company, declined to 998 Bbls/d during 1994 compared to
1,011 Bbls/d for 1993.
Due to the Company's purchase of a 9.4% working interest in the North
Dauphin Island Field during the fourth quarter of 1993, the Company's purchase
of the NOCO Interest (which included a working interest in the North Dauphin
Island Field) and the acquisition of the 1994 Properties in late September 1994,
gas production increased 146% to 4.1 Bcf for 1994, from 1.7 Bcf for 1993. The
production increase, offset by only a $0.10 per Mcf average price decline,
resulted in a $4.7 million increase in gas revenues. This increase in revenue
includes approximately $1.3 million attributable to hedging activities. Average
daily gas production increased to 11.2 MMcf/d for 1994 compared to 4.5 MMcf/d
for 1993. This favorable impact on production of the North Dauphin Island Field
acquisition was partially offset by normal production declines for certain other
major gas fields and the sale during the second half of 1993 of the Company's
interest in three gas fields.
Lease operating expenses, including production taxes, increased 9% during
1994 to $4.0 million, compared to $3.7 million for 1993. Of this increase,
$800,000 was attributable to the Company's purchase of the NOCO Interest and the
1994 Properties. The increase was partially offset by a decline of $400,000 in
expenses associated with various Arkansas oil fields, and the Lockhart Crossing,
Padgitt and Main Pass Block 35 Fields. The sale of the Company's interest in
three oil and gas fields during 1993 accounted for an additional $100,000
decrease. The 146% increase in gas production volumes for 1994 resulting from
the Company's acquisition of the NOCO Interest, and the low operating costs for
this field, resulted in a decline in lease operating expenses, on a Mcfe basis,
to $0.65 for 1994, compared to $0.96 for 1993.
Total depreciation, depletion and amortization expense was $6.0 million for
1994 compared to $3.4 million for 1993 and reflects a $2.6 million increase due
to the acquisition of an interest in the North Dauphin Island Field in the
fourth quarter of 1993, and the acquisition of the 1994 Properties and the NOCO
Interest in the third quarter of 1994. On a Mcfe basis, depreciation, depletion
and amortization expense increased to $0.97 in 1994 compared to $0.88 for 1993.
General and administrative expenses increased during 1994 to $3.7 million
compared to $2.4 million for 1993. An increase of $600,000 was due to
professional fees incurred in connection with the Consolidation. The balance of
the increase was attributable to increased staffing levels required to conduct
the Company's expanding operations.
Interest expense increased from $196,000 for 1993 to $624,000 for 1994.
This increase was primarily attributable to the $19.0 million of bank debt
assumed in the Consolidation.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL SOURCES
The Company's primary sources of capital are its cash flows from
operations, borrowings from commercial lenders and sales of its securities. For
the year ended December 31, 1995, the Company's cash flows from operations were
$9.7 million, and it borrowed $6.0 million, net of repayments, under its Credit
Facility. In addition, in November, 1995, the Company sold 1,315,500 shares of
Series A Preferred Stock, generating approximately $30.9 million after
underwriters' discount and expense. The Company used approximately $21.5 million
of the net proceeds from the sale of the Series A Preferred Stock to reduce
outstanding bank indebtedness. During the nine months ended September 30, 1996,
the Company had cash flows from operations of $17.1 million, borrowed $8.9
million under its Credit Facility, had net capital expenditures of $19.9 million
and paid $1.7 million in dividends on the Series A Preferred Stock. The balance
of the cash flow was retained for future operating expenses and potential
drilling and acquisition opportunities.
Effective October 31, 1996, the Company amended and restated its Credit
Facility. Borrowings under the Credit Facility are secured by mortgages covering
substantially all of the Company's producing oil and gas properties. The Credit
Facility provides for borrowings of a maximum of the lesser of $50 million and a
borrowing base ("Borrowing Base") determined periodically on the basis of a
discounted present value of
20
<PAGE>
future net cash flows attributable to the Company's proved producing oil and gas
reserves. Through May 15, 1997, the Credit Facility provides a $30 million
Borrowing Base. Pursuant to the Credit Facility, depending upon the percentage
of the unused portion of the Borrowing Base, the interest rate is equal to
either the lender's prime rate or the lender's prime rate plus 0.50%. The
Company, at its option, may fix the interest rate on all or a portion of the
outstanding principal balance at either 1.00% or 1.375% above a defined
"Eurodollar" rate, depending upon the percentage of the unused portion of the
Borrowing Base, for periods of up to six months. The weighted average interest
rate for the total debt outstanding at November 5, 1996 was 6.375%. Under the
Credit Facility, a commitment fee of .25% or .375% per annum on the unused
portion of the Borrowing Base (depending upon the percentage of the unused
portion of the Borrowing Base) is payable quarterly. The Company may borrow,
pay, reborrow and repay under the Credit Facility until October 31, 2000, on
which date, the Company must repay in full all amounts then outstanding.
Callon's relationship with an institutional investor has historically been
important to its producing property acquisition strategy. Under this
arrangement, the Company transferred a non-operated interest in acquired
properties to the institutional investor in exchange for a portion of the
purchase price of the property. The Company believes its relationship with this
institutional investor has allowed it to make larger acquisitions than would
otherwise be possible. Since 1989, this institutional investor has invested
$130.0 million in property acquisitions made by the Company. In addition, fees
received by the Company from operating and managing properties owned by
institutional investors and others enable the Company to maintain a larger and
more experienced staff. The Company has not financed an acquisition with its
institutional investor since September 1994.
The Company periodically uses derivative financial instruments to manage
oil and gas price risk. Settlements of gains and losses on commodity price swap
contracts are generally based upon the difference between the contract price or
prices specified in the derivative instrument and a New York Mercantile Exchange
("NYMEX") price or other cash or futures index price, and are reported as a
component of oil and gas revenues. Gains or losses attributable to the
termination of a swap contract are deferred and recognized in revenue when the
oil and gas is sold. From October 1, 1996 to March 31, 1997, the Company has in
effect hedges of gas equivalent to approximately 16% of its production at a
floor price per MMBtu of $1.75 and a ceiling price per MMBtu of $2.20 (NYMEX).
In addition, the Company is party to hedges in effect from October 1, 1996
through December 31, 1996 representing approximately 81% of its oil production
at a floor price per Bbl of $17.25 and a ceiling price per Bbl of $19.59
(NYMEX). The Company is also party to hedges that will be in effect for 1997
representing approximately 30% of oil production at an average fixed price of
$23.33 per Bbl (NYMEX). During the third quarter of 1996, the Company terminated
hedges attributable to its fourth quarter 1996 production at a profit, which
will have the effect of increasing fourth quarter oil and gas revenues by
$180,000.
CAPITAL EXPENDITURES
During the first nine months of 1996, net capital expenditures of $19.9
million were incurred. A production facility was acquired for $1.5 million and
the Company's share of the total costs for the leases in the OCS was
approximately $12.2 million. The remaining $6.2 million consists of the purchase
of several additional leases and seismic surveys in Callon's current focus
areas, production facility improvements, capitalized overhead and the purchase
of office furniture and fixtures.
At September 30, 1996, the Company had a working capital surplus of $3.0
million and a current ratio of 1.2 to 1.
The Company has recently changed the focus of its reserve growth strategy
from the acquisition and exploitation of oil and gas properties to exploration
and development drilling. The Company expects to concentrate its exploration and
development drilling in the Shallow Miocene focus area and the Deep OCS
Prospects. The Company has identified nine development and 12 exploratory
drilling locations, and has a
21
<PAGE>
capital budget of $34.9 million to drill and complete these wells. The Company's
capital budget for the remainder of 1996 and 1997 will depend upon the success
of its exploration and development drilling. If the Company's exploration
drilling operations are successful, it will require additional capital to
develop discoveries during late 1997 and thereafter. If the Company's initial
drilling operations are not successful, the Company may redeploy its remaining
capital budget to other activities.
ACCOUNTING POLICIES
In January 1996, the Company adopted the provisions of SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." SFAS 121 requires the Company to review its oil and gas
properties whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable, and recognize a loss if
such recoverable amounts are less than the carrying amount. There have been no
impairment losses recognized as of September 30, 1996, but any future losses
would be included in depletion, depreciation, amortization and impairment in
future accounting periods.
On October 23, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," effective for the Company at December 31, 1996.
Under FAS 123 companies can either record expenses based on the fair value of
stock-based compensation upon issuance or elect to remain under the current
"APB Opinion No. 25" method, whereby no compensation cost is recognized upon
grant, and make disclosures as if FAS 123 had been applied. The Company
anticipates that it will continue to account for its stock-based compensation
plans under APB Opinion No. 25.
22
<PAGE>
BUSINESS AND PROPERTIES
Callon Petroleum Company and its predecessors have been engaged in the
acquisition, development, exploration and production of oil and gas since 1950.
The Company's properties are geographically concentrated in Louisiana, Alabama
and offshore Gulf of Mexico. Callon also manages properties for certain
institutional investors. Callon was formed in 1994 through the consolidation of
a publicly traded limited partnership, a joint venture with a consortium of
European entities and an independent energy company owned by certain members of
current management. As of December 31, 1995, the Company had estimated net
proved reserves of 58.3 Bcfe with a PV-10 Value of $63.8 million, representing
increases of 15% and 54%, respectively, from December 31, 1994.
The Company's objective is to enhance stockholder value through sustained
growth in its reserve base, production levels and resulting cash flows from
operations. Over the past two years, the Company has shifted its emphasis from
the acquisition of producing properties to the acquisition of acreage with
development and exploratory drilling opportunities to further increase potential
recoverable reserves. In evaluating drilling opportunities, Callon performs
extensive geological and geophysical studies using CAEX, including, where
appropriate, the acquisition of 3-D seismic or high-resolution 2-D seismic data
to facilitate these efforts.
EXPLORATION AND DEVELOPMENT OPERATIONS. The Company's exploratory and
development operations are concentrated in two areas in the Gulf of Mexico, the
Shallow Miocene focus area, located in the state waters of Alabama and the
federal OCS in the Gulf of Mexico, and the Deep OCS Prospects. Wells drilled in
the Shallow Miocene focus area seek oil and gas deposits at from 1,800 to 6,000
feet, and are characterized by relatively low exploration and development costs,
high initial production rates and short reserve lives. Wells drilled on the Deep
OCS Prospects are more expensive to drill and complete. These wells have greater
risks, but seek larger oil and gas deposits with longer reserve lives.
In 1995 and 1996, the Company acquired an extensive infrastructure of
production platforms, gathering systems and pipelines in the Shallow Miocene
focus area. During 1996, the Company completed four proprietary high resolution
seismic surveys over an eight block area contiguous to Chandeleur Block 40 in
the Shallow Miocene focus area. Based on these surveys, in October and November
of 1996, the Company drilled two gross (1.52 net) successful development wells
and one gross (1.0 net) successful exploratory well in this area. These wells
are expectd to be placed on production by the end of November and, coupled with
the replacement of compression equipment at the CB 40 and Main Pass Block 163
production facilities, the Company anticipates a significant increase in its gas
production rates by year-end 1996. The Company's capital budget currently
anticipates drilling an additional five gross (4.0 net) development wells and
three gross (0.9 net) exploratory wells during late 1996 and 1997 in this area,
for aggregate net cost to drill and complete of $15.3 million.
In 1996, the Company joined with Murphy to acquire 18 blocks in the OCS.
Callon owns a 25% working interest in these Deep OCS Prospects. The Company's
capital budget for late 1996 and 1997 contemplates drilling eight gross (2.0
net) exploratory wells jointly with Murphy at a total cost to Callon to drill
and complete of $11.3 million. The first well commenced drilling in the West
Cameron 603 Block in October 1996, and drilling of the second well is scheduled
in November 1996. In addition to the wells drilled with Murphy, the Company, as
operator, plans to drill an additional two wells in 1997 on Deep OCS Prospects.
In total, the Company's current capital budget contemplates the drilling of
nine gross (5.9 net) development wells and 12 gross (3.9 net) exploratory wells
during late 1996 and 1997 at an estimated net cost to the Company to drill and
complete of $34.9 million. These drilling operations will be financed through
cash flows from operations, the net proceeds of this Offering and borrowings
under the Company's Credit Facility. See "Use of Proceeds."
PRODUCING PROPERTY ACQUISITIONS. Over the past seven years, the Company
has increased its reserves through the acquisition of producing properties that
are geologically complex, have (or are analogous to fields with) an established
production history from stacked pay zones and are candidates for exploitation.
The Company focuses on reducing operating costs and implementing production
enhancements through the application of technologically advanced production and
recompletion techniques. Between 1989 and September 30, 1996, Callon acquired
producing properties in 16 negotiated transactions, on behalf of itself
23
<PAGE>
and, in certain cases, its primary institutional investor, for an aggregate net
purchase price of $194 million and, during that period, the Company had an
average Reserve Replacement Cost of $0.84 per Mcfe. During the nine months ended
September 30, 1996, the Company invested a total of $1.0 million and acquired an
average 73% working interest (55% net revenue interest) in 12 producing wells,
as well as a 100% ownership of one production facility and a 49% ownership in
another, both of which are located in its Shallow Miocene focus area. Estimated
net proved reserves attributable to these properties, as estimated by the
Company's internal reserve engineers as of September 30, 1996, is 10 Bcfe.
Through its acquisition program, the Company has assembled an operational
and technical database in geographical areas at a low cost to the Company. The
relationship with its institutional investors has allowed the Company to pursue
larger acquisitions, while the cost sharing arrangements and ongoing management
fees have enabled the Company to enhance the rate of return on its properties
and to maintain a larger, more experienced team of technical and operating
personnel than otherwise would be feasible for a company of its size.
SIGNIFICANT PRODUCING PROPERTIES
The following table shows the PV-10 Value and estimated net proved oil and
gas reserves by major field for the Company's four largest producing fields and
for all other properties combined at December 31, 1995.
<TABLE>
<CAPTION>
ESTIMATED NET PROVED
PERCENT ----------------------
PV-10 TOTAL OIL GAS
PRIMARY VALUE PV-10 RESERVES RESERVES
FIELD NAME/LOCATION OPERATOR(S) ($000) VALUE (MBBLS) (MMCF)
- ------------------------------------- ------------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Chandeleur Block 40.................. Callon $16,851 26.4% -- 12,161
Federal Waters
Black Bay Complex.................... Callon 10,187 16.0 2,144 684
Louisiana State Waters
North Dauphin Island Field........... Callon 9,749 15.3 -- 6,879
Alabama State Waters
Big Escambia Creek Field............. Exxon 9,330 14.6 1,053 2,305
Escambia County, Alabama
Other properties..................... Various 17,647 27.7 1,569 7,638
------- -------- --------- ---------
Total........................... $63,764 100.0% 4,766 29,667
======= ======== ========= =========
</TABLE>
CHANDELEUR BLOCK 40
The Company and its institutional investor acquired an initial 33.3%
working interest in the Chandeleur Block 40 in 1994. On December 29, 1995,
Callon acquired an additional 66.7% working (55.5% net revenue) interest in the
Chandeleur Block 40 for $9 million and subsequently sold a 22.2% working
interest in the field for $3 million. The Company currently holds a combined
52.3% working (43.6% net revenue) interest in the Chandeleur Block 40.
The estimated net proved reserves as of December 31, 1995 were 12.2 Bcf of
natural gas. When the Company assumed operations of the field in December 1995,
two wells were producing 5.5 MMcf/d of gas from a Shallow Miocene reservoir at
approximately 3,800 feet. The Company has since successfully recompleted one
well, increasing the rate of production to 10.5 MMcf/d of gas, and drilled one
offset well which encountered 44 feet of net pay. Production from the offset
well is expected to commence in November 1996.
BLACK BAY COMPLEX
The Company-operated Black Bay Complex (the "Complex") is located in
shallow waters off the Louisiana coast. It consists of eight fields, 94 wells
producing 4.8 MBbls/d during September 1996 and approximately 30,000 acres of
oil and gas leases, all of which are held by production. The Company owns
24
<PAGE>
an average 15.4% working interest (11.6% net revenue interest) in the Complex,
and an institutional investor, whose properties are managed by the Company, owns
a 32.6% working interest.
The discovery well in the Complex was completed in 1949. Forty-five
different sandstone formations and 137 separate reservoirs ranging in depth from
6,200 to 9,600 feet have been identified within the Complex. As of year-end
1995, these fields had produced approximately 239 MMBbls of oil and 215 Bcf of
gas. The Company assumed operations of the complex in August 1992, and since
that time the Company has reduced operating expenses 30%, successfully drilled
six development wells, including a horizontal well, and implemented 14
recompletions, seven of which employed a new stimulation technology. As of
September 30, 1996, the Company has invested $3.6 million in drilled wells,
recompletions and facility enhancement activities.
NORTH DAUPHIN ISLAND FIELD
The Company owns a 94.4% working interest in the North Dauphin Island
Field, located in shallow Alabama state waters. The field was discovered in
April 1990, and the wells produce from a Shallow Miocene reservoir at
approximately 1,800 feet. There are five gas wells, three of which were drilled
horizontally, which were producing 9.1 MMcf/d at the end of September 1996. The
field had produced 56.4 Bcf of gas as of September 30, 1996.
The Company also owns a state-of-the-art production platform, including
compressors and dehydration facilities, an associated gathering system, and a
12-inch diameter, 12-mile pipeline ("North Dauphin Island Platform"). This
pipeline leads to existing onshore connections with the pipeline systems of Koch
Gateway Pipeline Company, Transcontinental Natural Gas Pipe Line Corporation and
Florida Natural Gas Transmission Company. The current throughput capacity of the
gathering and transportation facilities is in excess of 100 MMcf/d and with
additional compression, the capacity can be increased to 130 MMcf/d. The
ownership of the North Dauphin Island Platform and associated pipeline provides
the Company with a significant strategic advantage in the North Dauphin Island
area.
In 1995, the Company signed an agreement with a subsidiary of a major oil
company providing for gas gathering services and transportation through the
North Dauphin Island Platform to onshore pipeline connections. The agreement
further provides for the subsidiary to purchase firm capacity commitments from
the Company for gas deliveries through the North Dauphin Island Platform for 15
years, which commenced in April 1996, to transport up to 100 MMcf/d of the
subsidiary's gas production. Firm capacity reservations will average over $1.0
million per year through the term of the contract. Additional revenues may be
received depending upon the actual throughput used by the subsidiary.
A recently completed high resolution seismic survey has resulted in a good
match between reservoir volumetrics and production data. The Company plans to
workover one of the five field wells to restore production to an underproduced
area on the western side of the field.
BIG ESCAMBIA CREEK FIELD
The Company holds an average working interest of 6.9% (7.1% net revenue
interest), subject to a 10% reduction after payout, in 11 wells and a 2.9%
average royalty interest in another five wells. The gross average daily
production for these wells for September 1996 was approximately 3.6 MBbls of
condensate, 1.8 MBbls of gas liquids, 9.6 MMcf of residue gas and 393 long tons
of sulphur. These wells are producing from the Smackover formation at depths
ranging from 15,100 to 15,600 feet. Production in this field has been partially
curtailed due to low treatment plant capacity and, as a result, no significant
field production decline occurred during the past several years. Big Escambia
Creek Field is part of the Escambia Minerals properties acquisition.
EXPLORATION AND DEVELOPMENT PROJECTS
Over the last two years, the Company shifted the focus of its operations
from the acquisition and exploitation of oil and gas properties to exploratory
and developmental drilling. The Company's exploration and development activity
is focused primarily in two areas in the Gulf of Mexico: the Shallow Miocene
focus area and the Company's Deep OCS Prospects.
25
<PAGE>
SHALLOW MIOCENE FOCUS AREA
The Company's Shallow Miocene focus area is located in the OCS offshore
blocks of Chandeleur, Main Pass and Viosca Knoll as well as in the state waters
of Alabama. Wells drilled in the Shallow Miocene focus area are characterized by
relatively low exploration and development costs, high initial production rates
and short reserve lives. The Company entered this area in 1993 with the purchase
of the North Dauphin Island field and has used state of the art reservoir
engineering and seismic technology to develop proprietary processes which the
Company believes provides it with a competitive advantage in exploiting Shallow
(1,800 to 6,000 feet) Miocene reservoirs.
During 1996 the Company completed five proprietary high resolution seismic
surveys in this area. Designed specifically for the Shallow Miocene by the
Company, four of the surveys were conducted within the eight contiguous blocks
around Chandeleur 40. A drilling program was initiated as a result of the survey
and three wells, which logged 44 feet, 54 feet and six feet of net pay, were
completed in late October and early November 1996.
In addition, the Company will participate in the drilling of an exploratory
well on Main Pass 234 and has farmed in an exploratory prospect on Main Pass 240
with both wells scheduled to commence drilling in the first quarter of 1997. As
a direct result of this geographic concentration of production and prospects,
the Company has also developed an inventory of deeper Middle Miocene prospects.
The first of these, at Main Pass 247, will be drilled before the end of 1996 to
test numerous Shallow and Middle Miocene sands.
In October and November of 1996, Callon drilled two gross (1.52 net)
successful development wells and one gross (1.0 net) successful exploratory well
in the Shallow Miocene focus area. During the fourth quarter of 1996 and 1997,
the Company expects to drill five gross (4.0 net) development wells and three
gross (0.9 net) exploratory wells in the Shallow Miocene focus area, at an
aggregate net cost to drill and complete of $15.3 million.
DEEP OCS PROSPECTS
In addition to the prospects in its Shallow Miocene focus area, the Company
has acquired a number of prospects in the OCS which are intended to explore for
reserves at depths in excess of 10,000 feet. Wells drilled to these objectives
are characterized by high drilling and completion costs and are subject to
delays in commencing sales of oil and gas as production platforms and
transportation facilities are built. Targeted deposits of oil and gas in this
focus area are larger than in the Shallow Miocene area, and have longer reserve
lives.
The Company joined with Murphy in 1996 to evaluate and acquire selected
tracts at OCS lease sales. Pursuant to these bids, the Company acquired a 25%
working interest in 18 offshore blocks which Murphy will operate. Nine of these
blocks have as their objective development of the Plio-Pleistocene formations at
depths from 13,000 to 18,000 feet. The Company's Deep OCS Prospects cover the
West Cameron and High Island blocks which are located in the outer regions of
the OCS in water depths ranging from 150 to 350 feet.
The first of the wells drilled on the properties acquired with Murphy,
commenced drilling in October 1996 in the West Cameron Block 603, and is
expected to reach total depths during December. The primary objective of the
well is gas deposits at approximately 15,500 feet. The prospect is defined by a
3-D seismic survey, and off-set wells drilled in an adjoining block have
established reservoir conditions. Net costs to the Company to drill the well are
anticipated to be $1.4 million and net costs to complete the well, if
productive, are estimated to be $300,000. If the well is successful, the Company
anticipates that it will drill up to four development wells and construct
production facilities at a net cost to the Company of approximately $10.6
million.
During the fourth quarter of 1996 and 1997, the Company expects to drill
eight gross (2.0 net) exploratory wells on the OCS blocks acquired with Murphy.
Total costs, net to the Company's 25% working interest, to drill and complete
these wells is estimated to be $11.3 million. The Company expects that Murphy
will be the operator of all of these wells.
26
<PAGE>
In addition to wells on the blocks acquired with Murphy, the Company, as
operator, anticipates drilling two development wells during 1997 with objective
depths between 10,500 and 13,000 feet. Total costs net to the Company's 19%
working interest to drill these wells, are estimated to be $1.0 million and net
costs to complete these wells, if productive, are estimated to be $400,000. If
productive, these wells will be produced through nearby production facilities
owned and operated by the Company.
RELATIONS WITH INSTITUTIONAL INVESTOR
Callon has established a relationship with an institutional investor which
has been important to the Company's acquisition strategy. Between 1989 and 1994,
this institutional investor has invested $130 million in property acquisitions
made with the Company. These properties, which are managed by the Company, had
estimated net proved reserves at December 31, 1995 of 10.3 MMBbls of oil and
33.7 Bcf of gas. The Company's arrangements with this institutional investor
vary from acquisition to acquisition. In a typical transaction, the Company
acquires a working interest and burdens the working interest with a net profits
interest transferred to the institutional investor. The Company's arrangements
with the institutional investor generally provide that the Company earns an
increased interest in the properties either at the time of closing an
acquisition or after the institution receives a certain level of distribution.
The Company also receives operating and property management fees from
institutional investors and joint interest partners.
The Company believes this institutional relationship provides Callon with
the ability to make larger acquisitions than would otherwise be possible. The
fees received by the Company from operating and managing properties owned by
institutional investors also enable the Company to maintain a larger and more
experienced operations and technical staff, including petroleum engineers,
geoscientists and landmen.
RESERVES
The following table sets forth certain information about the estimated net
proved reserves of the Company as of the dates set forth below.
DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
Proved developed:
Oil (MBbls)........................ 3,890 3,309 2,084
Gas (MMcf)......................... 20,408 20,582 11,366
Proved undeveloped:
Oil (MBbls)........................ 876 1,115 758
Gas (MMcf)......................... 9,259 3,520 2,801
Total proved:
Oil (MBbls)........................ 4,766 4,424 2,842
Gas (MMcf)......................... 29,667 24,102 14,167
Estimated pre-tax future net cash flows
(000's)............................... $ 95,730 $ 59,477 $ 35,814
========= ========= =========
PV-10 Value (000's)..................... $ 63,764 $ 41,383 $ 22,554
========= ========= =========
The Reserve Engineers prepared the estimates of proved reserves of the
Company and the future net cash flows (and present value thereof) attributable
to such proved reserves. Reserves were estimated using oil and gas prices and
production and development costs in effect on December 31 of each such year,
without escalation, and were otherwise prepared in accordance with the SEC
regulations regarding disclosure of oil and gas reserve information.
There are numerous uncertainties inherent in estimating quantities of
proved reserves, including many factors beyond the control of the Company and
the Reserve Engineers. The reserve data set forth in this Prospectus represent
only estimates. Reserve engineering is a subjective process of estimating
underground accumulations of oil and gas that cannot be measured in an exact
manner, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment. As
a result, estimates by different engineers often vary, sometimes significantly.
In addition,
27
<PAGE>
physical factors, such as the results of drilling, testing and production
subsequent to the date of an estimate, as well as economic factors, such as an
increase or decrease in product prices that renders production of such reserves
more or less economic, may justify revision of such estimates. Accordingly,
reserve estimates are different from the quantities of oil and gas that are
ultimately recovered. See "Risk Factors -- Estimates of Oil and Gas Reserves."
OIL AND GAS PRODUCTION, AVERAGE SALES PRICES AND PRODUCTION COSTS
The following table sets forth the quantities of oil and gas produced by
the Company from wells located onshore in the continental United States and
offshore in Alabama, Louisiana, Texas and federal waters.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Production:
Oil (MBbls)........................ 451 430 595 364 369
Gas (MMcf)......................... 4,784 5,279 6,694 4,076 1,659
Total production (MMcfe)........... 7,490 7,860 10,261 6,260 3,870
</TABLE>
The following table sets forth the Company's average sales prices per Bbl
of oil and per Mcf of gas and the average production costs (including severance
taxes on production and property and transportation charges) per MMcfe for the
periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Average sales price per Bbl............. $ 18.05 $ 16.68 $ 16.68 $ 15.63 $ 16.73
Average sales price per Mcf............. 2.18 1.88 1.96 2.00 2.10
Average production cost per MMcfe....... 0.76 0.66 0.66 0.65 0.96
</TABLE>
PRODUCTIVE WELLS AND ACREAGE
The following table sets forth the wells drilled and completed by the
Company during the periods indicated. All such wells were drilled in the
continental United States including federal and state waters in the Gulf of
Mexico.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1994 1993
------------- ------------- --------------
GROSS NET GROSS NET GROSS NET
----- --- ----- --- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Development:
Oil................................ 6 .65 7 .36 8 .59
Gas................................ 1 .13 -- -- 17 .68
Non-productive..................... -- -- 6 .42 2 .21
----- --- ----- --- ----- ----
Total......................... 7 .78 13 .78 27 1.48
===== === ===== === ===== ====
Exploration:
Oil................................ 1 .24 -- -- 1 .12
Gas................................ -- -- -- -- 1 .04
Non-productive..................... -- -- 1 .24 2 .12
----- --- ----- --- ----- ----
Total......................... 1 .24 1 .24 4 .28
===== === ===== === ===== ====
</TABLE>
The Company owned working and royalty interests in approximately 1,256
gross (48.2 net) producing oil and 291 gross (12.8 net) producing gas wells as
of December 31, 1995. A well is categorized as an oil
28
<PAGE>
well or a gas well based upon the ratio of oil to gas reserves on a Mcfe basis.
However substantially all of the Company's wells produce both oil and gas.
The following table shows the approximate leasehold acreage of the Company
as of December 31, 1995.
LEASEHOLD ACREAGE
------------------------------------------
DEVELOPED UNDEVELOPED
-------------------- --------------------
STATE GROSS NET GROSS NET
- ---------------------------------- --------- --------- --------- ---------
Alabama........................... 14,565 11,900 3,240 444
Arkansas.......................... 2,224 383 770 41
California........................ -- -- 480 480
Louisiana......................... 53,057 6,796 2,347 220
Michigan.......................... 4,674 218 246 29
Mississippi....................... 3,103 1,290 724 572
New Mexico........................ 1,560 168 -- --
Oklahoma.......................... 9,469 1,144 -- --
Texas............................. 12,390 828 -- --
Utah.............................. 10,880 1,253 -- --
Federal waters.................... 19,995 2,675 761 761
--------- --------- --------- ---------
Total................... 131,917 26,655 8,568 2,547
========= ========= ========= =========
The royalty and mineral acreage of the Company, as of December 31, 1995,
was approximately 1,336 net developed acres and 6,953 net undeveloped acres. In
addition, the Company owned 5,464 developed and 134,536 undeveloped mineral
acres.
MAJOR CUSTOMERS
For the year ended December 31, 1995, Northridge Energy Marketing Company
("Northridge") and Williams Energy Services, Inc. ("Williams") purchased 20%
and 37%, respectively, of the Company's oil and gas production. Northridge
purchased oil production from the Black Bay Complex and Williams purchased gas
from the North Dauphin Island Field. Because of the nature of oil and gas
operations and the marketing of production, the Company believes that the loss
of these customers would not have a material adverse effect on the Company.
TITLE TO PROPERTIES
Callon believes that it has satisfactory title to the Company's oil and gas
properties in accordance with standards generally accepted in the oil and gas
industry, subject to the mortgages under the Credit Facility and such exceptions
which, in the opinion of the Company, are not so material as to detract
substantially from the use or value of such properties. In addition to the
mortgages, the Company's properties are typically subject, in one degree or
another, to one or more of the following: royalties and other burdens and
obligations, express or implied, under oil and gas leases; overriding royalties
and other burdens created by the Company or its predecessors in title; a variety
of contractual obligations (including, in some cases, development obligations)
arising under operating agreements, farmout agreements, production sales
contracts and other agreements that may affect the properties or their titles;
back-ins and reversionary interests arising under purchase agreements and
leasehold assignments; liens that arise in the normal course of operations, such
as those for unpaid taxes, statutory liens securing obligations to unpaid
suppliers and contractors and contractual liens under operating agreements;
pooling, unitization and communitization agreements, declarations and orders;
and easements, restrictions, rights-of-way and other matters that commonly
affect oil and gas producing property. To the extent that such burdens and
obligations affect the Company's rights to production revenues, they have been
taken into account in calculating the Company's net revenue interests and in
estimating the size and value of the Company's reserves. Callon believes that
29
<PAGE>
the burdens and obligations affecting the Company's properties are conventional
in the industry for properties of the kind owned by the Company.
OTHER PROPERTIES
The Company's headquarters are located in Natchez, Mississippi, in
approximately 51,500 square feet of owned space. The Company also maintains
field offices in the area of the major fields in which Callon operates
properties or has a significant interest, all of which are owned.
EMPLOYEES
The Company had 146 employees on October 1, 1996, none of whom are
currently represented by a union. The Company considers itself to have good
relations with its employees. The Company employs 10 petroleum engineers and
four petroleum geoscientists.
LITIGATION
The Company is a defendant in various legal proceedings and claims which
arise in the ordinary course of Callon's business. Callon does not believe the
ultimate resolution of such actions will have a material effect on the Company's
financial position or results of operations.
COMPETITION, MARKETS AND REGULATIONS
COMPETITION
The oil and gas industry is highly competitive in all of its phases. Callon
encounters competition from other oil and gas companies in all areas of the
Company's operations, including the acquisition of reserves and producing
properties and the marketing of oil and gas. Many of these companies possess
greater financial and other resources than the Company. Competition for
producing properties is affected by the amount of funds available to the
Company, information about a producing property available to the Company and any
standards established by the Company for the minimum projected return on
investment. Because gathering systems and related facilities are the only
practical method for the intermediate transportation of gas, competition for gas
delivery is presented by other pipelines and gas gathering systems. Competition
may also be presented by alternate fuel sources.
MARKETS
Callon's ability to market oil and gas from the Company's wells depends
upon numerous factors beyond the Company's control, including the extent of
domestic production and imports of oil and gas, the proximity of the gas
production to gas pipelines, the availability of capacity in such pipelines, the
demand for oil and gas by utilities and other end users, the availability of
alternate fuel sources, the effects of inclement weather, state and federal
regulation of oil and gas production and federal regulation of gas sold or
transported in interstate commerce. No assurances can be given that Callon will
be able to market all of the oil or gas produced by the Company or that
favorable prices can be obtained for the oil and gas Callon produces.
The supply of gas capable of being produced has exceeded demand in recent
years, as a result of decreased demand for gas in response to economic factors,
conservation, lower prices for alternate energy sources and other factors. As a
result of this excess supply of gas, gas producers have experienced increased
competitive pressure and lower prices. Substantially all of the gas produced by
the Company is sold at market responsive prices.
In view of the many uncertainties affecting the supply of and demand for
oil, gas and refined petroleum products, the Company is unable to predict future
oil and gas prices and demand or the overall effect such prices and demand will
have on the Company. Callon does not believe that the loss of any of the
Company's oil purchasers would have a material adverse effect on the Company's
operations. Additionally, since substantially all of the Company's gas sales are
on the spot market, the loss of one or more gas purchasers should not materially
and adversely affect the Company's financial condition. The marketing of
30
<PAGE>
oil and gas by Callon can be affected by a number of factors which are beyond
the Company's control, the exact effects of which cannot be accurately
predicted.
FEDERAL REGULATIONS
SALES OF GAS. Effective January 1, 1993, the Natural Gas Wellhead
Decontrol Act deregulated prices for all "first sales" of gas. Thus, all sales
of gas by the Company may be made at market prices, subject to applicable
contract provisions.
TRANSPORTATION OF GAS. The rates, terms and conditions applicable to the
interstate transportation of gas by pipelines are regulated by the Federal
Energy Regulatory Commission ("FERC") under the Natural Gas Act ("NGA"), as
well as under section 311 of the Natural Gas Policy Act ("NGPA"). Since 1985,
the FERC has implemented regulations intended to make gas transportation more
accessible to gas buyers and sellers on an open-access, non-discriminatory
basis.
Most recently, in Order No. 636, ET SEQ., the FERC promulgated an extensive
set of new regulations requiring all interstate pipelines to "restructure"
their services. The most significant provisions of Order No. 636 (i) require
that interstate pipelines provide firm and interruptible transportation solely
on an "unbundled" basis, separate from their sales service, and convert each
pipeline's bundled firm city-gate sales service into unbundled firm
transportation service; (ii) issue blanket certificates to pipelines to provide
unbundled sales service; (iii) require that pipelines provide firm and
interruptible transportation service on a basis that is equal in quality for all
gas supplies, whether purchased from the pipeline or elsewhere; (iv) require
that pipelines provide a new, non-discriminatory "no-notice" transportation
service; (v) establish two new, generic programs for the reallocation of firm
pipeline capacity; (vi) require that all pipelines offer access to their storage
facilities on a firm and interruptible, open access, contract basis; (vii)
provide pregranted abandonment of unbundled sales and interruptible and
short-term firm transportation service and conditional pregranted abandonment of
long-term transportation service; (viii) modify transportation rate design by
requiring all fixed costs related to transportation to be recovered through the
reservation charge under the straight fixed variable ("SFV") method. The order
also recognized that the elimination of city-gate sales service and the
implementation of unbundled transportation service would result in considerable
costs being incurred by the pipelines. Therefore, Order No. 636 provided
mechanisms for the recovery by pipelines from present, former and future
customers of certain types of "transition" costs likely to occur due to these
new regulations.
In subsequent orders, the FERC substantially upheld the requirements
imposed by Order No. 636. Pursuant to Order No. 636, pipelines and their
customers engaged in extensive negotiations in order to develop and implement
new service relationships under Order No. 636. Tariffs instituting these new
restructured services were placed into effect on all pipelines on or before
November 1, 1993. Numerous petitions for judicial review of Order No. 636 have
been filed and consolidated for review in the United States Court of Appeals for
the D.C. Circuit. In addition, numerous parties have sought review of separate
FERC orders implementing Order No. 636 on individual pipeline systems. Since the
restructuring requirements that emerge from this lengthy administrative and
judicial review process may be materially different from those of Order No. 636
as originally adopted, it is not possible to predict what effect, if any, the
final rule resulting from Order No. 636 will have on the Company.
SALES AND TRANSPORTATION OF OIL. Sales of oil and condensate can be made
by the Company at market prices not subject at this time to price controls. The
price that the Company receives from the sale of these products will be affected
by the cost of transporting the products to market. As required by the Energy
Policy Act of 1992, the FERC has revised its regulations governing the rates
that may be charged by oil pipelines. The new rules, which were effective
January 1, 1995, provide a simplified, generally applicable method of regulating
such rates by use of an index for setting rate ceilings. In certain
circumstances, the new rules permit oil pipelines to establish rates using
traditional cost of service and other methods of ratemaking. The effect that
these new rules may have on moving the Company's products to market cannot yet
be determined. In addition, at the same time as it issued the new rules, the
FERC also issued notices of inquiry regarding market-based pricing for oil
pipeline rates and the information required to be filed for
31
<PAGE>
ratemaking and reporting purposes. It is not possible to predict what rules, if
any, the FERC will ultimately adopt as a result of these inquiry proceedings or
the effect that any rules that are adopted might have on the cost of moving the
Company's products to market.
LEGISLATIVE PROPOSALS. In the past, Congress has been very active in the
area of gas regulation. There are legislative proposals pending in the state
legislatures of various states, which, if enacted, could significantly affect
the petroleum industry. At the present time it is impossible to predict what
proposals, if any, might actually be enacted by Congress or the various state
legislatures and what effect, if any, such proposals might have on the Company's
operations.
FEDERAL, STATE OR INDIAN LEASES. In the event the Company conducts
operations on federal, state or Indian oil and gas leases, such operations must
comply with numerous regulatory restrictions, including various
nondiscrimination statutes, and certain of such operations must be conducted
pursuant to certain on-site security regulations and other appropriate permits
issued by the Bureau of Land Management ("BLM") or Minerals Management Service
or other appropriate federal or state agencies.
The Mineral Leasing Act of 1920 (the "Mineral Act") prohibits direct or
indirect ownership of any interest in federal onshore oil and gas leases by a
foreign citizen of a country that denies "similar or like privileges" to
citizens of the United States. Such restrictions on citizens of a
"non-reciprocal" country include ownership or holding or controlling stock in
a corporation that holds a federal onshore oil and gas lease. If this
restriction is violated, the corporation's lease can be canceled in a proceeding
instituted by the United States Attorney General. Although the regulations of
the BLM (which administers the Mineral Act) provide for agency designations of
non-reciprocal countries, there are presently no such designations in effect.
The Company owns interests in numerous federal onshore oil and gas leases. It is
possible that the Common Stock will be acquired by citizens of foreign
countries, which at some time in the future might be determined to be
non-reciprocal under the Mineral Act.
STATE REGULATIONS
Most states regulate the production and sale of oil and gas, including
requirements for obtaining drilling permits, the method of developing new
fields, the spacing and operation of wells and the prevention of waste of oil
and gas resources. The rate of production may be regulated and the maximum daily
production allowable from both oil and gas wells may be established on a market
demand or conservation basis or both.
The Company may enter into agreements relating to the construction or
operation of a pipeline system for the transportation of gas. To the extent that
such gas is produced, transported and consumed wholly within one state, such
operations may, in certain instances, be subject to the jurisdiction of such
state's administrative authority charged with the responsibility of regulating
intrastate pipelines. In such event, the rates which the Company could charge
for gas, the transportation of gas, and the construction and operation of such
pipeline would be subject to the rules and regulations governing such matters,
if any, of such administrative authority.
ENVIRONMENTAL REGULATIONS
GENERAL. The Company's activities are subject to existing federal, state
and local laws and regulations governing environmental quality and pollution
control. Although no assurances can be made, the Company anticipates that,
absent the occurrence of an extraordinary event such as those noted under "Risk
Factors," compliance with existing federal, state and local laws, rules and
regulations regulating the release of materials into the environment or
otherwise relating to the protection of the environment will not have a material
effect upon the capital expenditures, earnings or the competitive position of
Callon with respect to the Company's operations. The Company cannot predict what
effect additional regulation or legislation, enforcement policies issued
thereunder, and claims for damages to property, employees, other persons and the
environment resulting from the Company's operations could have on its
activities.
Activities of the Company with respect to gas facilities, including the
operation and construction of pipelines, plants and other facilities for
transporting, processing, treating or storing gas and other products,
32
<PAGE>
are subject to stringent environmental regulation by state and federal
authorities including the Environmental Protection Agency ("EPA"). Such
regulation can increase the cost of planning, designing, installing and
operating such facilities. In most instances, the regulatory requirements impose
water and air pollution control measures. Although Callon believes that
compliance with environmental regulations will not have a material adverse
effect on the Company, risks of substantial costs and liabilities related to
environmental compliance issues are inherent in oil and gas production
operations, and no assurance can be given that significant costs and liabilities
will not be incurred. Moreover, it is possible that other developments, such as
stricter environmental laws and regulations, and claims for damages to property
or persons resulting from oil and gas production, would result in substantial
costs and liabilities to the Company.
SOLID AND HAZARDOUS WASTE. The Company currently owns or leases, and has
in the past owned or leased, numerous properties that have been used for
production of oil and gas for many years. Although the Company has utilized
operating and disposal practices that were standard in the industry at the time,
hydrocarbons or other solid wastes may have been disposed or released on or
under the properties owned or leased by the Company. In addition, many of these
properties have been operated by third parties. The Company had no control over
such parties' treatment of hydrocarbons or other solid wastes and the manner in
which such substances may have been disposed or released. State and federal laws
applicable to oil and gas wastes and properties have gradually become stricter
over time. Under these new laws, the Company could be required to remove or
remediate previously disposed wastes (including wastes disposed or released by
prior owners or operators) or property contamination (including groundwater
contamination by prior owners or operators) or to perform remedial plugging
operations to prevent future contamination.
The Company generates wastes, including hazardous wastes, that are subject
to the Federal Resource Conservation and Recovery Act ("RCRA") and comparable
state statutes. The EPA has limited the disposal options for certain hazardous
wastes and is considering the adoption of stricter disposal standards for
nonhazardous wastes. Furthermore, it is possible that certain wastes currently
exempt from treatment as "hazardous wastes" generated by the Company's oil and
gas operations may in the future be designated as "hazardous wastes" under
RCRA or other applicable statutes, and therefore be subject to more rigorous and
costly disposal requirements.
SUPERFUND. The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), also known as the "Superfund" law, imposes
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons with respect to the release of a "hazardous
substance" into the environment. These persons include the owner and operator
of a site and any party that disposed or arranged for the disposal of the
hazardous substance found at a site. CERCLA also authorizes the EPA and, in some
cases, third parties, to take actions in response to threats to the public
health or the environment and to seek to recover from the responsible classes of
persons the costs of such action. In the course of the Company's operations,
Callon has generated and will generate wastes that may fall within CERCLA's
definition of "hazardous substances." The Company may also be an owner of
sites on which "hazardous substances" have been released. The Company may be
responsible under CERCLA for all or part of the costs to clean up sites at which
such wastes have been disposed. At this time, neither the Company nor its
predecessors has been designated as a potentially responsible party under CERCLA
with respect to any such site.
OIL POLLUTION ACT. The Oil Pollution Act of 1990 (the "OPA") 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 "waters of the United States." The term "waters
of the United States" has been broadly defined to include inland waterbodies,
including wetlands, playa lakes and intermittent streams. A "responsible
party" includes the owner or operator of a facility or vessel, or the lessee or
permittee of the area in which an offshore facility is located. The OPA assigns
liability to each responsible party for oil removal 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
33
<PAGE>
operating regulation. If the party fails to report a spill or to cooperate fully
in the cleanup, liability limits also do not apply. Few defenses exist to the
liability imposed by the OPA.
The OPA also imposes ongoing requirements on a responsible party, including
proof of financial responsibility to cover at least some costs in a potential
spill. OPA currently requires owners and operators of offshore oil and gas
facilities to establish $150 million in financial responsibility. Under the
rule, financial responsibility can be established through insurance, guaranty,
indemnity, surety bond, letter of credit, qualification as a self-insurer or a
combination thereof. It is unlikely that insurance companies or underwriters
will be willing to provide coverage under the OPA because the statute provides
for direct lawsuits against insurers who provide financial responsibility
coverage, and most insurers have strongly protested this requirement. The
financial tests or other criteria that will be used to judge self-insurance are
also uncertain. On September 30, 1996, Congress passed legislation lowering the
financial responsibility requirement under OPA to $35 million, subject to
increase to $150 million if a formal risk assessment indicates the increase is
warranted. The requirements under OPA may have the potential to result in the
imposition of substantial additional annual costs on the Company or otherwise
materially adversely affect the Company. The impact of the rule is not expected
to be any more burdensome to the Company than it will be to other similarly or
less capitalized owners or operators in the Gulf of Mexico.
AIR EMISSIONS. The operations of the Company are subject to local, state
and federal laws and regulations for the control of emissions from sources of
air pollution. Administrative enforcement actions for failure to comply strictly
with air regulations or permits are generally resolved by payment of monetary
fines and correction of any identified deficiencies. Alternatively, regulatory
agencies could require the Company to cease construction or operation of certain
air emission sources, although the Company believes that in such case it would
have enough permitted or permittable capacity to continue its operations without
a material adverse effect on any particular producing field.
OSHA AND OTHER REGULATIONS. The Company is subject to the requirements of
the Federal Occupational Safety and Health Act ("OSHA") and comparable state
statutes. The OSHA hazard communication standard, the EPA community
right-to-know regulations under Title III of CERCLA and similar state statutes
require Callon to organize and/or disclose information about hazardous materials
used or produced in the Company's operations. Certain of this information must
be provided to employees, state and local governmental authorities and local
citizens.
34
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Company currently has a Board of Directors composed of seven members.
In accordance with the Certificate of Incorporation of the Company, as amended
(the "Charter"), the members of the Board of Directors are divided into three
classes, Class I, Class II and Class III, and are elected for a full term of
office expiring at the third succeeding annual stockholders' meeting following
their election to office and when a successor is duly elected and qualified. The
terms of office of the Class I, Class II and Class III directors expire at the
annual meeting of stockholders in 1998, 1999 and 1997, respectively. The Charter
also provides that such classes shall be as nearly equal in number as possible.
The directors and executive officers of the Company are as follows:
NAME AGE PRESENT COMPANY POSITION
- ----------------------- --- -------------------------------------------------
Fred L. Callon......... 46 Director, President; Chief Operating Officer
(Class III)
John S. Callon......... 76 Director, Chairman of the Board; Chief Executive
Officer (Class II)
Dennis W. Christian.... 50 Director, Senior Vice President (Class III)
Robert A. Stanger...... 56 Director (Class I)
H. Michael Tatum....... 67 Vice President; Secretary
Kathy G. Tilley........ 51 Vice President
John C. Wallace........ 58 Director (Class I)
B. F. Weatherly........ 52 Director (Class II)
John S. Weatherly...... 44 Senior Vice President; Chief Financial Officer;
Treasurer
Richard O. Wilson...... 66 Director (Class I)
All of the directors, other than Messrs. Stanger and Wilson, have served as
directors since the Company's inception in 1994. Messrs. Stanger and Wilson have
served as directors since March 2, 1995.
The following is a brief description of the background and principal
occupation of each director and executive officer.
Fred L. Callon is President and Chief Operating Officer of the Company and
Callon Petroleum Operating and has held that position with the Company or its
predecessors since 1984. He has been employed by the Company or its predecessors
since 1976. He graduated from Millsaps College in 1972 and received his M.B.A.
degree from the Wharton School of Finance in 1974. Following graduation and
until his employment by Callon Petroleum Operating, he was employed by Peat,
Marwick, Mitchell & Co., certified public accountants. He is a certified public
accountant and is a member of the American Institute of Certified Public
Accountants and the Mississippi Society of Certified Public Accountants. He is
the nephew of John S. Callon.
John S. Callon is Chairman of the Board of Directors and Chief Executive
Officer of the Company and Callon Petroleum Operating. Mr. Callon founded the
Company's predecessors in 1950, and has held an executive office with the
Company or its predecessors since that time. He has served as a director of the
Mid-Continent Oil and Gas Association and as the President of the Association's
Mississippi-Alabama Division. He has also served as Vice President for
Mississippi of the Independent Petroleum Association of America. He is a member
of the American Petroleum Institute. Mr. Callon is the uncle of Fred L. Callon.
Dennis W. Christian is Senior Vice President of Acquisitions and Operations
for the Company and Callon Petroleum Operating, and has held that or similar
positions with the Company or its predecessors since 1981. Prior to joining
Callon Petroleum Operating, he was resident manager in Stavanger, Norway, for
Texas Eastern Transmission Corporation. Mr. Christian received his B.S. degree
in petroleum engineering in 1969 from Louisiana Polytechnic Institute. His
previous experience includes five years with Chevron U.S.A. Inc.
35
<PAGE>
Robert A. Stanger has been the managing general partner since 1978 of
Robert A. Stanger & Co., Inc., a Shrewsbury, New Jersey-based firm engaged in
publishing financial material and providing investment banking services to the
real estate and oil and gas industries. He is a director of Citizens Utilities,
Stamford, Connecticut, a provider of telecommunications, electric, gas, and
water services. Previously, Mr. Stanger was Vice President of Merrill Lynch &
Co. He received his B.A. degree in economics from Princeton University in 1961.
Mr. Stanger is a member of the National Association of Securities Dealers, the
New York Society of Security Analysts, the International Association of
Financial Planners, and the Investment Program Association.
H. Michael Tatum is Vice President and Secretary for the Company and Callon
Petroleum Operating and is responsible for management of administrative matters.
Mr. Tatum has held this position with the Company or its predecessors since
1976, and has been employed by Callon Petroleum Operating since 1969. He
graduated from Southern Methodist University in 1967 and is a member of the
American Society of Corporate Secretaries and the Society for Human Resource
Management.
Kathy G. Tilley is Vice President of Acquisitions and New Ventures for the
Company and Callon Petroleum Operating and has held that position since April
1996. She was employed by Callon Petroleum Operating in December 1989 as manager
of acquisitions and prior thereto, held that or similar positions as a
consultant from 1981. Ms. Tilley received her B.A. degree in economics from
Louisiana State University in 1967.
John C. Wallace is an executive officer of NOCO Management Ltd., the
general partner of the general partner of NOCO. He is a Chartered Accountant
having qualified with Coopers & Lybrand in Canada in 1963, after which he joined
Baring Brothers & Co., Limited in London England. For more than the last ten
years, he has served as Chairman of Fred. Olsen Ltd., a London-based corporation
which he joined in 1968, where he has specialized in the business of shipping
and property development. He is a director of Harland & Wolff PLC, Belfast, A/S
Ganger Rolf and A/S Bonheur, Oslo, publicly traded shipping companies, and
O.G.C. International P.L.C., a Scottish public company engaged in the offshore
oil and gas maintenance and construction business headquartered in Aberdeen,
Scotland. He is also a director of Belmont Constructors, Inc., a Houston,
Texas-based industrial contractor associated with Fred. Olsen Interests, and
other companies associated with Fred. Olsen Interests.
B. F. Weatherly is a principal of Amerimark Capital Group, Houston, Texas,
an investment banking firm. He is an executive officer of NOCO Management Ltd.,
the general partner of the general partner of NOCO. Prior to September 1996, he
was Executive Vice President, Chief Financial Officer and a director of Belmont
Constructors, Inc., a Houston, Texas-based industrial contractor associated with
Fred. Olsen Interests. From 1989 to 1991, he was a partner in Amerimark Capital
Corp., a Dallas investment banking firm. He holds a Master of Accountancy degree
from the University of Mississippi. He has previously been associated with
Arthur Andersen LLP, and has served as a Senior Vice President of Weatherford
International, Inc. B. F. Weatherly and John S. Weatherly are brothers.
John S. Weatherly is Senior Vice President, Chief Financial Officer and
Treasurer for the Company and Callon Petroleum Operating. Prior to April 1996,
he was Vice President, Chief Financial Officer and Treasurer of the Company and
has held those positions since 1983. Prior to joining Callon Petroleum Operating
in August 1980, he was employed by Arthur Andersen LLP as Audit Manager in the
Jackson, Mississippi office. He received his B.B.A. degree in accounting in 1973
and his M.B.A. degree in 1974 from the University of Mississippi. He is a
certified public accountant and a member of the American Institute of Certified
Public Accountants and the Mississippi Society of Certified Public Accountants.
John S. Weatherly and B. F. Weatherly are brothers.
Richard O. Wilson for the past nine years has been Chairman of O.G.C.
International P.L.C., a Scottish public company engaged in the offshore oil and
gas maintenance and construction business headquartered in Aberdeen, Scotland.
For the past 13 years, Mr. Wilson has also been Chairman of Dolphin A/S,
Stavanger, Norway, and Dolphin Drilling Ltd., Aberdeen, Scotland, both offshore
drilling companies owned by Fred. Olsen Interests. He is also Chairman of
Belmont Constructors, Inc., a Houston, Texas-based industrial contractor
associated with Fred. Olsen Interests. He holds a B.S. degree in civil
engineering from
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<PAGE>
Rice University. Mr. Wilson is a Fellow in the American Society of Civil
Engineers, a member of the Institute of Petroleum, London England, and the
Cosmos Club, Washington, D.C.
Messrs. John S. Callon and Fred L. Callon, as nominees of the Callon
Family, and Messrs. B. F. Weatherly and John C. Wallace, as nominees of NOCO,
were elected to the Board of Directors pursuant to the terms of the
Stockholders' Agreement dated September 16, 1994. See "Principal
Stockholders -- Stockholders' Agreement."
All officers and directors of the Company are United States citizens,
except Mr. Wallace, who is a citizen of Canada.
COMPENSATION OF DIRECTORS
The Company's Board of Directors holds four regular meetings each year.
During 1996, as compensation for all services as a director of the Company, each
non-employee director will be paid $10,000. Non-employee directors are also
granted, upon their initial election or appointment, options to purchase 5,000
shares of Common Stock pursuant to the 1996 Callon Petroleum Stock Incentive
Plan (the "1996 Plan") and will be granted options for an additional 5,000
shares for each year in which they continue to serve as directors. See " --
Incentive Plans -- 1996 Plan." On August 23, 1996, the Compensation Committee
authorized a one-time grant to each non-employee director of an option to
purchase 20,000 shares of Common Stock under the 1996 Plan at a purchase price
of $12.00 per share, the fair market value of the Common Stock on such date,
subject to approval of the 1996 Plan by the Company's stockholders at the 1997
annual meeting of stockholders. One-fourth of each option will vest at each
succeeding annual meeting of directors following each annual stockholders'
meeting, beginning in 1997.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the Chief
Executive Officer of the Company and the four most highly compensated executive
officers of the Company as to whom the total salary and bonus for the year ended
December 31, 1995 exceeded $100,000. Such amounts include compensation from the
Company's predecessors for the year ended December 31, 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ---------------------------------
----------------------------- AWARDS
OTHER ----------------------- PAYOUTS ALL
ANNUAL RESTRICTED SECURITIES ------- OTHER
COMPEN- STOCK UNDERLYING LTIP COMPEN-
YEAR SALARY BONUS SATION AWARD(S) OPTIONS PAYOUTS SATION
(1) ($) ($) $(2) ($) (#)(3) ($) ($)(4)
--------- --------- --------- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John S. Callon.......................... 1995 190,000 161,500 -- -- -- -- 10,393
Chairman and Chief Executive Officer 1994 168,000 95,000 -- -- 90,000 -- 9,565
Fred L. Callon.......................... 1995 170,000 144,500 -- -- -- -- 10,288
President and Chief Operating Officer 1994 150,000 85,000 -- -- 80,000 -- 9,096
Dennis W. Christian..................... 1995 150,000 127,500 -- -- -- -- 9,080
Senior Vice President 1994 118,450 140,000 -- -- 60,000 -- 7,186
John S. Weatherly....................... 1995 130,000 110,500 -- -- -- -- 7,873
Senior Vice President, Chief Financial 1994 100,000 107,500 -- -- 60,000 -- 6,068
Officer and Treasurer
H. Michael Tatum........................ 1995 100,000 34,000 -- -- -- -- 6,061
Vice President and Secretary 1994 92,183 58,046 -- -- 25,000 -- 5,598
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
37
<PAGE>
- ------------
(1) Information for years prior to 1994 is omitted under SEC rules because the
Company was not a reporting company during such periods.
(2) Amounts in the column do not include perquisites and other personal
benefits, securities or property, unless the annual amount of such
compensation exceeds the lesser of $50,000 or 10% of the total of annual
salary and bonus reported for the named executive.
(3) Represents awards granted under the 1994 Plan.
(4) Amounts reflect the Company's contribution in 1995 and 1994, respectively,
of $9,500 and $8,400 to John S. Callon's 401(k) savings plan and payment of
$893 and $1,165 of term life insurance premiums; $8,500 and $7,500 to Fred
L. Callon's 401(k) savings plan and payment of $1,788 and $1,596 of term
life insurance premiums; $7,500 and $5,923 to Mr. Christian's 401(k) savings
plan and payment of $1,580 and $1,263 of term life insurance premiums;
$6,500 and $5,000 to Mr. Weatherly's 401(k) savings plan and payment of
$1,373 and $1,068 of term life insurance premiums; and $5,000 and $4,609 to
Mr. Tatum's 401(k) savings plan and payment of $1,061 and $989 of term life
insurance premiums.
RECENT COMPENSATION AWARDS
On August 23, 1996, the Compensation Committee granted stock options to
the Company's executive officers and senior management under the 1996 Plan,
subject to stockholder approval of the 1996 Plan. Pursuant to the awards, Fred
L. Callon was granted an option to purchase 75,000 shares of Common Stock;
Dennis W. Christian was granted an option to purchase 70,000 shares of Common
Stock; H. Michael Tatum was granted an option to purchase 15,000 shares of
Common Stock; Kathy G. Tilley was granted an option to purchase 55,000 shares of
Common Stock; and John S. Weatherly was granted an option to purchase 65,000
shares of Common Stock. In addition, other members of senior management were
granted options to purchase an aggregate 170,000 shares of Common Stock. All of
such options were granted at an exercise price of $12.00 per share, the fair
market value of the Common Stock on the date of grant, and 20% of each option
vests on January 1 of each succeeding year, beginning January 1, 1997. Unvested
options are subject to forfeiture upon certain termination of employment events.
The Compensation Committee also awarded performance shares under the 1996
Plan to the Company's executive officers on August 23, 1996, subject to
stockholder approval of the 1996 Plan. Contingent upon such stockholder
approval, Fred L. Callon will be awarded 60,000 performance shares; Dennis W.
Christian will be awarded 55,000 performance shares; H. Michael Tatum will be
awarded 15,000 performance shares; Kathy G. Tilley will be awarded 45,000
performance shares; and John S. Weatherly will be awarded 50,000 performance
shares. All of the performance shares granted will vest in whole on January 1,
2001, and will be subject to forfeiture upon certain termination of employment
events.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Fred L. Callon, Dennis W. Christian and John S. Weatherly has entered into
employment agreements with the Company effective September 1, 1996 and ending
December 31, 2000. The agreements provide that Mr. Callon, Mr. Christian and Mr.
Weatherly will receive an annual base salary of at least $200,000, $175,000 and
$165,000, respectively, and that they will be entitled to participate in any
incentive compensation program established by the Company for its executive
officers. Each agreement terminates upon death or disability or for cause. If
the agreement is terminated because of disability, compensation payments
continue for a period of two years from the date of termination, reduced by the
amount of disability insurance paid. If the agreement is terminated for cause,
the Company is not required to make any additional payments. "Cause" is defined
generally as any of the following, as determined by a majority vote of the Board
of Directors: intentional or continual neglect of duties, conviction of a
felony, or failure or refusal to perform duties in accordance with the
employment agreement.
The employment agreements further provide that the employee may terminate
the agreement for "good reason," which is defined generally as (a) failure to
be re-elected to office, (b) significant change in duties, (c) reduction or
failure to provide typical increases in salary following a change in control of
the Company, (d) relocation to an office outside the Natchez, Mississippi area,
or (e) failure to maintain the
38
<PAGE>
level of participation in the compensation and benefit plans of the Company
following a change in control. If the employee terminates his agreement for good
reason (other than following a change in control), or if the Company breaches
the agreement compensation shall continue for a period of two years from the
date of termination. If the agreement is terminated following a change in
control, compensation shall continue for a period of three years. Pursuant to
the agreements, a "change in control" occurs if: (i) any person or group of
persons acting in concert (within the meaning of Section 13(d) of the Exchange
Act) shall have become the beneficial owner of a majority of the outstanding
common stock of the Company (other than pursuant to the Stockholders'
Agreement), (ii) the stockholders of the Company cause a change in a majority of
the members of the Board within a twelve-month period, or (iii) the Company or
its stockholders enter into an agreement to dispose of all or substantially all
of the assets or outstanding capital stock of the Company. If the compensation
to be paid upon a change in control would constitute a "parachute" payment
under the Internal Revenue Code, the amount otherwise payable will be grossed up
to an amount such that the employee will receive the amount he would have
received if no portion of such compensation had been subject to the excise tax
imposed by the Internal Revenue Code, and the Company will be responsible for
the amount of the excise tax.
On June 19, 1996, the Company entered into a consulting agreement with John
S. Callon to be effective as of the day he ceases to be the Chief Executive
Officer of the Company. Pursuant to the agreement, John S. Callon is to provide
consulting services to the Company on matters pertaining to corporate or
financial strategy, investor relations and public/private financing
opportunities for no more than 20 hours per month, ten months a year. The
agreement remains in effect from the effective date until December 31, 2001,
subject to renewal for succeeding five year periods unless earlier terminated.
As compensation for his services under the agreement, John S. Callon will be
paid a fee ("Consultation Fee") of not less than $190,000 per year increased
annually based upon the change in the Consumer Price Index, as adjusted for
inflation. In addition, he will remain eligible to participate in the Company's
major medical and disability coverage, and will be entitled to participate in
all other employee benefit plans (other than a cash bonus program) provided to
full-time executives of the Company. As an inducement for entering into the
agreement, John S. Callon was granted 25,000 performance shares of Common Stock,
20% of which vests on each of the first five anniversaries of the effective date
of the agreement.
Upon termination of the agreement other than for cause, John S. Callon or
his spouse shall be entitled to receive a termination payment equal to the
Consultation Fee, as adjusted for inflation, to be paid annually until the later
of the death of John S. Callon (if applicable) or his spouse. In lieu of the
termination payment, John S. Callon or his spouse may elect to receive, subject
to the approval of the Board of Directors a lump sum payment of $1.5 million. In
addition, if the agreement terminates due to the Company's breach, John S.
Callon and his spouse shall be entitled to liquidated damages. The Company may
terminate the agreement for cause. "Cause" is defined generally in the
agreement as willful misconduct or intentional and continual neglect of duties
which has materially and adversely affected the Company. Mr. Callon has
indicated that he currently plans to retire during 1997.
Pursuant to the 1996 Plan and the 1994 Plan (as defined below), in the case
of a merger or consolidation where the Company is not the surviving entity, or
if the Company is about to sell or otherwise dispose of substantially all of its
assets while unvested options remain outstanding, the Compensation Committee or
other plan administrator may, in its discretion and without shareholder
approval, declare some or all options exercisable in full before or
simultaneously with such merger, consolidation or sale of assets without regard
for prescribed waiting periods. Alternatively, the Compensation Committee or
other plan administrator may cancel all outstanding options provided option
holders are given notice and a period of 30 days prior to the merger,
consolidation or sale to exercise the options in full.
INCENTIVE PLANS
The Company currently maintains two Common Stock-based incentive plans for
employees: the 1994 Callon Petroleum Company Stock Incentive Plan (the "1994
Plan") and the 1996 Plan. The Company in the past has used and will continue to
use, stock options and performance share grants to attract and retain key
employees in the belief that employee stock ownership and stock related
compensation devices
39
<PAGE>
encourage a community of interest between employees and stockholders.
1994 PLAN. The 1994 Plan was adopted on June 30, 1994. Pursuant to the 1994
Plan, 600,000 shares of Common Stock were reserved for issuance upon the
exercise of options or for grants of performance shares. The 1994 Plan is
administered by the Compensation Committee of the Board of Directors. Members of
the Compensation Committee currently are Messrs. Stanger, Wallace, B. F.
Weatherly and Wilson. No awards were granted under the 1994 Plan during 1995 and
1996, other than automatic stock option grants to non-employee directors and the
grant of performance shares to John S. Callon in connection with his Consulting
Agreement. No additional awards may be granted under the 1994 Plan. See "--
Employment Agreements, Termination of Employment and Change in Control
Arrangements."
1996 PLAN. On August 23, 1996, the Board of Directors of the Company
approved and adopted the 1996 Plan, and granted awards thereunder to various
employees, in each case subject to approval of the 1996 Plan by the stockholders
of the Company at the 1997 annual meeting. See " -- Recent Compensation
Awards." Individual awards under the 1996 Plan may take the form of one or more
of (i) incentive stock options; (ii) non-qualified stock options; or (iii)
performance shares.
The 1996 Plan is administered by a plan administrator which may be either
(i) the Board of Directors of the Company; (ii) any duly constituted committee
of the Board of Directors consisting of at least two non-employee directors; or
(iii) any other duly constituted committee of the Board of Directors. The plan
administrator will select the officers, key employees and consultants who will
receive awards and the terms and conditions of those awards. The maximum number
of shares of Common Stock that may be subject to outstanding awards may not
exceed 900,000. Shares of Common Stock tendered as payment for shares issued
upon exercise of an option or which are attributable to awards which have
expired, terminated or been canceled or forfeited are available for issuance or
use in connection with future awards.
The option price of any incentive stock option shall be 100% of the fair
market value of a share of Common Stock on the date the incentive option is
granted. Any incentive option must be exercised within ten years of the date of
grant. Unless otherwise determined by the plan administrator, the option price
of any non-qualified stock option shall be 100% of the fair market value of a
share of Common Stock on the date the option is granted. Vesting of stock
options and performance shares, and the term of any non-qualified stock option
or performance share award is determined by the plan administrator.
The 1996 Plan provides that each director that is not an employee of the
Company shall, on the date on which he or she is initially elected or appointed
a director of the Company, be granted a stock option to purchase 5,000 shares of
Common Stock for the fair market price on the date of grant and for a term of
ten years. After each subsequent annual meeting of stockholders at which such
person continues to serve as a director, he or she will automatically be granted
a stock option to purchase an additional 5,000 shares of Common Stock for the
fair market price on the date of such grant and for a term of ten years.
In the event of a termination of employment, outstanding options and
performance shares may be subject to forfeiture and/or time limitations. Stock
options and performance shares are evidenced by written agreements, the terms
and provisions of which may differ. No stock option is transferable other than
by will or by the laws of descent or distribution.
The 1996 Plan may be amended by the Board of Directors without the consent
of the stockholders except that any amendment, though effective when made, will
be subject to stockholder approval if required by any federal or state law or
regulation or by the rules of any stock exchange or automated quotation system
on which the Common Stock may then be listed or quoted. In addition, no
amendment can impair the rights of a holder of an outstanding award under the
Plan without such holder's consent. As of October 25, 1996, there were 145,000
shares available for grant under the 1996 Plan.
OPTION GRANTS IN LAST FISCAL YEAR
There were no individual grants of stock options under the 1994 Plan made
during the year ended December 31, 1995 to the Chief Executive Officer of the
Company or any of the four most highly
40
<PAGE>
compensated executive officers of the Company named in the Summary Compensation
Table. In addition, no stock appreciation rights were granted by the Company in
1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth certain information concerning the number
and value of unexercised options to purchase Common Stock by the Chief Executive
Officer and the four most highly compensated executive officers named in the
Summary Compensation Table at December 31, 1995. No stock options were exercised
by such persons in 1995.
AGGREGATED OPTION EXERCISES IN 1995 AND OPTION VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, DECEMBER 31,
1995 1995
---------------- ----------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED($) UNEXERCISABLE(1) UNEXERCISABLE(2)
- ---------------------------------------- --------------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
John S. Callon.......................... -- -- 90,000/-- --
Fred L. Callon.......................... -- -- 80,000/-- --
Dennis W. Christian..................... -- -- 60,000/-- --
John S. Weatherly....................... -- -- 60,000/-- --
H. Michael Tatum........................ -- -- 25,000/-- --
</TABLE>
- ------------
(1) Represents awards granted under the 1994 Plan.
(2) As of December 31, 1995, the market price of stock was below the exercise
price.
LONG-TERM INCENTIVE PLAN AWARDS
Prior to 1996, Callon had not awarded any performance shares under the 1994
Plan nor did it have any other long-term incentive plan for the Company's
employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Messrs. Stanger,
Wallace, B. F. Weatherly and Wilson, none of whom are or have been officers or
employees of the Company.
STOCKHOLDERS' AGREEMENT. In connection with the Consolidation, the
Company, the Callon Family and NOCO entered into the Stockholders' Agreement
which contains certain voting requirements and transfer restrictions. Messrs.
Wallace, B. F. Weatherly and Wilson are affiliates of NOCO. See " -- Certain
Transactions."
REGISTRATION RIGHTS. NOCO is party to a Registration Rights Agreement
dated September 16, 1994. Messrs. Wallace, B. F. Weatherly and Wilson are
affiliates of NOCO. See " -- Certain Transactions."
CERTAIN TRANSACTIONS
CONSOLIDATION. Pursuant to the Consolidation in which certain of the
Company's predecessor entities were merged into the Company effective September
16, 1994, John S. Callon, Fred L. Callon and other non-employee members of the
Callon Family exchanged all of the outstanding stock of Callon Petroleum
Operating for an aggregate of 1,892,278 shares of Common Stock of the Company.
Certain Callon Family members also converted units of limited partnership
interest ("Units") in CCP into an aggregate of 9,635 shares of Common Stock,
representing one-third of a share of Common Stock for each Unit. The number of
shares of Common Stock issued in the Consolidation was based upon the Company's
assignment of exchange values to the assets and liabilities of CCP, Callon
Petroleum Operating and CN.
41
<PAGE>
STOCKHOLDERS' AGREEMENT. In connection with the Consolidation, the
Company, the Callon Family (including John S. Callon and Fred L. Callon) and
NOCO entered into the Stockholders' Agreement which (a) provides that the Callon
Family shall vote for two directors to the Company's Board of Directors as
directed by NOCO and NOCO will vote for two directors to the Company's Board of
Directors as directed by the Callon Family, (b) contains certain restrictions on
transfer of the Common Stock owned by the Callon Family and NOCO, and (c)
provides that neither the Callon Family nor NOCO can transfer shares of Common
Stock in connection with, or vote for, consent to or otherwise approve, a
transaction which would result in certain changes of control or fundamental
changes without the prior written consent of the other party. The Callon Family
and NOCO own an aggregate of more than 60% of the Company's outstanding Common
Stock.
CONTINGENT SHARES. The Callon Family (including John S. Callon and Fred L.
Callon), as former stockholders of Callon Petroleum Operating, may receive
additional shares of Common Stock pursuant to a Contingent Share Agreement dated
September 16, 1994 between the Callon Family and the Company (the "Contingent
Share Agreement"). The number of shares issued in the Consolidation was based
on the respective asset values of the parties to the Consolidation including
Callon Petroleum Operating. Callon Petroleum Operating owned certain oil and gas
properties which, for purposes of the Consolidation, could not be properly
valued due to inadequate drilling and production history. The Contingent Share
Agreement provides that promptly after December 31, 1995, a number of shares of
Common Stock will be issued to the Callon Family equal to the present value of
the properties (as determined by independent reserve engineers) divided by
$12.05. Due to the continued limited production history of the properties, the
Company has amended the Contingent Share Agreement to extend the valuation date
to December 31, 1996.
REGISTRATION RIGHTS. The Callon Family (including John S. Callon and Fred
L. Callon) is party to a Registration Rights Agreement dated September 16, 1994,
pursuant to which they are entitled to require the Company to register Common
Stock owned by them with the SEC for sale to the public in a firm commitment
public offering and generally to include shares owned by them in registration
statements filed by the Company. NOCO and the Company have entered into a
similar agreement.
WILCOX ENERGY. Prior to the consummation of the Consolidation, Callon
Petroleum Operating distributed the capital stock of its wholly owned
subsidiary, Wilcox Energy Company ("Wilcox"), to its stockholders (i.e., the
Callon Family, including John S. Callon and Fred L. Callon). The business of
Wilcox is the drilling of shallow exploratory wells in the Wilcox Trend, and
Callon Petroleum Operating did not believe that Wilcox would fit within the
Company's business strategy.
NOTE TO AFFILIATE. Prior to the Consolidation, CN from time to time loaned
money to NOCO on a short-term basis, at approximately the interest rate earned
by CN on short-term cash investments. In 1993, $4.0 million was borrowed. On
December 31, 1993, $1.0 million was outstanding at an interest rate of 4.0%. In
1994, the outstanding loan balance of $1.0 million was repaid prior to the
Consolidation.
FEES TO NOCO. Prior to the Consolidation, the partnership agreement of CN
provided that CN would reimburse Callon Petroleum Operating and NOCO at cost for
overhead and executive and other personnel services for operations of CN. During
1993, CN paid Callon Petroleum Operating $1.4 million and paid NOCO $320,000 as
such reimbursement. NOCO Management, Ltd., the general partner of NOCO Holdings,
L.P. (the sole limited partner of NOCO) and whose members include John C.
Wallace, Richard O. Wilson, and B. F. Weatherly, directors of the Company,
received $190,200 in 1993 of such amounts in fees for services provided to CN by
its members, including Mr. Wallace and Mr. Weatherly. In turn, Mr. Wallace
received $13,500 of such amounts in 1993, and Mr. Weatherly received $67,500 of
such amounts in 1993 from NOCO Management, Ltd. for such services. In 1994, the
Company reimbursed NOCO $131,000 for costs and expenses incurred by NOCO in the
Consolidation. No overhead payments have been made following the effective date
of the Consolidation.
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of October 25, 1996, certain information
with respect to the ownership of shares of Common Stock and the Company's Series
A Preferred Stock as to (i) all persons known by the Company to be the
beneficial owners of 5% or more of the outstanding shares of Common Stock, (ii)
each director, (iii) each of the executive officers named in the Summary
Compensation Table, and (iv) all executive officers and directors of the Company
as a group. Information set forth in the table with respect to beneficial
ownership of Common Stock and Series A Preferred Stock has been obtained from
filings made by the named beneficial owners with the SEC or, in the case of
executive officers and directors of the Company, has been provided to the
Company by such individuals.
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------------ ------------------------
AMOUNT AND AMOUNT AND
NAME AND NATURE OF PERCENT NATURE OF PERCENT
ADDRESS OF BENEFICIAL OF BENEFICIAL OF
BENEFICIAL OWNER(S) OWNERSHIP CLASS OWNERSHIP CLASS
- ------------------------------------- ---------- -------- ---------- --------
DIRECTORS:
<S> <C> <C> <C> <C>
John S. Callon.................. 294,040 (b) 5.03% 0 0
200 North Canal Street
P.O. Box 1287
Natchez, Mississippi 39120
Fred L. Callon.................. 656,761 (c) 11.23 0 0
200 North Canal Street
P.O. Box 1287
Natchez, Mississippi 39120
Dennis W. Christian............. 74,000 (d) 1.27 0 0
Robert A. Stanger............... 15,856 (e) * 0 0
John C. Wallace................. 1,999,758 (f) 34.66 0 0
65 Vincent Square
London, England
SW1P 2RX
B.F. Weatherly.................. 2,000,125 (g) 34.66 0 0
9603 Doliver Street
Houston, Texas 77063
Richard O. Wilson............... 2,002,031 (h) 34.69 1,000 *
2400 West Loop South
Suite 150
Houston, Texas 77027
NAMED EXECUTIVE OFFICERS:
John S. Weatherly............... 73,896 (i) 1.27 0 0
H. Michael Tatum................ 28,000 (j) * 0 0
DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (10 PERSONS)............ 3,185,951 (k) 51.5 1,000 *
CERTAIN BENEFICIAL OWNERS:
NOCO Enterprises, L.P........... 1,984,758 (l) 34.49 0 0
6814 Northampton Way
Houston, Texas 77055
Wellington Management Company... 401,220 (m) 6.67 140,000 10.64
75 State Street
Boston, Massachusetts 02109
</TABLE>
- ------------
* less than 1%
(a) Unless otherwise indicated, each of the above persons may be deemed to have
sole voting and dispositive power with respect to such shares.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
43
<PAGE>
(b) Of the 294,040 shares beneficially owned by John S. Callon, 129,040 are
owned directly by him and he has sole voting and dispositive power over
such shares, 75,000 shares are held in a family limited partnership, and
90,000 shares are subject to options under the Company's 1994 Plan
exercisable within 60 days. Shares indicated as owned by John S. Callon do
not include shares of Common Stock owned by NOCO and shares of Common Stock
owned by certain other members of the Callon Family, including 61,837
shares owned by John S. Callon's wife and over which he disclaims
beneficial ownership. Under the terms of the Stockholders' Agreement, John
S. Callon and the other members of the Callon Family have the right of
first refusal to acquire shares of Common Stock proposed to be sold by NOCO
under certain circumstances and all parties to the Stockholders' Agreement
have agreed to support two directors nominated by the Callon Family and two
directors nominated by NOCO. John S. Callon disclaims beneficial ownership
of the NOCO shares.
(c) Of the 656,761 shares beneficially owned by Fred L. Callon, 201,556 shares
are owned directly by him; 268,016 shares are held by him as custodian for
certain minor Callon Family members; 78,430 shares are held by him as
trustee of certain Callon Family trusts; 80,000 are subject to options
under the 1994 Plan exercisable within 60 days; 15,000 are subject to
options under the 1996 Plan exercisable within 60 days; and 13,759 shares
are held by Fred L. Callon as Trustee of shares held by the Callon
Petroleum Company Employee Savings and Protection Plan. Shares indicated as
owned by Fred L. Callon do not include shares of Common Stock owned by NOCO
and shares of Common Stock owned by other members of the Callon Family,
including 25,009 shares owned by Fred L. Callon's wife over which he
disclaims beneficial ownership. Under the terms of the Stockholders'
Agreement, Fred L. Callon and the other members of the Callon Family have
the right of first refusal to acquire shares of Common Stock proposed to be
sold by NOCO under certain circumstances and all parties to the
Stockholders' Agreement have agreed to support two directors nominated by
the Callon Family and two directors nominated by NOCO. Fred L. Callon
disclaims beneficial ownership of the NOCO shares.
(d) Includes 60,000 shares subject to options under the 1994 Plan and 14,000
shares subject to options under the 1996 Plan, all of which are exercisable
within 60 days.
(e) Includes 15,000 shares subject to options under the 1994 Plan, exercisable
within 60 days.
(f) Includes 15,000 shares subject to options under the 1994 Plan, exercisable
within 60 days, and 1,984,758 shares owned by NOCO (see note (l) below).
(g) Includes 15,000 shares subject to options under the 1994 Plan, exercisable
within 60 days and 1,984,758 shares owned by NOCO (see note (1) below).
(h) Includes 15,000 shares subject to options under the 1994 Plan, exercisable
within 60 days, 2,273 shares issuable upon conversion of 1,000 shares of
Series A Preferred Stock and 1,984,758 shares owned by NOCO (see note (l)
below).
(i) Includes 217 shares which are held by Mr. Weatherly as custodian for his
minor children and 60,000 shares which are subject to options under the
1994 Plan and 13,000 shares which are subject to options under the 1996
Plan, all of which are exercisable within 60 days.
(j) Includes 25,000 shares subject to options under the 1994 Plan and 3,000
shares subject to options under the 1996 Plan, all of which are exercisable
within 60 days.
(k) Includes 405,000 shares subject to options under the 1994 Plan and 45,000
shares subject to options under the 1996 Plan, all of which are exercisable
within 60 days.
(l) The sole limited partner of NOCO is NOCO Holdings, L.P., and the sole
general partner of NOCO is NOCO Properties Inc., a wholly-owned subsidiary
of NOCO Holdings, L.P. The general partner of NOCO Holdings, L.P. is NOCO
Management, Ltd., a limited liability company. The management of NOCO
Management, Ltd. is vested in its four members: John C. Wallace, Barry I.
Meade, B. F. Weatherly and Richard O. Wilson. The address of NOCO Holdings,
L.P. and NOCO Management, Ltd. is the same as that listed above for NOCO.
Mr. Wallace's address is 65 Vincent Square, London England SW1P 2RX. Mr.
Meade's address is 6814 Northampton Way, Houston, Texas 77055. Mr.
Weatherly's address is 9603 Doliver Street, Houston, Texas 77063. Mr.
Wilson's address is 2400 West Loop South, Suite 150, Houston, Texas 77027.
Messrs. Wallace, Weatherly and Meade also serve as officers of NOCO
Management, Ltd. NOCO Properties Inc. and NOCO Management, Ltd. may be
deemed to be the beneficial owner of the Common Stock held by NOCO as a
result of their respective general partner interests in NOCO and NOCO
Holdings, L.P. As a result of their positions with NOCO
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
44
<PAGE>
Management, Ltd., Messrs. Wallace, Meade, B. F. Weatherly and Wilson may be
deemed to share the power to vote and dispose of such Common Stock and
thereby to be the beneficial owner of such Common Stock. Under the terms of
the Stockholders' Agreement, NOCO has the right of first refusal to acquire
shares of Common Stock proposed to be sold by members of the Callon Family
under certain circumstances and all parties to the Stockholders' Agreement
have agreed to support two directors nominated by the Callon Family and two
directors nominated by NOCO. NOCO disclaims beneficial ownership of the
shares owned by members of the Callon Family. Because of the Stockholders'
Agreement, NOCO and members of the Callon Family may be deemed to be a
"group" for purposes of beneficial ownership under SEC regulations. If
such a group were deemed to exist, it would beneficially own over 60% of
the Common Stock.
(m) Includes 318,220 shares issuable upon conversion of 140,000 shares of Series
A Preferred Stock.
STOCKHOLDERS' AGREEMENT
Pursuant to the Stockholders' Agreement among the Callon Family and NOCO
dated September 16, 1994, the Callon Family and NOCO each elect two directors to
the Company's Board of Directors. Specifically, the Stockholders' Agreement
provides that the Callon Family and NOCO shall use their best efforts, including
voting the shares of Common Stock which they own, to cause the Company's Board
of Directors to be composed of at least four members, two of such members to be
selected by the Callon Family and two of such members to be selected by NOCO.
The Stockholders' Agreement also contains restrictions on transfer of shares of
Common Stock owned by the Callon Family and NOCO and prohibits the Callon Family
and NOCO from taking certain actions which would result in certain changes of
control or fundamental changes, without the consent of the other party. See
"Management -- Certain Transactions."
As a result of the Stockholders' Agreement, the Callon Family, on the one
hand, and the Callon Family and NOCO, on the other, may be deemed to form a
"group" for purposes of beneficial ownership under SEC regulations. The Callon
Family disclaims beneficial ownership of the Common Stock owned by NOCO. In
addition, each Callon Family stockholder disclaims beneficial ownership of all
shares of Common Stock owned by the other Callon Family stockholders and the
existence of a group comprised of the Callon Family stockholders. If NOCO and
the Callon Family were deemed to be a group, it would beneficially own more than
60% of the outstanding Common Stock.
DESCRIPTION OF NOTES
The Notes are to be issued under the Indenture, dated as of ,
1996, between the Company and American Stock Transfer & Trust Company, as
trustee (the "Trustee"). The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the provisions of the Indenture (including the
definition of certain terms in the Indenture), the form of which has been filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
Wherever particular provisions and definitions of the Indenture are referred to,
such provisions and definitions are incorporated by reference as part of the
statements made, and the statements are qualified in their entirety by such
reference. As used in this "Description of Notes," the term "Company" refers
only to Callon Petroleum Company. Article and Section references are to Articles
and Sections of the Indenture.
GENERAL
The Notes offered by this Prospectus will be limited to $21.0 million
aggregate principal amount, plus up to an additional $3.15 million aggregate
principal amount if the Underwriter's overallotment option is exercised. The
Notes will be issued in global or registered form only, without coupons, in
denominations of $1,000 and any integral multiple thereof. Interest on the Notes
will accrue from , 1996 and will be payable quarterly on the 15th day
of each March, June, September and December in each year, commencing March 15,
1997, at the rate per annum stated on the cover page of this Prospectus.
Interest will be payable to the person in whose name the Note is registered at
the close of business on the 1st day of March, June, September and December, as
the case may be, immediately preceding such Interest Payment Date. The Notes
will mature on December 15, 2001, unless redeemed earlier at the option of the
Company as set forth
45
<PAGE>
below. The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
Principal and interest will be payable at an office or agency to be
maintained by the Company in New York City, except that, at the option of the
Company in the event the Notes do not remain in book entry form, interest may be
paid by check mailed to the person entitled thereto. The Notes may be presented
for registration of transfer or exchange at an office or agency to be maintained
by the Company in New York City. The Notes will be exchangeable without service
charge but the Company may require payment to cover taxes or other government
charges. Except under the conditions described in "Certain Covenants -- Liens"
below, the Notes will not be secured by the assets of the Company or any of its
subsidiaries or Affiliates or otherwise. All indebtedness of the Company under
the Credit Facility (which constitutes Senior Indebtedness) is secured by
substantially all of the producing oil and gas assets of the Company and its
Subsidiaries. In addition, the rights of the Company to participate in any
distribution of assets of any subsidiary upon its liquidation or reorganization
or otherwise (and thus the ability of the Holders of the Notes to benefit
indirectly from such distribution) are subject to the prior claims of creditors
of the subsidiary.
BOOK ENTRY SECURITIES
The Notes will be issued in the form of a fully registered Global
Certificate. The Global Certificate will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York (the "Depositary") and registered
in the name of the Depositary's nominee.
Except as set forth below, the Global Certificate may be transferred, in
whole and not in part, only to another nominee of the Depositary or to a
successor of the Depositary or its nominee.
The Depositary has advised the Company and the Underwriter as follows: It
is a limited-purpose trust company which was created to hold securities for its
participating organizations (the "Participants") and to facilitate the
clearance and settlement of transactions in such securities between Participants
through electronic book entry changes in accounts of its Participants.
Participants include securities brokers and dealers (including the Underwriter),
banks, trust companies, clearing corporations and certain other organizations.
Access to the Depositary's book entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants"). Persons who are not Participants may beneficially
own securities held by the Depositary only through Participants or Indirect
Participants.
The Depositary has also advised that pursuant to procedures established by
it (i) upon the issuance by the Company of the Notes, the Depositary will credit
the accounts of Participants designated by the Underwriter with the principal
amount of the Notes purchased by the Underwriter, and (ii) ownership of
beneficial interests in the Global Certificate will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depositary (with respect to Participants' interests), the Participants and
the Indirect Participants. The laws of some states require that certain persons
take physical delivery in definitive form of securities which they own.
Consequently, the ability to transfer beneficial interests in the Global
Certificate is limited to such extent.
So long as a nominee of the Depositary is the registered owner of the
Global Certificate, such nominee will be considered the sole owner or Holder of
the Notes for all purposes under the Indenture. Except as provided below, owners
of beneficial interests in the Global Certificate will not be entitled to have
Notes registered in their names, will not receive or be entitled to receive
physical delivery of Notes in definitive form and will not be considered the
owners or Holders thereof under the Indenture.
Neither the Company, the Trustee, the paying agent nor the Notes registrar
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Certificate, or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
46
<PAGE>
Principal and interest payments on the Global Certificate registered in the
name of the Depositary's nominee will be made by the Company, either directly or
through a paying agent, to the Depositary's nominee as the registered owner of
the Global Certificate. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Notes are registered as the
owners of such Notes for the purpose of receiving payments of principal and
interest on such Notes and for all other purposes whatsoever. Therefore, neither
the Company, the Trustee nor any paying agent has any direct responsibility or
liability for the payment of principal or interest on the Notes to owners of
beneficial interests in the Global Certificate. The Depositary has advised the
Company and the Trustee that its present practice is, upon receipt of any
payment of principal or interest to credit immediately the accounts of the
Participants with payment in amounts proportionate to their respective holdings
in principal amount of beneficial interests in the Global Certificate as shown
on the records of the Depositary. Payments by Participants and Indirect
Participants to owners of beneficial interests in the Global Certificate will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name" and will be the responsibility of such Participants or
Indirect Participants.
The Company will issue Notes in definitive form in exchange for the Global
Certificate if, and only if, either (1) the Depositary is at any time unwilling
or unable to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, or (2) an Event of Default has occurred and is
continuing and the Notes registrar has received a request from the Depositary to
issue Notes in definitive form in lieu of all or a portion of the Global
Certificate. In either instance, an owner of a beneficial interest in the Global
Certificate will be entitled to have Notes equal in principal amount to such
beneficial interest registered in its name and will be entitled to physical
delivery of such Notes in definitive form. Notes so issued in definitive form
will be issued in denominations of $1,000 and integral multiples thereof and
will be issued in registered form only, without coupons.
SUBORDINATION OF THE NOTES
The payment of the principal of and interest on the Notes will be
subordinated in right of payment, as set forth in Article Thirteen of the
Indenture, to the prior payment in full of Senior Indebtedness, which will
include borrowings under the Credit Facility, whether outstanding on the date of
the Indenture or thereafter incurred. In the event of any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relating to the
Company or to its creditors, as such, or to its assets, or any liquidation,
dissolution or other winding-up of the Company, whether voluntary or involuntary
and whether or not including insolvency or bankruptcy, or any assignment for the
benefit of creditors or other marshalling of assets or liabilities of the
Company (provided that this provision will not require the repayment of all
Senior Indebtedness in full in connection with the consolidation or merger of
the Company or its liquidation or dissolution following the conveyance,
transfer, lease or other disposition of all or substantially all the properties
and assets of the Company and its Restricted Subsidiaries on a consolidated
basis upon the terms and conditions described under the "Consolidation, Merger
and Sale of Assets" covenant described below as a prerequisite to any payments
being made to Holders of Notes), the holders of Senior Indebtedness will first
be entitled to receive payment in full of all amounts due on or in respect of
all Senior Indebtedness, or provision must be made for such payment, before the
Holders of Notes will be entitled to receive any direct or indirect payment or
distribution of any kind or character (other than any payment or distribution in
the form of Permitted Junior Securities) on account of principal of or interest
on the Notes or on account of the purchase or redemption or other acquisition of
the Notes (including pursuant to an optional redemption). In the event that,
notwithstanding the foregoing, the Trustee or the Holder of any Note receives
any payment or distribution of properties or assets of the Company of any kind
or character, whether in cash, property or securities, by set-off or otherwise,
in respect of principal of or interest on the Notes before all Senior
Indebtedness is paid or provided for in full, then the Trustee or the Holders of
Notes receiving any such payment or distribution (other than a payment or
distribution in the form of Permitted Junior Securities) will be required to pay
or deliver such payment or distribution forthwith to the trustee in bankruptcy,
receiver, liquidating trustee,
47
<PAGE>
custodian, assignee, agent or other Person making payment or distribution of
properties of assets of the Company for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay all Senior
Indebtedness in full.
The Company also may not make any payment or distribution of any properties
or assets of the Company of any kind or character (other than Permitted Junior
Securities) on account of principal of or interest on the Notes or on account of
the purchase or redemption or other acquisition of Notes upon the occurrence of
a Payment Event of Default with respect to any Specified Senior Indebtedness and
receipt by the Trustee of written notice thereof until such Payment Event of
Default shall have been cured or waived or shall have ceased to exist or such
Specified Senior Indebtedness shall have been paid in full or otherwise
discharged, after which the Company shall resume making any and all required
payments in respect of the Notes, including any missed payments.
The Company also may not make any payment or distribution of any properties
or assets of the Company of any kind or character (other than Permitted Junior
Securities) on account of any principal of or interest on the Notes or on
account of the purchase or redemption or other acquisition of Notes for the
period specified below ("Payment Blockage Period") upon the occurrence of a
Non-payment Event of Default with respect to any Specified Senior Indebtedness
and receipt by the Trustee and the Company of written notice thereof from one or
more of the holders of such Specified Senior Indebtedness (or their
representative). The Payment Blockage Period will commence upon the earlier of
the dates of receipt by the Trustee or the Company of such notice from one or
more of the holders of such Specified Senior Indebtedness (or their
representative) and shall end on the earliest of (i) 179 days thereafter, (ii)
the date, as set forth in a written notice from the holders of the Specified
Senior Indebtedness (or their representative) to the Company or the Trustee, on
which such Non-payment Event of Default is cured, waived in writing or ceases to
exist or such Specified Senior Indebtedness is discharged or (iii) the date on
which such Payment Blockage Period shall have been terminated by written notice
to the Company or the Trustee from one or more of such holders (or their
representative) initiating such Payment Blockage Period, after which the Company
will resume (unless otherwise prohibited pursuant to the immediately preceding
paragraph) making any and all required payments in respect of the Notes,
including any missed payments. In any event, not more than one Payment Blockage
Period may be commenced during any period of 360 consecutive days. No
Non-payment Event of Default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee can be made the basis for
a subsequent Payment Blockage Notice. In the event that, notwithstanding the
foregoing, the Company makes any payment to the Trustee or the Holder of any
Note prohibited by the subordination provision of the Indenture, then such
payment will be required to be paid over and delivered forthwith to the Company.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provision described above, such failure would constitute an Event of Default
under the Indenture and would enable the Holders of the Notes to accelerate the
maturity thereof. See " -- Events of Default and Remedies."
As a result of such subordination provisions described above, in the event
of a distribution of assets upon the liquidation, receivership, reorganization
or insolvency of the Company, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Holders of the Notes, and
assets which would otherwise be available to pay obligations in respect of the
Notes will be available only after all Senior Indebtedness has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on any
or all of the Notes.
The subordination provisions described above will cease to be applicable to
the Notes upon any Legal Defeasance or Covenant Defeasance of the Notes as
described under " -- Legal Defeasance and Covenant Defeasance."
Senior Indebtedness may also be issued and incurred in the future, subject
only to certain limitations contained in the covenant described under "Certain
Covenants -- Limitation on Indebtedness for Money Borrowed". The Notes will
also be structurally subordinated to all liabilities of the Company's
Subsidiaries. As of September 30, 1996, the Company had an aggregate of $8.9
million of outstanding Senior
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Indebtedness, and the Subsidiaries had liabilities of $13.0 million, excluding
guarantees of Senior Indebtedness.
CERTAIN COVENANTS
RESTRICTIONS ON DIVIDENDS, REDEMPTIONS AND OTHER PAYMENTS
(a) The Indenture will provide that the Company shall not, either directly
or indirectly through any Restricted Subsidiary, (i) declare or pay any
dividend, either in cash or property, on any shares of its capital stock (except
dividends or other distributions payable solely in shares of capital stock of
the Company), (ii) purchase, redeem or retire any shares of its capital stock or
any warrants, rights or options to purchase or acquire any shares of its capital
stock or (iii) make any other payment or distribution in respect of the
Company's capital stock (such dividends, purchases, redemptions, retirements,
payments and distributions being herein collectively called "Restricted
Payments") if, after giving effect thereto,
(1) an Event of Default would have occurred; or
(2) (A) the sum of (i) such Restricted Payments plus (ii) the
aggregate amount of all Restricted Payments made during the period after
the date of the Indenture would exceed (B) the sum of (i) $10 million plus
(ii) 50% of the Company's Consolidated Net Income subsequent to September
30, 1996 (with 100% reduction for a loss), plus (iii) the cumulative net
proceeds received by the Company from the issuance or sale after the date
of the Indenture of capital stock of the Company (including in such net
proceeds the face amount of any indebtedness that has been converted into
common stock of the Company after the date of the Indenture).
(b) Notwithstanding paragraph (a) above, the Company may take the
following actions so long as no Event of Default shall have occurred and be
continuing:
(i) the payment of dividends on any of the shares of the capital
stock of the Company (including, without limitation, the Series A Preferred
Stock of the Company); and
(ii) the repurchase, redemption or other acquisition or retirement of
any shares of any class of capital stock of the Company or any Restricted
Subsidiary, in exchange for, or out of the aggregate net cash proceeds of a
substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of shares of common stock of the Company.
The actions described in clauses (i) and (ii) of this paragraph (b) shall be
Restricted Payments that shall be permitted to be taken in accordance with this
covenant and shall not reduce the amount that would otherwise be available for
Restricted Payments under clause (2) of paragraph (a). For purposes of this
covenant, the amount of any Restricted Payment payable in property shall be
deemed to be the fair market value of such property as determined by the Board
of Directors of the Company. (Section 1006)
LIMITATION ON INDEBTEDNESS FOR MONEY BORROWED
The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary to, create, incur, assume, guarantee or become liable
("incur") with respect to any Indebtedness for Money Borrowed, including
Acquired Indebtedness but excluding Permitted Indebtedness, if, immediately
after giving effect to any such creation, incurrence, assumption or guarantee
(including giving effect to the retirement of any existing Indebtedness for
Money Borrowed from the proceeds of such additional Indebtedness for Money
Borrowed):
(1) The ratio of (a) the aggregate amount of the outstanding
Indebtedness for Money Borrowed of the Company and its Restricted
Subsidiaries as of the end of the immediately preceding fiscal quarter of
the Company, as determined on a consolidated basis in accordance with GAAP,
to (b) the Consolidated EBITDA for the immediately preceding four fiscal
quarters of the Company, would exceed 10.0 to 1.0; or
(2) The Interest Coverage Ratio would have been at least 1.1 to 1.0.
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Further, the Indenture will provide that the Company will not permit any
Restricted Subsidiary to incur any Indebtedness for Money Borrowed (except to
the Company or another Restricted Subsidiary) that is expressly subordinate in
right of payment to any other Indebtedness for Money Borrowed of such Restricted
Subsidiary. (Section 1007)
LIENS
The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind, except for Permitted Liens, upon any of
their respective assets or properties, whether now owned or acquired after the
date of the Indenture, or any income or profits therefrom to secure any Pari
Passu Indebtedness or Subordinated Indebtedness, unless prior to or
contemporaneously therewith the Notes are directly secured equally and ratably,
provided that (1) if such secured indebtedness is Pari Passu Indebtedness, the
Lien securing such Pari Passu Indebtedness shall be subordinate and junior to,
or PARI PASSU with, the Lien securing the Notes and (2) if such secured
indebtedness is Subordinated Indebtedness, the Lien securing such Subordinated
Indebtedness shall be subordinate and junior to the Lien securing the Notes at
least to the same extent as such Subordinated Indebtedness is subordinated to
the Notes. The foregoing covenant will not apply to any Lien securing Acquired
Indebtedness, provided that any such Lien extends only to the properties or
assets that were subject to such Lien prior to the related acquisition by the
Company or such Restricted Subsidiary and was not created, incurred or assumed
in contemplation of such transaction. (Section 1008)
LIMITATION ON RANKING OF FUTURE INDEBTEDNESS
The Indenture will provide that the Company will not incur or permit to
remain outstanding any Indebtedness for Money Borrowed (including Acquired
Indebtedness and Permitted Indebtedness) which is expressly subordinate in right
of payment to any Senior Indebtedness, other than Subordinated Indebtedness or
Pari Passu Indebtedness. For purposes of this covenant, the incurrence of Senior
Indebtedness which is unsecured shall not, because of its unsecured status, be
deemed to be subordinate in right of payment to any Senior Indebtedness which is
secured. (Section 1013)
LIMITATIONS ON RESTRICTING SUBSIDIARY DIVIDENDS
The Indenture will provide that the Company shall not and shall not permit
any Restricted Subsidiary to, directly or indirectly, create or otherwise cause
to become effective any encumbrance or restriction of any kind on the ability of
any Restricted Subsidiary to (a) pay dividends in cash or make any other
distribution on its capital stock to the Company or any other Restricted
Subsidiary, (b) pay any indebtedness owed to the Company or any other Restricted
Subsidiary, (c) make loans, advances, or capital contributions to the Company or
any other Restricted Subsidiary, or (d) transfer any of its properties or assets
to the Company or another Restricted Subsidiary, except in each instance (i) as
set forth in the instrument evidencing or the agreement governing Acquired
Indebtedness of any acquired Person which becomes a Restricted Subsidiary,
provided, that any restriction or encumbrance under such instrument or agreement
existed at the time of acquisition, was not put in place in anticipation of such
acquisition, and is not applicable to any Person, other than the Person or
property or assets of the Person so acquired; (ii) customary provisions of any
lease or license of the Company or any Restricted Subsidiary relating to the
property covered thereby and entered into in the ordinary course of business;
(iii) any encumbrance or restriction arising under applicable law; (iv) any
encumbrance or restriction arising under the Indenture, the Credit Facility, or
other indebtedness or other agreements existing on the date of original issuance
of the Notes; (v) any restrictions with respect to a Restricted Subsidiary
imposed pursuant to an agreement that has been entered into for the sale or
disposition of the stock, business, assets or properties of such Restricted
Subsidiary; (vi) any encumbrance or restriction arising under the terms of
purchase money obligations, but only to the extent such purchase money
obligations restrict or prohibit the transfer of the property so acquired; (vii)
any encumbrance or restriction arising under customary non-assignment provisions
in installment purchase contracts; (viii) any encumbrance or restriction on the
ability of any Restricted Subsidiary to transfer any of its property acquired
after the date of the Indenture to the Company or any other Restricted
Subsidiary that is required by a lender to, or purchaser of any indebtedness of,
such
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Restricted Subsidiary in connection with a financing of the acquisition of such
property (including with respect to the purchase of asset portfolios and
pursuant to the underwriting or origination of mortgage loans) by such
Restricted Subsidiary; and (ix) any encumbrance or restriction pursuant to any
agreement that extends, refinances, renews or replaces any agreement described
in the foregoing clauses (i) through (viii), and except with respect to clause
(d) only, restrictions in the form of Liens which are not prohibited as
described in the "Liens" covenant and which contain customary limitations on
the transfer of collateral. (Section 1014)
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Company shall not, and shall not permit
any of its Restricted Subsidiaries to, enter into any transaction (or series of
related transactions), including, without limitation, the sale, purchase, lease,
or exchange of any property or the rendering of any service (a "Transaction"),
involving payments in excess of $50,000, with any Affiliate of the Company
(other than the Company or a Restricted Subsidiary), on terms and conditions
less favorable to the Company or such Restricted Subsidiary, as the case may be,
than would be available at such time in a comparable Transaction in arm's length
dealings with an unrelated Person as determined by the Board of Directors, such
approval to be evidenced by a Board Resolution.
The provisions of the immediately preceding paragraph will not apply to:
(1) Restricted Payments otherwise permitted pursuant to the covenant described
under " -- Restrictions on Dividends, Redemptions and Other Payments"; (2)
fees and compensation (including amounts paid pursuant to employee benefit
plans) paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company or any Restricted Subsidiary, as
determined by the Board of Directors or the senior management thereof in the
exercise of their reasonable business judgment; or (3) payments for goods and
services purchased in the ordinary course of business on an arm's length basis.
(Section 1015)
REPORTS
So long as the Company is a reporting company under the Exchange Act, the
Company will furnish to Holders of the Notes annual reports of the Company
containing audited consolidated financial statements and interim reports with
unaudited consolidated summary financial data on a quarterly basis. If the
Company ceases to be a reporting company under the Exchange Act, the Company
will furnish to Holders of the Notes annual audited consolidated financial
statements and quarterly unaudited consolidated summary financial statements.
(Section 704)
EVENTS OF DEFAULT AND REMEDIES
An Event of Default will include: (i) failure to pay the principal of the
Notes when due at Stated Maturity, upon redemption or upon acceleration, as
provided in the Indenture, whether or not prohibited by the subordination
provisions of the Indenture, (ii) failure to pay any interest on the Notes for
30 days, whether or not prohibited by the subordination provisions of the
Indenture, (iii) failure to perform, or a breach of, any other covenant or
agreement set forth in the Indenture for 30 days after receipt of written notice
from the Trustee or Holders of at least 25% in aggregate principal amount of the
outstanding Notes specifying the default and requiring the Company to remedy
such default, (iv) default in the payment at Stated Maturity of Indebtedness for
Money Borrowed of the Company or any Restricted Subsidiary having an outstanding
principal amount due at Stated Maturity greater than $2.5 million and such
default having continued for a period of 30 days beyond any applicable grace
period, (v) an event of default as defined in any mortgage, indenture or
instrument of the Company or any Restricted Subsidiary shall have happened and
resulted in acceleration of Indebtedness for Money Borrowed which, together with
the principal amount of any other Indebtedness for Money Borrowed so
accelerated, exceeds $2.5 million or more at any time, and such default shall
not be cured or waived and such acceleration shall not have been rescinded or
annulled within a period of 30 days from the occurrence of such acceleration,
(vi) certain events of insolvency, receivership or reorganization of the Company
or any Material Subsidiary and (vii) entry of a final judgment, decree or order
against the Company or any Material Subsidiary for the payment of money
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in excess of $2.5 million and such judgment, decree or order continues
unsatisfied for 30 days without a stay of execution. (Section 501)
If any Event of Default (other than as specified in clause (vi) above)
occurs and is continuing, the Trustee, by written notice to the Company, or the
Holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee and the Company, may, and the Trustee upon
the request of the Holders of not less than 25% in aggregate principal amount of
the Notes then outstanding shall, declare the principal of and accrued interest
on all of the Notes due and payable immediately, upon which declaration all
amounts payable in respect of the Notes shall be immediately due and payable. If
an Event of Default specified in clause (vi) above occurs and is continuing,
then the principal of and accrued interest on all of the Notes then outstanding
shall automatically become and be immediately due and payable without any
declaration, notice or other act on the part of the Trustee or any Holder of
Notes. (Section 502)
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes,
(iii) the principal of any Notes which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate borne by the Notes,
and (iv) to the extent that payment of such interest is lawful, interest upon
overdue interest and overdue principal at the rate borne by the Notes (without
duplication of any amount paid or deposited pursuant to clause (ii) or (iii) );
(b) the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction; and (c) all Events of Default, other than the nonpayment
of principal of or interest on the Notes that has become due solely by such
declaration of acceleration, have been cured or waived. (Section 502)
No Holder of any of the Notes will have any right to institute any
proceeding with respect to the Indenture or any remedy thereunder, unless such
Holder has notified the Trustee of a continuing Event of Default and the Holders
of at least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 60 days after receipt of such notice
and the Trustee, within such 60-day period, has not received directions
inconsistent with such written request by Holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations will not apply,
however, to a suit instituted by a Holder of a Note for the enforcement of the
payment of the principal of or interest on such Note on or after the respective
due dates expressed in such Note. (Section 507 and 508)
During the existence of an Event of Default, the Trustee will be required
to exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the Trustee
in case an Event of Default shall occur and be continuing, the Trustee will not
be under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of Notes unless such
Holders shall have offered to the Trustee reasonable security or indemnity.
Subject to certain provisions concerning the rights of the Trustee, the Holders
of a majority in aggregate principal amount of the outstanding Notes will have
the right to 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 the Trustee under the Indenture. (Sections 512, 601 and 603)
The Holders of not less than a majority in aggregate principal amount of
the Notes then outstanding may on behalf of the Holders of all of the Notes
waive any existing Default or Event of Default and its consequences, except in
respect of the payment of the principal of or interest on any Note or in respect
of a
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provision of the Indenture which cannot be modified or amended without the
consent of the Holder of each Note affected thereby as described below under
" -- Modification and Waiver." (Section 513)
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each Holder of Notes notice of the
Default or Event of Default within 90 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of or
interest on any Notes, the Trustee may withhold the notice to the Holders of
Notes if the Trustee determines in good faith that withholding the notice is in
the interest of such Holders. (Section 602)
The Company is required to deliver to the Trustee annual and quarterly
statements regarding compliance with the Indenture, and the Company will also be
required, upon becoming aware of any Default or Event of Default, to deliver to
the Trustee a statement specifying such Default or Event of Default. (Section
1011)
REDEMPTION AT OPTION OF THE COMPANY
The Notes are subject to redemption at 100% of the principal amount thereof
plus accrued interest, at the option of the Company in whole or in part from
time to time, on or after December 15, 1997, upon not less than 30 nor more than
60 days' notice mailed to the registered Holders thereof. The redemption price
will be paid with interest accrued to the date fixed for redemption. If the
Company elects to redeem less than all of the Notes, the Trustee will select
which Notes to redeem by lot or such other method as it shall deem fair and
appropriate, including the selection for redemption of a portion of the
principal amount of any Note but not less than $1,000. On and after the
redemption date, interest will cease to accrue on the Notes or portions thereof
called for redemption. (Article Eleven)
MODIFICATION AND WAIVER
With certain limited exceptions which permit modifications of the Indenture
by the Company and the Trustee only, the Indenture may be modified by the
Company with the consent of Holders of not less than a majority in aggregate
principal amount of outstanding Notes; PROVIDED, HOWEVER, that no such changes
shall without the consent of the Holder of each Note affected thereby (i) change
the maturity date of the principal of, or the due date of any installment of
interest on, any Note, (ii) reduce the principal of, or the rate of interest on,
any Note, (iii) change the place of payment or the currency in which any portion
of the principal of, or interest on, any Note is payable, (iv) impair the right
to institute suit for the enforcement of any such payment, (v) reduce the
above-stated percentage of Holders of the outstanding Notes necessary to modify
the Indenture, (vi) modify the foregoing requirements or reduce the percentage
of outstanding Notes necessary to waive any past default or certain covenants or
(vii) reduce the relative ranking of the Notes. (Section 902)
The Holders of a majority in aggregate principal amount of outstanding
Notes may waive compliance by the Company with certain covenants, most of which
are described above under " -- Certain Covenants." (Section 1012)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with, merge with, or transfer all or
substantially all of its assets to another entity where the Company is not the
surviving corporation unless (i) such other entity assumes the Company's
obligations under the Indenture, (ii) such other entity shall be a Person
organized and existing under the laws of the United States of America, any state
thereof or the District of Columbia, and (iii) after giving effect thereto, no
event shall have occurred and be continuing which, after notice or lapse of
time, would become an Event of Default. (Section 801)
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of the
obligations of the Company discharged with respect to the outstanding Notes
("Legal Defeasance"). Such Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
outstanding Notes and to have been discharged from all their other obligations
with respect to such Notes,
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except for (i) the rights of Holders of outstanding Notes to receive payment in
respect of the principal of and interest on such Notes when such payments are
due, (ii) the Company's obligations to replace any temporary Notes, register the
transfer or exchange of any Notes, replace mutilated, destroyed, lost or stolen
Notes and maintain an office or agency for payments in respect of the Notes,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv)
the Legal Defeasance provisions of the Indenture. In addition, the Company may,
at its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture,
some of which are described under " -- Certain Covenants" above, and
thereafter any omission to comply with such obligations shall not constitute a
Default or an Event of Default with respect to the Notes ("Covenant
Defeasance"). In the event Covenant Defeasance occurs, certain events (not
including nonpayment, bankruptcy, insolvency and reorganization events)
described under " -- Events of Default and Remedies" will no longer constitute
an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in United States dollars, Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of and interest on the
outstanding Notes to redemption or maturity; (ii) the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the Holders of
the outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance or Covenant Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance or
Covenant Defeasance had not occurred (in the case of Legal Defeasance, such
opinion must refer to and be based upon a published ruling of the Internal
Revenue Service or a change in applicable federal income tax laws); (iii) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit or insofar as clause (vi) under the first paragraph under
" -- Events of Default and Remedies" is concerned, at any time during the
period ending on the 91st day after the date of deposit; (iv) such Legal
Defeasance or Covenant Defeasance shall not cause the Trustee to have a
conflicting interest under the Indenture or the Trust Indenture Act of 1939 with
respect to any securities of the Company; (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a default
under, any other material agreement or instrument to which the Company is a
party or by which it is bound; and (vi) the Company shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, which, taken
together, state that all conditions precedent under the Indenture to either
Legal Defeasance or Covenant Defeasance, as the case may be, have been complied
with. (Article Twelve)
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money or Government Obligations have theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation or (b) all Notes not theretofore delivered to the
Trustee for cancellation have become due and payable or will become due and
payable at their Stated Maturity within one year, or are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the serving of notice of redemption by the Trustee in the name, and at the
expense, of the Company, and the Company has irrevocably deposited or caused to
be deposited with the Trustee funds in an amount sufficient to pay and discharge
the entire indebtedness on the Notes not theretofore delivered to the Trustee
for cancellation, for principal of and interest on the Notes to the date of
deposit (in the case of Notes which have become due and payable) or to the
Stated Maturity or redemption date, as the case may be, together with
instructions from the Company irrevocably directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums then due and payable under the
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Indenture by the Company; and (iii) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, which, taken together, state
that all conditions precedent under the Indenture relating to the satisfaction
and discharge of the Indenture have been complied with. (Sections 401 and 402)
GOVERNING LAW
The Indenture and the Notes will be governed and construed in accordance
with the laws of the State of New York. (Section 113)
THE TRUSTEE
American Stock Transfer & Trust Company will be the Trustee under the
Indenture. The Trustee is the transfer agent and registrar for both the Common
Stock and the Series A Preferred Stock. The Indenture provides for the
indemnification of the Trustee by the Company under certain circumstances.
(Section 607)
The Indenture (including the provisions of the Trust Indenture Act of 1939
incorporated by reference therein) will contain limitations on the rights of the
Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; PROVIDED, HOWEVER, if it acquires any
conflicting interest (as defined in the Trust Indenture Act of 1939) it must
eliminate such conflict or resign. (Sections 613 and 614)
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
(Section 101)
"Acquired Indebtedness" means Indebtedness for Money Borrowed of a Person
existing at the time such Person becomes a Restricted Subsidiary or assumed in
connection with the acquisition by the Company or a Restricted Subsidiary of
assets from such Person, and not incurred in connection with, or in anticipation
of, such Person becoming a Restricted Subsidiary or such acquisition. Acquired
Indebtedness shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person becomes a
Restricted Subsidiary.
"Affiliate" of any specified Person means 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 specified 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.
"Average Life" means, with respect to any Indebtedness for Money
Borrowed, as at any date of determination, the quotient obtained by dividing (a)
the sum of the products of (i) the number of years (and any portion thereof)
from the date of determination to the date or dates of each successive scheduled
principal payment (including, without limitation, any sinking fund or mandatory
redemption payment requirements) of such Indebtedness for Money Borrowed
multiplied by (ii) the amount of each such principal payment by (b) the sum of
all such principal payments.
"Board of Directors" means the board of directors of the Company or any
duly authorized committee of that board.
"Capitalized Lease Obligation" means, as to any Person, the obligations
of such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real or personal property which obligations are
required to be classified and accounted for as capital lease obligations on a
balance sheet of such Person under GAAP and, for purposes of the Indenture, the
amount of such obligations at any date shall be the capitalized amount thereof
at such date, determined in accordance with GAAP.
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"Consolidated EBITDA" means, for any period, determined in accordance
with GAAP on a consolidated basis for the Company and its Restricted
Subsidiaries, the sum of Consolidated Net Income, plus depreciation, depletion,
amortization and other non-cash charges, income tax expense, and interest
expense, for such period, each as deducted in determining such Consolidated Net
Income.
"Consolidated Interest Expense" means, for any period, the interest
expense for such period, which is required to be shown as such on the financial
statements of the Company and its Restricted Subsidiaries, on a consolidated
basis, prepared in accordance with GAAP.
"Consolidated Net Income" means, for any period, the amount of
consolidated net income (loss) of the Company and its Restricted Subsidiaries
for such period, determined in accordance with GAAP; PROVIDED, HOWEVER, that
there shall be included in Consolidated Net Income any net extraordinary gains
or losses for such period (less all fees and expenses related thereto); and,
PROVIDED, FURTHER, that there shall not be included in Consolidated Net Income
(1) any net income (loss) of a Restricted Subsidiary for any portion of such
period during which it was not a Consolidated Subsidiary, (2) any net income
(loss) of businesses, properties or assets acquired or disposed of (by way of
merger, consolidation, purchase, sale or otherwise) by the Company or any
Restricted Subsidiary for any portion of such period prior to the acquisition
thereof or subsequent to the disposition thereof or (3) any net income for such
period resulting from transfers of assets received by the Company or any
Restricted Subsidiary from an Unrestricted Subsidiary.
"Consolidated Subsidiary" means a Restricted Subsidiary the financial
statements of which are consolidated with the financial statements of the
Company.
"Corporation" includes corporations, associations, companies, joint stock
companies, limited liability companies or business trusts.
"Credit Facility" means that certain Amended and Restated Credit
Agreement, dated as of October 31, 1996, among the Company, Callon Petroleum
Operating Company, Callon Offshore Production, Inc., the several banks and other
financial institutions from time to time parties thereto (the "Banks"), and
The Chase Manhattan Bank, as agent for the Banks, as the same may be amended,
modified, supplemented, extended, restated, replaced, renewed or refinanced from
time to time.
"Event of Default" has the meaning specified in the covenant described
under " -- Events of Default and Remedies."
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board in effect on the date
of the Indenture.
"Holder" when used with respect to the Notes, means the Person in whose
name such Note is registered in the Note Register.
"Indebtedness for Money Borrowed" means any of the following obligations
of the Company or any Restricted Subsidiary: (1) any obligations, contingent or
otherwise, for borrowed money or for the deferred purchase price of property,
assets, securities or services (including, without limitation, any interest
accruing subsequent to an event of default), (2) all obligations (including the
Notes) evidenced by bonds, notes, debentures or other similar instruments, (3)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired (even though the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), except any such
obligation that constitutes a trade payable and an accrued liability arising in
the ordinary course of business, if and to the extent any of the foregoing
indebtedness would appear as a liability upon a balance sheet prepared in
accordance with GAAP, (4) all Capitalized Lease Obligations, (5) liabilities of
the Company actually due and payable under bankers acceptances and letters of
credit, (6) all indebtedness of the type referred to in clause (1), (2), (3),
(4) or (5) above secured by (or for which the holder of such indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon or
security interest in property of the Company or any Restricted Subsidiary
(including, without limitation, accounts and contract rights), even though the
Company or any Restricted Subsidiary has not assumed or
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become liable for the payment of such indebtedness, and (7) any guarantee or
endorsement (other than for collection or deposit in the ordinary course of
business) or discount with recourse of, or other agreement, contingent or
otherwise, to purchase, repurchase, or otherwise acquire, to supply, or advance
funds or become liable with respect to, any indebtedness or any obligation of
the type referred to in any of the foregoing clauses (1) through (6), regardless
of whether such obligation would appear on a balance sheet; PROVIDED, HOWEVER,
that Indebtedness for Money Borrowed shall not include (i) Production Payments
and Reserve Sales, (ii) any liability for gas balancing incurred in the ordinary
course of business, (iii) accounts payable or other obligations of the Company
or a Restricted Subsidiary in the ordinary course of business in connection with
the obtaining of goods or services, and (iv) any liability under any and all (A)
employment or consulting agreements or employee benefit plans or arrangements
and (B) futures contracts, forward contracts, swap, cap or collar contracts,
option contracts, or other similar derivative agreements.
"Interest Coverage Ratio" means, for any date of determination, the ratio
of (1) Consolidated EBITDA for the immediately preceding four fiscal quarters of
the Company to (2) Consolidated Interest Expense for such immediately preceding
four fiscal quarters.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
agreement to give or grant a Lien or any lease, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing) upon or with respect to any property of any kind. A Person shall be
deemed to own subject to a Lien any property which such Person has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
"Material Subsidiary" means any Restricted Subsidiary whose assets or
revenues comprise at least five percent (5%) of the assets or revenues of the
Company and the Restricted Subsidiaries on a consolidated basis as of the end
of, or for the, Company's most recently completed fiscal quarter, as determined
from time to time.
"Non-payment Event of Default" means any event (other than a Payment
Event of Default), the occurrence of which (with or without notice or the
passage of time) entitles one or more Persons to accelerate the maturity of any
Specified Senior Indebtedness.
"Note Register" means the register maintained by or for the Company in
which the Company shall provide for the registration of the Notes and of
transfer of the Notes.
"PARI PASSU Indebtedness" means any Indebtedness for Money Borrowed of
the Company that is PARI PASSUin right of payment to the Notes.
"Payment Event of Default" means any default in the payment or required
prepayment of principal of (or premium, if any, on) or interest on any Specified
Senior Indebtedness when due (whether at final maturity, upon scheduled
installment, upon acceleration or otherwise).
"Permitted Indebtedness" means any of the following:
(i) Indebtedness for Money Borrowed outstanding on the date of the
Indenture (and not repaid or defeased with the proceeds of the offering of
the Notes);
(ii) Indebtedness for Money Borrowed of the Company to a Restricted
Subsidiary and Indebtedness for Money Borrowed of a Restricted Subsidiary
to the Company or a Restricted Subsidiary; provided, however, that upon any
event which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of any such Indebtedness
for Money Borrowed (except to the Company or a Restricted Subsidiary), such
Indebtedness for Money Borrowed shall be deemed, in each case, to be
incurred and shall be treated as an incurrence for purposes of the
"Limitation on Indebtedness for Money Borrowed" covenant at the time the
Restricted Subsidiary in question ceased to be a Restricted Subsidiary;
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(iii) any guarantee of Senior Indebtedness incurred in compliance
with the "Limitation on Indebtedness for Money Borrowed" covenant, by a
Restricted Subsidiary or the Company; and
(iv) any renewals, substitutions, refinancings or replacements (each,
for purposes of this clause, a "refinancing") by the Company or a
Restricted Subsidiary of any Indebtedness for Money Borrowed incurred
pursuant to clause (i) of this definition, including any successive
refinancings by the Company or such Restricted Subsidiary, so long as (A)
any such new Indebtedness for Money Borrowed shall be in a principal amount
that does not exceed the principal amount (or, if such Indebtedness for
Money Borrowed being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination)
so refinanced plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Indebtedness
for Money Borrowed refinanced or the amount of any premium reasonably
determined by the Company or such Restricted Subsidiary as necessary to
accomplish such refinancing, plus the amount of expenses of the Company or
such Restricted Subsidiary incurred in connection with such refinancing,
and (B) in the case of any refinancing of Indebtedness for Money Borrowed
of the Company that is not Senior Indebtedness, such new Indebtedness for
Money Borrowed is either PARI PASSU with the Notes or subordinated to the
Notes at least to the same extent as the Indebtedness being refinanced and
(C) such new Indebtedness for Money Borrowed has an Average Life equal to
or longer than the Average Life of the Indebtedness for Money Borrowed
being refinanced and a final Stated Maturity equal to or later than the
final Stated Maturity of the Indebtedness for Money Borrowed being
refinanced.
"Permitted Junior Securities" means any equity securities or subordinated
debt securities of the Company or any successor obligor with respect to the
Senior Indebtedness provided for by a plan of reorganization or readjustment
that, in the case of any such subordinated debt securities, are subordinated in
right of payment to all Senior Indebtedness that may at the time be outstanding
to substantially the same degree as, or to a greater extent than, the Notes are
so subordinated as provided in the Indenture.
"Permitted Liens" means any of the following types of Liens:
(a) Liens existing as of the date the Notes are first issued (except
to the extent such Liens secure any Pari Passu Indebtedness or Subordinated
Indebtedness that is repaid or defeased with proceeds of the offering of
the Notes), and any renewal, extension or refinancing of any such Lien
provided that thereafter such Lien extends only to the properties that were
subject to such Lien prior to the renewal, extension or refinancing
thereof;
(b) Liens securing the Notes; and
(c) Liens in favor of the Company.
"Person" means any individual, Corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Production Payments and Reserve Sales" means the grant or transfer to
any Person of a royalty, overriding royalty, net profits interest, production
payment (whether volumetric or dollar denominated), master limited partnership
interest or other interest in oil and gas properties, which reserves the right
to receive all or a portion of the production or the proceeds from the sale of
production attributable to such properties where the holder of such interest has
recourse solely to such production or proceeds of production, subject to the
obligation of the grantor or transferor to operate and maintain, or cause the
subject interests to be operated and maintained, in a reasonably prudent manner
or other customary standard and/or subject to the obligation of the grantor or
transferor to indemnify for environmental matters.
"Restricted Subsidiary" means any Subsidiary, whether existing on or
after the date of the Indenture, unless such Subsidiary is an Unrestricted
Subsidiary or is designated as an Unrestricted Subsidiary pursuant to the terms
of the Indenture.
"Senior Indebtedness" means the principal amount of, and interest on and
all other amounts due on or in connection with, (1) any Indebtedness for Money
Borrowed of the Company, whether now outstanding or
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hereafter created, incurred, assumed or guaranteed, unless in the instrument
creating or evidencing such Indebtedness for Money Borrowed or pursuant to which
such Indebtedness for Money Borrowed is outstanding it is provided that such
indebtedness is subordinate in right of payment or in rights upon liquidation to
any other Indebtedness for Money Borrowed of the Company and (2) all renewals,
extensions and refundings of any such indebtedness.
"Specified Senior Indebtedness" means (a) all Senior Indebtedness of the
Company in respect of the Credit Facility and any renewals, amendments,
extensions, supplements, modifications, deferrals, refinancings, or replacements
(each, for purposes of this definition, a "refinancing") thereof by the
Company, including any successive refinancings thereof by the Company and (b)
any other Senior Indebtedness and any refinancings thereof by the Company having
a principal amount of at least $5 million as of the date of determination and
provided that the agreements, indentures or other instruments evidencing such
Senior Indebtedness or pursuant to which such Senior Indebtedness was issued
specifically designates such Senior Indebtedness as "Specified Senior
Indebtedness" for purposes of the Indenture. For purposes of this definition, a
refinancing of any Specified Senior Indebtedness shall be treated as Specified
Senior Indebtedness only if the Senior Indebtedness issued in such refinancing
ranks or would rank PARI PASSU with the Specified Senior Indebtedness refinanced
and only if the Senior Indebtedness issued in such refinancing is permitted by
the covenant described under "Certain Covenants -- Limitation of Indebtedness
for Money Borrowed."
"Stated Maturity" with respect to any Note or any installment of
principal thereof or interest thereon means the date established by the
Indenture as the fixed date on which the principal of such Note or such
installment of principal or interest is due and payable, and, when used with
respect to any other Indebtedness for Money Borrowed or any installment of
interest thereon, means the date specified in the instrument evidencing or
governing such Indebtedness for Money Borrowed as the fixed date on which the
principal of such Indebtedness for Money Borrowed or such installment of
interest is due and payable.
"Subordinated Indebtedness" means Indebtedness for Money Borrowed of the
Company which is expressly subordinated in right of payment to the Notes,
including, without limitation, the Convertible Debentures.
"Subsidiary" means any Corporation of which at the time of determination
the Company or one or more Subsidiaries owns or controls directly or indirectly
more than 50% of the Voting Stock.
"Unrestricted Subsidiary" means (i) any Subsidiary that at the time of
determination will be designated an Unrestricted Subsidiary by the Board of
Directors as provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary as an
Unrestricted Subsidiary so long as neither the Company nor any Restricted
Subsidiary is directly or indirectly liable pursuant to the terms of any
Indebtedness for Money Borrowed of such Subsidiary or has any assets or
properties which are subject to any Lien securing any Indebtedness for Money
Borrowed of such Subsidiary. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing a Board Resolution with the Trustee
giving effect to such designation. The Board of Directors may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving
effect to such designation, (i) no Event of Default shall have occurred and be
continuing and (ii) the Company could occur $1.00 of additional Indebtedness for
Money Borrowed (other than Permitted Indebtedness) under the "Limitation on
Indebtedness for Money Borrowed" covenant.
"Voting Stock" means stock, interests, participations, rights in or other
equivalents in the equity interests (however designated) with respect to a
Corporation having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of such
Corporation, PROVIDED that, for the purposes hereof, stock which carries only
the right to vote conditionally on the happening of an event shall not be
considered Voting Stock whether or not such event shall have happened.
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DESCRIPTION OF OUTSTANDING SECURITIES AND DEBT INSTRUMENTS
COMMON STOCK
The Company is authorized by its Charter to issue up to 20,000,000 shares
of Common Stock, $0.01 par value. As of October 25, 1996, 5,754,863 shares of
Common Stock were issued and outstanding.
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of stockholders. Such
holders do not have the right to cumulate their votes in the election of
directors. Holders of Common Stock have no redemption or conversion rights and
no preemptive or other rights to subscribe for securities of the Company. In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share equally and ratably in all of the assets
remaining, if any, after satisfaction of all debts and liabilities of the
Company, and of the preferential rights of any series of preferred stock then
outstanding. The outstanding shares of Common Stock are validly issued, fully
paid and nonassessable. Holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. American Stock Transfer & Trust Company is transfer
agent and registrar for the Common Stock.
PREFERRED STOCK
The Company is authorized by its Charter to issue 2,500,000 shares of
preferred stock, $0.01 par value per share. The Board of Directors has the
authority to divide the preferred stock into one or more series and to fix and
determine the relative rights and preferences of the shares of each such series,
including dividend rates, terms of redemption, sinking funds, the amount payable
in the event of voluntary liquidation, dissolution or winding up of the affairs
of the Company, conversions rights and voting powers. The Company has authorized
the issuance of the Convertible Exchangeable Preferred Stock, Series A,
consisting of up to 1,380,000 shares of preferred stock ("Series A Preferred
Stock").
SERIES A PREFERRED STOCK
In November 1995, the Company issued and sold 1,315,500 shares of its
Series A Preferred Stock. The following description of the Series A Preferred
Stock is qualified in its entirety by the Certificate of Designations dated
November 22, 1995, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
DIVIDEND RIGHTS. Holders of the Series A Preferred Stock are entitled to
an annual cash dividend of $2.125 per share, payable quarterly. If dividends are
not paid in full on all outstanding shares of the Series A Preferred Stock and
any other security ranking on parity with the Series A Preferred Stock,
dividends declared on the Series A Preferred Stock and such other parity stock
are paid pro rata. Unless full cumulative dividends on all outstanding shares of
Series A Preferred Stock have been paid, no dividends (other than in Common
Stock or other stock ranking junior to the Series A Preferred Stock) may be
paid, or any other distributions made, on the Common Stock or on any other stock
of the Company ranking junior to the Series A Preferred Stock, nor may any
Common Stock or any other stock of the Company ranking junior to or on a parity
with the Series A Preferred Stock be redeemed, purchased or otherwise acquired
for any consideration by the Company (except by conversion into or exchange for
stock of the Company ranking junior to the Series A Preferred Stock).
CONVERSION. The Series A Preferred Stock is convertible at any time prior
to being called for redemption into Common Stock at a rate of approximately
2.273 shares of Common Stock for each share of Series A Preferred Stock, subject
to adjustment for certain antidilutive events. The Company from time to time may
reduce the conversion price by any amount for a period of at least 20 days if
the Board of Directors determines that such reduction is in the best interests
of the Company. In the event of certain changes in control or fundamental
changes, holders of Series A Preferred Stock have the right to convert all of
their Series A Preferred Stock into Common Stock at a rate equal to the average
of the last reported sales prices of the Common Stock for the five business days
ending on the last business day preceding the date of the change in control or
fundamental change. The Company or its successor may elect to distribute cash to
such holders in lieu of Common Stock at an equal value.
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EXCHANGE. The Series A Preferred Stock may be exchanged at the option of
the Company for Convertible Debentures beginning on January 15, 1998 at the rate
of $25 principal amount of Convertible Debentures for each share of Preferred
Stock, provided that all accrued and unpaid dividends have been paid and certain
other conditions are met.
REDEMPTION. On or after December 31, 1998 the Company may from time to
time redeem the Series A Preferred Stock at an initial redemption price of
$26.488. On December 31 of each year thereafter and until December 31, 2005, the
redemption price decreases. On December 31, 2005 and thereafter, the redemption
price shall remain at $25.
VOTING RIGHTS. The holders of Series A Preferred Stock have no voting
rights, except as otherwise provided by law. However, if dividend payments are
in arrears in an amount equal to or exceeding six quarterly dividends, the
number of directors of the Company will be increased by two and the holders of
the Series A Preferred Stock (voting separately as a class) will be entitled to
elect the additional two directors until all dividends have been paid. In
addition, the Company may not create, issue or increase the authorized number of
shares of any class or series of stock ranking senior to the Series A Preferred
Stock or alter, change or repeal any of the powers, rights or preferences of the
holders of the Series A Preferred Stock as to adversely affect such powers,
rights or preferences.
CONVERTIBLE DEBENTURES
The Convertible Debentures will be issued under an indenture between the
Company and Bank One, Columbus, NA, as trustee, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
statements below are summaries of certain provisions of such indenture and the
Convertible Debentures, do not purport to be complete and are qualified in their
entirety by such reference.
GENERAL. The Convertible Debentures will be unsecured, subordinated
obligations of the Company, limited in aggregate principal amount to the
aggregate liquidation preference of the Series A Preferred Stock and will mature
on December 31, 2010. The Company will pay interest on the Convertible
Debentures semiannually following the issue thereof at the rate of 8.5% per
annum. The Convertible Debentures are to be issued in fully registered form,
without coupons, in denominations of $25 or any integral multiple thereof.
CONVERSION. The Convertible Debentures will be convertible at any time
after issue and prior to being called for redemption into Common Stock at the
conversion rate in effect on the Series A Preferred Stock at the date of
exchange, subject to adjustment for certain antidilutive events. The Company
from time to time may reduce the conversion price in order that certain
stock-related distributions which may be made by the Company to its shareholders
will not be taxable. Each holder of a Convertible Debenture will be entitled to
conversion rights identical in substance to the rights applicable to holders of
Series A Preferred Stock in the event of a change in control or fundamental
change.
SUBORDINATION. Payment of principal of (and premium, if any) and interest
on the Convertible Debentures will be subordinated and junior in right of
payment to the prior payment in full of all senior indebtedness of the Company,
including the Notes. During the continuation of any default in the payment of
principal, interest or premium on any senior indebtedness, no payment with
respect to the principal, interest or premium (if any) on the Convertible
Debentures may be made until such default on the senior indebtedness shall have
been cured or waived or shall have ceased to exist.
REDEMPTION. On or after December 31, 1998, the Convertible Debentures may
be redeemed at the option of the Company at a redemption price (expressed as
percentages of principal amount) of 105.95%. On December 31 of each year
thereafter and until December 31, 2005, the redemption price decreases. On
December 31, 2005 and thereafter, the redemption price shall remain at 100.00%.
EVENTS OF DEFAULT. Upon an Event of Default, the Trustee or the holders of
at least 25% in aggregate principal amount of the outstanding Convertible
Debentures may accelerate the maturity of all Convertible Debentures, subject to
certain conditions. An Event of Default is defined in the indenture generally as
(i) failure to pay principal or premium, if any, on any Convertible Debenture
when due at maturity, upon
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redemption or otherwise; (ii) failure to pay an interest on any Convertible
Debenture when due and continuing for 30 days; (iii) breach of such indenture or
Convertible Debentures by the Company; (iv) certain events in bankruptcy,
insolvency or reorganization; (v) default on indebtedness (other than non-
recourse indebtedness) resulting in more than $7,500,000 becoming due and
payable prior to its maturity; or (vi) a judgment or decree entered against the
Company involving a liability of $7,500,000 or more.
CREDIT FACILITY
Effective October 31, 1996, the Company amended and restated its Credit
Facility which is secured by mortgages covering substantially all of the
Company's producing oil and gas properties. The Credit Facility provides for
borrowings of a maximum of the lesser of $50 million and a Borrowing Base
determined periodically on the basis of a discounted present value attributable
to the Company's proven producing oil and gas reserves. Through May 15, 1997,
the Credit Facility provides a $30 million Borrowing Base. Pursuant to the
Credit Facility, depending upon the percentage of the unused portion of the
Borrowing Base, the interest rate is equal to either Prime or Prime plus 0.50%.
Prime is the prime commercial lending rate announced from time to time by the
lender. The Company, at its option, may fix the interest rate on all or a
portion of the outstanding principal balance at either 1.00% or 1.375% above an
agreement-defined "Eurodollar" rate, depending upon the percentage of the unused
portion of the Borrowing Base, for periods of up to six months. The weighted
average interest rate for the total debt outstanding at November 5, 1996 was
6.375%. Under the Credit Facility, a commitment fee of .25% or .375% per annum
on the unused portion of the Borrowing Base (depending upon the percentage of
the unused portion of the Borrowing Base) is payable quarterly. The Company may
borrow, pay, reborrow and repay under the Credit Facility until October 31,
2000, on which date the Company must repay in full all amounts then outstanding.
Borrowings under the Credit Facility are guaranteed by certain of the
Company's subsidiaries. The Credit Facility has certain customary covenants
including, but not limited to, covenants with respect to the following matters:
(i) limitation on restricted payments, distributions and investments; (ii)
limitations on guarantees and indebtedness; (iii) limitation on prepayments of
subordinated indebtedness; (iv) limitation on prepayments of additional
indebtedness; (v) limitation on mergers and issuances of securities; (vi)
limitation on sales of property; (vii) limitation on transactions with
affiliates; (viii) limitation on derivative contracts; (ix) limitation on
acquisitions, new businesses and margin stock; and (x) limitation with respect
to certain prohibited types of contracts and multi-employer ERISA plans. The
Company is also required to maintain certain financial ratios and conditions,
including without limitation an EBITDA to debt service coverage ratio, a net
worth requirement and a funded debt to capitalization ratio.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement between
the Company and Morgan Keegan & Company, Inc. ("the Underwriter"), the Company
has agreed to sell to the Underwriter, and the Underwriter has agreed to
purchase from the Company, Notes in the aggregate principal amount of
$21,000,000.
The Underwriter proposes to offer the Notes being purchased by it directly
to the public at the initial public offering price set forth on the cover page
of this Prospectus and in part to certain securities dealers, which are members
of the National Association of Securities Dealers, Inc., at such price less
concessions as it may determine within its discretion. After the initial public
offering, the public offering price and concession may be changed.
Under the terms and conditions of the Underwriting Agreement, the
Underwriter is obligated to purchase all of the Notes if any are purchased.
The Company has granted the Underwriter an option exercisable for 30 days
after the date of this Prospectus to purchase up to an additional $3,150,000
aggregate principal amount of the Notes, at the purchase price per Note set
forth on the cover page of this Prospectus, solely to cover overallotments, if
any, in the sale of the Notes.
The Company has agreed to indemnify the Underwriter against certain
liabilities which may be incurred in connection with the Offering, including
certain liabilities under the Securities Act or to contribute to payments the
Underwriter may be required to make in respect of such liabilities.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriter that the Underwriter intends to
make a market for the Notes but is not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of, or the trading market for, the Notes.
In November 1995, the Underwriter acted as an underwriter of the Series A
Preferred Stock for which it received a customary underwriting discount.
LEGAL MATTERS
The validity of the Notes will be passed upon by Butler & Binion, L.L.P.,
Houston, Texas. Certain legal matters with respect to such securities will be
passed upon for the Underwriter by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
The audited historical financial statements of the Company included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving such
report.
The information appearing in this Prospectus regarding quantities of
reserves of oil and gas and the future net cash flows and the present values
thereof from such reserves is based on estimates of such reserves and present
values prepared by Huddleston & Co., Inc., an independent petroleum and
geological engineering firm.
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GLOSSARY
The following definitions shall apply to the technical terms used in this
Prospectus.
"Bbls" means barrels.
"Bbls/d" means barrels per day.
"Bcf" means billion cubic feet.
"Bcfe" means billion cubic feet equivalent, determined using the ratio of
six Mcf of gas to one barrel of oil, condensate or natural gas liquids.
"Gross" means the number of wells or acres in which the Company has an
interest.
"MBbls" means thousands of barrels.
"Mcf" means thousands of cubic feet. Gas volumes are stated at the legal
pressure base of the state or area in which the reserves are located at 60
degrees Fahrenheit.
"Mcf/d" means thousand cubic feet per day.
"Mcfe" means one thousand cubic feet equivalent, determined using the
ratio of six Mcf of gas to one barrel of oil, condensate or natural gas liquids.
"MMBbls" means millions of barrels.
"MMBtu" means a million British thermal units. A British thermal unit is
the heat required to raise the temperature of a one-pound mass of water from
59.5 to 60.5 degrees Fahrenheit under specified conditions.
"MMcf" means millions of cubic feet.
"MMcfe" means one million cubic feet equivalent, determined using the
ratio of six Mcf of gas to one barrel of oil, condensate or natural gas liquids.
"Net" is determined by multiplying gross wells or acres by the Company's
working interest in such wells or acres.
"PV-10 Value" means the present value, discounted at 10%, of future net
cash flows from estimated proved reserves, calculated holding prices and costs
constant at amounts in effect on the date of the report (unless such prices or
costs are subject to change pursuant to contractual provisions).
"Reserve Replacement Costs," expressed in dollars per Mcfe, is calculated
by dividing the amount of total capital expenditures for oil and gas activities
by the amount of proved reserves added during the same period (including the
effect on proved reserves of reserve revisions).
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INDEX TO FINANCIAL STATEMENTS
PAGE
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CALLON PETROLEUM COMPANY
(historical):
Report of Independent Public
Accountants.................... F-2
Consolidated Balance Sheets as
of September 30, 1996 and
December 31, 1995 and 1994..... F-3
Consolidated Statements of
Operations for the Nine Months
Ended September 30, 1996 and
1995 and for the Years Ended
December 31, 1995, 1994 and
1993........................... F-4
Consolidated Statements of
Stockholders' Equity for the
Nine Months Ended
September 30, 1996 and for the
Years Ended December 31, 1995,
1994 and 1993.................. F-5
Consolidated Statements of Cash
Flows for the Nine Months Ended
September 30, 1996 and 1995 and
for the Years Ended December
31, 1995 and 1994.............. F-6
Notes to Consolidated Financial
Statements..................... F-7
CALLON PETROLEUM COMPANY (pro forma):
Pro Forma Consolidated Statement
of Operations for the Year
Ended December 31, 1995........ F-20
Notes to Pro Forma Consolidated
Financial Statement............ F-21
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Callon Petroleum Company:
We have audited the accompanying consolidated balance sheets of Callon
Petroleum Company (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. 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 generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the financial position of Callon Petroleum Company and
subsidiaries, as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, effective
January 1, 1993 the Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
February 23, 1996
F-2
<PAGE>
CALLON PETROLEUM COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
1996 1995 1994
------------- ------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......... $ 8,709 $ 4,265 $ 7,285
Accounts receivable, trade......... 8,401 8,329 8,895
Other current assets............... 149 238 21
------------- ------------ ------------
Total current assets.......... 17,259 12,832 16,201
------------- ------------ ------------
Oil and gas properties, full cost
accounting method:
Evaluated properties............... 308,178 304,737 285,976
Less accumulated depreciation,
depletion and amortization....... (264,658) (257,143) (246,975)
------------- ------------ ------------
43,520 47,594 39,001
Unevaluated properties excluded
from amortization................ 24,895 10,171 4,919
------------- ------------ ------------
Total oil and gas
properties................. 68,415 57,765 43,920
------------- ------------ ------------
Pipeline and other facilities, net...... 6,695 5,371 5,579
Other property and equipment, net....... 1,620 1,633 1,633
Deferred tax asset...................... 5,462 5,462 5,462
Long-term gas balancing receivable...... 435 619 734
Other assets, net....................... 37 185 257
------------- ------------ ------------
Total assets.................. $ 99,923 $ 83,867 $ 73,786
============= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade............ $ 14,054 $ 8,077 $ 10,391
Deferred income.................... 237 43 43
Current maturities of long-term
debt............................. -- -- 3,871
------------- ------------ ------------
Total current liabilities..... 14,291 8,120 14,305
------------- ------------ ------------
Long-term debt.......................... 8,950 100 15,363
Deferred income......................... 61 86 128
Long-term gas balancing payable......... 353 432 559
------------- ------------ ------------
Total liabilities............. 23,655 8,738 30,355
------------- ------------ ------------
Stockholders' equity:
Preferred Stock, $0.01 par value,
2,500,000 shares authorized;
1,315,500 shares of Convertible
Exchangeable Preferred Stock,
Series A issued
and outstanding with a
liquidation preference of
$32,887,500 (Note 11)............ 13 13 --
Common Stock, $0.01 par value;
20,000,000 shares authorized;
5,754,863 at September 30, 1996
and 5,754,529 shares outstanding
at December 31, 1995............. 58 58 58
Capital in excess of par value..... 73,955 73,955 43,069
Retained earnings.................. 2,242 1,103 304
------------- ------------ ------------
Total stockholders' equity....... 76,268 75,129 43,431
------------- ------------ ------------
Total liabilities &
stockholders' equity....... $ 99,923 $ 83,867 $ 73,786
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CALLON PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales..................... $ 18,578 $ 17,400 $ 23,210 $ 13,948 $ 10,048
Interest and other.................... 537 501 627 171 230
--------- --------- --------- --------- ---------
Total revenues................... 19,115 17,901 23,837 14,119 10,278
--------- --------- --------- --------- ---------
Costs and expenses:
Lease operating expenses.............. 5,646 5,201 6,732 4,042 3,713
Depreciation, depletion and
amortization....................... 7,697 7,929 10,376 6,049 3,411
General and administrative............ 2,352 2,960 3,880 3,717 2,350
Interest.............................. 184 1,441 1,794 624 196
--------- --------- --------- --------- ---------
Total costs and expenses......... 15,879 17,531 22,782 14,432 9,670
--------- --------- --------- --------- ---------
Income (loss) from operations........... 3,236 370 1,055 (313) 608
Income tax expense (benefit).......... -- -- -- (200) 113
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect
of change in accounting principle..... 3,236 370 1,055 (113) 495
Cumulative effect of change in
accounting principle (Note 3)......... -- -- -- -- 5,262
--------- --------- --------- --------- ---------
Net income (loss)....................... 3,236 370 1,055 (113) 5,757
Preferred stock dividends............... 2,097 -- 256 -- --
--------- --------- --------- --------- ---------
Net income (loss) available to common
shares................................ $ 1,139 $ 370 $ 799 $ (113) $ 5,757
========= ========= ========= ========= =========
Pro forma adjustment (unaudited):
Provision for income taxes (Note 3)... -- -- -- -- 100
--------- --------- --------- --------- ---------
Pro forma net income (loss)........... $ 1,139 $ 370 $ 799 $ (113) $ 5,657
========= ========= ========= ========= =========
Income (loss) per common share:
Income (loss) per share before change
in accounting principle............ $ .20 $ .06 $ .14 $ (.03) $ .13
========= ========= ========= ========= =========
Cumulative effect of change in
accounting principle............... $ -- $ -- $ -- $ -- $ 1.40
========= ========= ========= ========= =========
Pro forma............................. $ .20 $ .06 $ .14 $ (.03) $ 1.50
========= ========= ========= ========= =========
Weighted average common shares
outstanding........................... 5,755 5,754 5,755 4,346 3,769
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CALLON PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL IN
CAPITAL PREFERRED COMMON EXCESS OF RETAINED
ACCOUNTS STOCK STOCK PAR VALUE EARNINGS
-------- --------- ------ ---------- --------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1992............. $ 22,711 $ -- $-- $ -- $ --
Net income.............................. 5,757 -- -- -- --
Provision for income taxes (Note 3)..... 113 -- -- -- --
Distributions........................... (1,411) -- -- -- --
-------- --------- ------ ---------- --------
Balances, December 31, 1993............. 27,170 -- -- -- --
Pre consolidation income (loss)......... (417) -- -- -- --
Distributions........................... (1,191) -- -- -- --
Consolidation (Note 1).................. (25,562) -- 58 43,069 --
Post consolidation income............... -- -- -- -- 304
-------- --------- ------ ---------- --------
Balances, December 31, 1994............. -- -- 58 43,069 304
Net income.............................. -- -- -- -- 1,055
Sale of preferred stock (Note 11)....... -- 13 -- 30,886 --
Preferred stock dividends............... -- -- -- -- (256)
-------- --------- ------ ---------- --------
Balances, December 31, 1995............. -- 13 58 73,955 1,103
Net income (Unaudited).................. -- -- -- -- 3,236
Preferred stock dividends (Unaudited)... -- -- -- -- (2,097)
-------- --------- ------ ---------- --------
Balances, September 30, 1996
(Unaudited)........................... $ -- $ 13 $ 58 $ 73,955 $ 2,242
======== ========= ====== ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CALLON PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ---------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................. $ 3,236 $ 370 $ 1,055 $ (113) $ 5,757
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, depletion and
amortization............... 7,913 8,131 10,600 6,328 3,657
Amortization of deferred
costs...................... 201 -- 133 88 35
Cumulative effect of change in
accounting principle....... -- -- -- -- (5,262)
Income tax expense
(benefit).................. -- -- -- (200) 113
---------- ---------- ---------- ---------- ---------
11,350 8,501 11,788 6,103 4,300
Changes in current assets &
liabilities:
Accounts receivable,
trade................... (72) 2,063 566 565 2,165
Other current assets....... 89 (39) (217) (8) (23)
Accounts payable, trade.... 5,534 (1,563) (2,314) (1,242) (2,171)
Deferred income............ 194 -- -- -- --
Change in gas balancing
receivable................. 184 163 115 (148) 25
Change in gas balancing
payable.................... (79) (130) (127) 210 108
Change in deferred income..... (25) (32) (42) (43) 143
Change in other assets, net... (53) (229) (61) (90) 188
---------- ---------- ---------- ---------- ---------
Cash provided by operating
activities................. 17,122 8,734 9,708 5,347 4,735
---------- ---------- ---------- ---------- ---------
Cash flows from investing activities:
Capital expenditures............... (20,402) (16,860) (24,323) (10,420) (4,096)
Equity issued to purchase CN cash
(Note 4)........................ -- -- -- 3,989 --
Cash proceeds from sale of mineral
interests....................... 528 80 86 8 1,386
---------- ---------- ---------- ---------- ---------
Cash used in investing
activities................. (19,874) (16,780) (24,237) (6,423) (2,710)
---------- ---------- ---------- ---------- ---------
Cash flows from financing activities:
Payments on debt................... -- (2,383) (25,134) (20,627) (2,783)
Increase in debt................... 8,850 6,000 6,000 25,734 2,499
Dividends/distributions paid....... -- -- -- (1,191) (1,411)
Sale of preferred stock............ -- -- 30,899 -- --
Increase in accrued preferred stock
dividends payable............... 443 -- -- -- --
Dividends on preferred stock....... (2,097) -- (256) -- --
---------- ---------- ---------- ---------- ---------
Cash provided by (used in)
financing activities....... 7,196 3,617 11,509 3,916 (1,695)
---------- ---------- ---------- ---------- ---------
Net increase (decrease) in cash and
cash equivalents................... 4,444 (4,429) (3,020) 2,840 330
Cash and cash equivalents:
Balance, beginning of period....... 4,265 7,285 7,285 4,445 4,115
---------- ---------- ---------- ---------- ---------
Balance, end of period............. $ 8,709 $ 2,856 $ 4,265 $ 7,285 $ 4,445
========== ========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO SEPTEMBER 30, 1996 AND 1995 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Callon Petroleum Company, formerly Callon Petroleum Holding Company, (the
"Company") was organized under the laws of the state of Delaware in March,
1994 to serve as the surviving entity in the consolidation to combine the
businesses and properties of Callon Consolidated Partners, L.P. ("CCP"),
Callon Petroleum Operating Company ("CPOC") and CN Resources ("CN"),
directly or indirectly, with the Company. CPOC was the general partner of CCP,
and CN was a general partnership between CPOC and NOCO Enterprises, L. P.
("NOCO"), a limited partnership owned by private investors (CPOC, CCP and CN
are referred to collectively as the "Constituent Entities"). The combination
of the businesses and properties of the Constituent Entities with the Company
was effected in three simultaneous transactions on September 16, 1994
(collectively, the "Consolidation"):
(i) CCP was merged (the "Merger") into the Company and each unit of
limited partner interest in CCP ("Units") was converted into the right to
receive one-third of a share of Common Stock of the Company ("Common
Stock"). Subject to compliance with certain requirements, any holder of
less than 100 Units could elect to receive, in lieu of shares of Common
Stock, $4.50 in cash per Unit owned. CCP unitholders received 1,877,493
shares of Common Stock of the Company.
(ii) Holders of capital stock of CPOC exchanged such capital stock
for an aggregate of 1,892,278 shares of Common Stock of the Company,
resulting in CPOC becoming a wholly owned subsidiary of the Company (the
"Share Exchange").
(iii) NOCO exchanged its partnership interest for 1,984,758 shares of
Common Stock of the Company, resulting in CN becoming directly and
indirectly wholly owned by the Company (the "CN Exchange"). See Note 4.
As a result of the Consolidation, all of the businesses and properties of
the Constituent Entities are owned (directly or indirectly) by the Company, and
the former stockholders of CPOC, partners of CCP and NOCO have become
stockholders of the Company. Certain registration rights were granted to the
holders of the capital stock of CPOC and NOCO. See Note 7.
The Company and its predecessors have been engaged in the acquisition,
development and exploration of crude oil and natural gas since 1950. The
Company's properties are geographically concentrated in Louisiana, Alabama and
offshore Gulf of Mexico.
BASIS OF PREPARATION
The accompanying Consolidated Financial Statements of the Company reflect
the combination of CPOC, CCP, and CPOC's interest in CN as a reorganization of
entities under common control (accounted for similar to a "pooling of
interest"). NOCO's interest in CN was recorded as a purchase effective at the
date of the Consolidation (September 16, 1994), thus amounts related to the CN
Exchange are included from the date of the purchase for the periods presented in
the Consolidated Financial Statements. CPOC made no direct investment in CN,
therefore the inclusion of 100% of the assets and liabilities of CN in the
Consolidated Balance Sheet, as of the purchase date, are attributable to NOCO's
interest in CN. Because no revenues or expenses, as of the date of the
Consolidation, were attributable to CPOC's interest in CN until NOCO had
received a preferential return on its investment, all of the revenues and
expenses of CN through September 16, 1994, are also attributable to NOCO. See
Note 4 for pro forma information.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND REPORTING
The Consolidated Financial Statements include the accounts of the Company,
and its subsidiary, CPOC. CPOC also has subsidiaries which are Callon Offshore
Production, Inc., Mississippi Marketing, Inc.
F-7
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and Callon Exploration Company. All intercompany accounts and transactions have
been eliminated. Certain prior year amounts have been reclassified to conform
with presentation in the current year. Reclassifications relate primarily to
operator overhead reimbursements (previously included in "Management Fees and
Other") which are shown as a reduction of production expenses and general and
administrative expenses. This change in presentation more clearly reflects
industry practice for reporting operator overhead reimbursements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of 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.
ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("FAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which was adopted by the Company for the fiscal year ending December 31, 1996.
The effect of adopting FAS 121 was not material to the Company's financial
position or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for
Stock-Based Compensation", effective for the Company at December 31, 1996.
Under FAS 123, companies can either record expenses based on the fair value of
stock-based compensation upon issuance or elect to remain under the current
"APB Opinion No. 25" method, whereby no compensation cost is recognized upon
grant, and make disclosures as if FAS 123 had been applied. The Company
anticipates it will continue to account for its stock-based compensation plans
under APB Opinion No. 25.
PROPERTY AND EQUIPMENT
The Company follows the full cost method of accounting for oil and gas
properties whereby all costs incurred in connection with the acquisition,
exploration and development of oil and gas reserves, including certain overhead
costs, are capitalized. Such amounts include the cost of drilling and equipping
productive wells, dry hole costs, lease acquisition costs, delay rentals and
other costs related to exploration and development activities. Payroll and
general and administrative costs include salaries and related fringe benefits
paid to employees directly engaged in the acquisition, exploration and/or
development of oil and gas properties as well as other directly identifiable
general and administrative costs associated with such activities. Costs
associated with unevaluated properties are excluded from amortization.
Unevaluated property costs are transferred to evaluated property costs at such
time as wells are completed on the properties, the properties are sold or
management determines these costs have been impaired.
Costs of properties, including future development and net future site
restoration, dismantlement and abandonment costs, which have proved reserves and
those which have been determined to be worthless are depleted using the
unit-of-production method based on proved reserves. If the total capitalized
costs of oil and gas properties, net of amortization, exceed the sum of (1) the
estimated future net revenues from proved reserves at current prices and
discounted at 10% and (2) the cost of unevaluated properties (the full cost
ceiling amount), then such excess is charged to expense during the period in
which the excess occurs.
Upon the acquisition or discovery of oil and gas properties, management
estimates the future net costs to be incurred to dismantle, abandon and restore
the property using geological, engineering and regulatory data available. Such
cost estimates are periodically updated for changes in conditions and
requirements. Such estimated amounts are considered as part of the full cost
pool subject to amortization upon acquisition
F-8
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or discovery. Such costs are capitalized, as oil and gas properties, as the
actual restoration, dismantlement and abandonment activities take place. As of
December 31, 1995 and 1994, estimated future site restoration, dismantlement and
abandonment costs, net of related salvage value and amounts funded by
abandonment trusts (see Notes 7 and 9) were not material.
Depreciation of other property and equipment is provided using the
straight-line method over estimated lives of three to 20 years. Depreciation of
the pipeline facilities is provided using the straight-line method over a 27
year estimated life.
NATURAL GAS IMBALANCES
Natural gas imbalances occur when a producer sells natural gas
disproportionate to his ownership share of the total gas production from a
property as a result of pipeline curtailments, contract differences or election
by some producers not to sell their gas currently. These imbalances are made up
through allocations of future production from the property. The Company follows
an entitlement method of accounting for its proportionate share of gas
production on a well by well basis, recording a receivable to the extent that a
well is in an "undertake" position and conversely recording a liability to the
extent that a well is in an "overtake" position.
DERIVATIVES
The Company uses derivative financial instruments (see Note 6) for price
protection purposes on a limited amount of its future production and does not
use them for trading purposes. Such derivatives are accounted for on an accrual
basis and amounts paid or received under the agreements are recognized as oil
and gas sales in the period in which they accrue.
RESERVE FOR DOUBTFUL ACCOUNTS
The balance in the reserve for doubtful accounts included in accounts
receivable is $481,000 and $479,000 at December 31, 1995 and 1994, and $393,000
at September 30, 1996. Net charge offs were $181,000 in 1994 and $53,000 in
1993, and net recoveries were $2,000 in 1995. There were no provisions to
expense in the three-year period ended December 31, 1995 or the nine months
ended September 30, 1996. Net charge offs were $88,000 for the nine months ended
September 30, 1996 and net recoveries were $2,000 for the nine months ended
September 30, 1995.
STATEMENTS OF CASH FLOWS
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
The Company paid no federal income taxes for the three years ended December
31, 1995. During the years ended December 31, 1995, 1994 and 1993, the Company
made cash payments of $1,910,000, $377,000 and $182,000, respectively, for
interest charged on its indebtedness, and $72,000 for the nine months ended
September 30, 1996.
PER SHARE AMOUNTS
Per share amounts are calculated on a weighted average basis in accordance
with the shares issued in the Consolidation described in Note 1. The options
discussed in Note 10 have no effect on these calculations in 1995. The preferred
stock issued in 1995 (Note 11) is not a common stock equivalent and is not
included in the calculations of per share amounts, and due to their antidilutive
effect on earnings per share, dual presentation of per share amounts is not
necessary.
F-9
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of Financial
Accounting Standards Board Statement No. 109 ("FAS 109") "Accounting for
Income Taxes". The statement provides for the recognition of a deferred tax
asset for deductible temporary timing differences, capital and operating loss
carryforwards, statutory depletion carryforward and tax credit carryforwards,
net of a "valuation allowance". The valuation allowance is provided for that
portion of the asset, for which it is deemed more likely than not, that it will
not be realized. The adoption of this change in accounting principle resulted in
the recording of a deferred tax asset at December 31, 1995, 1994 and 1993 as
follows:
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
Federal net operating loss
carryforward.......................... $ 3,563 $ 2,072 $ 1,835
Federal capital loss carryforward....... -- -- 1,377
Statutory depletion carryforward........ 3,987 4,085 3,885
Temporary differences:
Oil and gas properties............. 874 2,817 2,542
Pipeline facilities................ (1,880) (1,953) --
Non-oil and gas property........... 23 28 440
Other.............................. 655 724 525
--------- --------- ---------
Total tax asset......................... 7,222 7,773 10,604
Valuation allowance..................... (1,760) (2,311) (5,342)
--------- --------- ---------
Net tax asset........................... $ 5,462 $ 5,462 $ 5,262
========= ========= =========
At December 31, 1995, the Company had, for tax reporting purposes,
operating loss carryforwards ("NOL") of $10.2 million which expire in 1999
through 2010. Such carryovers are subject to limitations on utilization as a
result of ownership changes which occurred in CPOC's common stock prior to the
Consolidation and ownership changes as a result of the Consolidation.
Additionally, the Company had available for tax reporting purposes $11.4 million
in statutory depletion deductions which can be carried forward for an indefinite
period.
As a result of the combination of the Company and CCP there was a change in
the tax status of the Company; therefore, the Company was able to reduce the
valuation allowance at January 1, 1993 by $5,262,000. This reduction is shown as
a "cumulative effect of change in accounting principle" in the December 31,
1993 Consolidated Statement of Operations. The net asset represents the
statutory depletion carryforward (which has an unlimited carryforward period)
and the portion of the federal net operating loss carryforward that the
Company's management believes will be utilized. All other temporary differences
are offset by the valuation allowance, which represents that portion of the
asset that management believes is more likely than not, that it will not be
realized.
During 1994, additional statutory depletion was estimated which has been
reflected as a reduction of the income tax provision and an addition to the
deferred tax asset in the amount of $200,000, resulting in an effective tax rate
of (63)%. At December 31, 1995, the difference between the Company's effective
tax rate and the statutory rate of 35% is attributed to the following:
refinement of prior estimates of statutory depletion, 14%; reduction in the
valuation allowance, (52)%; and other nondeductible items, 3%.
The income tax amounts on the Consolidated Statements of Stockholders'
Equity in 1993 reflect the historical accounting treatment of income taxes of
one of the Constituent Entities. Such accounting treatment was discontinued in
1994 due to the effect of the Consolidation.
F-10
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma provision for income taxes relates to the income of CCP prior
to the Consolidation as if such income was taxed as a corporation. Pro forma tax
adjustments were provided only to the extent CCP had income, thus none was
recorded in 1994.
4. ACQUISITIONS
On September 14, 1994, (with an effective date of September 16, 1994) the
unitholders of CCP, stockholders of CPOC, and the partners of CN completed the
Consolidation as described in Note 1. Net assets purchased (excluding cash of
$3,989,000) was $13,847,000 of which oil and gas property, including pipeline
facilities, and debt amounted to $24,506,000 and $11,436,000, respectively. Such
amounts represent non-cash transactions and therefore are not included in the
Consolidated Statements of Cash Flows.
On December 29, 1995, CPOC purchased a 66.67% working interest in
Chandeleur Block 40 (the "CB 40 Acquisition") from Amerada Hess Corporation
and, in a simultaneous transaction under a pre-existing agreement, sold
one-third of the acquired interest to an industry partner. The Company's net
purchase price of $6 million was funded from existing cash on hand.
The following information represents unaudited pro forma results of the
Company for the years ended December 31, 1995, 1994 and 1993 and includes both
the purchase of CN and the CB 40 Acquisition, presented as if the purchase of CN
had occurred at the beginning of 1994 and 1993, and the CB 40 Acquisition
presented as if it had occurred at the beginning of 1995 and 1994.
PRO FORMA (UNAUDITED)
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Total revenues.......................... $ 25,237 $ 29,132 $ 40,050
========= ========= =========
Net income before cumulative effect of
change in accounting principle........ $ 1,179 $ 3,703 $ 4,833
========= ========= =========
Net income per common share............. $ .20 $ .64 $ .84
========= ========= =========
Weighted average common shares
outstanding........................... 5,755 5,755 5,755
========= ========= =========
Pro forma common shares outstanding used in the above calculations include
shares of the Company issued as a result of the Merger of CCP and the Share
Exchange in addition to the shares of the Company issued in the CN Exchange.
The Company, together with Murphy Exploration and Production, Inc.,
("Murphy") was the high bidder on 12 offshore tracts at the Outer Continental
Shelf ("OCS") Lease Sale #157, held April 24, 1996 in New Orleans, Louisiana,
and conducted by the U.S. Department of the Interior through its Minerals
Management Service ("MMS"). The Company holds a 25% working interest in the
leases and its share of the total lease costs was approximately $11.4 million.
On September 25, 1996, the Company and Murphy submitted bids on six
additional offshore leases encompassing approximately 35,000 acres at the OCS
Lease Sale #161, held in New Orleans, Louisiana by the MMS. If the bids are
approved and the leases are awarded, the Company's share of the costs will be
$3.8 million, of which $.8 million had been paid as of September 30, 1996. The
Company will own a 25% working interest in the awarded leases.
F-11
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE
Notes payable consisted of the following at:
DECEMBER 31,
SEPTEMBER 30, --------------------
1996 1995 1994
------------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
Credit Facility...................... $ 8,950 $ 100 $ 19,000
Building Mortgage, at prime, as
defined plus 2%
(9.75% at December 31, 1994)....... -- -- 234
------------- --------- ---------
8,950 100 19,234
Less: current portion................ -- -- 3,871
------------- --------- ---------
$ 8,950 $ 100 $ 15,363
============= ========= =========
On October 14, 1994, CPOC entered into a definitive credit agreement with a
commercial lender providing for a credit facility of up to $30,000,000.
Currently, the credit facility provides the Company with a minimum borrowing
base of $15,000,000 through December 31, 1996. The purpose for obtaining this
credit facility was to refinance existing indebtedness incurred primarily
through acquisitions of oil and gas properties prior to, and assumed by the
Company as a result of, the Consolidation (See Note 1). The interest rate in the
agreement is the average published prime rate of three major U.S. banks. The
Company, at its option, may fix the rate on all or a portion of the outstanding
balance at 1.375% above an agreement defined "Eurodollar" rate for periods of
up to six months. The weighted average rate for the total debt outstanding at
September 30, 1996 and December 31, 1995 was 6.875% and 9.25%, respectively. A
commitment fee of one half of 1% per annum on the unused portion of the
borrowing base is payable quarterly. Principal payments are payable on the last
day of each month, commencing January 31, 1997, in a manner intended to repay
the debt in full on June 30, 1999. Borrowings under the credit facility are
secured by a mortgage of substantially all of the Company's and its
subsidiaries' oil and gas properties.
The credit facility contains various covenants including restrictions on
additional indebtedness and payment of cash dividends as well as maintenance of
certain financial ratios.
The Company changed its commercial lender and entered into a new definitive
credit agreement on October 31, 1996. The new credit facility provides for
borrowing of up to $50,000,000 with an initial borrowing base of $30,000,000.
The interest rate, fees, terms and covenants of the new credit agreement are
similar to and, in most cases, are more favorable than the 1994 credit
agreement. The maturity date of the new credit facility is October 31, 2000.
6. HEDGING CONTRACTS
The Company hedges with third parties certain of its crude oil and natural
gas production in various swap agreement contracts. The contracts are tied to
published market prices for crude oil and natural gas and are settled monthly
based on the differences between contract prices and the average defined market
price for that month applied to the related contract volume. As of September 30,
1996, December 31, 1995 and December 31, 1994 the Company's open forward sales
position (all expiring in 1996) was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
------------------ ------------------- -------------------
OIL GAS OIL GAS OIL GAS
(BBLS) (MMBTU) (BBLS) (MMBTU) (BBLS) (MMBTU)
------- ------- ------ --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Volumes.............................. 180,000 -- -- 1,200,000 192,000 3,800,000
Average Price per Unit............... $ 23.33 -- -- $ 1.75 $ 18.24 $ 2.30
</TABLE>
In addition, as of December 31, 1995, the Company has entered into collar
agreements with third parties whereby minimum floor prices and maximum ceiling
prices are contracted and applied to related
F-12
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contract volumes. These agreements in effect for 1996 and the first quarter of
1997 are for average oil volumes of 23,750 barrels per month at a ceiling price
of $19.38 and floor of $16.75 and for average gas volumes of 130,000 MCF's per
month at a ceiling price of $2.28 and floor of $1.80. At September 30, 1996, the
Company had collar agreements for average oil volumes of 40,000 barrels per
month for the fourth quarter of 1996 at a ceiling price of $19.59 and floor of
$17.25 and average gas volumes of 100,000 MCF's per month at a ceiling price of
$2.20 and floor of $1.75 through the first quarter of 1997.
During 1994, the Company recognized revenue under the swap agreements of
$1,227,000 and $1,724,000 on a Historical and a Pro forma basis respectively,
and $2,466,000 for the twelve months ended December 31, 1995. The Company
recognized a reduction in revenue of $2,048,000 for the nine months ended
September 30, 1996 under the hedging agreements.
The calculation of the fair market value of the hedging contracts indicates
a $413,800 market value liability to the Company as of December 31, 1995 based
on market prices at that date.
7. COMMITMENTS AND CONTINGENCIES
As operator, the Company has guaranteed, through its debt facilities,
certain letters of credit in the amount of $253,000. These letters of credit are
primarily issued to various state oil and gas regulatory agencies to ensure
compliance with various regulations on operated properties.
As described in Note 9, abandonment trusts (the "Trusts") have been
established for future abandonment obligations of those oil and gas properties
of the Company burdened by a net profits interest. The management of the Company
believes the Trusts will be sufficient to offset those future abandonment
liabilities; however, the Company is responsible for any abandonment expenses in
excess of the Trusts' balances. As of December 31, 1995, total estimated site
restoration, dismantlement and abandonment costs were approximately $21,395,000,
net of expected salvage value. Substantially all such costs are expected to be
funded through the Trusts' funds, all of which will be accessible to the Company
when abandonment work begins. In addition as a working interest owner and/or
operator of oil and gas properties, the Company is responsible for the cost of
abandonment of such properties, see Note 2.
The Consolidation described in Note 1 provides that the former stockholders
of CPOC, as a result of the Share Exchange, may be issued additional shares of
the Company's Common Stock ("Contingent Shares"). The Contingent Shares are
attributable to the value of specified oil and gas properties, which were owned
by CPOC and were in the early stages of development at the date of the
Consolidation. The amount of Contingent Shares, if any, to be issued will be
determined based on a valuation of these specified oil and gas properties at
December 31, 1996.
Also, as part of the Consolidation, the Company entered into Registration
Rights Agreements whereby the former stockholders of CPOC and NOCO are entitled
to require the Company to register Common Stock of the Company owned by them
with the Securities and Exchange Commission for sale to the public in a firm
commitment public offering and generally to include shares owned by them, at no
cost, in registration statements filed by the Company. Costs of the offering
will not include discounts and commissions, which will be paid by the respective
sellers of the Common Stock.
F-13
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. OIL AND GAS PROPERTIES
The following table sets forth cost information relating to the Company's
oil and gas activities:
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------
1996 1995 1994 1993
------------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Capitalized costs incurred: (IN THOUSANDS)
Beginning of period balance........ $ 304,737 $ 285,976 $ 260,971 $ 258,554
Property acquisition............... 2,153 14,017 23,037 2,550
Exploration and development........ 1,816 4,830 1,976 1,253
Sale of mineral interests.......... (528 ) (86) (8) (1,386)
------------- ---------- ---------- ----------
End of period balance.............. $ 308,178 $ 304,737 $ 285,976 $ 260,971
============= ========== ========== ==========
Accumulated depreciation, depletion and
amortization:
Beginning of period balance........ $ 257,143 $ 246,975 $ 240,926 $ 237,515
Provision for depreciation,
depletion and amortization....... 7,515 10,168 6,049 3,411
------------- ---------- ---------- ----------
End of period balance.............. $ 264,658 $ 257,143 $ 246,975 $ 240,926
============= ========== ========== ==========
</TABLE>
Depreciation, depletion and amortization per unit-of-production (equivalent
barrel of oil) amounted to $5.95, $5.80 and $5.29 for the years ended December
31, 1995, 1994 and 1993, respectively, and $6.02 and $5.79 for the nine months
ended September 30, 1996 and 1995, respectively.
9. NET PROFITS INTEREST
Since 1989, the Constituent Entities have entered into separate agreements
to purchase certain oil and gas properties with gross contract acquisition price
of $170,000,000 ($150,000,000 net as of closing dates) and in simultaneous
transactions, entered into agreements to sell overriding royalty interests
("ORRI") in the acquired properties. These ORRI are in the form of net profits
interests ("NPI") equal to a significant percentage of the excess of gross
proceeds over production costs, as defined, from the acquired oil and gas
properties. A net deficit incurred in any month can be carried forward to
subsequent months until such deficit is fully recovered. The Company has the
right to abandon the purchased oil and gas properties if it deems the properties
to be uneconomical.
The Company has, pursuant to the purchase agreements, created abandonment
trusts whereby funds are provided out of gross production proceeds from the
properties for the estimated amount of future abandonment obligations related to
the working interests owned by the Company. The Trusts are administered by
unrelated third party trustees for the benefit of the Company's working interest
in each property. The Trust agreements limit their funds to be disbursed for the
satisfaction of abandonment obligations. Any funds remaining in the Trusts after
all restoration, dismantlement and abandonment obligations have been met will be
distributed to the owners of the properties in the same ratio as contributions
to the Trusts. The Trusts' assets are excluded from the Consolidated Balance
Sheets of the Company because the Company does not control the Trusts. Estimated
future revenues and costs associated with the NPI and the Trusts are also
excluded from the oil and gas reserve disclosures at Note 12. As of December 31,
1995 and 1994 the Trusts' assets (all cash and investments) totaled $16,100,000
and $14,208,000, respectively, all of which will be available to the Company to
pay its portion, as working interest owner, of the restoration, dismantlement
and abandonment costs discussed at Note 7.
F-14
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At the time of acquisition of properties by the Company, the property
owners estimated the future costs to be incurred for site restoration,
dismantlement and abandonment, net of salvage value. A portion of the amounts
necessary to pay such estimated costs was deposited in the Trusts upon
acquisition of the properties, and the remainder is deposited from time to time
out of the proceeds from production. The determination of the amount deposited
upon the acquisition of the properties and the amount to be deposited as
proceeds from production was based on numerous factors, including the estimated
reserves of the properties. The amounts deposited in the Trusts upon acquisition
of the properties was capitalized by the Company as oil and gas properties.
As operator, the Company receives all of the revenues and incurs all of the
production costs for the purchased oil and gas properties but retains only that
portion applicable to its net ownership share. As a result, the payables and
receivables associated with operating the properties included in the Company's
Consolidated Balance Sheets include both the Company's and all other outside
owner's shares. However, revenues and production costs associated with the
acquired properties reflected in the accompanying Consolidated Statements of
Operations represent only the Company's share, after reduction for the NPI. At
December 31, 1995 and 1994 the amounts payable to the NPI owners included in the
accounts payable in the accompanying Consolidated Balance Sheets were
approximately $2,836,000 and $2,087,000, respectively, and $6,203,000 at
September 30, 1996.
10. EMPLOYEE BENEFIT PLANS
The Company has adopted a series of incentive compensation plans designed
to align the interest of the executives and employees with those of its
stockholders. The following is a brief description of each plan:
o The Savings and Protection Plan, provides employees with the option
to defer receipt of a portion of their compensation and the Company
may, at its discretion, match a portion of the employee's deferral.
The Company may also elect, at its discretion, to contribute a non-
matching amount to employees. The amounts held under the Savings
and Protection Plan are invested in various funds maintained by a
third party in accordance with the directions of each employee. An
employee is fully vested immediately upon participation in the
Savings and Protection Plan. The total amounts contributed by the
Company were $176,000, $154,000 and $151,000 in the years 1995,
1994 and 1993, respectively.
o The 1994 Stock Incentive Plan (the "Plan") provides for 600,000
shares of Common Stock to be reserved for issuance pursuant to such
Plan. Under the Plan the Company may grant both stock options
qualifying under Section 422 of the Internal Revenue Code and
options that are not qualified as incentive stock options, as well
as performance shares. No options will be granted at an exercise
price of less than fair market value of the Common Stock on the
date of grant. During 1994 the Company granted options to purchase
a total of 460,000 shares of Common Stock pursuant to the Plan at
$10 per share. In 1995, the Company granted 30,000 additional
options under the Plan at an average exercise price of $10.08 per
share. All such options could be exercised after January 1, 1996
and have an expiration date ten years from date of grant.
On August 23, 1996,the Board of Directors of the Company approved and
adopted the 1996 Plan, and granted stock options to purchase an aggregate
450,000 shares of Common Stock to the Company's executive officers and senior
management under the 1996 Plan, subject to stockholder approval of the 1996
Plan. All of such options were granted at an exercise price of $12 per share,
the fair market value of the Common Stock on the date of grant, and 20% of each
option becomes exercisable on January 1 of each succeeding year, beginning
January 1, 1997. Unvested options are subject to forfeiture upon certain
termination of employment events. The Compensation Committee also awarded
performance shares totaling 225,000 shares under the 1996 Plan to the Company's
executive officers on August 23, 1996, subject to stockholder approval of the
F-15
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996 Plan. All of the performance shares granted vest in whole on January 1,
2001, and are subject to forfeiture upon certain termination of employment
events.
The Company has no other formal benefit plans.
11. PREFERRED STOCK
In November 1995, the Company sold 1,315,500 shares of $2.125 Convertible
Exchangeable Preferred Stock, Series A (the "Preferred Stock"). Annual
dividends are $2.125 per share and are cumulative. The net proceeds of the $.01
par value stock after underwriters discount and expense was $30,899,000. Each
share has a liquidation preference of $25.00, plus accrued and unpaid dividends.
Dividends on the Preferred Stock are cumulative from the date of issuance and
are payable quarterly, commencing January 15, 1996. The Preferred Stock is
convertible at any time, at the option of the holders thereof, unless previously
redeemed, into shares of Common Stock of the Company at an initial conversion
price of $11 per share of Common Stock, subject to adjustments under certain
conditions.
The Preferred Stock is redeemable at any time on or after December 31,
1998, in whole or in part at the option of the Company at a redemption price of
$26.488 per share beginning at December 31, 1998 and at premiums declining to
the $25.00 liquidation preference by the year 2005 and thereafter, plus accrued
and unpaid dividends. The Preferred Stock is also exchangeable, in whole, but
not in part, at the option of the Company on or after January 15, 1998 for the
Company's 8.5% Convertible Subordinated Debentures due 2010 (the "Debentures")
at a rate of $25.00 principal amount of Debentures for each share of Preferred
Stock. The Debentures will be convertible into Common Stock of the Company on
the same terms as the Preferred Stock and will pay interest semi-annually.
The Company used approximately $21.5 million of the net proceeds from the
sale of the Preferred Stock to repay outstanding indebtedness under its primary
credit facility (See Note 5), which indebtedness was incurred to finance certain
acquisitions of properties. The Company is using the excess of the net proceeds
from the sale of the Preferred Stock over the amount used to repay indebtedness,
together with internally generated cash flows to acquire, develop and explore
oil and gas properties.
12. SUPPLEMENTAL OIL AND GAS RESERVE DATA (UNAUDITED)
The Company's proved oil and gas reserves at December 31, 1995, have been
estimated by independent petroleum consultants in accordance with guidelines
established by the Securities and Exchange Commission ("SEC"). Accordingly,
the following reserve estimates are based upon existing economic and operating
conditions.
There are numerous uncertainties inherent in establishing quantities of
proved reserves. The following reserve data represent estimates only and should
not be construed as being exact. In addition, the present values should not be
construed as the current market value of the Company's oil and gas properties or
the cost that would be incurred to obtain equivalent reserves.
F-16
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Changes in the estimated net quantities of crude oil and natural gas
reserves, all of which are located in the United States, are as follows:
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
Proved developed and undeveloped
reserves:
Crude Oil (MBbls):
Beginning of period................ 4,424 2,842 3,324
Revisions to previous estimates.... (441) (303) (248)
Purchase of reserves in place...... 1,363 2,245 --
Sales of reserves in place......... (2) (3) (4)
Extensions and discoveries......... 16 7 139
Production......................... (594) (364) (369)
--------- --------- ---------
End of Period...................... 4,766 4,424 2,842
========= ========= =========
Natural Gas (MMcf):
Beginning of period................ 24,102 14,167 10,947
Revisions to previous estimates.... (976) (2,793) 1,404
Purchase of reserves in place...... 12,985 16,757 3,701
Sales of reserves in place......... (22) (39) (305)
Extensions and discoveries......... 271 85 79
Production......................... (6,693) (4,075) (1,659)
--------- --------- ---------
End of Period...................... 29,667 24,102 14,167
========= ========= =========
Proved developed reserves:
Crude Oil (MBbls):
Beginning of period................ 3,309 2,084 2,569
========= ========= =========
End of Period...................... 3,890 3,309 2,084
========= ========= =========
Natural Gas (MMcf):
Beginning of period................ 20,582 11,366 9,753
========= ========= =========
End of Period...................... 20,408 20,582 11,366
========= ========= =========
STANDARDIZED MEASURE
The Company's standardized measure of discounted future net cash flows and
changes therein relating to proved oil and gas reserves which follows was
computed using reserve valuations based on regulations prescribed by the SEC.
These regulations provide that the oil, condensate and gas price structure
utilized to project future net cash flows reflects current prices at each date
presented and have been escalated only when known and determinable price changes
are provided by contract and law. Future production, development and net
abandonment costs are based on current costs without escalation. No future
income taxes were provided on the future net inflows as tax credits (including
carryovers) and other permanent differences are expected to be higher than the
estimated future income taxes calculated using the appropriate statutory rates.
The resulting net future cash flows have been discounted to their present values
based on a 10% annual discount factor.
F-17
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS RELATING TO PROVED
OIL AND GAS RESERVES
(UNAUDITED)
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
Future cash inflows..................... $ 157,240 $ 115,659 $ 70,320
Future costs --
Production......................... (50,236) (43,579) (27,805)
Development and net abandonment.... (11,274) (12,603) (6,701)
---------- ---------- ----------
Future net inflows before income
taxes................................. 95,730 59,477 35,814
Future income taxes..................... -- -- --
---------- ---------- ----------
Future net cash flows................... 95,730 59,477 35,814
10% discount factor..................... (31,966) (18,094) (13,260)
---------- ---------- ----------
Standardized measure of discounted
future net cash flows................. $ 63,764 $ 41,383 $ 22,554
========== ========== ==========
CHANGES IN STANDARDIZED MEASURE
OF DISCOUNTED FUTURE NET CASH FLOWS
FROM PROVED RESERVE QUANTITIES
(UNAUDITED)
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
---------- --------- ---------
(IN THOUSANDS)
Standardized measure -- beginning of
period................................ $ 41,383 $ 22,554 $ 25,296
Sales and transfers, net of production
costs................................. (12,477) (9,815) (5,811)
Net change in sales and transfer prices,
net of production costs............... 11,519 1,368 (5,496)
Exchange and sale of in place
reserves.............................. (23) (48) (326)
Purchases, extensions, discoveries, and
improved recovery, net of future
production and development costs...... 28,204 26,376 7,090
Revisions of quantity estimates......... (4,242) (6,297) 461
Accretions of discount.................. 2,963 1,488 1,957
Changes in production rates, timing and
other................................. (3,563) 5,757 (617)
---------- --------- ---------
Standardized measure -- end of period... $ 63,764 $ 41,383 $ 22,554
========== ========= =========
F-18
<PAGE>
CALLON PETROLEUM COMPANY
PRO FORMA CONSOLIDATED FINANCIAL STATEMENT
The following unaudited pro forma financial statement presents the results
of operations of Callon Petroleum Company (the "Company"). Such unaudited pro
forma combined information is based on the historical results of operations of
the Company and the effect of the issuance by the Company of 1,315,500 shares of
$2.125 Convertible Exchangeable Preferred Stock, Series A on November 28, 1995.
On December 29, 1995, Callon Petroleum Operating Company, a wholly owned
subsidiary of the Company purchased a 66.67% working interest in Chandeleur
Block 40 (the "CB 40 Acquisition") and, in a simultaneous transaction, sold
one-third of the acquired interest to a third party. The Company's net purchase
price of $6 million was funded from existing cash on hand.
See Note 1 in the Notes to Pro Forma Consolidated Financial Statement for
the basis of presentation of the above described events in this Pro Forma
Consolidated Financial Statement of the Company.
F-19
<PAGE>
CALLON PETROLEUM COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------
ADJUSTMENTS
----------------------------------------------------------
PREFERRED
HISTORICAL STOCK CB 40 PRO FORMA
COMPANY OFFERING ACQUISITION AS ADJUSTED
---------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
<S> <C> <C> <C> <C>
Oil and gas sales.................. $ 23,210 $ -- $ 1,400(d) $24,610
Interest........................... 627 -- -- 627
---------- --------- ----------- -----------
Total revenues................ 23,837 -- 1,400 25,237
---------- --------- ----------- -----------
Expenses:
Production costs................... 6,732 -- 295(d) 7,027
Depreciation, depletion and
amortization..................... 10,376 -- 521(d) 10,897
General and administrative......... 3,880 -- -- 3,880
Interest........................... 1,794 (1,794)(b) -- --
---------- --------- ----------- -----------
Total expenses................ 22,782 (1,794) 816 21,804
---------- --------- ----------- -----------
Income from operations.................. 1,055 1,794 584 3,433
Provision for income taxes.............. -- 628(a) 204(a) 832
---------- --------- ----------- -----------
Net income.............................. 1,055 1,166 380 2,601
Preferred stock dividends............... 256 2,539(c) -- 2,795
---------- --------- ----------- -----------
Net income (loss) available to common
shares................................ $ 799 $ (1,373) $ 380 $ (194)
========== ========= =========== ===========
Net income (loss) per common share...... $ (0.03)
===========
Weighted average common shares
outstanding........................... 5,755
===========
</TABLE>
See Notes to Pro Forma Consolidated Financial Statement.
F-20
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENT (UNAUDITED)
1. BASIS OF PRESENTATION
The Company was formed in 1994 to succeed to the business and properties of
a group of companies engaged in the exploration, development and operations of
oil and gas properties. The Company subsequently issued 1,315,500 shares of
$2.125 Convertible Exchangeable Preferred Stock, Series A on November 28, 1995.
On December 29, 1995, Callon Petroleum Operating Company, a wholly owned
subsidiary of the Company, purchased a 66.67% working interest in Chandeleur
Block (the "CB 40 Acquisition") and, in simultaneous transaction under a
preexisting agreement, sold one-third of the acquired interest to a third party.
The Company's net purchase price of $6 million was funded from existing cash on
hand.
The accompanying Pro Forma Consolidated Statement of Operations of the
Company for the year ended December 31, 1995, reflects the sale of the 1,315,500
shares of Preferred Stock of the Company and the CB 40 Acquisition in each case
as if such transactions occurred at the beginning of the period presented.
The Pro Forma Consolidated Statement of Operations is based on the
assumptions set forth in the notes to such statement. Such pro forma information
should be read in conjunction with the related financial information of the
Company and is not necessarily indicative of the results which would actually
have occurred had the transactions been in effect on the date or for the period
indicated or which may occur in the future.
2. PRO FORMA ADJUSTMENTS
Pro Forma entries necessary to adjust the historical financial statement of
the Company are as follows:
(a) To record a provision for Federal income taxes at a corporate
statutory rate of 35% of the combined pro forma income before taxes.
(b) Reflects a reduction of interest expense related to the use of
Preferred Stock offering proceeds to repay debt as if the offering had
occurred on January 1, 1995 for the year ended December 31, 1995. No
adjustment has been made to reflect the potential interest income from the
investment of the excess proceeds from the offering over the amount of debt
repaid and the CB 40 Acquisition.
(c) Represents preferred stock dividends computed at the dividend
rate of $2.125 per share on the 1,315,500 preferred shares as if the
offering was completed on January 1, 1995 for the year ended December 31,
1995.
(d) To reflect the purchase of the CB 40 Acquisition and the related
results of operations including an adjustment for depletion as described in
Note 1.
F-21
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NOTES OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
-----
Available Information................... 2
Prospectus Summary...................... 3
Risk Factors............................ 8
The Company............................. 12
Use of Proceeds......................... 13
Capitalization.......................... 14
Selected Financial Data................. 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 17
Business and Properties................. 23
Management.............................. 35
Principal Stockholders.................. 43
Description of Notes.................... 45
Description of Outstanding Securities
and Debt Instruments.................. 60
Underwriting............................ 63
Legal Matters........................... 63
Experts................................. 63
Glossary................................ 64
Index to Financial Statements........... F-1
================================================================================
$21,000,000
[LOGO FOR CALLON]
CALLON PETROLEUM
COMPANY
% SENIOR SUBORDINATED NOTES
DUE 2001
PROSPECTUS
MORGAN KEEGAN & COMPANY, INC.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
All capitalized terms used and not defined in Part II of this Registration
Statement shall have the meanings assigned to them in the Prospectus which forms
a part of this Registration Statement.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by Callon Petroleum Company in connection
with the issuance and distribution of the Notes to be registered, other than
underwriting discounts and commissions, are as follows:
Securities Act registration fee...... $ 7,319
NASD filing fee...................... 2,225
Trustee fees......................... 25,000
Printing costs....................... 45,000
Legal fees and expenses.............. 125,000
Accounting fees and expenses......... 40,000
Miscellaneous........................ 5,456
---------
TOTAL........................... $ 250,000
=========
- ------------
All of the foregoing estimated costs, expenses and fees will be borne by
the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware,
pursuant to which the Company is incorporated, provides generally and in
pertinent part that a Delaware corporation may indemnify its directors and
officers against expenses, judgments, fines, and settlements actually and
reasonably incurred by them in connection with any civil, criminal,
administrative, or investigative suit or action except actions by or in the
right of the corporation if, in connection with the matters in issue, they acted
in good faith and in a manner they reasonably believed to be in or not opposed
to the best interests of the corporation, and in connection with any criminal
suit or proceeding, if in connection with the matters in issue, they had no
reasonable cause to believe their conduct was unlawful. Section 145 further
provides that in connection with the defense or settlement of any action by or
in the right of the corporation, a Delaware corporation may indemnify its
directors and officers against expenses actually and reasonably incurred by them
if, in connection with the matters in issue, they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation, except that no indemnification may be made in respect to any
claim, issue, or matter as to which such person has been adjudged liable to the
corporation unless the Delaware Court of Chancery or other court in which such
action or suit is brought approves such indemnification. Section 145 further
permits a Delaware corporation to grant its directors and officers additional
rights of indemnification through bylaw provisions and otherwise, and to
purchase indemnity insurance on behalf of its directors and officers. Article
Eight of the Certificate of Incorporation, as amended, of the Company and
Article VII of the Bylaws of such registrant provide, in general, that the
Company may indemnify its of officers and directors to the full extent of
Delaware law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) Exhibit Number and Description
<TABLE>
<CAPTION>
<S> <C>
1. -- Underwriting Agreement.
1.1 -- Form of Underwriting Agreement**
2. -- Plan of acquisition, reorganization, arrangement, liquidation or succession*
3. -- Certificate of Incorporation and bylaws.
3.1 -- Certificate of Incorporation of the Company, as amended (incorporated by reference from
Exhibit 3.1 of the Company's Registration Statement on Form S-4, Reg. No. 33-82408)
3.2 -- Certificate of Merger of Callon Consolidated Partners, L.P. with and into the Company
dated September 16, 1994 (incorporated by reference from Exhibit 3.2 of the Company's
Report on Form 10-K for the fiscal year ended December 31, 1994)
3.3 -- Bylaws of the Company (incorporated by reference from Exhibit 3.2 of the Company's
Registration Statement on Form S-4, Reg. No. 33-82408)
4. -- Instruments defining the rights of security holders, including indentures.
4.1 -- Specimen stock certificate (incorporated by reference from Exhibit 4.1 of the Company's
Registration Statement on Form S-4, Reg. No. 33-82408)
4.2 -- Specimen Preferred Stock Certificate (incorporated by reference from Exhibit 4.2 of the
Company's Registration Statement on Form S-1, Reg. No. 33-96700)
4.3 -- Designation for Series A Preferred Stock (incorporated by reference from Exhibit 4.3 of
the Company's Registration Statement on Form S-1, Reg. No. 33-96700)
4.4 -- Certificate of Correction of designation for Series A Preferred Stock
4.5 -- Indenture for Convertible Debentures (incorporated by reference from Exhibit 4.4 of the
Company's Registration Statement on Form S-1, Reg. No. 33-96700)
4.6 -- Form of Notes Indenture
4.7 -- Form of Global Certificate (included in Exhibit 4.6)
5. -- Opinion re legality
5.1 -- Form of opinion of Butler & Binion, L.L.P.
8. -- Opinion re tax matters*
9. -- Voting trust agreement
9.1 -- Stockholders' Agreement dated September 16, 1994 among the Company, the Callon
Stockholders and NOCO Enterprises, L.P. (incorporated by reference from Exhibit 9.1 of the
Company's Registration Statement on Form 8-B filed October 3, 1994)
10. -- Material contracts
10.1 -- Contingent Share Agreement dated September 16, 1994 between the Company and the Callon
Stockholders (incorporated by reference from Exhibit 10.1 of the Company's Registration
Statement on Form 8-B filed October 3, 1994)
10.2 -- Registration Rights Agreement dated September 16, 1994 between the Company and NOCO
Enterprises, L.P. (incorporated by reference from Exhibit 10.2 of the Company's
Registration Statement on Form 8-B filed October 3, 1994)
10.3 -- Registration Rights Agreement dated September 16, 1994 between the Company and Callon
Stockholders (incorporated by reference from Exhibit 10.3 of the Company's Registration
Statement on Form 8-B filed October 3, 1994)
10.4 -- Employment Agreement dated September 1, 1996 between the Company and Fred L. Callon**
10.5 -- Callon Petroleum Company 1994 Stock Incentive Plan (incorporated by reference from Exhibit
10.5 of the Company's Registration Statement on Form 8-B filed October 3, 1994)
10.6 -- Callon Petroleum Company 1996 Stock Incentive Plan**
10.7 -- Employment Agreement effective September 1, 1996, between the Company and Dennis W.
Christian**
10.8 -- Employment Agreement effective September 1, 1996 between the Company and John S. Weatherly**
10.9 -- Amended and Restated Credit Agreement by and between the Company, Callon Petroleum
Operating Company, Callon Offshore Production, Inc. and The Chase Manhattan Bank**
II-2
<PAGE>
10.10 -- Consulting Agreement between the Company and John S. Callon dated June 19, 1996**
11. -- Statement re computation of per share earnings*
12. -- Statement re computation of ratios*
15. -- Letter re unaudited interim financial information*
16. -- Letter re change in certifying accountant*
21. -- Subsidiaries of the registrant
21.1 -- Subsidiaries of the Company (incorporated by reference from Exhibit 21.1 of the Company's
Registration Statement on Form 8-B filed October 3, 1994)
23. -- Consents of experts and counsel
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Huddleston & Co., Inc.**
23.3 -- Consent of Butler & Binion, L.L.P. (to be included in their opinion filed as Exhibit 5.1)
24. -- Power of attorney**
25. -- Statement of Eligibility of Trustee **
26. -- Invitation for Competitive Bids*
27. -- Financial Data Schedule*
99. -- Additional exhibits*
</TABLE>
- ------------
* Inapplicable to this filing
** Previously filed
(b) Financial Statement Schedules
Schedules have been omitted because they are either not required, are not
applicable, or the required information is shown in the Financial Statements and
related notes.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that claims for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer, or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Natchez, State of
Mississippi, on November 22, 1996.
CALLON PETROLEUM COMPANY
By: /s/ JOHN S. CALLON
-----------------------
John S. Callon
Senior Vice President,
Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ --------------------------------- ------------------
<C> <S> <C>
/s/JOHN S. CALLON Chief Executive Officer, Director November 22, 1996
------------------------- (Principal Executive Officer)
JOHN S. CALLON
/s/FRED L. CALLON* President, Chief Operating November 22, 1996
------------------------- Officer, Director (Principal
FRED L. CALLON Operating Officer)
/s/DENNIS W. CHRISTIAN* Senior Vice President, Director November 22, 1996
-------------------------
DENNIS W. CHRISTIAN
/s/JOHN S. WEATHERLY* Senior Vice President, Chief November 222 1996
------------------------- Financial Officer and Treasurer
JOHN S. WEATHERLY (Principal Accounting Officer)
------------------------- Director
ROBERT A. STANGER
</TABLE>
II-4
<PAGE>
SIGNATURES (CONTINUED)
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ --------------------------------- ------------------
<C> <S> <C>
/s/JOHN C. WALLACE* Director November 22, 1996
-------------------------
JOHN C. WALLACE
/s/B. F. WEATHERLY* Director November 22, 1996
-------------------------
B. F. WEATHERLY
------------------------- Director
RICHARD O. WILSON
* /s/ JOHN S. CALLON
-------------------------
John S. Callon
PURSUANT TO A POWER
OF ATTORNEY PREVIOUSLY FILED
</TABLE>
II-5
EXHIBIT 4.4
CERTIFICATE OF CORRECTION
CALLON PETROLEUM COMPANY
Callon Petroleum Company, a corporation organized and existing under and by
virtue of The General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
1. That the Corporation filed a Certificate of Designations (the
"Original Certificate") with the Delaware Secretary of State on November 22,
1995, setting forth the resolutions, establishing and designating a series of
shares and fixing and determining the designations, preferences, limitations and
relative rights thereof, for the Corporation's $2.125 Convertible Exchangeable
Preferred Stock, Series A (the "Convertible Preferred Stock"); and
2. That the Original Certificate contained certain inaccuracies in Section
3(a), Section 3(c)(vi), Section 6(f), the third paragraph of Section 8 and the
third paragraph of Section 10 that the Corporation desires to correct with this
Certificate of Correction pursuant to Section 103(f) of The General Corporation
Law of the State of Delaware; and
3. That, as corrected, Section 3(a) of the Original Certificate shall be
and read as follows:
(a) RIGHT OF CONVERSION. Each share of Convertible Preferred Stock
shall be convertible at the option of the holder thereof at any time prior
to the close of business on the day prior to the date fixed for redemption
of such shares as herein provided, into fully paid and nonassessable shares
of Common Stock, at a rate per full share of Convertible Preferred Stock
determined by dividing $25.00 by the conversion price per share of Common
Stock in effect on the date such share is surrendered for conversion, or
into such additional or other securities, cash or property and at such
other rates as required in accordance with the provisions of this Section
3. For purposes of this resolution, the "conversion price" per share of
Common Stock shall initially be $11.00 and shall be adjusted from time to
time in accordance with the provisions of this Section 3. Each share of
Convertible Preferred Stock may be converted in whole or in part.
4. That, as corrected, Section 3(c)(vi) of the Original Certificate shall
be and read as follows:
(vi) For the purpose of any computation under paragraph (ii), (iii),
(iv) or (v) of this Section 3(c), 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 five consecutive trading days ending with and
including the date in question; provided, however, that (A) if the "ex"
date (as hereinafter defined) for any event (other than the issuance or
distribution requiring such computation) that requires an adjustment to the
conversion price pursuant to paragraph (i), (ii), (iii), (iv) or (v) above
("Other Event") occurs after the third trading day prior to the date in
question and prior to the "ex" date for the issuance or distribution
requiring such computation (the "Current Event"), the closing price for
each trading day prior to the "ex" date for such Other Event shall be
adjusted by multiplying such closing price by the same fraction by which
the conversion price is so required to be adjusted as a result of such
Other Event, (B) if the "ex" date for any Other Event occurs after the
"ex" date for the Current Event and on or prior to the date in question,
the closing price for each trading day on and after the "ex" date for
such Other Event shall be adjusted by multiplying such closing price by the
reciprocal of the fraction by which the conversion price is so required to
be adjusted as a result of such Other Event, (C) if the "ex" date for any
Other Event occurs on the "ex" date for the Current Event, one of those
events shall be deemed for purposes of clauses (A) and (B) of this proviso
to have an "ex" date occurring prior to the "ex" date for the other
event, and (D) if the "ex" date for the Current Event is on or prior to
the date in question, after taking into account any adjustment required
pursuant to clause (B) of this proviso, the closing price for each trading
day on or after such "ex" date shall be adjusted by adding thereto the
amount of any cash and the fair market value on the date in question (as
determined in good faith by the Board of Directors in a manner consistent
with any determination of such value for purposes of paragraph (iv) or (v)
of this Section 3(c), whose determination shall be conclusive and described
in a resolution of the Board of Directors) of the portion of the rights,
warrants, evidences of indebtedness,
<PAGE>
shares of capital stock or assets being distributed applicable to one share
of Common Stock. For purposes of this paragraph, the term "ex" date, (1)
when used with respect to any issuance or distribution, means the first
date on which the Common Stock trades regular way on the relevant exchange
or in the relevant market from which the closing price was obtained without
the right to receive such issuance or distribution and (2) when used with
respect to any subdivision or combination of shares of Common Stock, means
the first date on which the Common Stock trades regular way on such
exchange or in such market after the time at which such subdivision or
combination becomes effective.
5. That, as corrected, Section 6(f) of the Original Certificate shall be
and read as follows:
(f) TERM. Each director elected by the holders of shares of
Convertible Preferred Stock shall continue to serve as a director until
such time as (i) his successor shall have been duly elected and shall
qualify or (ii) all dividends accrued and unpaid on the Convertible
Preferred Stock shall have been paid or declared and funds set aside to
provide for payment in full, at which time the term of office of all
persons elected as directors by the holders of shares of Convertible
Preferred Stock shall forthwith terminate and the number of members of the
Board of Directors of the Corporation shall be reduced accordingly.
Whenever the term of office of the directors elected by the holders of
Convertible Preferred Stock voting as a class shall end and the special
voting powers vested in the holders of Convertible Preferred Stock as
provided in this Section 6 shall have expired, the number of directors
shall be such number as may be provided for in the By-Laws irrespective of
any increase made pursuant to the provisions of this Section 6.
6. That, as corrected, the third paragraph of Section 8 of the Original
certificate shall be and read as follows:
The voluntary sale, conveyance, lease, exchange or transfer of all or
substantially all of the property or assets of the Corporation, or the
merger or consolidation of the Corporation into or with any other
corporation, or the merger of any other corporation into the Corporation,
or any purchase or redemption of some or all of the shares of any class or
series of stock of the Corporation, shall not be deemed to be a Liquidation
of the Corporation for purposes of this Section 8 (unless in connection
therewith the Liquidation of the Corporation is specifically approved).
7. That, as corrected, the third paragraph of Section 10 of the Original
Certificate shall be and read as follows:
Subject to applicable escheat laws, if the conditions precedent to the
disbursement of any funds deposited by the Corporation pursuant to this
Section 10 shall not have been satisfied within six months after the later
of (a) the redemption payment date and (b) the establishment of the trust
for such funds, then (i) such funds shall be returned to the Corporation
upon its request; (ii) after such return, such funds shall be free of any
trust which shall have been impressed upon them; (iii) the person entitled
to this payment for which such funds shall have been originally intended
shall have the right to look only to the Corporation for such payment,
subject to applicable escheat laws; and (iv) the trustee which shall have
held such funds shall be relieved of any responsibility for such funds upon
the return of such funds to the Corporation.
2
<PAGE>
IN WITNESS WHEREOF, this Statement of Correction has been made under the
hand of the undersigned, the President of the Corporation, this 27th day of
November, 1995.
CALLON PETROLEUM COMPANY
By /s/ FRED L. CALLON
Fred L. Callon
President
Attest
By /s/ H. MICHAEL TATUM, JR.
H. Michael Tatum, Jr.
Secretary
3
EXHIBIT 4.6
================================================================================
CALLON PETROLEUM COMPANY
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
Trustee
----------------
INDENTURE
Dated as of November __, 1996
----------------
$21,000,000
___% Senior Subordinated Notes due 2001
================================================================================
<PAGE>
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939, AS AMENDED AND
INDENTURE DATED AS OF NOVEMBER __, 1996
Trust Indenture Act Indenture
Section Section
Section 310 (a)(1)..............................608
(a)(2)..............................608
(a)(3)..............................Inapplicable
(a)(4)..............................Inapplicable
(b).................................605, 608, 609, 613
Section 311.....................................605, 614
Section 312 (a).................................701, 702
(b).................................702
(c).................................702
Section 313 (a).................................703
(b)(1)..............................703
(b)(2)..............................703
(c).................................703
(d).................................703
Section 314 (a).................................704, 1011
(b).................................Inapplicable
(c)(1)..............................102
(c)(2)..............................102
(c)(3)..............................Inapplicable
(d).................................Inapplicable
(e).................................102
Section 315 (a).................................601, 603
(b).................................602
(c).................................601
(d).................................601, 603
(e).................................603, 607
Section 316 (a)(1)(A)...........................512
(a)(1)(B)...........................513
(a)(2)..............................Inapplicable
(b).................................508
(c).................................104
Section 317 (a)(1)..............................503
(a)(2)..............................504
(b)................................1003
Section 318 (a).................................108
- --------
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION.........1
SECTION 101. DEFINITIONS...................................................1
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.........................13
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.......................13
SECTION 104. ACTS OF HOLDERS..............................................14
SECTION 105. NOTICES, ETC, TO TRUSTEE AND COMPANY.........................15
SECTION 106. NOTICE TO HOLDERS OF NOTES; WAIVER...........................15
SECTION 107. LANGUAGE OF NOTICES..........................................16
SECTION 108. CONFLICT WITH TRUST INDENTURE ACT............................16
SECTION 109. EFFECT OF HEADINGS AND TABLE OF CONTENTS.....................16
SECTION 110. SUCCESSORS AND ASSIGNS.......................................16
SECTION 111. SEVERABILITY CLAUSE..........................................16
SECTION 112. BENEFITS OF INDENTURE........................................16
SECTION 113. GOVERNING LAW................................................17
SECTION 114. LEGAL HOLIDAYS...............................................17
SECTION 115. COUNTERPARTS.................................................17
SECTION 116. INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS.............17
SECTION 117. NO ADVERSE INTERPRETATIONS OF OTHER AGREEMENTS...............18
ARTICLE TWO FORM OF NOTES..................................................18
SECTION 201. FORMS GENERALLY..............................................18
SECTION 202. FORM OF FACE OF NOTE.........................................18
SECTION 203. FORM OF REVERSE OF NOTE.....................................20
SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION..............23
ARTICLE THREE THE NOTES....................................................23
SECTION 301. TITLE AND TERMS..............................................23
SECTION 302. CURRENCY; DENOMINATIONS......................................24
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING...............24
SECTION 304. TEMPORARY NOTES..............................................25
SECTION 305. REGISTRATION, TRANSFER AND EXCHANGE..........................25
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN NOTES..................26
SECTION 307. PAYMENT OF INTEREST, RIGHTS TO INTEREST PRESERVED............27
SECTION 308. PERSONS DEEMED OWNERS........................................28
SECTION 309. CANCELLATION.................................................29
SECTION 310. AUTHENTICATION AND DELIVERY OF ORIGINAL ISSUE................29
SECTION 311. COMPUTATION OF INTEREST......................................29
SECTION 312. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTE........................29
ARTICLE FOUR SATISFACTION AND DISCHARGE....................................30
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE......................30
SECTION 402. APPLICATION OF TRUST MONEY...................................31
ARTICLE FIVE REMEDIES......................................................32
SECTION 501. EVENTS OF DEFAULT............................................32
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT...........34
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE...................................................................35
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.............................36
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.......36
SECTION 506. APPLICATION OF MONEY COLLECTED...............................37
SECTION 507. LIMITATION ON SUITS..........................................37
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL PREMIUM AND INTEREST.........................38
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES...........................38
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE...............................38
SECTION 511. DELAY OR OMISSION NOT WAIVER.................................38
SECTION 512. CONTROL BY HOLDERS...........................................38
SECTION 513. WAIVER OF PAST DEFAULTS......................................39
SECTION 514. UNDERTAKING FOR COSTS........................................39
i
<PAGE>
SECTION 515. WAIVER OF STAY, EXTENSION OR USURY LAWS......................39
ARTICLE SIX THE TRUSTEE....................................................40
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES..........................40
SECTION 602. NOTICE OF DEFAULTS...........................................41
SECTION 603. CERTAIN RIGHTS OF TRUSTEE....................................41
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES............42
SECTION 605. MAY HOLD NOTES...............................................42
SECTION 606. MONEY HELD IN TRUST..........................................42
SECTION 607. COMPENSATION AND REIMBURSEMENT...............................42
SECTION 608. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY......................43
SECTION 609. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR............43
SECTION 610. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.......................45
SECTION 611. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS..45
SECTION 612. APPOINTMENT OF AUTHENTICATION AGENT..........................45
SECTION 613. CONFLICTING INTERESTS........................................47
SECTION 614. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY............47
ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY............47
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS....47
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.......47
SECTION 703. REPORTS BY TRUSTEE...........................................48
SECTION 704. REPORTS BY COMPANY...........................................48
ARTICLE EIGHT CONSOLIDATION, MERGER AND SALES..............................49
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.........49
SECTION 802. SUCCESSOR PERSON SUBSTITUTED FOR COMPANY.....................50
ARTICLE NINE SUPPLEMENTAL INDENTURES.......................................50
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS...........50
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS..............51
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.........................52
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES............................52
SECTION 905. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES................52
SECTION 906. EFFECT ON SENIOR INDEBTEDNESS................................52
SECTION 907. RECORD DATE..................................................52
ii
<PAGE>
ARTICLE TEN COVENANTS......................................................53
SECTION 1001. PAYMENT OF PRINCIPAL AND INTEREST...........................53
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.............................53
SECTION 1003. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST.................54
SECTION 1004. CORPORATE EXISTENCE.........................................55
SECTION 1005. MAINTENANCE OF PROPERTIES...................................55
SECTION 1006. RESTRICTIONS ON DIVIDENDS, REDEMPTION AND OTHER PAYMENTS....55
SECTION 1007. LIMITATIONS ON INDEBTEDNESS FOR MONEY BORROWED..............56
SECTION 1008. LIMITATION LIENS............................................57
SECTION 1009. INSURANCE...................................................57
SECTION 1010. PAYMENT OF TAXES AND OTHER CLAIMS...........................57
SECTION 1011. STATEMENT BY OFFICERS AS TO DEFAULT.........................58
SECTION 1012. WAIVER OF CERTAIN COVENANTS.................................58
SECTION 1013. LIMITATION ON RANKING OF FUTURE INDEBTEDNESS................58
SECTION 1014. LIMITATIONS ON RESTRICTING SUBSIDIARY DIVIDENDS.............58
SECTION 1015. LIMITATION ON TRANSACTIONS WITH AFFILIATES..................59
ARTICLE ELEVEN REDEMPTION OF NOTES.........................................60
SECTION 1101. RIGHT OF REDEMPTION.........................................60
SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE.......................60
SECTION 1103. SELECTION BY TRUSTEE OF NOTES TO BE REDEEMED................60
SECTION 1104. NOTICE OF REDEMPTION........................................60
SECTION 1105. DEPOSIT OF REDEMPTION PRICE.................................61
SECTION 1106. NOTES PAYABLE ON REDEMPTION DATE............................61
SECTION 1107. NOTES REDEEMED IN PART......................................62
SECTION 1108. PURCHASE OF NOTES...........................................62
ARTICLE TWELVE DEFEASANCE AND COVENANT DEFEASANCE..........................62
SECTION 1201. COMPANY'S OPTION TO EFFECT DEFEASANCE OR
COVENANT DEFEASANCE....................................62
SECTION 1202. DEFEASANCE AND DISCHARGE....................................62
SECTION 1203. COVENANT DEFEASANCE.........................................63
SECTION 1204. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.............63
SECTION 1205. DEPOSITED MONEY AND GOVERNMENT OBLIGATIONS TO
BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.....65
SECTION 1206. REINSTATEMENT...............................................65
ARTICLE THIRTEEN SUBORDINATION OF NOTES....................................65
SECTION 1301. NOTES SUBORDINATE TO SENIOR INDEBTEDNESS....................65
SECTION 1302. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC..............66
SECTION 1303. SUSPENSION OF PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT...67
SECTION 1304 . PAYMENT PERMITTED IF NO DEFAULT............................68
SECTION 1305. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.....68
SECTION 1306 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS..................68
SECTION 1307. TRUSTEE TO EFFECTUATE SUBORDINATION.........................68
SECTION 1308. NO WAIVER OF SUBORDINATION PROVISION........................69
SECTION 1309. NOTICE TO TRUSTEE...........................................69
SECTION 1310. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT BANK................................70
SECTION 1311. RIGHTS OF TRUSTEE AS A HOLDER OF SENIOR INDEBTEDNESS:
PRESERVATION OF TRUSTEE'S RIGHTS......................70
SECTION 1312. ARTICLE APPLICABLE TO PAYING AGENTS.........................70
SECTION 1313. NO SUSPENSION OF REMEDIES...................................71
SECTION 1314. TRUST MONEY NOT SUBORDINATED................................71
iii
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THIS INDENTURE, dated as of November __, 1996 (the "Indenture"), is
between CALLON PETROLEUM COMPANY, a corporation duly organized and existing
under the laws of the State of Delaware (hereinafter called the "Company"),
having executive offices located at 200 North Canal Street, Natchez, Mississippi
39120 and AMERICAN STOCK TRANSFER & TRUST COMPANY, a corporation duly organized
and existing under the laws of the State of New York (hereinafter called the
"Trustee"), having its principal corporate trust office at 40 Wall Street, 46th
Floor, New York, New York 10005.
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of its __% Senior Subordinated Notes due
2001 (hereinafter called the "Notes"), to be issued in such amount and to have
such provisions as are hereinafter set forth. All things necessary to make this
Indenture a valid agreement of the Company, in accordance with its terms, have
been done.
This Indenture is subject to the provisions of the Trust Indenture Act of
1939, as amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder that are required to be part of this Indenture
and, to the extent applicable, shall be governed by such provisions.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes by
the Holders (as hereinafter defined) thereof, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders from time to time
of the Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
Except as otherwise expressly provided in this Indenture or unless the
context otherwise requires, for all purposes of this Indenture:
(1) the terms defined in this Article have the meanings assigned to them
in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture
Act (as hereinafter defined), either directly or by reference therein, have the
meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(4) the words "herein", "hereof", "hereto" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(5) the word "or" is always used inclusively (for example, the phrase "A
or B" means "A or B or both", not "either A or B but not both");
(6) the masculine gender includes the feminine and the neuter; and
(7) references to agreements and other instruments include subsequent
amendments and waivers but only to the extent not prohibited by this Indenture.
Certain terms used principally in certain Articles hereof are defined in
those Articles.
"ACQUIRED INDEBTEDNESS" means Indebtedness for Money Borrowed of a Person
existing at the time such Person becomes a Restricted Subsidiary or assumed in
connection with the acquisition by the Company or a Restricted Subsidiary of
assets from such Person, and not incurred in connection with, or in anticipation
of, such Person becoming a Restricted Subsidiary or such acquisition. Acquired
Indebtedness shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person becomes a
Restricted Subsidiary.
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"ACT", when used with respect to any Holder, has the meaning specified in
Section 104.
"AFFILIATE" of any specified Person means 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 specified 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 MEMBERS" has the meaning specified in Section 312.
"AUTHENTICATING AGENT" means any Person authorized by the Trustee pursuant
to Section 612 to act on behalf of the Trustee to authenticate Notes.
"AUTHORIZED NEWSPAPER" means a newspaper, in an official language of the
place of publication or in the English language, customarily published on each
day that is a Business Day in the place of publication, whether or not published
on days that are Legal Holidays in the place of publication, and of general
circulation in each place in connection with which the term is used or in the
financial community of each such place. Where successive publications are
required to be made in Authorized Newspapers, the successive publications may be
made in the same or in different newspapers in the same city meeting the
foregoing requirements and in each case on any day that is a Business Day in the
place of publication.
"AVERAGE LIFE" means, with respect to any Indebtedness for Money Borrowed,
as at any date of determination, the quotient obtained by dividing (a) the sum
of the products of (i) the number of years (and any portion thereof) from the
date of determination to the date or dates of each successive scheduled
principal payment (including, without limitation, any sinking fund or mandatory
redemption payment requirements) of such Indebtedness for Money Borrowed
multiplied by (ii) the amount of each such principal payment by (b) the sum of
all such principal payments.
"BOARD OF DIRECTORS" means the board of directors of the Company or any
duly authorized committee of that board.
"BOARD RESOLUTION" means a copy of one or more resolutions, certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"BUSINESS DAY", with respect to any Place of Payment or other location,
means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a Legal
Holiday in such Place of Payment or other location.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real or personal property which obligations are
required to be classified and accounted for as capital lease obligations on a
balance sheet of such Person under GAAP and, for purposes of this Indenture, the
amount of such obligations at any date shall be the capitalized amount thereof
at such date, determined in accordance with GAAP.
"COMMISSION" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act or, if at any time after the
execution of this Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"COMPANY" means the Person named as the "Company" in the first paragraph
of this instrument until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"COMPANY REQUEST" and "COMPANY ORDER" mean, respectively, a written
request or order, as the case may be, signed in the name of the Company by the
Chairman of the Board, a Vice Chairman of the Board, the Chief Executive
Officer, the President, a Vice President, the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary, of the Company, or by another officer
of the Company duly authorized to sign by a Board Resolution, and delivered to
the Trustee.
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"CONSOLIDATED" when used in conjunction with any other defined term means
the aggregate amount of the items included within the defined term of the
Company and its Restricted Subsidiaries on a Consolidated basis, eliminating
inter-company items.
"CONSOLIDATED EBITDA" means, for any period, determined in accordance with
GAAP on a Consolidated basis for the Company and its Restricted Subsidiaries,
the sum of Consolidated Net Income, plus depreciation, depletion, amortization
and other non-cash charges, income tax expense, and interest expense for such
period, each as deducted in determining such Consolidated Net Income.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the interest
expense for such period which is required to be shown as such on the financial
statements of the Company and its Restricted Subsidiaries, on a Consolidated
basis, prepared in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the amount of
Consolidated net income (loss) of the Company and its Restricted Subsidiaries
for such period, determined in accordance with GAAP; PROVIDED, HOWEVER, that
there shall be included in Consolidated Net Income any net extraordinary gains
or losses for such period (less all fees and expenses related thereto); and,
PROVIDED, FURTHER, that there shall not be included in Consolidated Net Income
(1) any net income (loss) of a Restricted Subsidiary for any portion of such
period during which it was not a Consolidated Subsidiary, (2) any net income
(loss) of businesses, properties or assets acquired or disposed of (by way of
merger, consolidation, purchase, sale or otherwise) by the Company or any
Restricted Subsidiary for any portion of such period prior to the acquisition
thereof or subsequent to the disposition thereof, or (3) any net income for such
period resulting from transfers of assets received by the Company or any
Restricted Subsidiary from an Unrestricted Subsidiary.
"CONSOLIDATED SUBSIDIARY" means a Restricted Subsidiary the financial
statements of which are Consolidated with the financial statements of the
Company.
"CONVERTIBLE DEBENTURES" means the Company's 8.5% Convertible Subordinated
Debentures due 2010 issuable in exchange for the Company's Series A Preferred
Stock.
"CORPORATE TRUST OFFICE" means the principal 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 execution of this Indenture is located
at 40 Wall Street, 46th Floor, New York, New York 10005.
"CORPORATION" includes corporations, associations, companies, joint stock
companies, limited liability companies or business trusts.
"CREDIT FACILITY" means that certain Amended and Restated Credit
Agreement, dated as of October 31, 1996, among the Company, Callon Petroleum
Operating Company, a Delaware corporation and wholly owned Subsidiary of the
Company ("Operating"), Callon Offshore Production, Inc., a Mississippi
corporation and wholly owned Subsidiary of Operating, the several banks and
other financial institutions from time to time parties thereto (the "Banks"),
and The Chase Manhattan Bank, as agent for the Banks, as the same may be
amended, modified, supplemented, extended, restated, replaced, renewed or
refinanced from time to time.
"DEFAULT" means any event that is or with the passage of time or giving
notice or both would be an Event of Default.
"DEFAULTED INTEREST" has the meaning specified in Section 307.
"DEPOSITORY" means The Depository Trust Company, its nominees and their
respective successors.
"EVENT OF DEFAULT" has the meaning specified in Section 501.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor act thereto.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board in effect on the date
of this Indenture.
"GLOBAL NOTE" has the meaning specified in Section 201.
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"GOVERNMENT OBLIGATIONS" means direct obligations of the United States of
America, or any Person controlled or supervised by and acting as an agency or
instrumentality of such government, in each case where the payment or payments
thereunder are unconditionally guaranteed as a full faith and credit obligation
by such government and which are not callable or redeemable at the option of the
issuer or issuers thereof, and shall also include a depository receipt issued by
a bank or trust company as custodian with respect to any such Government
Obligation or a specific payment of interest on or principal of or other amount
with respect to any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of or other amount with respect to the Government
Obligation evidenced by such depository receipt.
"HOLDER", when used with respect to the Notes, means the Person in whose
name such Note is registered in the Note Register.
"INDEBTEDNESS FOR MONEY BORROWED" means any of the following obligations
of the Company or any Restricted Subsidiary: (1) any obligations, contingent or
otherwise, for borrowed money or for the deferred purchase price of property,
assets, securities or services (including, without limitation, any interest
accruing subsequent to an event of default), (2) all obligations (including the
Notes) evidenced by bonds, notes, debentures or other similar instruments, (3)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired (even though the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), except any such
obligation that constitutes a trade payable and an accrued liability arising in
the ordinary course of business, if and to the extent any of the foregoing
indebtedness would appear as a liability upon a balance sheet prepared in
accordance with GAAP, (4) all Capitalized Lease Obligations, (5) liabilities of
the Company actually due and payable under bankers acceptances and letters of
credit, (6) all indebtedness of the type referred to in clause (1), (2), (3),
(4) or (5) above secured by (or for which the holder of such indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon or
security interest in property of the Company or any Restricted Subsidiary
(including, without limitation, accounts and contract rights), even though the
Company or any Restricted Subsidiary has not assumed or become liable for the
payment of such indebtedness, and (7) any guarantee or endorsement (other than
for collection or deposit in the ordinary course of business) or discount with
recourse of, or other agreement, contingent or otherwise, to purchase,
repurchase, or otherwise acquire, to supply, or advance funds or become liable
with respect to, any indebtedness or any obligation of the type referred to in
any of the foregoing clauses (1) through (6), regardless of whether such
obligation would appear on a balance sheet; PROVIDED, HOWEVER, that Indebtedness
for Money Borrowed shall not include (i) Production Payments and Reserve Sales,
(ii) any liability for gas balancing incurred in the ordinary course of
business, (iii) accounts payable or other obligations of the Company or a
Restricted Subsidiary in the ordinary course of business in connection with the
obtaining of goods or services, and (iv) any liability under any and all (A)
employment or consulting agreements or employee benefit plans or arrangements
and (B) futures contracts, forward contracts, swap, cap or collar contracts,
option contracts, or other similar derivative agreements.
"INDENTURE" means this instrument as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.
"INDEPENDENT PUBLIC ACCOUNTANTS" means a nationally recognized firm of
accountants that, with respect to the Company, are Independent Public
Accountants within the meaning of the Securities Act of 1933, as amended, and
the rules and regulations promulgated by the Commission thereunder, who may be
the Independent Public Accountants regularly retained by the Company or who may
be other Independent Public Accountants. Such accountants or firm shall be
entitled to rely upon any Opinion of Counsel as to the interpretation of any
legal matters relating to the Indenture or certificates required to be provided
hereunder.
"INSOLVENCY OR LIQUIDATION PROCEEDING" means, with respect to any Person,
(a) an insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or similar case or proceeding in connection
therewith, relative to such Person or its creditors, as such, or its assets or
(b) any liquidation, dissolution or other winding-up of such Person, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy
or (c) any assignment for the benefit of creditors or any other marshaling of
assets or liabilities of such Person.
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"INTEREST COVERAGE RATIO" means, for any date of determination, the ratio
of (1) Consolidated EBITDA for the immediately preceding four fiscal quarters of
the Company to (2) Consolidated Interest Expense for such immediately preceding
four fiscal quarters.
"INTEREST PAYMENT DATE" when used with respect to any Note, means the
Stated Maturity of an installment of interest on such Note.
"ISSUE DATE" when used with respect to any Note, means the earliest date
on which any Note is originally issued in accordance with the terms of this
Indenture.
"LEGAL HOLIDAY" with respect to any Place of Payment or other location,
means a Saturday, a Sunday or a day on which banking institutions or trust
companies in such Place of Payment or other location are not authorized or
obligated to be open.
"LIEN" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
agreement to give or grant a Lien or any lease, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing) upon or with respect to any property of any kind. A Person shall be
deemed to own subject to a Lien any property which such Person has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
"MATERIAL SUBSIDIARY" means any Restricted Subsidiary whose assets or
revenues comprise at least five percent (5%) of the assets or revenues of the
Company and the Restricted Subsidiaries on a Consolidated basis as of the end
of, or for the, Company's most recently completed fiscal quarter, as determined
from time to time.
"MATURITY" when used with respect to any Note, means the date on which the
principal of such Note becomes due and payable as provided in this Indenture,
whether at the Stated Maturity or by declaration of acceleration, notice of
redemption, and includes any Redemption Date.
"MONEY", with respect to any payment, deposit or other transfer pursuant
to or contemplated by the terms hereof, means United States dollars or other
equivalent unit of legal tender for payment of public or private debts in the
United States of America.
"NON-PAYMENT EVENT OF DEFAULT" means any event (other than a Payment Event
of Default), the occurrence of which (with or without notice or the passage of
time) entitles one or more Persons to accelerate the maturity of any Specified
Senior Indebtedness.
"NOTE" or "NOTES" means any note or notes, as the case may be,
authenticated and delivered under this Indenture.
"NOTE REGISTER" and "NOTE REGISTRAR" have the respective meanings
specified in Section 305.
"OFFICE OR AGENCY" means an office or agency of the Company maintained or
designated in a Place of Payment for the Notes pursuant to Section 1002 or any
other office or agency of the Company maintained or designated for, the payment
or surrender of the Notes pursuant to Section 1002 or, to the extent designated
or required by Section 1002 in lieu of such office or agency, the Corporate
Trust Office of the Trustee.
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the Chief Executive Officer, the President
or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary
or an Assistant Secretary of the Company, and is delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be an
employee of or counsel for the Company or other counsel who shall be reasonably
acceptable to the Trustee.
"OUTSTANDING", when used with respect to any Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(1) any Note theretofore canceled by the Trustee or the Note
Registrar or delivered to the Trustee or the Note Registrar for
cancellation;
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(2) any Note or portion thereof for whose payment at the Maturity
thereof Money in the necessary amount has been theretofore deposited
pursuant hereto with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the
Holders of such Notes, provided that, if such Notes are to be
redeemed, notice of such redemption has been duly given pursuant to
this Indenture or provision therefor satisfactory to the Trustee has
been made;
(3) any Note, except to the extent provided in Sections 1202 and 1203,
with respect to which the Company has effected legal defeasance or
covenant defeasance as provided in Article Twelve; and
(4) any Note which has been paid pursuant to Section 306 or in exchange
for or in lieu of which other Notes have been authenticated and
delivered pursuant to this Indenture, unless there shall have been
presented to the Trustee proof satisfactory to it that such Note is
held by a bona fide purchaser in whose hands such Note is a valid
obligation of the Company;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in making any
such determination or relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which the Trustee knows to be
so owned shall be so disregarded. Notes so owned which shall have been pledged
in good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee (a) the pledgee's right so to act with respect to
such Notes and (b) that the pledgee is not the Company or any other obligor upon
the Notes or any Affiliate of the Company or such other obligor.
"PARI PASSU INDEBTEDNESS" means any Indebtedness for Money Borrowed of the
Company that is PARI PASSU in right of payment to the Notes.
"PAYING AGENT" means any Person authorized by the Company to pay the
principal of or interest on any Note on behalf of the Company.
"PAYMENT BLOCKAGE NOTICE" has the meaning specified in Section 1303.
"PAYMENT BLOCKAGE PERIOD" has the meaning specified in Section 1303.
"PAYMENT EVENT OF DEFAULT" means any default in the payment or required
prepayment of principal of (or premium, if any, on) or interest on any Specified
Senior Indebtedness when due (whether at final maturity, upon scheduled
installment, upon acceleration or otherwise).
"PERMITTED INDEBTEDNESS" means any of the following:
(i) Indebtedness for Money Borrowed outstanding on the date of this
Indenture (and not repaid or defeased with the proceeds of the
offering of the Notes);
(ii) Indebtedness for Money Borrowed of the Company to a Restricted
Subsidiary and Indebtedness for Money Borrowed of a Restricted
Subsidiary to the Company or a Restricted Subsidiary; PROVIDED,
HOWEVER, that upon any event which results in any such Restricted
Subsidiary ceasing to be a Restricted Subsidiary or any subsequent
transfer of any such Indebtedness for Money Borrowed (except to the
Company or a Restricted Subsidiary), such Indebtedness for Money
Borrowed shall be deemed, in each case, to be incurred and shall be
treated as an incurrence for purposes of Section 1007 at the time
the Restricted Subsidiary in question ceased to be a Restricted
Subsidiary;
(iii) any guarantee of Senior Indebtedness incurred in compliance with
Section 1007 by a Restricted Subsidiary or the Company; and
(iv) any renewals, substitutions, refinancings or replacements (each, for
purposes of this clause, a "refinancing") by the Company or a
Restricted Subsidiary of any Indebtedness for Money Borrowed
incurred pursuant to clause (i) of this definition, including any
successive refinancings by the Company or such Restricted
Subsidiary, so long as (A) any such new Indebtedness for
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Money Borrowed shall be in a principal amount that does not exceed
the principal amount (or, if such Indebtedness for Money Borrowed
being refinanced provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of
determination) so refinanced plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms
of the Indebtedness for Money Borrowed refinanced or the amount of
any premium reasonably determined by the Company or such Restricted
Subsidiary as necessary to accomplish such refinancing, plus the
amount of expenses of the Company or such Restricted Subsidiary
incurred in connection with such refinancing, and (B) in the case of
any refinancing of Indebtedness for Money Borrowed of the Company
that is not Senior Indebtedness, such new Indebtedness for Money
Borrowed is either PARI PASSU with the Notes or subordinated to the
Notes at least to the same extent as the Indebtedness being
refinanced and (C) such new Indebtedness for Money Borrowed has an
Average Life equal to or longer than the Average Life of the
Indebtedness for Money Borrowed being refinanced and a final Stated
Maturity equal to or later than the final Stated Maturity of the
Indebtedness for Money Borrowed being refinanced.
"PERMITTED JUNIOR SECURITIES" means any equity securities or subordinated
debt securities of the Company or any successor obligor with respect to the
Senior Indebtedness provided for by a plan of reorganization or readjustment
that, in the case of any such subordinated debt securities, are subordinated in
right of payment to all Senior Indebtedness that may at the time be outstanding
to substantially the same degree as, or to a greater extent than, the Notes are
so subordinated as provided in this Indenture.
"PERMITTED LIENS" means any of the following types of Liens:
(a) Liens existing as of the date the Notes are first issued (except
to the extent such Liens secure any Pari Passu Indebtedness or
Subordinated Indebtedness that is repaid or defeased with proceeds of the
offering of the Notes), and any renewal, extension or refinancing of any
such Lien provided that thereafter such Lien extends only to the
properties that were subject to such Lien prior to the renewal, extension
or refinancing thereof;
(b) Liens securing the Notes; and
(c) Liens in favor of the Company.
"PERSON" means any individual, Corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PHYSICAL NOTES" has the meaning specified in Section 201.
"PLACE OF PAYMENT" has the meaning set forth in Section 301.
"PREDECESSOR NOTE" of a Note means every previous Note evidencing all or a
portion of the same debt as that evidenced by such particular Note; and, for the
purposes of this definition, any Note authenticated and delivered under Section
306 in exchange for or in lieu of a lost, destroyed, mutilated or stolen Note
shall be deemed to evidence the same debt as the lost, destroyed, mutilated or
stolen Note.
"PRODUCTION PAYMENTS AND RESERVE SALES" means the grant or transfer to any
Person of a royalty, overriding royalty, net profits interest, production
payment (whether volumetric or dollar denominated), master limited partnership
interest or other interest in oil and gas properties, reserves the right to
receive all or a portion of the production or the proceeds from the sale of
production attributable to such properties where the holder of such interest has
recourse solely to such production or proceeds of production, subject to the
obligation of the grantor or transferor to operate and maintain, or cause the
subject interests to be operated and maintained, in a reasonably prudent manner
or other customary standard or subject to the obligation of the grantor or
transferor to indemnify for environmental matters.
"PROPERTY" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including, without limitation, capital stock in any other Person.
"REDEMPTION DATE", with respect to any Note or portion thereof to be
redeemed, means the date fixed for such redemption pursuant to Article Eleven of
this Indenture.
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"REDEMPTION PRICE", with respect to any Note or portion thereof to be
redeemed, means the price at which it is to be redeemed pursuant to Article
Eleven of this Indenture.
"REGULAR RECORD DATE" for the interest payable on any Note on any Interest
Payment Date therefor means the date, if any, specified in or pursuant to this
Indenture as the "Regular Record Date".
"RESPONSIBLE OFFICER" means any officer of the Trustee in its Corporate
Trust Department and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
"RESTRICTED PAYMENT" has the meaning specified in Section 1006.
"RESTRICTED SUBSIDIARY" means any Subsidiary, whether existing on or after
the date of this Indenture, unless such Subsidiary is an Unrestricted Subsidiary
or is designated as an Unrestricted Subsidiary pursuant to the terms of this
Indenture.
"SENIOR EVENT OF DEFAULT" has the meaning specified in Section 1301.
"SENIOR INDEBTEDNESS" means the principal amount of, and interest on and
all other amounts due on or in connection with, (1) any Indebtedness for Money
Borrowed of the Company, whether now outstanding or hereafter created, incurred,
assumed or guaranteed, unless in the instrument creating or evidencing such
Indebtedness for Money Borrowed or pursuant to which such Indebtedness for Money
Borrowed is outstanding it is provided that such indebtedness is subordinate in
right of payment or in rights upon liquidation to any other Indebtedness for
Money Borrowed of the Company and (2) all renewals, extensions and refundings of
any such indebtedness.
"SERIES A PREFERRED STOCK" means the Company's $2.125 Convertible
Exchangeable Preferred Stock, Series A.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest on any
Note means a date fixed by the Trustee pursuant to Section 307.
"SPECIFIED SENIOR INDEBTEDNESS" means (a) all Senior Indebtedness of the
Company in respect of the Credit Facility and any renewals, amendments,
extensions, supplements, modifications, deferrals, refinancings, or replacements
(each, for purposes of this definition, a "refinancing") thereof by the Company,
including any successive refinancings thereof by the Company and (b) any other
Senior Indebtedness and any refinancings thereof by the Company having a
principal amount of at least $5 million as of the date of determination and
provided that the agreements, indentures or other instruments evidencing such
Senior Indebtedness or pursuant to which such Senior Indebtedness was issued
specifically designates such Senior Indebtedness as "Specified Senior
Indebtedness" for purposes of this Indenture. For purposes of this definition, a
refinancing of any Specified Senior Indebtedness shall be treated as a Specified
Senior Indebtedness only if the Senior Indebtedness issued in such refinancing
ranks or would rank PARI PASSU with the Specified Senior Indebtedness refinanced
and only if the Senior Indebtedness issued in such refinancing is permitted by
Section 1007.
"STATED MATURITY" with respect to any Note or any installment of principal
thereof or interest thereon means the date established by this Indenture as the
fixed date on which the principal of such Note or such installment of principal
or interest is due and payable, and, when used with respect to any other
Indebtedness for Money Borrowed or any installment of interest thereon, means
the date specified in the instrument evidencing or governing such Indebtedness
for Money Borrowed as the fixed date on which the principal of such Indebtedness
for Money Borrowed or such installment of interest is due and payable.
"SUBORDINATED INDEBTEDNESS" means Indebtedness for Money Borrowed of the
Company which is expressly subordinated in right of payment to the Notes,
including, without limitation, the Convertible Debentures.
"SUBSIDIARY" means any Corporation of which at the time of determination
the Company or one or more Subsidiaries owns or controls directly or indirectly
more than 50% of the shares of Voting Stock;
"TRANSACTION" has the meaning specified in Section 1015.
"TRUST INDENTURE ACT" means the United States Trust Indenture Act of 1939,
as in force at the date as of which this instrument was executed, except as
provided in Sections 901 and 902; PROVIDED, HOWEVER, that in the
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event the United States Trust Indenture Act of 1939 is amended after such date,
"Trust Indenture Act" means, to the extent required by any such amendment, the
United States Trust Indenture Act of 1939 as so amended.
"TRUSTEE" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
each Person who is then a Trustee hereunder.
"UNITED STATES", except as otherwise provided herein, means the United
States of America (including the states thereof and the District of Columbia),
its territories and possessions and other areas subject to its jurisdiction.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that at the time of
determination will be designated an Unrestricted Subsidiary by the Board of
Directors as provided below and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Subsidiary as an
Unrestricted Subsidiary so long as neither the Company nor any Restricted
Subsidiary is directly or indirectly liable pursuant to the terms of any
Indebtedness for Money Borrowed of such Subsidiary or has any assets or
properties which are subject to any Lien securing any Indebtedness for Money
Borrowed of such Subsidiary. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing a Board Resolution with the Trustee
giving effect to such designation. The Board of Directors may designate any
Unrestricted Subsidiary as a Restricted Subsidiary if, immediately after giving
effect to such designation, (i) no Event of Default shall have occurred and be
continuing and (ii) the Company could occur $1.00 of additional Indebtedness for
Money Borrowed (other than Permitted Indebtedness) under Section 1007.
"VICE PRESIDENT", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "Vice President".
"VOTING STOCK" means stock, interests, participations, rights in or other
equivalents in the equity interests (however designated) with respect to a
Corporation having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of such
Corporation; provided that, for the purposes hereof, stock which carries only
the right to vote conditionally on the happening of an event shall not be
considered Voting Stock whether or not such event shall have happened.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents or any of them is specifically required by any provision of
this Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or opinion
has read such condition or covenant and the definitions herein relating thereto;
(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 each such individual, such
individual has made such examination or investigation as is necessary to enable
such individual to express an informed opinion as to whether or not such
condition or covenant has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
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SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such officer's certificate or opinion is
based are erroneous. Any such certificate of counsel or Opinion of Counsel or
representation of counsel may be based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations by, an officer or
officers of the Company stating that the information with respect to such
factual matters is in the possession of the Company unless such counsel knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture or any Note, they may, but need not, be
consolidated and form one instrument.
SECTION 104. ACTS OF HOLDERS.
(1) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly appointed in writing.
Except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent, or of the holding by any Person of a Note, shall be
sufficient for any purpose of this Indenture and (subject to Section 315 of the
Trust Indenture Act) conclusive in favor of the Trustee and the Company and any
agent of the Trustee or the Company, if made in the manner provided in this
Section.
Without limiting the generality of this Section, unless otherwise provided
in or pursuant to this Indenture, a Holder, including a Depository that is a
Holder of a Global Note, may make, give or take, by a proxy, or proxies, duly
appointed in writing, any request, demand, authorization, direction, notice,
consent, waiver or other action provided in or pursuant to this Indenture to be
made, given or taken by Holders, and a Depository that is a Holder of a Global
Note may provide its proxy or proxies to the beneficial owners of interests in
any such Global Note through such Depository's standing instructions and
customary practices.
The Trustee shall fix a record date for the purpose of determining the
Persons who are beneficial owners of interests in any permanent Global Note held
by a Depository entitled under the procedures of such Depository to make, give
or take, by a proxy or proxies duly appointed in writing, any request, demand,
authorization, direction, notice, consent, waiver or other action provided in or
pursuant to this Indenture to be made, given or taken by Holders. If such a
record date is fixed, the Holders on such record date or their duly appointed
proxy or proxies, and only such Persons, shall be entitled to make, give or take
such request, demand, authorization, direction, notice, consent, waiver or other
action, whether or not such Holders remain Holders after such record date. No
such request, demand, authorization, direction, notice, consent, waiver or other
action shall be valid or effective if made, given or taken more than 90 days
after such record date.
(2) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(3) The ownership, principal amount and serial numbers of Notes held by
any Person, and the date of the commencement and the date of the termination of
holding the same, shall be proved by the Note Register.
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(4) If the Company shall solicit from the Holders of any Notes any
request, demand, authorization, direction, notice, consent, waiver or other
action, the Company may at its option (but is not obligated to), by Board
Resolution, fix in advance a record date for the determination of Holders of
Notes entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other action. If such a record date is fixed, such request,
demand, authorization, direction, notice, consent, waiver or other action may be
given before or after such record date, but only the Holders of Notes of record
at the close of business on such record date shall be deemed to be Holders for
the purpose of determining whether Holders of the requisite proportion of
Outstanding Notes have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other action, and
for that purpose the Outstanding Notes shall be computed as of such record date;
provided that no such authorization, agreement or consent by the Holders of
Notes on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than six months
after the record date.
(5) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Note shall bind every future Holder of the
same Note and the Holder of every Note issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done
or suffered to be done by the Trustee, any Note Registrar, any Paying Agent or
the Company in reliance thereon, whether or not notation of such action is made
upon such Note.
SECTION 105. NOTICES, ETC, TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with:
(1) the Trustee by any Holder or the Company shall be sufficient for every
purpose hereunder if made, given, furnished or filed in writing and delivered in
person or mailed by certified or registered mail (return receipt requested) to
or with the Trustee at its Corporate Trust Office, or
(2) the Company by the Trustee or any Holder shall be sufficient every
purpose hereunder (unless otherwise herein expressly provided) if in writing and
delivered in person or mailed by certified or registered mail (return receipt
requested), to the Company addressed to the attention of its Chief Financial
Officer at the address of its principal office specified in the first paragraph
of this instrument or at any other address previously furnished in writing to
the Trustee by the Company.
SECTION 106. NOTICE TO HOLDERS OF NOTES; WAIVER.
Except as otherwise expressly provided in this Indenture, where this
Indenture provides for notice to Holders of Notes of any event, such notice
shall be sufficiently given to Holders of Notes if in writing and mailed,
first-class postage prepaid, to each Holder of a Note affected by such event, at
such Holder's address as it appears in the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice.
In any case where notice to Holders of Notes is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder of a Note shall affect the sufficiency of such notice with
respect to other Holders of Notes. Any notice which is mailed in the manner
herein provided shall be conclusively presumed to have been duly given or
provided. In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders of Notes shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
SECTION 107. LANGUAGE OF NOTICES.
Any request, demand, authorization, direction, notice, consent or waiver
required or permitted under this Indenture shall be in the English language.
SECTION 108. CONFLICT WITH TRUST INDENTURE ACT.
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If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with any duties under any required provision of the Trust
Indenture Act imposed hereon by Section 318(c) thereof, such required provision
shall control.
SECTION 109. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein, the Reconciliation and Tie Chart
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
SECTION 110. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 111. SEVERABILITY CLAUSE.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, either wholly or partially, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and such provisions shall be given effect to the fullest
extent permitted by law.
SECTION 112. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes, express or implied, shall give
to any Person, other than the parties hereto, any Note Registrar, any Paying
Agent, any Authenticating Agent and their respective successors hereunder, the
Holders of Notes and the holders of Senior Indebtedness, any benefit or any
legal or equitable right, remedy or claim under this Indenture.
SECTION 113. GOVERNING LAW.
This Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
or instruments entered into and, in each case, performed in said state.
SECTION 114. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date, or Stated
Maturity of any Note shall be a Legal Holiday at any Place of Payment, then
(notwithstanding any other provision of this Indenture) payment need not be made
at such Place of Payment on such date, but may be made on the next succeeding
day that is a Business Day at such Place of Payment with the same force and
effect as if made on the Interest Payment Date, Redemption Date, or at the
Stated Maturity, and no interest shall accrue on the amount payable on such date
or at such time for the period from and after such Interest Payment Date,
Redemption Date, or Stated Maturity, as the case may be.
SECTION 115. COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each of
which shall be an original; but such counterparts shall together constitute but
one and the same instrument.
SECTION 116. INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS.
No recourse under or upon any obligation, covenant or agreement of this
Indenture, any supplemental indenture, or of any Note, or for any claim based
thereon or otherwise in respect thereof, shall be had against any incorporator,
shareholder, officer, employee, director or Affiliate, as such, past, present or
future, of the Company or of any successor corporation or Person, either
directly or through the Company, whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or penalty or otherwise;
it being expressly understood that this Indenture and the obligations issued
hereunder are solely corporate obligations, and that no such personal liability
whatever shall attach to, or is or shall be incurred by, the incorporators,
shareholders, officers, employees, directors or Affiliates, as such, of the
Company or of any successor corporation or Person, or any of them, because of
the creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or any of the
Notes or implied therefrom; and that any and all such personal liability, either
at common law or in equity or by constitution or statute, of, and any and all
such rights and claims against, every such incorporator, shareholder, officer,
employee, director or Affiliate, as such, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or
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agreements contained in this Indenture or in any of the Notes or implied
therefrom, are hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issue of such Notes.
SECTION 117. NO ADVERSE INTERPRETATIONS OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
ARTICLE TWO
FORM OF NOTES
SECTION 201. FORMS GENERALLY.
The definitive Notes shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined
by the officers executing such Notes as evidenced by their execution of such
Notes.
Notes (including the Trustee's certificate of authentication) offered and
sold shall be issued initially in the form of one or more permanent global Notes
substantially in the form set forth in Sections 202 through 204 (the "Global
Note") deposited with the Trustee, as custodian for the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. Subject to the limitation set forth in Section 301, the principal
amounts of the Global Notes may be increased or decreased from time to time by
adjustments made on the records of the Trustee as custodian for the Depository,
as hereinafter provided.
Notes (including the Trustee's certificate of authentication) exchanged
for beneficial interests in a Global Note as described in Section 312 shall be
issued in the form of permanent certificated securities in registered form in
substantially the form set forth in Sections 202 through 204 hereto ("Physical
Notes").
The Notes and the Trustee's certificate of authentication shall be in
substantially the respective forms set forth in this Article, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, CUSIP or
other numbers or other marks of identification and such legends or endorsements
placed thereon as may be required to comply with the rules of the Depository or
any securities exchange or as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
SECTION 202. FORM OF FACE OF NOTE.
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER
REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE THEREOF.
THIS NOTE MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A NOTE REGISTERED, AND NO
TRANSFER OF THIS NOTE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY
PERSON OTHER THAN SUCH DEPOSITORY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
CALLON PETROLEUM COMPANY
____ % SENIOR SUBORDINATED NOTE DUE 2001
$________________________ No._____________________
CALLON PETROLEUM COMPANY, a Delaware corporation (herein called the
"Company" which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
_____________________ ______________________________, or registered assigns, the
principal sum of ________________________ Dollars on December 15, 2001 and to
pay interest thereon at the rate of __% per annum from _______________, 1996 or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, quarterly on the fifteenth (15th) day of each December,
March, June, and September commencing March 15, 1997 (each an "Interest Payment
Date"), until the principal hereof is paid or made available for payment.
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The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, except as provided in the Indenture hereinafter
referred to, be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on the Regular Record
Date for such interest, which shall be the first (1st) day of March, June,
September, and December (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date. Any such interest not so punctually
paid or duly provided for shall forthwith cease to be payable to the Holder on
such Regular Record Date and either may be paid to the Person in whose name this
Note (or one or more Predecessor Notes) is registered at the close of business
on a Special Record Date for the payment of such defaulted interest to be fixed
by the Trustee, notice whereof shall be given to the Holders not less than ten
days prior to such Special Record Date, or may be paid at any time in any other
lawful manner, all as more fully provided in the Indenture.
Payment of the principal of and interest on this Note will be made at the
Office or Agency of the Company maintained for that purpose in New York, New
York, or in such other Office or Agency as may be established by the Company
pursuant to the Indenture (initially the principal corporate trust office of the
Trustee in New York, New York (the "Corporate Trust Office")), 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 payment
of interest on Physical Notes on any Interest Payment Date other than at
Maturity may be made at the option of the Company by check mailed to the address
of the Person entitled thereto as such address shall appear in the Note
Register. Payments of principal and interest at Maturity will be made against
presentation of this Note at the Corporate Trust Office (or such other office as
may be established pursuant to the Indenture).
Reference is hereby made to the further provisions of this Note set forth
on the reverse side hereof, which further provisions shall for all purposes have
the same effect as though fully set forth at this place.
Unless the Certificate of Authentication hereon has been executed by the
Trustee or an Authenticating Agent under the Indenture referred to on the
reverse hereof by the manual signature of one of its authorized officers, this
Note shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
name by the manual or facsimile signature of its Chief Executive Officer, its
President, its Treasurer or one of its Vice Presidents and its corporate seal,
or a facsimile thereof, to be impressed, imprinted or reproduced hereon,
attested by the manual or facsimile signature of its Secretary or one of its
Assistant Secretaries.
Date:
CALLON PETROLEUM COMPANY
By
President
[Corporate Seal]
ATTEST:
Secretary
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SECTION 203. FORM OF REVERSE OF NOTE.
CALLON PETROLEUM COMPANY
__% SENIOR SUBORDINATED NOTE DUE 2001
This Note is one of a duly authorized issue of Notes of the Company
designated as its __% Senior Subordinated Notes due 2001 (herein called the
"Notes') limited in aggregate principal amount to $21,000,000 (except for such
additional principal amounts, not to exceed $3,150,000 of Notes issued to cover
overallotments in the initial public offering of the Notes) issued and to be
issued under an Indenture dated as of November __, 1996 (herein called the
"Indenture"), between the Company and American Stock Transfer & Trust Company,
as Trustee (herein called the "Trustee," which term includes any successor
Trustee under the Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights
thereunder of the Company, the Trustee and the Holders of the Notes, and the
terms upon which the Notes are, and are to be, authenticated and delivered.
The indebtedness of the Company evidenced by the Notes, including the
principal thereof and interest thereon (including post-default interest), is
expressly subordinated, to the extent and to the manner set forth in the
Indenture, in right of payment to the prior payment in full of all of the
Company's obligations to holders of Senior Indebtedness. Each Holder of Notes,
by acceptance thereof, (a) agrees to and shall be bound by such provisions of
the Indenture and all other provisions of the Indenture; (b) authorizes and
directs the Trustee to take such action on such Holder's behalf as may be
necessary or appropriate to effectuate the subordination of the Notes as
provided in the Indenture; and (c) appoints the Trustee as such Holder's
attorney-in-fact for any and all such purposes.
The Notes may not be redeemed by the Company prior to December 15, 1997.
On or after December 15, 1997, the Notes may be redeemed, at the option of the
Company, in whole at any time or from time to time in part in increments of
$1,000, at 100% of the principal amount thereof, without premium, together with
interest thereon accrued to such Redemption Date. If fewer than all Notes are
redeemed, the Trustee will select the Notes to be redeemed by lot or such other
method as the Trustee may deem fair and appropriate.
Notice of redemption shall be given to the Holders of Notes to be redeemed
by mailing a notice of such redemption not less than 30 or more than 60 days
prior to the Redemption Date at their addresses as they shall appear on the Note
Register, all as provided in the Indenture.
If this Note (or a portion hereof) is duly called for redemption and funds
for payment are duly provided, this Note (or such portion hereof) shall cease to
bear interest from and after such Redemption Date.
Interest installments whose Stated Maturity is on the Redemption Date will
be payable to the Holders of such Notes, or one or more Predecessor Notes, of
record at the close of business on the relevant Regular Record Date referred to
on the face hereof, all as provided in the Indenture. In the event of redemption
or repayment of this Note in part only, a new Note or Notes for the unredeemed
or unrepaid portion hereof shall be issued in the name of the Holder hereof upon
the surrender hereof.
Except as may be provided in the Indenture, if an Event of Default with
respect to the Notes shall occur and be continuing, the Trustee or the Holders
of not less than 25% in aggregate principal amount of the Outstanding Notes may
declare the principal of all the Notes due and payable in the manner and with
the effect provided in the Indenture. The Indenture provides that such
declaration and its consequences may, in certain events, be annulled by the
Holders of a majority in aggregate principal amount of the Outstanding Notes.
The Indenture contains provisions for (i) defeasance at any time of the
entire indebtedness of the Company on this Note and (ii) discharge from certain
restrictive covenants and the related Defaults and Events of Default, upon
compliance by the Company with certain conditions set forth therein, which
provisions apply to this Note.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Notes under the Indenture at any
time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Notes at the time Outstanding,
on behalf of the Holders of all Notes, to waive compliance by the Company with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued
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upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Note. Without the consent of any Holder, the Company and the Trustee may amend
or supplement the Indenture or the Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes and to make certain other specified changes and other changes
that do not adversely affect the interests of any Holder.
No reference herein to the Indenture and no provisions of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, places and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note may be registered on the Note Register of
the Company, upon surrender of this Note for registration of transfer at the
Office or Agency of the Company maintained for such purpose pursuant to the
Indenture, duly endorsed by, or accompanied by a written instrument of transfer
in form satisfactory to the Company and the Note Registrar, and duly executed by
the Holder hereof or such Holder's attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Notes are issuable only in registered form, without coupons, in
denominations of $1,000 or any amount in excess thereof which is an integral
multiple of $1,000. As provided in the Indenture, and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes in authorized denominations, as requested by the
Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
A director, officer, employee, incorporator, shareholder or Affiliate of
the Company, as such, past, present or future shall not have any personal
liability under this Note or the Indenture by reason of his or its status as
such director, officer, employee, incorporator, shareholder or Affiliate, or any
liability for any obligations of the Company under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of such obligations or their
creation. Each Holder, by accepting this Note, waives and releases all such
liability. Such waiver and release are part of the consideration for the
issuance of this Note.
Prior to the due presentment of this Note for registration of transfer or
exchange, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered as the owner hereof
for all purposes, whether or not this Note be overdue, and neither the Company,
the Trustee, nor any such agent shall be affected by notice to the contrary.
Each Holder of a Note covenants and agrees by such Holder's acceptance
thereof to comply with and be bound by the foregoing provisions.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to the Company at 200 North
Canal Street, Natchez, Mississippi 39120.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to be
printed on the Notes as a convenience to the Holders thereof. No representation
is made as to the accuracy of such numbers as printed on the Notes and reliance
may be placed only on the other identifying information printed hereon.
Interest on this Note shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
This Note shall be governed by and construed in accordance with the laws
of the State of New York.
SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
Subject to Section 612, the Trustee's certificate of authentication shall
be in substantially the following form:
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This is one of the Notes referred to in the within mentioned Indenture.
AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Trustee
By_________________________________
Authentication Date:_____________ Authorized Signatory
ARTICLE THREE
THE NOTES
SECTION 301. TITLE AND TERMS.
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $21,000,000 (except for such
additional principal amounts, not to exceed $3,150,000, of Notes issued to cover
overallotments in the initial public offering of the Notes), except for Notes
authenticated and delivered upon transfer of, or in exchange for, or in lieu of
other Notes pursuant to Sections 304, 305, 306, 905 and 1107.
The Notes shall be known and designated as the "__% Senior Subordinated
Notes due 2001" of the Company. The Stated Maturity of all principal shall be
December 15, 2001, and they shall bear interest from the date and at the rate
per annum specified in, and such interest shall be payable on the dates
specified in, the form of Note set forth in Sections 202 and 203, until the
principal thereof is paid or made available for payment.
The principal of and interest on the Notes shall be payable at the Office
or Agency of the Company in New York, New York ("Place of Payment") maintained
for such purposes pursuant to Section 1002; PROVIDED, HOWEVER, that, at the
option of the Company, payment of interest on Physical Notes on any Interest
Payment Date other than at Maturity may be made (subject to collection) by check
mailed to the address of the Person entitled thereto as such address shall
appear on the Note Register. Payments of principal and interest at Maturity
shall be made against presentation of Notes at such Office or Agency.
The Notes shall be redeemable prior to their Stated Maturity as provided
in Article Eleven.
The Notes shall be subject to defeasance at the option of the Company as
provided in Article Twelve.
The Notes shall be subordinated in right of payment to Senior
Indebtedness, whether outstanding at the date of this Indenture or thereafter
created, as provided in Article Thirteen.
SECTION 302. CURRENCY; DENOMINATIONS.
The principal of and interest on the Notes shall be payable in Money.
Notes shall be issuable in registered form only without coupons in denominations
of $1,000 and any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
Notes shall be executed on behalf of the Company by its Chairman of the
Board, one of its Vice Chairmen of the Board, its Chief Executive Officer, its
President, its Treasurer or one of its Vice Presidents under its corporate seal
impressed, imprinted or reproduced thereon and attested by its Secretary or one
of its Assistant Secretaries. The signature of any of these officers on the
Notes may be manual or facsimile.
Notes bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
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At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Notes, executed by the Company, to the
Trustee for authentication and, provided that a Company Order for the
authentication and delivery of such Notes has been delivered to the Trustee, the
Trustee, in accordance with the Company Order and subject to the provisions
hereof, shall authenticate and deliver such Notes.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose, unless there appears on such Note a certificate
of authentication substantially in the form provided for in Section 204 or 612
executed by or on behalf of the Trustee by the manual signature of one of its
authorized signatories or by an Authenticating Agent. Such certificate upon any
Note shall be conclusive evidence, and the only evidence, that such Note has
been duly authenticated and delivered hereunder.
SECTION 304. TEMPORARY NOTES.
Pending the preparation of definitive Notes, the Company may execute and
deliver to the Trustee and, upon Company Order, the Trustee shall authenticate
and deliver temporary Notes which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Notes in lieu of which they are
issued, in registered form and with such appropriate insertions, omissions,
substitutions and other variations as the officers of the Company executing such
Notes may determine, as conclusively evidenced by their execution of such Notes.
Such temporary Notes may be in global form.
Except in the case of temporary Notes in global form, which shall be
exchanged in accordance with the provisions thereof, if temporary Notes are
issued, the Company shall cause definitive Notes to be prepared without
unreasonable delay. After the preparation of definitive Notes, such temporary
Notes shall be exchangeable for such definitive Notes upon surrender of such
temporary Notes at an Office or Agency for such Notes, without charge to any
Holder thereof. Upon surrender for cancellation of any one or more temporary
Notes, the Company shall execute and the Trustee shall authenticate and deliver
in exchange therefor a like principal amount of definitive Notes of authorized
denominations. Unless otherwise provided in or pursuant to this Indenture with
respect to a temporary Global Note, until so exchanged the temporary Notes shall
in all respects be entitled to the same benefits under this Indenture as
definitive Notes.
SECTION 305. REGISTRATION, TRANSFER AND EXCHANGE.
The Company shall cause to be kept a register (herein sometimes referred
to as the "Note Register") at an Office or Agency maintained pursuant to Section
1002 in which, subject to such reasonable regulations as it may prescribe, the
Company shall provide for the registration of the Notes and of transfers of the
Notes. The Trustee is hereby initially appointed as Note Registrar for the
Notes. In the event that the Trustee shall cease to be Note Registrar it shall
have the right to examine the Note Register at all reasonable times.
Upon surrender for registration of transfer of any Note at the Office or
Agency of the Company, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes, denominated as authorized in this Indenture,
of a like aggregate principal amount bearing a number not contemporaneously
outstanding and containing identical terms and provisions.
Furthermore, any Holder of a Global Note shall, by acceptance of such
Global Note, be deemed to have agreed that transfers of beneficial interests in
such Global Note may be effected only through a book-entry system maintained by
the Depository (or its agent), and that ownership of a beneficial interest in a
Global Note shall be required to be reflected in a book entry.
At the option of the Holder, Notes may be exchanged for other Notes, in
any authorized denominations, and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such Office or Agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Notes which the Holder making the
exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Company evidencing the same debt and
entitling the Holders thereof to the same benefits under this Indenture as the
Notes surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or for
exchange or redemption shall (if so required by the Company or the Note
Registrar for such Note) be duly endorsed by, or be accompanied by a written
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instrument of transfer in form satisfactory to the Company and the Note
Registrar duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Notes, other than exchanges
pursuant to Section 304, 905 or 1107 not involving any transfer.
Neither the Trustee nor the Company shall not be required (1) to issue,
register the transfer of or exchange any Physical Notes during a period
beginning at the opening of business 15 calendar days before the day of the
selection for redemption of Notes under Section 1103 and ending at the close of
business on the day of the mailing of the relevant notice of redemption, or (2)
to register the transfer of or exchange any Physical Note so selected for
redemption in whole or in part, except in the case of any Physical Note to be
redeemed in part, the portion thereof not to be redeemed.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN NOTES.
If any mutilated Note is surrendered to the Trustee, subject to the
provisions of this Section, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Note containing identical
terms and of like principal amount and bearing a number not contemporaneously
outstanding.
If there be delivered to the Company and to the Trustee (1) evidence to
their satisfaction of the destruction, loss or theft of any Note, and (2) such
indemnity as may be required by them to save each of them and any agent of
either of them harmless, then, in the absence of notice to the Company or the
Trustee that such Note has been acquired by a bona fide purchaser (or any
equivalent person under any applicable statute, rule or regulation or
interpretation then in effect), the Company shall execute and, upon the
Company's request the Trustee shall authenticate and deliver, in exchange for or
in lieu of any such destroyed, lost or stolen Note, a new Note containing
identical terms and of like principal amount and bearing a number not
contemporaneously outstanding.
Notwithstanding the foregoing provisions of this Section, in case any
mutilated, destroyed, lost or stolen Note has become or is about to become due
and payable or redeemed by the Company pursuant to Article Eleven hereof, the
Company in its discretion may, instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section, the Company may
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 expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section in lieu of any destroyed,
lost or stolen Note shall constitute an additional original contractual
obligation of the Company, whether or not the destroyed, lost or stolen Note
shall be at any time enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
Notes duly issued hereunder.
The provisions of this Section, as amended or supplemented pursuant to
this Indenture, shall be 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 Notes.
SECTION 307. PAYMENT OF INTEREST, RIGHTS TO INTEREST PRESERVED.
Any interest on any Note which shall be payable and is punctually paid or
duly provided for on any Interest Payment Date shall be paid to the Person in
whose name such Note (or one or more Predecessor Notes) is registered as of the
close of business on the Regular Record Date for such interest.
Any interest on any Note which shall be payable, but shall not be
punctually paid or duly provided for, on any Interest Payment Date for such Note
(herein called "Defaulted Interest") shall forthwith cease to be payable to the
Holder thereof on the relevant Regular Record Date by virtue of having been a
Holder on such date; and such Defaulted Interest may be paid by the Company, at
its election in each case, as provided in Clause (1) or (2) below.
(1) The Company may elect to make payment of any Defaulted Interest
to the Person in whose name such Note (or a Predecessor Note thereof) shall be
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on such Note
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and the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of Money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit on or prior to the
date of the proposed payment, such Money when so deposited to be held in trust
for the benefit of the Person entitled to such Defaulted Interest as in this
Clause provided. Thereupon, the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days and not
less than 10 days prior to the date of the proposed payment and not less than 10
days after the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date and, in
the name and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to the Holder of such Note (or a
Predecessor Note thereof) at such Holder's address as it appears in the Note
Register not less than 10 days prior to such Special Record Date. The Trustee
may, in its discretion, in the name and at the expense of the Company cause a
similar notice to be published at least once in an Authorized Newspaper of
general circulation in each Place of Payment, but such publication shall not be
a condition precedent to the establishment of such Special Record Date and the
failure of a Holder to observe such published notice shall not entitle such
Holder to additional benefits or interest with respect to such Holder's Notes.
Notice of the proposed payment of such Defaulted Interest and the Special Record
Date therefor having been mailed as aforesaid, such Defaulted Interest shall be
paid to the Person in whose name such Note (or a Predecessor Note thereof) shall
be registered at the close of business on such Special Record Date and shall no
longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this Clause, such payment shall be deemed
practicable by the Trustee.
At the option of the Company, Defaulted Interest may be paid (i) by
mailing a check to the address of the Person entitled thereto as such address
shall appear in the Note Register, in the case of any Physical Note, or (ii) by
wire transfer to an account maintained by the Person entitled thereto as
specified in the Note Register.
Subject to the foregoing provisions of this Section and Section 305, each
Note delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Note shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Note.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Note for registration of transfer or
exchange, the Company, the Trustee, the Note Registrar, and any agent of the
Company or the Trustee may treat the Person in whose name such Note is
registered in the Note Register as the owner of such Note for the purpose of
receiving payment of principal of and (subject to Sections 305 and 307) interest
on such Note and for all other purposes whatsoever, whether or not any payment
with respect to such Note shall be overdue, and neither the Company, nor the
Trustee, the Note Registrar, or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
No holder of any beneficial interest in any Global Note held on its behalf
by a Depository shall have any rights under this Indenture with respect to such
Global Note, and such Depository may be treated by the Company, the Trustee, and
any agent of the Company or the Trustee as the owner of such Global Note for all
purposes whatsoever. None of the Company, the Trustee, any Paying Agent or the
Note Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
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SECTION 309. CANCELLATION.
All Notes surrendered for payment, redemption, registration of transfer or
exchange shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee, and any such Notes, as well as Notes surrendered
directly to the Trustee for any such purpose, shall be canceled promptly by the
Trustee. The Company may at any time deliver to the Trustee for cancellation any
Notes previously authenticated and delivered hereunder which the Company may
have acquired in any manner whatsoever, and all Notes so delivered shall be
canceled promptly by the Trustee. No Notes shall be authenticated in lieu of or
in exchange for any Notes canceled as provided in this Section, except as
expressly permitted by this Indenture. All canceled Notes held by the Trustee
shall be disposed of as directed by a Company Order or in accordance with the
Trustee's usual practice; provided, however, that the Trustee shall not be
required to destroy canceled Securities.
SECTION 310. AUTHENTICATION AND DELIVERY OF ORIGINAL ISSUE.
Forthwith upon the execution and delivery of this Indenture, or from time
to time thereafter, Notes up to the aggregate principal amount of $21,000,000
(plus such additional principal amounts, not to exceed $3,150,000, of Notes
issued to cover over-allotments in the initial public offering of the Notes) may
be executed by the Company and delivered to the Trustee for authentication, and
shall thereupon be authenticated and delivered by the Trustee upon Company
Order, without any further action by the Company.
SECTION 311. COMPUTATION OF INTEREST.
Interest on the Notes shall be computed on the basis of a 360-day year of
twelve 30-day months.
SECTION 312. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTE.
Each Global Note shall be registered in the name of the Depository for
such Global Note or the nominee of such Depository and be delivered to the
Trustee as custodian for such Depository.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depository, or the Trustee as its custodian, or under such
Global Note, and the Depository may be treated by the Company, the Trustee and
any agent of the Company, or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depository or shall
impair, as between the Depository and its Agent Members, the operation of
customary practices governing the exercise of the rights of a holder of any
Note.
Transfers of a Global Note shall be limited to transfers of such Global
Note in whole, but not in part, to the Depository, its successors or their
respective nominees. Interests of beneficial owners in a Global Note may be
transferred or exchanged for Physical Notes in accordance with the rules and
procedures of the Depository. Physical Notes shall be transferred to all
beneficial owners in exchange for their beneficial interests in a Global Note
if, and only if, either (1) the Depository notifies the Company that it is
unwilling or unable to continue as depository for the Global Note and a
successor depository is not appointed by the Company within 90 days of such
notice, or (2) an Event of Default has occurred and is continuing and the Note
Registrar has received a request from the Depository to issue Physical Notes in
lieu of all or a portion of the Global Note (in which case the Company shall
deliver Physical Notes within 30 days of such request).
In connection with the transfer of an entire Global Note to beneficial
owners pursuant to this Section, the Global Note shall be deemed to be
surrendered to the Trustee for cancellation, and the Company shall execute, and
the Trustee shall authenticate and deliver, to each beneficial owner identified
by the Depository, in exchange for its beneficial interest in the Global Note,
an equal aggregate principal amount of Physical Notes of authorized
denominations.
The Holder of the Global Note may grant proxies and otherwise authorize
any Person, including Agent Members and Persons that may hold interests through
Agent members, to take any action which a Holder is entitled to take under this
Indenture or the Notes.
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ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of Notes,
as expressly provided for in this Indenture) as to all Outstanding Notes, and
the Trustee, at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture when
(a) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes which have been mutilated, destroyed, lost or stolen
and which have been replaced or paid as provided in Section 306 and
(ii) Notes for whose payment Money or Government Obligations have
theretofore been deposited in trust with the Trustee or any Paying
Agent or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee for cancellation;
or
(2) all such Notes not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) 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 (2)(i), (2)(ii) or (2)(iii)
above, has irrevocably deposited or caused to be deposited with the
Trustee Money in an amount sufficient to pay and discharge the
entire indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation, for principal and interest to the date of
such deposit (in the case of Notes which have become due and
payable) or to the Stated Maturity or Redemption Date, as the case
may be, together with instructions from the Company irrevocably
directing the Trustee to apply such Money to the payment thereof at
maturity or redemption, as the case may be;
(b) the Company has paid or caused to be paid all other sums
then due and payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, which, taken together, state
that all conditions precedent herein 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 607, the obligations of
the Trustee to any Authenticating Agent under Section 612 and, if Money and/or
Government Obligations shall have been deposited with the Trustee pursuant to
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all Money
and Government Obligations deposited with the Trustee pursuant to Section 401
and all Money received by the Trustee in respect of Government Obligations
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal and interest for
whose payment such Money has or Government Obligations have been deposited with
or received by the Trustee.
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ARTICLE FIVE
REMEDIES
SECTION 501. EVENTS OF DEFAULT.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or be effected by operation of law pursuant to any judgment, decree or
order of any court or any order, rule or regulation of any administrative or
governmental body):
(1) default in the payment of any interest on any Note when such
interest becomes due and payable, and continuance of such default for a period
of 30 days, whether or not such payment is prohibited by the provisions of
Article Thirteen; or
(2) default in the payment of the principal of any Note when it
becomes due and payable at its Maturity, whether or not such payment is
prohibited by the provisions of Article Thirteen; or
(3) default in the performance, or breach, of any covenant or
agreement of the Company in this Indenture or the Notes (other than a covenant
or warranty a default in the performance or the breach of which is elsewhere in
this Section specifically dealt with), and continuance of such default or breach
for a period of 30 days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in aggregate principal amount of the Outstanding Notes a
written notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder; or
(4) default in the payment at Stated Maturity of any Indebtedness
for Money Borrowed of the Company or any Restricted Subsidiary in principal
amount due at Stated Maturity in excess of $2,500,000, and such default shall
continue, without being cured or waived to and without such Indebtedness for
Money Borrowed being discharged, for a period of 30 days beyond any applicable
period of grace; or
(5) the occurrence of an event of default as defined in any
mortgage, indenture or instrument under which there may be issued, or by which
there may be secured or evidenced, any Indebtedness for Money Borrowed of the
Company or any Restricted Subsidiary (or the payment of which is guaranteed by
the Company), whether such Indebtedness for Money Borrowed now exists or shall
hereafter be created, PROVIDED, HOWEVER, that no such event of default shall
constitute an Event of Default hereunder unless the effect of such event of
default is to cause the acceleration of such Indebtedness for Money Borrowed
prior to its Stated Maturity, which together with the principal amount of any
such other Indebtedness for Money Borrowed so caused to be accelerated,
aggregates $2,500,000 or more at any one point in time and such default shall
not have been cured or waived and such acceleration shall not have been
rescinded or annulled within a period of 30 days from the occurrence of such
acceleration; or
(6) the entry by a court or agency or supervisory authority
having competent jurisdiction of:
(a) a decree or order for relief in respect of the Company or
any Material Subsidiary in an involuntary proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar law and such decree or
order shall remain unstayed and in effect for a period of 60 consecutive days;
or
(b) a decree or order adjudging the Company or any Material
Subsidiary to be insolvent, or approving a petition seeking reorganization,
arrangement, adjustment or composition of the Company or any Material Subsidiary
and such decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or
(c) a decree or order appointing any Person to act as a
custodian, receiver, liquidator, assignee, trustee or other similar official of
the Company or any Material Subsidiary or of any substantial part of the
Property of the Company or any Material Subsidiary, as the case may be, or
ordering the winding up or liquidation of the affairs of the Company or any
Material Subsidiary and such decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or
(7) the commencement by the Company or any Material Subsidiary of a
voluntary proceeding under any applicable bankruptcy, insolvency, reorganization
or other similar law or of a voluntary proceeding seeking to be adjudicated
insolvent or the consent by the Company or any Material Subsidiary to the
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entry of a decree or order for relief in an involuntary proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any insolvency proceedings against it, or the filing by the
Company or any Material Subsidiary of a petition or answer or consent seeking
reorganization or relief under any applicable law, or the consent by the Company
or any Material Subsidiary to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee
or similar official of the Company or any Material Subsidiary or any substantial
part of the Property of the Company or any Material Subsidiary or the making by
the Company or any Material Subsidiary of an assignment for the benefit of
creditors, or the taking of corporate action by the Company or any Material
Subsidiary in furtherance of any such action; or
(8) a final judgment, judicial decree or order for the payment of
money in excess of $2,500,000 shall be rendered against the Company or any
Material Subsidiary and such judgment, decree or order shall continue
unsatisfied for a period of 30 days without a stay of execution.
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If any Event of Default (other than an Event of Default specified in
Section 501(6) or 501(7)) occurs and is continuing, the Trustee or the Holders
of not less than 25% in aggregate principal amount of the Notes then
Outstanding, by written notice to the Company (and to the Trustee if such notice
is given by the Holders), may, and the Trustee upon the request of the Holders
of not less than 25% in aggregate principal amount of the Outstanding Notes
shall, by a notice in writing to the Company, declare all unpaid principal of
and accrued and unpaid interest on all the Notes to be due and payable
immediately, upon which declaration all amounts payable in respect of the Notes
shall be immediately due and payable. If an Event of Default specified in
Section 501(6) or 501(7) occurs and is continuing, the amounts described above
shall become and be immediately due and payable without any declaration, notice
or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made and before a
judgment or decree for payment of the money due has been obtained by the Trustee
as hereinafter in this Article provided, the Holders of a majority in aggregate
principal amount of the Notes Outstanding, by written notice to the Company and
the Trustee, may rescind and annul such declaration and its consequences if
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(1) all overdue interest on all Outstanding Notes,
(2) all unpaid principal of any Outstanding Notes which have become due
otherwise than by such declaration of acceleration and interest on
such unpaid principal at the rate borne by the Notes,
(3) to the extent that payment of such interest is lawful, interest on
overdue interest and overdue principal at the rate borne by the
Notes (without duplication of any amount paid or deposited pursuant
to clauses (1) and (2) above), and
(4) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
(b) the rescission would not conflict with any judgment or decree of
a court of competent jurisdiction as certified to the Trustee by the Company;
and
(c) all Events of Default, other than the non-payment of amounts of
principal of or interest on Notes which have become due solely by such
declaration of acceleration, have been cured or waived as provided in Section
513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the foregoing, if an Event of Default specified in Section
50l(4) or 501(5) shall have occurred and be continuing, such Event of Default
and any consequential acceleration shall be automatically rescinded if the
Indebtedness for Money Borrowed that is the subject of such Event of Default has
been repaid, or if the default relating to such Indebtedness is waived or cured
and if such Indebtedness has been accelerated, then the holders thereof have
rescinded their declaration of acceleration in respect of such Indebtedness
(provided, in each case, that such repayment, waiver, cure or rescission is
effected within a period of 30 days from the continuation of such default beyond
the applicable grace period or the occurrence of such acceleration), and written
notice of such repayment, or cure or waiver and rescission, as the case may be,
shall have been given to the Trustee by the
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Company and countersigned by the holders of such Indebtedness for Money Borrowed
or a trustee, fiduciary or agent for such holders or other evidence satisfactory
to the Trustee of such events is provided to the Trustee, within 30 days after
any such acceleration in respect of the Notes, and so long as such rescission of
any such acceleration of the Notes does not conflict with any judgment or decree
as certified to the Trustee by the Company.
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE.
The Company covenants that if
(a) default is made in the payment of any installment of interest on any
Note when such interest becomes due and payable and such default continues for a
period of 30 days, or
(b) default is made in the payment of the principal of any Note at the
Maturity thereof, the Company will, upon demand of the Trustee, pay to the
Trustee for the benefit of the Holders of such Notes, the whole amount then due
and payable on such Notes for principal and interest, and, to the extent that
payment of such interest shall be legally enforceable, upon any overdue
installment of interest and overdue principal, at the rate borne by the Notes
(without duplication of any amount paid pursuant to the preceding clauses of
this Section 503(b)), and, in addition thereto, 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.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Notes and collect the money
adjudged or decreed to be payable in the manner provided by law out of the
Property of the Company or any other obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes,
their creditors or the Property of the Company or of such other obligor, the
Trustee (irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company or such other
obligor for the payment of overdue principal or interest) shall be entitled and
empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of the Notes and to file such other papers
or documents and take any other actions including participation as a full member
of any creditor or other committee 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 of the Holders allowed in such judicial proceeding, and
(b) subject to Article Thirteen, to collect and receive any money or other
Property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official 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 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 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes 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.
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SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION
OF NOTES.
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name and as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Notes in respect of which such judgment has been recovered.
SECTION 506. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in the case of the distribution of such money on account of principal or
interest, upon presentation of the Notes and the notation thereon of the payment
if only partially paid and upon surrender thereof if fully paid;
FIRST: to the payment of all amounts due the Trustee under
Section 607;
SECOND: subject to Article Thirteen, to the payment of the amounts
then due and unpaid for principal of and interest on the Notes in respect
of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for principal and interest,
respectively; and
THIRD: subject to Article Thirteen, the balance, if any, to the
Company.
SECTION 507. LIMITATION ON SUITS.
No Holder of any Notes shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(b) the Holders of not less than 25% in aggregate principal amount of the
Outstanding Notes shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority or more in
aggregate principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL
PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture (but subject to
Article Thirteen), the Holder of any Note shall have the right, which is
absolute and unconditional, to receive payment, as provided herein and in such
Note of the principal of and (subject to Section 307) interest on, such Note on
the respective Stated Maturities expressed in such Note (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Holder.
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES.
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If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereunder
and all rights and remedies of the Trustee and the Holders shall continue as
though no such proceeding had been instituted.
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Notes in the last paragraph of Section 306,
no right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. CONTROL BY HOLDERS.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Notes shall have the right to 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 the Trustee, provided that
(a) such direction shall not be in conflict with any rule of law or
with this Indenture,
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might involve it in
personal liability or be unduly prejudicial to the Holders not joining therein.
SECTION 513. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Notes, by Act of such Holders, may on behalf of the Holders of
all the Notes waive any existing Default or Event of Default hereunder and its
consequences, except a Default or Event of Default on any Note,
(a) in respect of the payment of the principal of or interest on any
Note, or
(b) in respect of a covenant or provision hereof which under Article Nine
hereof cannot be modified or amended without the consent of the Holder of each
Outstanding Note affected thereby.
Upon any such waiver, such Default or Event of Default shall cease to
exist for every purpose under this Indenture, but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereon. Any such waiver may (but need not) be given in connection
with a tender offer or exchange offer for the Notes.
SECTION 514. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Note by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, 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,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its
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discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 25% in aggregate
principal amount of the Outstanding Notes, or to any suit instituted by any
Holder for the enforcement of the payment of the principal of or interest on any
Note on or after the respective Stated Maturities expressed in such Note (or, in
the case of redemption, on or after the Redemption Date).
SECTION 515. WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will 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
wherever enacted, now or at any time hereafter in force, which would prohibit or
forgive the Company from paying all or any portion of the principal of or
interest on the Notes as contemplated herein, or which may affect the covenants
or the performance of this Indenture; and (to the extent that it may lawfully do
so) the Company hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not 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.
ARTICLE SIX
THE TRUSTEE
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.
(1) Except during the continuance of an Event of Default,
(a) the Trustee undertakes to perform such duties, and only such
duties, as are specifically set forth in this Indenture, and no implied
covenants or obligations shall be read into this Indenture against the Trustee;
and
(b) 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; but in the case of
any such certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty to
examine the same to determine whether or not they conform to the requirements of
this Indenture.
(2) In case 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 their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(3) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that
(a) this Subsection shall not be construed to limit the effect
of Subsection (1) of this Section;
(b) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction of
the Holders of a majority in principal amount of the Outstanding Notes, relating
to the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture with respect to the Notes, provided such direction
shall not be in conflict with any rule of law or with this Indenture; and
(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, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
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(4) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 602. NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any Event of Default hereunder, the
Trustee shall transmit to the Holders of Notes, in the manner and to the extent
provided in Section 313(c) of the Trust Indenture Act, notice of such Event of
Default hereunder known to the Trustee, unless such Event of Default shall have
been cured or waived; PROVIDED, HOWEVER, that, except in the case of an Event of
Default in the payment of the principal of or interest on any Note, the Trustee
shall be protected in withholding such notice if and so long as the board of
directors, the executive committee or a trust committee of directors and/or
Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interest of the Holders of Notes.
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601 hereof:
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, coupon or other paper or document reasonably believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or a Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
shall be herein specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(5) 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 of Notes pursuant to this Indenture, unless such Holders
shall have offered to the Trustee reasonable security or indemnity against the
costs, fees, expenses and liabilities which might be incurred by it, including
reasonable fees of counsel, in complying with such request or direction;
(6) 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, coupon 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, during
business hours and upon reasonable notice, the books, records and premises of
the Company, personally or by agent or attorney; and
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES.
The recitals contained herein and in the Notes, except the Trustee's
certificate of authentication, shall be taken as the statements of the Company
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Notes, except that the Trustee
represents that it is duly authorized to execute and deliver this Indenture,
authenticate the Notes and perform its obligations hereunder and that the
statements made by it in a Statement of Eligibility and Qualification on Form
T-1 supplied to the Company are true and accurate, subject to the
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qualifications
set forth therein. Neither the Trustee nor any Authenticating Agent shall be
accountable for the use or application by the Company of the Notes or the
proceeds thereof.
SECTION 605. MAY HOLD NOTES.
The Trustee, any Authenticating Agent, any Paying Agent, any Note
Registrar or any other Person that may be an agent of the Trustee or the
Company, in its individual or any other capacity, may become the owner or
pledgee of Notes and, subject to Sections 310(b) and 311 of the Trust Indenture
Act, may otherwise deal with the Company with the same rights it would have if
it were not Trustee, Authenticating Agent, Paying Agent, Note Registrar or such
other agent.
SECTION 606. MONEY HELD IN TRUST.
Except as provided in Section 402 and Section 1003, Money held by the
Trustee in trust hereunder need not be segregated from other funds except to the
extent required by law. The Trustee shall be under no liability for interest on
any Money received by it hereunder except as otherwise agreed with the Company.
So long as no Event of Default shall have occurred and be continuing, all
interest allowed on any such Money shall be paid to the Company from time to
time upon receipt by the Trustee of a Company Order except as otherwise provided
in this Indenture.
SECTION 607. COMPENSATION AND REIMBURSEMENT.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by the Trustee hereunder (which compensation shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable costs, expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to the Trustee's willful misconduct,
negligence or bad faith; and
(3) to indemnify the Trustee and its agents for, and to hold them
harmless against, any loss, liability or expense incurred without negligence or
bad faith on their part, arising out of or in connection with the acceptance or
administration of the trust hereunder, including the costs and expenses of
defending themselves against any claim or liability in connection with the
exercise or performance of any of their powers or duties hereunder.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Notes upon all Money
and other property held or collected by the Trustee as such, except Money and
other property held in trust for the payment of principal of and interest on
Notes.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 501(6) or Section 501(7), the expenses
(including the reasonable compensation, expenses and disbursements of its
counsel) and the compensation for the services are intended to constitute
expenses of administration under any applicable federal or state bankruptcy,
insolvency or other similar law.
The obligations of the Company under this Section to compensate and
indemnify the Trustee and each predecessor Trustee and to pay or reimburse the
Trustee and each predecessor Trustee for expenses, disbursements and advances
shall constitute an additional obligation hereunder and shall survive the
satisfaction and discharge of this Indenture and the resignation or removal of
the Trustee and each predecessor Trustee.
SECTION 608. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder that is a Corporation
organized and doing business under the laws of the United States, authorized
under such laws to exercise corporate trust powers, or any other Person
permitted by the Trust Indenture Act to act as trustee under an indenture
qualified under the Trust Indenture Act and that has a combined capital and
surplus (computed in accordance with Section 310(a)(2) of the Trust Indenture
Act)
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of at least $10,000,000. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 609. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(1) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee pursuant to Section 610.
(2) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 610 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(3) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in aggregate principal amount of the Outstanding Notes
delivered to the Trustee and the Company.
(4) If at any time:
(a) the Trustee shall fail to comply with the obligations
imposed upon it under Section 310(b) of the Trust Indenture Act after written
request therefor by the Company or any Holder of a Note who has been a bona fide
Holder of a Note for at least six months, or
(b) the Trustee shall cease to be eligible under Section 608
and shall fail to resign after written request therefor by the Company or by any
Holder of the Notes who has been a bona fide Holder of a Note for at least six
months, or
(c) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (i) the Company, by or pursuant to a Board Resolution,
may remove the Trustee, or (ii) subject to Section 315(e) of the Trust Indenture
Act, any Holder of a Note who has been a bona fide Holder of a Note for at least
six months may, on behalf of such Holder and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
(5) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by or pursuant to a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Notes delivered to the Company and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment in accordance with the applicable requirements of
Section 610, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders of Notes and accepted appointment in the manner
required by Section 610, any Holder of a Note who has been a bona fide Holder of
a Note for at least six months may, on behalf of such Holder and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(6) The Company shall give notice of (i) each resignation and each
removal of the Trustee and each appointment of a successor Trustee pursuant to
this Section and (ii) each succession pursuant to Section 611 hereof, in each
case by mailing written notice of such event by first-class mail, postage
prepaid, to the Holders of Notes as their names and addresses appear in the Note
Register. Each notice shall include the name of the successor Trustee and the
address of its Corporate Trust Office.
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SECTION 610. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Upon the appointment hereunder of any successor Trustee, such successor
Trustee so appointed shall execute, acknowledge and deliver to the Company and
the retiring Trustee an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become effective and such
successor Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties hereunder of the retiring
Trustee; but, on the request of the Company or such successor Trustee, such
retiring Trustee, upon payment of all amounts due it under Section 607, shall
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all Money and other property held
by such retiring Trustee hereunder.
Upon request of any Person appointed hereunder as a successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts referred to in this Section.
No Person shall accept its appointment hereunder as a successor Trustee
unless at the time of such acceptance such successor Person shall be qualified
and eligible under this Article.
SECTION 611. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS.
Any Corporation into which the Trustee may be merged or converted or with
which it may be Consolidated, or any Corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
Corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such Corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto; PROVIDED, HOWEVER, such Corporation shall
notify the Company of its succession as Trustee pursuant to this Section as soon
as practicable. In case any Notes shall have been authenticated but not
delivered by the Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such authentication and
deliver the Notes so authenticated with the same effect as if such successor
Trustee had itself authenticated such Notes.
SECTION 612. APPOINTMENT OF AUTHENTICATION AGENT.
The Trustee, with the prior written consent of the Company and after
giving notice of the appointment described in this Section 612 in the manner
provided in Section 106 to all Holders of Notes, may appoint one or more
Authenticating Agents with respect to the Notes which shall be authorized to act
on behalf of the Trustee to authenticate Notes issued upon original issue,
exchange, registration of transfer, partial redemption or pursuant to Section
306, and Notes so authenticated shall be entitled to the benefits of this
Indenture and shall be valid and obligatory for all purposes as if authenticated
by the Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Notes by the Trustee or the Trustee's certificate
of authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at
all times be a Corporation (organized and doing business under the laws of the
United States, authorized under such laws to act as Authenticating Agent) that
would be permitted by the Trust Indenture Act to act as trustee under an
indenture qualified under the Trust Indenture Act, is authorized under
applicable law and by its charter to act as an Authenticating Agent and has a
combined capital and surplus (computed in accordance with Section 310(a)(2) of
the Trust Indenture Act) of at least $10,000,000. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect specified in this Section.
Any Corporation into which an Authenticating Agent may be merged or
converted or with which it may be Consolidated, or any Corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any Corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall be the successor of
such Authenticating Agent hereunder, provided such Corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice
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thereof to such Authenticating Agent and the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 106 to all Holders of Notes, if
any, as their names and addresses appear in the Note Register. Any successor
Authenticating Agent, upon acceptance of its appointment hereunder, shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Company agrees to pay each Authenticating Agent from time to time
reasonable compensation for its services under this Section. If the Trustee
makes such payments, it shall be entitled to be reimbursed for such payments,
subject to the provisions of Section 607.
The provisions of Sections 308, 604 and 605 shall be applicable to each
Authenticating Agent.
If an Authenticating Agent is appointed pursuant to this Section, the
Notes may have endorsed thereon, in addition to or in lieu of the Trustee's
certificate of authentication, an alternate certificate of authentication in the
following form:
This is one of the Notes referred to in the within mentioned Indenture.
Authentication Date: , Authenticating Agent
By: ____________________________
Authorized Signatory
SECTION 613. CONFLICTING INTERESTS.
The Trustee shall comply with the provisions of Section 310(b) of the
Trust Indenture Act; PROVIDED, HOWEVER, there shall be excluded from the
operation of Section 310(b)(1) of the Trust Indenture Act any indenture or
indentures under which other securities or certificates of interest or
participation in other securities of the Company are outstanding if the
requirements for such exclusion set forth in Section 310(b)(1) of the Trust
Indenture Act are met.
SECTION 614. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor under the Notes), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANYARTICLE SEVEN HOLDERS'
LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
HOLDERS.
The Company shall furnish or cause to be furnished to the Trustee
(1) semi-annually no later than June 15 and December 15 of each
year, a list, in each case in such form as the Trustee may reasonably require,
of the names and addresses of Holders as of the preceding June 1 or December 1,
as the case may be, and
(2) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the time
such list is furnished,
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PROVIDED, HOWEVER, that so long as the Trustee is the Note Registrar no such
list shall be required to be furnished for Notes for which the Trustee acts as
Note Registrar.
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders of Notes contained in the most
recent list furnished to the Trustee as provided in Section 701 and the names
and address of Holders of Notes received by the Trustee in its capacity as Note
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
The rights of Holders of Notes to communicate with other Holders of Notes
with respect to their rights under this Indenture or under the Notes and the
corresponding rights and privileges of the Trustee, shall be as provided by the
Trust Indenture Act.
Every Holder of Notes, by receiving and holding the same, agrees with the
Company and the Trustee that neither the Company, the Trustee, any Paying Agent
or any Note Registrar or any agent of any of them shall be held accountable by
reason of the disclosure of information as to the names and addresses of the
Holders of Notes made pursuant to the Trust Indenture Act, regardless of the
source from which such information was derived, and that the Trustee shall not
be held accountable by reason of mailing any material pursuant to a request made
under Section 312(b) of the Trust Indenture Act.
SECTION 703. REPORTS BY TRUSTEE.
(1) Within 60 days after May 15 of each year, if required by Section
313(a) of the Trust Indenture Act, the Trustee shall transmit, pursuant to
Section 313(c) of the Trust Indenture Act, a brief report dated as of such May
15 with respect to any of the events specified in said Section 313(a) which may
have occurred since the later of the immediately preceding May 15 and the date
of this Indenture.
(2) The Trustee shall transmit the reports required by Section
313(b) of the Trust Indenture Act at the times specified therein.
(3) Reports pursuant to this Section shall be transmitted in the
manner and to the Persons required by Sections 313(c) and 313(d) of the Trust
Indenture Act.
SECTION 704. REPORTS BY COMPANY.
The Company shall:
(1) file with the Trustee, within 30 days after the Company is
required to file the same with the Commission, copies of the annual reports and
of the information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if
the Company is not required to file information, documents or reports pursuant
to either of said Sections, then the Company shall file with the Trustee and the
Commission, in accordance with rules and regulations prescribed from time to
time by the Commission, such of the supplementary and periodic information,
documents and reports which may be required pursuant to Section 13 of the
Exchange Act in respect of a Note listed and registered on a national securities
exchange as may be prescribed from time to time in such rules and regulations;
provided that notwithstanding the requirements of such rules and regulations, so
long as any Note is Outstanding the Company shall file with the Trustee at a
minimum (a) as soon as practicable, but in any event no more than one hundred
twenty (120) days, after the end of each fiscal year, copies of a balance sheet
and statements of income and retained earnings of the Company as of the end of
and for such fiscal year, audited by Independent Public Accountants, and (b) as
soon as practicable, but in any event no more than forty-five (45) days, after
the end of each quarterly fiscal period, except for the last quarterly fiscal
period in each fiscal year, a summary statement (which need not be audited) of
income and retained earnings of the Company for such period;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by the
Company, as the case may be, with the conditions and covenants of this Indenture
as may be required from time to time by such rules and regulations;
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(3) transmit to the Holders of Notes within 30 days after the filing
thereof with the Trustee, in the manner and to the extent provided in Section
313(c) of the Trust Indenture Act, such summaries of any information, documents
and reports required to be filed by the Company pursuant to paragraphs (1) and
(2) of this Section as may be required by rules and regulations prescribed from
time to time by the Commission; provided that notwithstanding the requirements
of such rules and regulations, so long as any Note is Outstanding the Company
shall transmit to the Holders of Notes, within 30 days after the filing thereof
with the Trustee, in the manner and to the extent provided in Section 313(c) of
the Trust Indenture Act, the information, documents and other reports required
to be filed by the Company pursuant to paragraph (1) of this Section; provided
further that in lieu of any Annual Report on Form 10-K or Quarterly Report on
Form 10-Q, the Company may transmit an annual or quarterly report, respectively,
containing financial statements and an undertaking to transmit such Form 10-K or
Form 10-Q, as the case may be, to any Holder upon request; and
(4) furnish to the Trustee the Officers' Certificates required
by Section 1011 hereof.
ARTICLE EIGHT
CONSOLIDATION, MERGER AND SALES
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
Nothing contained in this Indenture shall prevent any consolidation or
merger of the Company with or into any other Person or Persons (whether or not
affiliated with the Company), or successive consolidations or mergers in which
the Company or its successor or successors shall be a party or parties, or shall
prevent any conveyance, transfer or lease of the property of the Company as an
entirety or substantially as an entirety, to any other Person (whether or not
affiliated with the Company); PROVIDED, HOWEVER, that:
(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease all or substantially all its properties and
assets to any Person, the entity formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or transfer, or
which leases, all or substantially all the properties and assets of the Company
shall be a Person organized and existing under the laws of the United States and
shall expressly assume, by an indenture supplemental hereto, executed by the
successor Person and delivered to the Trustee, in form satisfactory to the
Trustee, the due and punctual payment of the principal of and interest on all
the Notes and the performance of every other covenant of this Indenture on the
part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, no event
which, after notice or lapse of time, or both, would become an Event of Default
shall have occurred and be continuing; and
(3) either the Company or the successor Person shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, stating that
such consolidation, merger, conveyance, transfer or lease and such supplemental
indenture comply with this Article and that all conditions precedent herein
provided for relating to such transaction have been complied with.
SECTION 802. SUCCESSOR PERSON SUBSTITUTED FOR COMPANY.
Upon any consolidation or merger or any conveyance, transfer or lease of
all or substantially all the properties and assets of the Company to any Person
in accordance with Section 801, 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 to another Person, the predecessor
Person shall be released from all obligations and covenants under this Indenture
and the Notes.
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ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holder of Notes, the Company (when authorized
by or pursuant to a Board Resolution) and the Trustee, at any time and from time
to time, may enter into one or more indentures supplemental hereto, which shall
conform with the requirements of the Trust Indenture Act as then in effect and
be in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company, and the assumption by any such successor of the covenants of the
Company herein and in the Notes; or
(2) to add to or change any of the provisions of this Indenture to
change or eliminate any restrictions on the payment of principal of or interest
on Notes or to permit or facilitate the issuance of Notes in uncertificated
form, provided any such action shall not adversely affect the interests of the
Holders of Notes in any material respect; or
(3) to cure any ambiguity or to correct or supplement any provision
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions with respect to matters or questions arising
under this Indenture which shall not adversely affect the interests of the
Holders of Notes in any material respect; or
(4) to supplement any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the discharge or defeasance
of any Notes pursuant to Article Four or Twelve; provided that any such action
shall not adversely affect the interests of any Holder of a Note in any material
respect; or
(5) to add to the covenants of the Company for the benefit of the
Holders of the Notes (as shall be specified in such supplemental indenture or
indentures) or to surrender any right or power herein conferred upon the
Company; or
(6) to evidence and provide acceptance of the appointment of a
successor Trustee hereunder; or
(7) to add any additional Events of Default; or
(8) to comply with the requirements of the Commission in connection
with the qualification of this Indenture under the Trust Indenture Act; or
(9) to make any change that does not adversely affect the interests
of any Holder of Notes.
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Notes, by Act of said Holders delivered to
the Company and the Trustee, the Company (when authorized by or pursuant to a
Board Resolution), and the Trustee may enter into one or more indentures
supplemental hereto (which shall conform with the requirements of the Trust
Indenture Act as then in effect) for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders of Notes under this
Indenture; PROVIDED, HOWEVER, that no such supplemental indenture, without the
consent of the Holder of each Outstanding Note, shall
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount payable
upon the redemption thereof or otherwise, or reduce the rate of interest
thereon, or change the Place of Payment, currency in which the principal of or
interest on, is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date), or
(2) reduce the percentage in aggregate principal amount of the
Outstanding Notes, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of
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which is required for any waiver (of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences) provided for in
this Indenture, or
(3) modify any of the provisions of this Section, or Section 513 or
Section 1012, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Note affected thereby; or
(4) modify any provisions of this Indenture relating to the relative
ranking of the Notes in a manner adverse to the Holders thereof.
It shall not be necessary for any Act of Holders of Notes under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trust created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of a Note theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
SECTION 905. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new Notes so
modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding Notes.
SECTION 906. EFFECT ON SENIOR INDEBTEDNESS.
No supplemental indenture shall adversely affect the rights of the holders
of Senior Indebtedness under Article Thirteen unless expressly consented to in
writing by or on behalf of such holders or by any specified percentage of
holders of a class of Senior Indebtedness required to consent thereto pursuant
to the terms of the agreement or instrument creating, evidencing or governing
such Senior Indebtedness, in which event such supplemental indenture shall be
binding on all successors and assigns of such holders and on all persons who
become holders of such Senior Indebtedness issued after the date of such
amendment or modification.
SECTION 907. RECORD DATE.
If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other action, the Company
may, but shall not be obligated to, fix a record date for the purpose of
determining the Holders entitled to consent to any supplemental indenture,
agreement or instrument or any waiver, and shall promptly notify the Trustee of
any such record date. If a record date is fixed those Persons who were Holders
at such record date (or their duly designated proxies), and only those Persons,
shall be entitled to consent to such supplemental indenture, agreement or
instrument or waiver or to revoke any consent previously given, whether or not
such Persons continue to be Holders after such record date. The record date
shall be a date no more than 30 days prior to the first solicitation of Holders
generally in connection therewith and no later than the date such solicitation
is completed. No such consent shall be valid or effective for more than six
months after such record date. Subject to applicable law, until any supplemental
indenture, agreement, instrument or waiver becomes effective, or a consent to it
by a Holder of a Note shall cease to be valid and effective as set forth in the
preceding sentence, such consent is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note.
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ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL AND INTEREST.
The Company will duly and punctually pay the principal of and interest on
the Notes in accordance with the terms thereof and this Indenture. Principal and
interest shall be considered paid on the date due if by 11:00 a.m., Eastern
time, on such date the Trustee or Paying Agent (other than the Company or its
Affiliates) holds in accordance with this Indenture Money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such Money to the Holders of Notes on that
date pursuant to the terms of this Indenture.
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in each Place of Payment an Office or Agency
where Notes may be presented or surrendered for payment, where Notes may be
surrendered for registration, transfer or exchange and where notices and demands
to or upon the Company in respect of the Notes and this Indenture may be served.
The Company will give prompt written notice to the Trustee of the location, and
any change in the location, of such Office or Agency. The Company hereby
initially designates the Corporate Trust Office of the Trustee as its Office or
Agency for each of the foregoing purposes. If at any time the Company shall fail
to maintain any such required Office or Agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the Trustee, and
the Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other Offices
or Agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other Office or Agency.
SECTION 1003. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent, it shall, on
or before each due date of the principal of or interest on the Notes, segregate
and hold in trust for the benefit of the Persons entitled thereto a sum of Money
sufficient to pay the principal or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided, and
shall promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it shall, on or
prior to each due date of the principal of or interest on the Notes, deposit
with any Paying Agent a sum of Money sufficient to pay the principal or interest
so becoming due, such sum to be held in trust for the benefit of the Persons
entitled thereto, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of its action or failure so to act.
The Company shall cause each Paying Agent other than the Trustee or the
Company to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section,
that such Paying Agent shall:
(1) hold all sums held by it for the payment of the principal of or
interest on Notes in trust for the benefit of the Persons entitled thereto until
such sums shall be paid to such Persons or otherwise disposed of as provided in
this Indenture;
(2) give the Trustee notice of any Event of Default by the Company
(or any other obligor upon the Notes) in the making of any payment of principal
or interest on the Notes; and
(3) at any time during the continuance of any such Event of Default,
upon the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent for payment in respect of the Notes.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same terms as those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent
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to the Trustee, such Paying Agent shall be released from all further liability
with respect to such sums. The Trustee and each Paying Agent shall promptly pay
to the Company upon Company Request any Money held by them (other than pursuant
to Article Twelve) at any time in excess of amounts required to pay principal of
or interest on the Notes.
Any Money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of or interest on any
Note and remaining unclaimed for one year after such principal or interest shall
have become due and payable shall be paid to the Company on Company Request, or
(if then held by the Company) shall be discharged from such trust; and the
Holder of such Note shall thereafter, as an unsecured general creditor, look
only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust Money, and all liability of the
Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense of the Company cause to be published once, in an Authorized
Newspaper published in The City of New York, notice that such Money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication, any unclaimed balance of such Money
then remaining will be repaid to the Company.
SECTION 1004. CORPORATE EXISTENCE.
Subject to Article Eight, the Company shall do or cause to be done all
things reasonably necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and its Material Subsidiaries; PROVIDED, HOWEVER, that the foregoing
shall not obligate the Company to preserve any such right or franchise if the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and its Material Subsidiaries, taken
as a whole, and that the loss thereof is not disadvantageous in any material
respect to the Holders of the Notes.
SECTION 1005. MAINTENANCE OF PROPERTIES.
The Company will cause its properties and the properties of its Material
Subsidiaries (other than properties obtained by the Company or any Material
Subsidiary through foreclosure or other resolution of any loan) used or held for
use in the conduct of the business of the Company and its Material Subsidiaries
to be maintained and kept in good condition, repair and working order (ordinary
wear and tear excepted), all as in the judgment of the Company may be necessary
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, HOWEVER, that the foregoing
shall not prevent the Company or a Material Subsidiary from discontinuing the
operation and maintenance of any of its properties if such discontinuance is, in
the judgment of the Company, desirable in the conduct of its business or the
business of any Material Subsidiary and not disadvantageous in any material
respect to the Holders of the Notes.
SECTION 1006. RESTRICTIONS ON DIVIDENDS, REDEMPTIONS AND OTHER
PAYMENTS.
(a) The Company shall not, either directly or indirectly through any
Restricted Subsidiary, (i) declare or pay any dividend, either in cash or
property, on any shares of its capital stock (except dividends or other
distributions payable solely in shares of capital stock of the Company), (ii)
purchase, redeem or retire any shares of its capital stock or any warrants,
rights or options to purchase or acquire any shares of its capital stock or
(iii) make any other payment or distribution, in respect of the Company's
capital stock (such dividends, purchases, redemptions, retirements, payments and
distributions being herein collectively called "Restricted Payments") if, after
giving effect thereto,
(1) an Event of Default would have occurred; or
(2) (A) the sum of (i) such Restricted Payments plus (ii) the
aggregate amount of all Restricted Payments made during the period after the
date of this Indenture would exceed (B) the sum of (i) $10 million plus (ii) 50%
of the Company's Consolidated Net Income subsequent to September 30, 1996 (with
100% reduction for a loss), plus (iii) the cumulative net proceeds received by
the Company from the issuance or sale after the date of this Indenture of
capital stock of the Company (including in such net proceeds the face amount of
any indebtedness that has been converted into common stock of the Company after
the date of this Indenture).
(b) Notwithstanding paragraph (a) above, the Company may take the
following actions (so long as no Event of Default shall have occurred and be
continuing):
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(i) the payment of dividends on any of the shares of the capital
stock of the Company (including, without limitation, the Series A Preferred
Stock of the Company); and
(ii) the repurchase, redemption or other acquisition or retirement
of any shares of any class of capital stock of the Company or any Restricted
Subsidiary, in exchange for, or out of the aggregate net cash proceeds of a
substantially concurrent issue and sale (other than to a Restricted Subsidiary)
of shares of common stock of the Company.
The actions described in clauses (i) and (ii) of this paragraph (b) shall be
Restricted Payments that shall be permitted to be taken in accordance with this
Section and shall not reduce the amount that would otherwise be available for
Restricted Payments under clause (2) of paragraph (a). For purposes of this
Section 1006, the amount of any Restricted Payment payable in property shall be
deemed to be the fair market value of such property as determined by the Board
of Directors of the Company.
SECTION 1007. LIMITATIONS ON INDEBTEDNESS FOR MONEY BORROWED.
(a) The Company will not, and will not permit any Restricted Subsidiary
to, create, incur, assume, guarantee or become liable (collectively "incur")
with respect to any Indebtedness for Money Borrowed (including Acquired
Indebtedness but excluding Permitted Indebtedness) if, immediately after giving
effect to any such creation, incurrence, assumption or guarantee (including
giving effect to the retirement of any existing Indebtedness for Money Borrowed
from the proceeds of such additional Indebtedness for Money Borrowed):
(i) The ratio of (a) the aggregate amount of the outstanding
Indebtedness for Money Borrowed of the Company and its Restricted
Subsidiaries at the end of the immediately preceding fiscal quarter of the
Company, as determined on a Consolidated basis in accordance with GAAP, to
(b) the Consolidated EBITDA for the immediately preceding four fiscal
quarter of the Company, would exceed 10.0 to 1.0; or
(ii) The Interest Coverage Ratio would have been at least 1.1 to
1.0.
(b) The Company will not permit any Restricted Subsidiary to incur any
Indebtedness for Money Borrowed (except Indebtedness for Money Borrowed to the
Company or another Restricted Subsidiary) that is expressly subordinate in right
of payment to any other Indebtedness for Money Borrowed of such Restricted
Subsidiary.
SECTION 1008. LIMITATION LIENS.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind, except for Permitted Liens, upon any of their respective assets or
properties, whether now owned or acquired after the date of this Indenture, or
any income or profits therefrom to secure any Pari Passu Indebtedness or
Subordinated Indebtedness, unless prior to or contemporaneously therewith the
Notes are directly secured equally and ratably, provided that (1) if such
secured indebtedness is Pari Passu Indebtedness, the Lien securing such Pari
Passu Indebtedness shall be subordinate and junior to, or PARI PASSU with, the
Lien securing the Notes and (2) if such secured indebtedness is Subordinated
Indebtedness, the Lien securing such Subordinated Indebtedness shall be
subordinate and junior to the Lien securing the Notes at least to the same
extent as such Subordinated Indebtedness is subordinated to the Notes. The
foregoing covenant will not apply to any Lien securing Acquired Indebtedness,
provided that any such Lien extends only to the properties or assets that were
subject to such Lien prior to the related acquisition by the Company or such
Restricted Subsidiary and was not created, incurred or assumed in contemplation
of such transaction.
SECTION 1009. INSURANCE.
The Company shall carry and maintain, and cause each of its Restricted
Subsidiaries to carry and maintain, insurance with financially sound and
reputable insurance companies or associations in such amounts and covering such
risks as is usually carried by similarly-situated companies engaged in similar
operations and owning similar properties in similar geographic areas in which
the Company or such Restricted Subsidiary operates, provided that such insurance
is generally available at commercially reasonable rates, and provided further
that the Company or any Restricted Subsidiary may self-insure, or insure through
captive insurers or insurance cooperatives to the extent consistent with prudent
business practices.
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SECTION 1010. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or property of the Company or any
Restricted Subsidiary and (2) all material lawful claims for labor, materials
and supplies which, if unpaid, might by law become a Lien upon the property of
the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that the Company
and its Restricted Subsidiaries shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which appropriate provision has been made in
accordance with GAAP.
SECTION 1011. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company and within 45 days after the end of each of the
first, second and third quarters of each fiscal year of the Company, an
Officers' Certificate, stating whether or not to the best knowledge of the
signers thereof (one of whom shall be the principal executive officer, the
principal financial officer or the principal accounting officer of the Company)
the Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder), and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge. In addition, the Company shall deliver to the
Trustee, forthwith upon any of its officers becoming aware of any Default or
Event of Default, an Officers' Certificate specifying such Default or Event of
Default and what action the Company is taking or proposes to take with respect
thereto.
SECTION 1012. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Sections 1005 through 1011 and 1013 through
1015 if, before or after the time for such compliance the Holders of at least a
majority in aggregate principal amount of the Outstanding Notes, by Act of such
Holders, either shall waive such compliance in such instance or generally shall
have waived compliance with such term, provision or condition, but no such
waiver shall extend to or affect such term, provision or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
term, provision or condition shall remain in full force and effect.
SECTION 1013. LIMITATION ON RANKING OF FUTURE INDEBTEDNESS.
The Company will not incur (as such term is defined in Section 1007(a)) or
permit to remain outstanding any Indebtedness for Money Borrowed (including
Acquired Indebtedness and Permitted Indebtedness) which is expressly subordinate
in right of payment to any Senior Indebtedness, other than Subordinated
Indebtedness or Pari Passu Indebtedness. For purposes of this Section 1013, the
incurrence of Senior Indebtedness which is unsecured shall not, because of its
unsecured status, be deemed to be subordinate in right of payment to any Senior
Indebtedness which is secured.
SECTION 1014. LIMITATIONS ON RESTRICTING SUBSIDIARY DIVIDENDS.
The Company shall not and shall not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause to become effective any
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (a) pay dividends in cash or make any other distribution on its
capital stock to the Company or any other Restricted Subsidiary, (b) pay any
indebtedness owed to the Company or any other Restricted Subsidiary, (c) make
loans, advances, or capital contributions to the Company or any other Restricted
Subsidiary, or (d) transfer any of its properties or assets to the Company or
another Restricted Subsidiary, except in each instance (i) as set forth in the
instrument evidencing or the agreement governing Acquired Indebtedness of any
acquired Person which becomes a Restricted Subsidiary, provided, that any
restriction or encumbrance under such instrument or agreement existed at the
time of acquisition, was not put in place in anticipation of such acquisition,
and is not applicable to any Person, other than the Person or property or assets
of the Person so acquired; (ii) customary provisions of any lease or license of
the Company or any Restricted Subsidiary relating to the property covered
thereby and entered into in the ordinary course of business; (iii) any
encumbrance or restriction arising under applicable law; (iv) any encumbrance or
restriction arising under this Indenture, the Credit Facility, or other
indebtedness or other agreements existing on the Issue Date; (v) any
restrictions with respect to a Restricted Subsidiary imposed pursuant to an
agreement that has been entered into for the sale or disposition of the stock,
business, assets or properties of such Restricted Subsidiary; (vi) any
encumbrance or restriction arising under the terms of purchase money
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obligations, but only to the extent such purchase money obligations restrict or
prohibit the transfer of the property so acquired; (vii) any encumbrance or
restriction arising under customary non-assignment provisions in installment
purchase contracts; (viii) any encumbrance or restriction on the ability of any
Restricted Subsidiary to transfer any of its property acquired after the date of
this Indenture to the Company or any other Restricted Subsidiary that is
required by a lender to, or purchaser of any indebtedness of, such Restricted
Subsidiary in connection with a financing of the acquisition of such property
(including with respect to the purchase of asset portfolios and pursuant to the
underwriting or origination of mortgage loans) by such Restricted Subsidiary;
and (ix) any encumbrance or restriction pursuant to any agreement that extends,
refinances, renews or replaces any agreement described in the foregoing clauses
(i) through (viii); and except with respect to clause (d) only, restrictions in
the form of Liens which are not prohibited under Section 1008 and which contain
customary limitations on the transfer of collateral.
SECTION 1015. LIMITATION ON TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any transaction (or series of related transactions),
including, without limitation, the sale, purchase, lease or exchange of any
property or the rendering of any service (a "Transaction"), involving payments
in excess of $50,000, with any Affiliate of the Company (other than the Company
or a Restricted Subsidiary), on terms and conditions less favorable to the
Company or such Restricted Subsidiary, as the case may be, than would be
available at such time in a comparable Transaction in arm's length dealings with
an unrelated Person as determined by the Board of Directors, such approval to be
evidenced by a Board Resolution.
The provisions of the immediately preceding paragraph will not apply to:
(1) Restricted Payments otherwise permitted under Section 1006;
(2) fees and compensation (including amounts paid pursuant to
employee benefit plans) paid to, and indemnity provided on behalf of, officers,
directors, employees or consultants of the Company or any Restricted Subsidiary,
as determined by the Board of Directors or the senior management thereof in the
exercise of their reasonable business judgment; or
(3) payments for goods and services purchased in the ordinary course
of business on an arm's length basis.
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. RIGHT OF REDEMPTION.
The Notes shall not be redeemable at the option of the Company prior to
December 15, 1997. The Company may, at its option, redeem all or any part of the
Notes at any time on or after December 15, 1997, at the Redemption Price of 100%
of the principal amount thereof, without premium, together with interest accrued
to the Redemption Date. Redemption of Notes at the option of the Company as
permitted hereby shall be made in accordance with the terms of such Notes and
this Article.
SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Notes shall be evidenced by or
pursuant to a Board Resolution. In case of any redemption at the election of the
Company of less than all of the Notes (including any such redemption affecting
only a single Note), the Company shall, at least 45 days prior to the Redemption
Date fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee of such Redemption Date and of the principal amount
of Notes to be redeemed. Any election to redeem Notes shall be revocable until
the Company gives a notice of redemption pursuant to Section 1104 to the Holders
of Notes to be redeemed.
SECTION 1103. SELECTION BY TRUSTEE OF NOTES TO BE REDEEMED.
If less than all the Notes are to be redeemed (unless such redemption
affects only a single Note), the particular Notes to be redeemed shall be
selected not less than 30 days prior to the Redemption Date by the Trustee from
the Outstanding Notes, by lot or such other method as the Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of
portions of the principal amount of Notes; PROVIDED, HOWEVER, that
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no such partial redemption shall reduce the portion of the principal amount of a
Note not redeemed to less than the minimum denomination for a Note established
herein.
The Trustee shall promptly notify the Company and the Note Registrar (if
other than itself) in writing of the Notes selected for redemption and, in the
case of any Notes selected for partial redemption, the principal amount thereof
to be redeemed.
The provisions of the two preceding paragraphs shall not apply with
respect to any redemption affecting only a single Note, whether such Note is to
be redeemed in whole or in part. In the case of any such redemption in part, the
unredeemed portion of the principal amount of the Note shall be in an authorized
denomination (which shall not be less than the minimum authorized denomination)
for such Note.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Notes shall relate, in the case of
any Notes redeemed or to be redeemed only in part, to the portion of the
principal of such Notes which has been or is to be redeemed.
SECTION 1104. NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided in Section 106,
not less than 30 nor more than 60 days prior to the Redemption Date, to the
Holders of Notes to be redeemed. Failure to give notice by mailing in the manner
herein provided to the Holder of any Notes designated for redemption as a whole
or in part, or any defect in the notice to any such Holder, shall not affect the
validity of the proceedings for the redemption of any other Notes or portion
thereof.
Any notice that is mailed to the Holder of any Notes in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
such Holder receives the notice.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if fewer than all Outstanding Notes consisting of more than a
single Note are to be redeemed, the identification (and, in the case of partial
redemption of any such Notes, the principal amounts) of the particular Notes to
be redeemed and, if less than all the Outstanding Notes consisting of a single
Note are to be redeemed, the principal amount of the particular Note to be
redeemed,
(4) that, on the Redemption Date, the Redemption Price shall become
due and payable upon each such Note or portion thereof to be redeemed and that
interest thereon shall cease to accrue on and after said date,
(5) the place or places where such Notes are to be surrendered
for payment of the Redemption Price, and
(6) the CUSIP number of such Notes, if any (or any other numbers
used by a Depository to identify such Notes).
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1105. DEPOSIT OF REDEMPTION PRICE.
On or before 11:00 a.m., Eastern time, on any Redemption Date, the Company
shall deposit with the Trustee or with a Paying Agent (or, if the Company is
acting as its own Paying Agent, segregate and hold in trust as provided in
Section 1003) Money in an amount sufficient to pay the Redemption Price of, and
(except if the Redemption Date shall be an Interest Payment Date) any accrued
interest on, all the Notes or portions thereof which are to be redeemed on that
date. Upon Company Order, the Paying Agent shall promptly return to the Company
any Money so deposited which is not required for such purpose.
SECTION 1106. NOTES PAYABLE ON REDEMPTION DATE.
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Notice of redemption having been given as aforesaid, the Notes so to be
redeemed shall, on the Redemption Date, become due and payable at the Redemption
Price therein specified, and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with said notice, such Note shall be paid by the Company at the
Redemption Price, together with any accrued interest to the Redemption Date;
PROVIDED, HOWEVER, that installments of interest on Notes whose Stated Maturity
is on or prior to the Redemption Date shall be payable to the Holders of such
Notes, or one or more Predecessor Notes, registered as such at the close of
business on the Regular Record Dates therefor according to their terms and the
provisions of Section 307.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal, until paid, shall bear interest from the
Redemption Date at the rate prescribed therefor in the Note.
SECTION 1107. NOTES REDEEMED IN PART.
Any Note which is to be redeemed only in part shall be surrendered at the
Office or Agency for such Note indicated in the notice of redemption (with, if
the Company or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and 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 Note, without service charge, a new Note or Notes,
of any authorized denomination as requested by such Holder in aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal of the Note so surrendered.
SECTION 1108. PURCHASE OF NOTES.
The Company shall have the right at any time and from time to time to
purchase Notes in the open market or otherwise at any price.
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT
DEFEASANCE.
The Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have either Section 1202 or Section 1203 be
applied to all Outstanding Notes upon compliance with the conditions set forth
below in this Article Twelve.
SECTION 1202. DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 1201 of the option applicable to
this Section 1202, the Company shall be deemed to have been discharged from its
obligations with respect to all Outstanding Notes on the date the conditions set
forth in Section 1204 hereof are satisfied (hereinafter, "legal defeasance").
For this purpose, such legal defeasance means that the Company shall be deemed
(i) to have paid and discharged its obligations under the Outstanding Notes;
PROVIDED, HOWEVER, that the Notes shall continue to be deemed to be
"Outstanding" for purposes of Section 1205 and the other Sections of this
Indenture referred to in clauses (A) and (B) below, and (ii) to have satisfied
all their other obligations with respect to such Notes and this Indenture (and
the Trustee, at the expense and direction of the Company, shall execute proper
instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of Outstanding Notes to receive, solely from the trust fund described in
Section 1204 hereof and as more fully set forth in such Section, payments in
respect of the principal of and interest on such Notes when such payments are
due (or at such time as the Notes would be subject to redemption at the option
of the Company in accordance with this Indenture), (B) the obligations of the
Company under Sections 303, 304, 305, 306, 607, 609, 610, 1002, and 1003, (C)
the rights, powers, trusts, duties and immunities of the Trustee hereunder, and
(D) the obligations of the Company under this Article Twelve. Subject to
compliance with this Article Twelve, the Company may exercise its option under
this Section 1202 notwithstanding the prior exercise of its option under Section
1203 with respect to the Notes.
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SECTION 1203. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 1201 of the option applicable to
this Section 1203, (i) the Company shall be released from its obligations under
any covenant contained in Article Eight, in Sections 1005 through 1015 and any
covenant added to this Indenture pursuant to Section 901(2), and (ii) the
occurrence of any event specified in Section 501(3) (with respect to any of
Article Eight, Sections 1005 through 1015, and any covenant added to this
Indenture pursuant to Section 901(2)), 501(4), 501(5), or 501(8)) shall be
deemed not to be or result in an Event of Default, in each case with respect to
the Outstanding Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"), and the Notes shall thereafter
be deemed not to be "Outstanding" for the purposes of any direction, waiver,
consent, declaration or other action of any Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such covenant
defeasance means that, with respect to the Outstanding Notes, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such Section (to the extent so
specified in the case of Section 50l(3) hereof) whether directly or indirectly,
by reason of any reference elsewhere herein to any such Section or by reason of
any reference in any such Section to any other provision herein or in any other
document, but, except as specified above, the remainder of this Indenture and
such Notes shall be unaffected thereby.
SECTION 1204. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either Section
1202 or Section 1203 hereof to the Outstanding Notes:
(a) The Company shall irrevocably have deposited or caused to be deposited
with the Trustee (or another trustee satisfying the requirements of Section 608
hereof who shall agree to comply with the provisions of this Article Twelve
applicable to it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of such Notes, (A) Money in an amount, or (B)
Government Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment, Money in an amount, or
(C) a combination thereof, sufficient, in the opinion of a firm of Independent
Public Accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, and which shall be applied by the Trustee (or
other qualifying trustee) to pay and discharge, the principal of and interest on
the Outstanding Notes on the Stated Maturity thereof (or Redemption Date, if
applicable), provided that the Trustee shall have been irrevocably instructed in
writing by the Company to apply such Money or the proceeds of such Government
Obligations to said payments with respect to the Notes. Before such a deposit,
the Company may give to the Trustee, in accordance with Section 1102, a notice
of its election to redeem all of the Outstanding Notes at a future date in
accordance with Article Eleven, which notice shall be irrevocable. Such
irrevocable redemption notice, if given, shall be given effect in applying the
foregoing.
(b) No Default or Event of Default shall have occurred and be continuing
on the date of such deposit or, insofar as Section 501(6) or 501(7) is
concerned, at any time during the period ending on the 91st day after the date
of such deposit.
(c) Such legal defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest under this Indenture or the Trust
Indenture Act with respect to any securities of the Company.
(d) Such legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any other material
agreement or instrument to which the Company is a party or by which it is bound,
as evidenced to the Trustee in an Officers' Certificate delivered to the Trustee
concurrently with such deposit.
(e) In the case of an election under Section 1202 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has been a
change in the applicable federal income tax laws, in either case providing that
the Holders of the Outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such legal defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such legal defeasance had not occurred
(it being understood that (x) such Opinion of Counsel shall also state that such
ruling or applicable law is consistent with the conclusions reached in such
Opinion of Counsel and (y) the Trustee shall be under no obligation to
investigate the basis or correctness of such ruling).
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(f) In the case of an election under Section 1203 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred.
(g) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, which, taken together, state that all
conditions precedent provided for relating to either the legal defeasance under
Section 1202 hereof or the covenant defeasance under Section 1203 (as the case
may be) have been complied with.
SECTION 1205. DEPOSITED MONEY AND GOVERNMENT OBLIGATIONS TO BE HELD
IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to the provisions of the last paragraph of Section 1003 hereof,
all Money and Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1205, the "Trustee") pursuant to Section 1204 in respect of the
Outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Holders of such Notes of
all sums due and to become due thereon in respect of principal and interest, but
such Money need not be segregated from other funds except to the extent required
by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the Government Obligations deposited
pursuant to Section 1204 hereof or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Notes.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any Money or Government Obligations held by it as provided in Section
1204 which, in the opinion of a firm of Independent Public Accountants expressed
in a written certification thereof delivered to the Trustee, are in excess of
the amount thereof which would then be required to be deposited to effect an
equivalent legal defeasance or covenant defeasance as applicable, in accordance
with this Article.
SECTION 1206. REINSTATEMENT.
If the Trustee or any Paying Agent is unable to apply any Money in
accordance with Section 1205 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 Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 1204 until such time as the Trustee or Paying Agent is permitted to
apply all such Money in accordance with Section 1205; PROVIDED, HOWEVER, that if
the Company makes any payment of principal of or interest on any Note following
the reinstatement of its obligations, the Company shall be subrogated to the
rights of the Holders of such Notes to receive such payment from the money held
by the Trustee or Paying Agent.
ARTICLE THIRTEEN
SUBORDINATION OF NOTES
SECTION 1301. NOTES SUBORDINATE TO SENIOR INDEBTEDNESS.
The Company covenants and agrees, and each Holder of a Note, by his
acceptance thereof, likewise covenants and agrees, for the benefit of the
holders, from time to time, of Senior Indebtedness, that, to the extent and in
the manner hereinafter set forth in this Article, the indebtedness represented
by the Notes and the payment of the principal of and interest on each and all of
the Notes are hereby expressly made subordinate and subject in right of payment
as provided in this Article to the prior payment in full of all Senior
Indebtedness, whether outstanding on the date of this Indenture or thereafter
created, incurred, assumed or guaranteed; PROVIDED, HOWEVER, that the Notes, the
indebtedness represented thereby and the payment of the principal of and
interest on the Notes in all respects shall rank equally with, or prior to, all
existing and future unsecured indebtedness (including, without limitation,
Indebtedness for Money Borrowed) of the Company that is subordinated to Senior
Indebtedness.
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This Article Thirteen shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Indebtedness, and such provisions are made for the benefit of the holders
of Senior Indebtedness, and such holders are made obligees hereunder and any one
or more of them may enforce such provisions.
SECTION 1302. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
Upon any distribution of Properties of the Company or payment on behalf of
the Company with respect to the Notes in the event of any Insolvency or
Liquidation Proceeding with respect to the Company:
(a) the holders of Senior Indebtedness shall be entitled to receive
payment in full of such Senior Indebtedness, or provision must be made for such
payment, before the Holders of the Notes are entitled to receive any direct or
indirect payment or distribution of any kind or character, whether in cash,
property or securities (other than Permitted Junior Securities) on account of
principal of or interest on the Notes or on account of the purchase or
redemption or other acquisition of Notes; and
(b) any direct or indirect payment or distribution of Properties of the
Company of any kind or character, whether in cash, property or securities (other
than a payment or distribution in the form of Permitted Junior Securities), by
set-off or otherwise, to which the Holders or the Trustee, on behalf of the
Holders, would be entitled but for the provisions of this Article shall be paid
by the Company or by any liquidating trustee or agent or other Person making
such payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior Indebtedness
or their representative or representatives or to the trustee or trustees under
any indenture under which any instruments evidencing any of such Senior
Indebtedness may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the Senior Indebtedness held or represented by
each, to the extent necessary to make payment in full of all Senior Indebtedness
after giving effect to any concurrent payment or distribution to the holders of
such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Note shall have received any payment
or distribution of Properties of the Company of any kind or character, whether
in cash, property or securities, by set-off or otherwise, in respect of
principal of or interest on the Notes before all Senior Indebtedness is paid or
provided for in full, then and in such event such payment or distribution (other
than a payment or distribution in the form of Permitted Junior Securities) shall
be received and held in trust for and shall be paid over or delivered forthwith
to the trustee in bankruptcy, receiver, liquidating trustee, custodian,
assignee, agent or other Person making payment or distribution of assets of the
Company, to the extent necessary to pay all Senior Indebtedness in full, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company into,
another Person or the liquidation or dissolution of the Company following the
sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all its Properties to another Person or group of Affiliated
Persons pursuant to, and in compliance with, the terms and conditions set forth
in Article Eight hereof shall not be deemed an Insolvency or Liquidation
Proceeding (requiring the repayment of all Senior Indebtedness in full as a
prerequisite to any payments being made to the Holders) for the purposes of this
Section.
SECTION 1303. SUSPENSION OF PAYMENT WHEN SENIOR INDEBTEDNESS IN
DEFAULT.
(a) Upon (1) the occurrence of a Payment Event of Default and (2) receipt
by the Trustee of written notice of such occurrence, then no payment or
distribution of any Properties of the Company of any kind or character (other
than Permitted Junior Securities) shall be made by the Company on account of
principal of or interest on the Notes or on account of the purchase or
redemption or other acquisition of Notes unless and until such Payment Event of
Default shall have been cured or waived in writing or shall have ceased to exist
or such Specified Senior Indebtedness shall have been paid in full or otherwise
discharged, after which (unless otherwise prohibited by Section 1302) the
Company shall resume making any and all required payments in respect of the
Notes, including any missed payments.
(b) Upon (1) the occurrence of a Non-payment Event of Default with respect
to any Specified Senior Indebtedness and (2) receipt by the Trustee and the
Company of written notice of such occurrence from one or more of the holders of
such Specified Senior Indebtedness (or their representative), then no payment or
distribution of any Properties of the Company of any kind or character (other
than Permitted Junior Securities) shall be made by the Company on account of any
principal of or interest on the Notes or on account of the purchase or
redemption or other acquisition of Notes for the period specified below (the
"Payment Blockage Period"). The Payment Blockage
47
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Period will commence upon the earlier of the dates of receipt by the Trustee or
the Company of such notice (the "Payment Blockage Notice") from one or more of
the holders of such Specified Senior Indebtedness (or their representative) and
shall end on the earliest of (i) 179 days thereafter, (ii) the date, as set
forth in a written notice from the holders of the Specified Senior Indebtedness
(or their representative) to the Company or the Trustee, on which such
Non-payment Event of Default is cured, waived in writing or ceases to exist or
such Specified Senior Indebtedness is discharged or (iii) the date on which such
Payment Blockage Period shall have been terminated by written notice to the
Company or the Trustee from one or more of the holders (or their representative)
initiating such Payment Blockage Period, after which the Company will resume
(unless otherwise prohibited pursuant to the immediately preceding paragraph or
Section 1302) making any and all required payments in respect of the Notes,
including any missed payments. In any event, not more than one Payment Blockage
Period may be commenced during any period of 360 consecutive days. No
Non-payment Event of Default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee will be, or can be, made
the basis for the commencement of a subsequent Payment Blockage Period.
(c) In the event that the Trustee or any Holder receives any payment with
respect to the Notes at a time when the Trustee or such Holder, as applicable,
has actual knowledge that such payment is prohibited by the foregoing provisions
of this Section 1303, then and in such event such payment shall be paid over and
delivered forthwith to the Company.
SECTION 1304. PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article or elsewhere in this Indenture or in any
of the Notes shall prevent the Company, at any time except during the pendency
of any Insolvency or Liquidation Proceeding referred to in Section 1302 or under
the conditions described in Section 1303, from making payments at any time of
principal of or interest on the Notes.
SECTION 1305. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR
INDEBTEDNESS.
After the payment in full of all Senior Indebtedness, the Holders of the
Notes shall be subrogated (equally and ratably with the holders of all
indebtedness of the Company which by its express terms is subordinated to Senior
Indebtedness to substantially the same extent as the Notes are so subordinated
and which is entitled to like rights of subrogation as a result of the payments
made to the holders of Senior Indebtedness) to the rights of the holders of
Senior Indebtedness to receive payments and distributions of cash, property and
securities applicable to Senior Indebtedness until all amounts owing on the
Notes shall be paid in full. For purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness by or on behalf of the
Company or by or on behalf of the Holders by virtue of this Article which
otherwise would have been made to the Holders shall, as between the Company, its
creditors other than holders of Senior Indebtedness, and the Holders of the
Notes, be deemed to be a payment or distribution by the Company to or on account
of the Senior Indebtedness.
SECTION 1306. PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Article are, and are intended solely, for the
purpose of defining the relative rights of the Holders of the Notes on the one
hand and the holders of Senior Indebtedness on the other hand. Nothing contained
in this Article or elsewhere in this Indenture or in the Notes is intended to or
shall (a) impair, as between the Company and the Holders of the Notes, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holders of the Notes the principal of and interest on the Notes as and when the
same shall become due and payable in accordance with their terms; or (b) affect
the relative rights against the Company of the Holders of the Notes and
creditors of the Company other than the holders of Senior Indebtedness; or (c)
prevent the Trustee or the Holder of any Note from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture, subject
to the rights, if any, under this Article of the holders of Senior Indebtedness.
SECTION 1307. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder of a Note by his acceptance thereof authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination provided in this Article and appoints the Trustee
as his attorney-in-fact for any and all such purposes, including, in the event
of any Insolvency or Liquidation Proceeding with respect to the Company, the
immediate filing of a claim for the unpaid balance of his Notes pursuant to this
Indenture in the form required in said proceedings and the causing of said claim
to be approved.
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SECTION 1308. NO WAIVER OF SUBORDINATION PROVISION.
(a) No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act by any such holder, or by any non-compliance by
the Company with the terms of this Indenture, regardless of any knowledge
thereof which any such holder may have or be otherwise charged with.
(b) Without in any way limiting the generality of paragraph (a) of this
Section, the holders of any Senior Indebtedness, in accordance with the terms of
the instrument or agreement evidencing their Senior Indebtedness, may, at any
time and from time to time, without the consent of or notice to the Trustee or
the Holders of the Notes, without incurring responsibility to the Holders of the
Notes and without impairing or releasing the subordination or other benefits
provided in this Article, or the obligations hereunder of the Holders of the
Notes to the holders of Senior Indebtedness, do any one or more of the
following: (1) change the manner, place or terms of payment or extend the time
of payment of, or renew, exchange, amend, increase or alter, Senior Indebtedness
or the terms of any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding or any liability of any obligor thereon
(unless such change, extension, amendment, increase or other alteration results
in such Indebtedness no longer being Senior Indebtedness as defined in this
Indenture); (2) sell, exchange, release or otherwise deal with any Property
pledged, mortgaged or otherwise securing Senior Indebtedness; (3) settle or
compromise any Senior Indebtedness or any liability of any obligor thereon or
release any Person liable in any manner for the collection of Senior
Indebtedness; and (4) exercise or refrain from exercising any rights against the
Company and any other Person.
SECTION 1309. NOTICE TO TRUSTEE.
(a) The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Notes. Notwithstanding the provisions of this
Article or any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Notes, unless and
until the Trustee shall have received written notice thereof from the Company or
one or more of the holders of Senior Indebtedness (or their representative),
with respect to a Payment Default, or one or more of the holders of Specified
Senior Indebtedness (or their representative), with respect to a Non-payment
Event of Default, or from any trustee, fiduciary or agent therefor; and, prior
to the receipt of any such written notice, the Trustee, subject to Sections
315(a) through 315(d) of the Trust Indenture Act, shall be entitled in all
respects to assume that no such facts exist; provided, however, that, if the
Trustee shall not have received the notice provided for in this Section prior to
11:00 a.m. Eastern time on the date which is two Business Days prior to the date
upon which by the terms hereof any Money may become payable for any purpose
(including, without limitation, the payment of the principal of or interest on
any Note), then, anything herein contained to the contrary notwithstanding, the
Trustee shall have full power and authority to receive such Money and to apply
the same to the purpose for which such Money was received and shall not be
affected by any notice to the contrary which may be received by it on or after
11:00 a.m. Eastern time two Business Days prior to such payment date.
(b) Subject to Sections 315(a) through 315(d) of the Trust Indenture Act,
the Trustee shall be entitled to rely on the delivery to it of a written notice
by a Person representing himself to be a holder of Senior Indebtedness (or a
trustee, fiduciary or agent therefore) to establish that such notice has been
given by a holder of Senior Indebtedness (or a trustee, fiduciary or agent
therefor). In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of
Senior Indebtedness to participate in any payment or distribution pursuant to
this Article, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
Senior Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article.
49
<PAGE>
SECTION 1310. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT BANK.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to Sections 315(a) through 315(d) of the
Trust Indenture Act, and the Holders of the Notes shall be entitled to rely upon
any order or decree entered by any court of competent jurisdiction in which such
Insolvency or Liquidation Proceeding is pending, or a certificate of the trustee
in bankruptcy, receiver, liquidating trustee, custodian, assignee for the
benefit of creditors, agent or other Person making such payment or distribution,
delivered to the Trustee or to the Holders of Notes, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article.
SECTION 1311. RIGHTS OF TRUSTEE AS A HOLDER OF SENIOR INDEBTEDNESS:
PRESERVATION OF TRUSTEE'S RIGHTS.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Indebtedness, which may at
any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 607.
SECTION 1312. ARTICLE APPLICABLE TO PAYING AGENTS.
In case at any time a Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the context otherwise requires)
be construed as extending to and including such Paying Agent within its meaning
as fully for all intents and purposes as if such Paying Agent were named in this
Article in addition to or in place of the Trustee; PROVIDED, HOWEVER, that
Section 1311 hereof shall not apply to the Company or any Affiliate of the
Company if it or such Affiliate acts as Paying Agent.
SECTION 1313. NO SUSPENSION OF REMEDIES.
Nothing contained in this Article shall limit the right of the Trustee or
the Holders of Notes to take any action to accelerate the maturity of the Notes
pursuant to Article Five or to pursue any rights or remedies hereunder or under
applicable law, except as provided in Article Five.
SECTION 1314. TRUST MONEY NOT SUBORDINATED.
Notwithstanding anything contained herein to the contrary, payments from
cash or the proceeds of Government Obligations held in trust under Article
Twelve hereof by the Trustee (or other qualifying trustee) and which were
deposited in accordance with the terms of Article Twelve and not in violation of
Section 1302 or 1303 for the payment of principal of and interest on the Notes
shall not be subordinated to the prior payment of any Senior Indebtedness or
subject to the restrictions set forth in this Article Thirteen, and none of the
Holders shall be obligated to pay over any such amount to the Company or any
holder of Senior Indebtedness or any other creditor of the Company.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
CALLON PETROLEUM COMPANY
By_______________________________
Name:
Title:
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By_______________________________
Name:
Title:
51
EXHIBIT 5.1
BUTLER & BINION, L.L.P.
SUITE 1600 WASHINGTON, D.C.
1000 LOUISIANA (202) 466-6900
ATTORNEYS AT LAW HOUSTON, TEXAS 77002-5093 ---
___ DALLAS
(713) 237-3111 (214) 220-3100
TELECOPIER (713) 237-3202 ---
SAN ANTONIO
(210) 227-2200
November 22, 1996
Callon Petroleum Company
200 North Canal Street
Natchez, Mississippi 39120
Re: Registration and sale of $21,000,000 of % Senior Subordinated
Notes due 2001 of Callon Petroleum Company
Gentlemen:
We have acted as counsel for Callon Petroleum Company, a Delaware
corporation (the "Company"), in connection with the registration and sale of
$21,000,000 in % Senior Subordinated Notes due 2001 ("Notes") of the Company to
be sold by the Company in a public offering.
We have made such inquiries and examined such documents as we have
considered necessary or appropriate for the purposes of giving the opinion
hereinafter set forth, including the examination of executed or conformed
counterparts, or copies certified or otherwise proved to our satisfaction of the
following:
(i) the Certificate of Incorporation of the Company, as amended and
the Certificate of Merger of Callon Consolidated Partners, L.P.
with and into the Company dated September 16, 1994;
(ii) the Certificate of Designations for the Company's $2.125
Convertible Exchangable Preferred Stock, Series A, filed with
the Deleware Secretary of State on November 22, 1995 and
corrected by that certain Certificate of Correction filed with
the Deleware Secretary of State on November 27, 1995;
(iii) the Bylaws of the Company as of the date of this opinion;
(iv) the Registration Statement on Form S-1 (Registration No.
333-15501) of the Company, including the related prospectuses,
filed with the Securities and Exchange Commission on November 5,
1996, as amended (the "Registration Statement");
(v) the Indenture ("Indenture") between the Company and American
Stock Transfer & Trust Company, as Trustee ("Trustee"), pursuant
to which the Notes will be issued; and
(vi) such other documents, corporate records, certificates and other
instruments as we have deemed necessary or appropriate for the
purpose of this opinion.
We have assumed the genuineness and authenticity of all signatures on
all original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies and the due authorization, execution, delivery
<PAGE>
or recordation of all documents where due authorization, execution, delivery or
recordation are prerequisites to the effectiveness thereof. Capitalized terms
used herein and not otherwise defined are used as defined in the Registration
Statement.
Based upon the foregoing, and having regard for such legal
considerations as we deem relevant, we are of the opinion that:
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware
pursuant to the Delaware General Corporation Law;
(ii) The Notes to be sold by the Company pursuant to the Registration
Statement have been duly authorized for issuance, and when
executed by the Company, authenticated by the Trustee and
delivered and sold in accordance with the provisions of the
Registration Statement, will be legally issued and binding
obligations of the Company enforceable in accordance with their
terms and entitled to the benefits of the Indenture (except as
limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws now or hereafter in effect affecting
the rights of creditors generally).
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the references to us under the caption "Legal
Matters" in the prospectus forming a part of the Registration Statement.
Very truly yours,
BUTLER & BINION, L.L.P.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated February 23, 1996 on the financial statements of Callon Petroleum
Company, and to all references to our Firm, included in or made a part of this
Amendment No. 2 to the Registration Statement on Form S-1 of Callon Petroleum
Company.
ARTHUR ANDERSEN LLP
November 22, 1996
