AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
CALLON PETROLEUM COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1311
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
64-0844345
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
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.
1600 FIRST INTERSTATE BANK PLAZA 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
MAXIMUM MAXIMUM AMOUNT OF
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............ 17,250(3) $1,000 $17,250,000 $5,228
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</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.
(3) Includes $2,250,000 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 Underwriting
Price...........................
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 Description of Notes
Registered......................
10. Interests of Named Experts and Legal Matters; Experts
Counsel.........................
11. Information with Respect to the Prospectus Summary; Risk Factors;
Registrant...................... Capitalization; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business and Properties;
Management; Principal
Stockholders
12. Disclosure of Commission
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 5, 1996
PROSPECTUS
$15,000,000
[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 June 30,
1996, the Company had $100,000 of Senior Indebtedness and the Company's
subsidiaries, excluding guarantees of Senior Indebtedness, had liabilities of
$9.9 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 $2.25 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 one gross (0.52 net) successful
development well and one gross (1.0 net) successful exploratory well in this
area. The Company's capital budget currently anticipates drilling an additional
six gross (5.0 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 $17.1 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.
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
3
<PAGE>
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>
THE OFFERING
Securities Offered...................... $15,000,000 aggregate principal amount
of % Senior Subordinated Notes
due 2001, assuming no exercise of the
Underwriter's overallotment option to
purchase up to $2,250,000 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."
4
<PAGE>
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 June 30, 1996, the
total amount of Senior Indebtedness of
the Company was $100,000 and the total
amount of liabilities of the Company's
subsidiaries as of June 30, 1996 was
$9.9 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>
SIX MONTHS ENDED
JUNE 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................... $ 12,249 $ 11,098 $ 23,210 $ 13,948 $ 10,048
Interest and other.................. 278 575 627 171 230
--------- --------- --------- --------- ---------
Total revenues................. 12,527 11,673 23,837 14,119 10,278
--------- --------- --------- --------- ---------
Costs and Expenses:
Lease operating expenses............ 3,686 3,245 6,732 4,042 3,713
Depreciation, depletion and
amortization...................... 4,844 5,266 10,376 6,049 3,411
General and administrative.......... 1,707 2,082 3,880 3,717 2,350
Interest............................ 48 891 1,794 624 196
--------- --------- --------- --------- ---------
Total costs and expenses....... 10,285 11,484 22,782 14,432 9,670
--------- --------- --------- --------- ---------
Income (loss) from operations......... 2,242 189 1,055 (313) 608
Provision (benefit) for income
taxes............................... -- -- -- (200) 113
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect
of change in accounting principle... 2,242 189 1,055 (113) 495
Cumulative effect of change in
accounting principle(2)............. -- -- -- -- 5,262
--------- --------- --------- --------- ---------
Net income (loss)..................... 2,242 189 1,055 (113) 5,757
Preferred stock dividends............. 1,398 -- 256 -- --
--------- --------- --------- --------- ---------
Net income (loss) available to common
shares.............................. $ 844 $ 189 $ 799 $ (113) $ 5,757
========= ========= ========= ========= =========
Net income (loss) per common share:
Income (loss) per share before change
in accounting principle............. $ .15 $ .03 $ .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)..................... $ 2,242 $ 189 $ 1,055 $ (113) $ 5,757
Depreciation, depletion and
amortization........................ 4,982 5,406 10,600 6,328 3,657
Other non-cash items.................. 65 -- 133 (112) (5,114)
Net change in assets and
liabilities......................... 3,462 740 (2,080) (756) 435
--------- --------- --------- --------- ---------
Cash provided by operating
activities.......................... 10,751 6,335 9,708 5,347 4,735
========= ========= ========= ========= =========
Cash provided by (used in) investing
activities.......................... (8,867) (15,426) (24,237) (6,423) (2,710)
========= ========= ========= ========= =========
Cash provided by (used in) financing
activities.......................... (955) 5,633 11,509 3,916 (1,695)
========= ========= ========= ========= =========
BALANCE SHEET DATA:
Working capital (deficit)............. $ 1,716 $ (7,062) $ 4,712 $ 1,896 $ (687)
Oil and gas properties, net........... 60,304 53,185 57,765 43,920 21,000
Total assets.......................... 88,124 79,090 83,867 73,786 39,825
Total debt............................ 100 24,867 100 19,234 2,691
Total stockholders' equity............ 75,973 43,620 75,129 43,431 27,170
OTHER FINANCIAL DATA:
Capital expenditures, net............. $ 8,867 $ 15,426 $ 24,237 $ 10,412 $ 2,710
EBITDA(3)............................. $ 7,337 $ 6,507 $ 13,582 $ 6,727 $ 4,496
Ratio of earnings to fixed
charges(4).......................... 47.7 1.2 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>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PRODUCTION DATA:
Oil (MBbls)..................... 302 250 595 364 369
Gas (MMcf)...................... 2,912 3,675 6,694 4,076 1,659
Total production (MMcfe)........ 4,725 5,175 10,261 6,260 3,870
AVERAGE SALES PRICE PER UNIT:
Oil (per Bbl)................... $ 18.12 $ 16.78 $ 16.68 $ 15.63 $ 16.73
Gas (per Mcf)................... 2.33 1.88 1.96 2.00 2.10
Total production (per Mcfe)..... 2.59 2.14 2.24 2.21 2.49
OTHER OPERATING DATA:
Lease operating expenses/Mcfe... $ 0.58 $ 0.47 $ 0.49 $ 0.49 $ 0.72
Severance taxes/Mcfe............ 0.20 0.16 0.17 0.16 0.24
Capital expenditures (net)
(000's)....................... 8,867 15,426 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 June 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 June 30, 1996 was $9.9
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 $ ($ 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 June
30, 1996, borrowings of $100,000 were outstanding under the Credit Facility,
with a weighted average interest rate of 8.25%. 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 June
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.
JUNE 30, 1996
--------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
Cash and cash equivalents............... $ 5,194 $
========== ===========
Long-term debt:
Credit Facility......................... $ 100 $ 100
The Notes offered hereby(1)............. -- 15,000
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;
5,754,636 shares outstanding.......... 58 58
Capital in excess of par value.......... 73,955 73,955
Retained earnings....................... 1,947 1,947
---------- -----------
Total stockholders' equity.............. 75,973 75,973
---------- -----------
Total capitalization.................... $ 76,073 $91,073
========== ===========
- ------------
(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 six month periods
ended June 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>
SIX MONTHS
ENDED
JUNE 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.................. $ 12,249 $ 11,098 $ 23,210 $ 13,948 $ 10,048 $ 10,015 $ 10,769
Interest and other................. 278 575 627 171 230 232 167
--------- --------- --------- --------- --------- --------- ---------
Total revenues..................... 12,527 11,673 23,837 14,119 10,278 10,247 10,936
--------- --------- --------- --------- --------- --------- ---------
Costs and Expenses:
Lease operating expenses.............. 3,686 3,245 6,732 4,042 3,713 3,702 3,285
Depreciation, depletion and
amortization....................... 4,844 5,266 10,376 6,049 3,411 3,360 3,257
General and administrative............ 1,707 2,082 3,880 3,717 2,350 1,848 2,312
Interest.............................. 48 891 1,794 624 196 160 321
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses........... 10,285 11,484 22,782 14,432 9,670 9,070 9,175
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations......... 2,242 189 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..... 2,242 189 1,055 (113) 495 942 1,464
Cumulative effect of change in
accounting principle(2)............... -- -- -- -- 5,262 -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)....................... 2,242 189 1,055 (113) 5,757 942 1,464
Preferred stock dividends............... 1,398 -- 256 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) available to common
shares................................ 844 189 799 (113) 5,757 942 1,464
Pro forma adjustment (unaudited):
Provision for income taxes(2)........... -- -- -- -- 100 145 302
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income (loss)............. $ 844 $ 189 $ 799 $ (113) $ 5,657 $ 797 $ 1,162
========= ========= ========= ========= ========= ========= =========
Net income (loss) per common share:
Income (loss) per share before
accounting principle change........... $ .15 $ .03 $ .14 $ (.03) $ .13 $ .25 $ .39
========= ========= ========= ========= ========= ========= =========
Cumulative effect of accounting
change................................ $ -- $ -- $ -- $ -- $ 1.40 $ -- $ --
========= ========= ========= ========= ========= ========= =========
Pro forma............................... $ .15 $ .03 $ .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>
SIX MONTHS
ENDED
JUNE 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)....................... $ 2,242 $ 189 $ 1,055 $ (113) $ 5,757 $ 942 $ 1,464
Depreciation, depletion and
amortization.......................... 4,982 5,406 10,600 6,328 3,657 3,577 3,445
Other non-cash items.................... 65 -- 133 (112) (5,114) 270 331
Net change in assets and liabilities.... 3,462 740 (2,080) (756) 435 (2,758) 2,299
--------- --------- --------- --------- --------- --------- ---------
Cash provided by operating activities... 10,751 6,335 9,708 5,347 4,735 2,031 7,539
========= ========= ========= ========= ========= ========= =========
Cash provided by (used in) investing
activities............................ (8,867) (15,426) (24,237) (6,423) (2,710) (3,817) (1,929)
========= ========= ========= ========= ========= ========= =========
Cash provided by (used in) financing
activities............................ (955) 5,633 11,509 3,916 (1,695) 233 (3,826)
========= ========= ========= ========= ========= ========= =========
BALANCE SHEET DATA(1):
Working capital (deficit)............... $ 1,716 $ (7,062) $ 4,712 $ 1,896 $ (687) $ (1,011) $ (289)
Oil and gas properties, net............. 60,304 53,185 57,765 43,920 21,000 22,138 22,060
Total assets............................ 88,124 79,090 83,867 73,786 39,825 35,570 36,937
Total debt.............................. 100 24,867 100 19,234 2,691 2,975 1,209
Total stockholders' equity.............. 75,973 43,620 75,129 43,431 27,170 22,711 23,067
OTHER FINANCIAL DATA(1):
Capital expenditures, net............... $ 8,867 $ 15,426 $ 24,237 $ 10,412 $ 2,710 $ 3,817 $ 1,929
EBITDA(3)............................... $ 7,337 $ 6,507 $ 13,582 $ 6,727 $ 4,496 $ 4,949 $ 5,561
Ratio of earnings to fixed charges(4)... 47.7 1.2 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>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Production:
Oil (MBbls)........................ 302 250 595 364 369
Gas (MMcf)......................... 2,912 3,675 6,694 4,076 1,659
Total production (MMcfe)........... 4,725 5,175 10,261 6,260 3,870
Average Sales Price:
Oil (per Bbl)...................... $ 18.12 $ 16.78 $ 16.68 $ 15.63 $ 16.73
Gas (per Mcf)...................... 2.33 1.88 1.96 2.00 2.10
Total production (per Mcfe)........ 2.59 2.14 2.24 2.21 2.49
Average Costs (per Mcfe):
Lease operating expenses (excluding
severance taxes)................. $ 0.58 $ 0.47 $ 0.49 $ 0.49 $ 0.72
Severance taxes.................... 0.20 0.16 0.17 0.16 0.24
Depreciation, depletion and
amortization..................... 1.03 1.02 1.01 0.97 0.88
General and administrative (net of
management fees)................. 0.36 0.40 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>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(MMCFE) (MMCFE)
<S> <C> <C> <C> <C> <C>
Production attributable to:
Chandeleur Block 40................ 757 72 144 37 --
Black Bay Complex.................. 606 666 1,351 608 252
North Dauphin Island Field......... 1,475 2,855 5,102 2,524 162
Escambia Minerals properties....... 696 9 783 -- --
--------- --------- --------- --------- ---------
3,534 3,602 7,380 3,169 414
Other properties................... 1,191 1,573 2,881 3,091 3,456
--------- --------- --------- --------- ---------
Total......................... 4,725 5,175 10,261 6,260 3,870
========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
For the six months ended June 30, 1996, total oil and gas revenues
increased by $1.1 million, or 10%, to $12.2 million when compared to $11.1
million for the same period in 1995. This increase is the result of increased
sales prices of oil and gas, offset by lower gas production volume.
Oil production and oil revenues increased during the first two quarters of
1996 to 302 MBbls and $5.5 million, respectively. For the comparable period in
1995, oil production was 250 MBbls while revenues totaled $4.2 million. Oil
prices during the first six months of 1996 averaged $18.12, compared to $16.78
for the same period in 1995. Total oil revenues have increased 30% over the June
1995 level as a result of this price increase and increased production from the
Escambia Minerals properties.
Gas production and revenues for the six-month period ended June 30, 1996,
were 2.91 Bcf and $6.8 million, respectively, representing a decline from the
gas production of 3.68 Bcf and gas revenues of $6.9 million in the first six
months of 1995. Reduced gas production was primarily caused by anticipated
normal production declines in the Company's North Dauphin Island Field. The
average sales price for gas sold in the first six months in 1996 was $2.33 per
Mcf, a $0.45 per Mcf increase over the average price for the same period in
1995. Revenues gained from the price increase were almost sufficient to offset
the loss of revenues due to the lower production volumes, with total gas
revenues declining by less than 2% during the first half of 1996 compared with
the first half of 1995.
The following table summarizes oil and gas production from the Company's
major producing properties for the comparable periods.
OIL PRODUCTION GAS PRODUCTION
(MBBLS) (MMCF)
-------------------- --------------------
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Chandeleur Block 40................ -- -- 757 72
Black Bay Complex.................. 101 111 -- --
North Dauphin Island Field......... -- -- 1,475 2,855
Escambia Minerals properties....... 94 1 132 3
--------- --------- --------- ---------
195 112 2,364 2,930
Other properties................... 107 138 548 745
--------- --------- --------- ---------
Total......................... 302 250 2,912 3,675
========= ========= ========= =========
Lease operating expenses, excluding severance taxes, for the first half of
1996 increased by 13% to $2.7 million from $2.4 million for the comparable
period in 1995. This increase is primarily attributable to a corresponding
increase in oil production attributable to the Company's acquisition of the
Escambia
18
<PAGE>
Minerals properties acquired after June 1995. Severance taxes increased by 16%
to $0.9 million during the first six months of 1996 from $0.8 million for the
same period in 1995, primarily as a result of higher prices for oil and gas.
Depreciation, depletion and amortization for the first six months of 1996
was $4.8 million, or $1.03 per Mcfe. For the same period in 1995, the total was
$5.3 million and $1.02 per Mcfe.
During the first six months of 1996, general and administrative expenses
declined by 18% compared to the same six-month period in 1995. During the first
half of 1996, these expenses totaled $1.7 million, compared to $2.1 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 during the first half of 1996 was $48,000 compared to
$891,000 for the first half of 1995. This expense reduction is attributable to
the reduction in the Company's debt using the proceeds from the sale of the
Series A Preferred Stock completed 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.
19
<PAGE>
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 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 six months ended June 30, 1996, the
Company had cash flows
20
<PAGE>
from operations of $10.8 million, net capital expenditures of $8.9 million and
paid $1.0 million in dividends on the Series A Preferred Stock.
In October 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 future net cash flows attributable to the Company's
proved producing oil and gas reserves. Through May 15, 1997, the Credit Facility
provides a minimum $15 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 8.25%.
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 November 5,
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 July 1, 1996 to March 30, 1997, the Company has in
effect hedges of gas equivalent to approximately 40% of its estimated production
for such period at a floor price per MMBtu of $2.15 and a ceiling price per
MMBtu of $2.73 (NYMEX). In addition, the Company is party to hedges in effect
from July 1, 1996 through December 31, 1996 representing approximately 80% of
its estimated oil production for such period at a floor price per Bbl of $17.16
and a ceiling price per Bbl of $19.69 (NYMEX), and for such period is party to
hedges for an additional 10% of its estimated production for such period for a
price of $19.00 per Bbl (NYMEX). The Company is also party to hedges that will
be in effect for 1997 representing approximately 30% of estimated oil production
for such period, at a floor price per Bbl of $18.00 and a ceiling price per Bbl
of $23.33 (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 half of 1996, capital expenditures of $9.2 million were
incurred, including the $1.5 million acquisition of a production facility. In
addition, the Company's share of the total costs for the leases in the OCS is
approximately $11.4 million, of which $3.6 million had been expended as of June
30, 1996. Other expenditures during the first half of 1996 were $1.0 million
paid as dividends to the holders of the Series A Preferred Stock. The balance of
the cash flow was retained for future operating expenses and potential drilling
and acquisition opportunities.
21
<PAGE>
At June 30, 1996, the Company had a working capital surplus of $1.7 million
and a current ratio of 1.1 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 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 June 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 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 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 one gross (0.52 net) successful development well
and one gross (1.0 net) successful exploratory well in this area. The Company's
capital budget currently anticipates drilling an additional six gross (5.0 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 $17.1
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 June 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 had average daily production of 10.0 MMcf/d during June
1996. The field had produced 55.7 Bcf of gas as of June 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 June 1996 was 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 two wells, which logged 44 feet and 54 feet of net pay, were completed in
late October and early November 1996. One more well commenced drilling during
late October.
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 one gross (0.52 net)
successful development well 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 six gross (5.0 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 $17.1 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.
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<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>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Production:
Oil (MBbls)........................ 302 250 595 364 369
Gas (MMcf)......................... 2,912 3,675 6,694 4,076 1,659
Total production (MMcfe)........... 4,725 5,175 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>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Average sales price per Bbl............. $ 18.12 $ 16.78 $ 16.68 $ 15.63 $ 16.73
Average sales price per Mcf............. 2.33 1.88 1.96 2.00 2.10
Average production cost per MMcfe....... 0.78 0.63 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 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.
28
<PAGE>
The following table shows the approximate leasehold acreage of the Company
as of December 31, 1995.
<TABLE>
<CAPTION>
LEASEHOLD ACREAGE
------------------------------------------
DEVELOPED UNDEVELOPED
-------------------- --------------------
STATE GROSS NET GROSS NET
- ---------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</TABLE>
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
the burdens and obligations affecting the Company's properties are conventional
in the industry for properties of the kind owned by the Company.
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<PAGE>
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 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.
30
<PAGE>
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 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.
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<PAGE>
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, 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
32
<PAGE>
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 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,
33
<PAGE>
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:
<TABLE>
<CAPTION>
NAME AGE PRESENT COMPANY POSITION
- ---------------------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
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)
</TABLE>
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
36
<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 September 1, 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 September 1, 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
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 under the 1996
Plan to the Company's executive officers on September 1, 1996, subject to
stockholder approval of the 1996 Plan. Fred L. Callon was awarded 60,000
performance shares; Dennis W. Christian was awarded 55,000 performance shares;
H. Michael Tatum was awarded 15,000 performance shares; Kathy G. Tilley was
awarded 45,000 performance shares; and John S. Weatherly was awarded 50,000
performance shares. All of the performance shares granted vest in whole on
January 1, 2001, and are subject to forfeiture upon certain termination of
employment events.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company anticipates that Fred L. Callon, Dennis W. Christian and John
S. Weatherly will enter into employment agreements with the Company effective
September 1, 1996 and ending December 31, 2000. The agreements will 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 level of participation in the compensation and
benefit plans of the Company following a change in control.
38
<PAGE>
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 encourage a community of interest between employees and
stockholders. No additional awards may be
39
<PAGE>
granted under the 1994 Plan. As of October 25, 1996, there were 145,000 shares
available for grant under the 1996 Plan.
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. See "-- Employment Agreements, Termination of Employment and Change
in Control Arrangements."
1996 PLAN. On September 1, 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.
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. Of the
2,067,913 shares beneficially owned by the Callon Family, 294,040 are
beneficially owned by John S. Callon and 656,761 are beneficially owned by Fred
L. Callon. 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
- ------------------------------------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
DIRECTORS:
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 1,984,758 shares of Common Stock owned by NOCO and 1,469,973
shares of Common Stock owned by certain other members of the Callon family
("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 1,984,758 shares of Common Stock
owned by NOCO and 1,136,011 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 $15.0 million
aggregate principal amount, plus up to an additional $2.25 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 June 30, 1996, the Company had an aggregate of $100,000 of
outstanding Senior
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Indebtedness, and the Subsidiaries had liabilities of $9.9 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 neither the Company nor any Restricted
Subsidiary will 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 on 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 503 and 601)
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
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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. (Sections 513 and 902)
The Holders of a majority in aggregate principal amount of outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture. (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 corporation
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, 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
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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 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 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)
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GOVERNING LAW
The Indenture and the Notes will be governed and construed in accordance
with the laws of the State of Texas. (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.
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.
"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.
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"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 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
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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 PASSU in 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;
(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
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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 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.
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"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 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
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
("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 minimum $15
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 8.25%. 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 November 5, 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
$15,000,000.
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 $2,250,000
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 Actor 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 and elsewhere in the Registration Statement 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 June 30, 1996 and
December 31, 1995 and 1994 ............................... F-3
Consolidated Statements of Operations for the Six Months
Ended June 30, 1996 and 1995 and for the Years Ended
December 31, 1995, 1994 and 1993 ......................... F-4
Consolidated Statements of Stockholders' Equity for the
Six Months Ended June 30, 1996 and for the Years Ended
December 31, 1995, 1994 and 1993 ......................... F-5
Consolidated Statements of Cash Flows for the Six Months Ended
June 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)
DECEMBER 31,
JUNE 30, --------------------------
1996 1995 1994
--------- ------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents......... $ 5,194 $ 4,265 $ 7,285
Accounts receivable, trade........ 7,999 8,329 8,895
Other current assets.............. 115 238 21
--------- ------------ ------------
Total current assets......... 13,308 12,832 16,201
--------- ------------ ------------
Oil and gas properties, full cost
accounting method:
Evaluated properties.............. 306,899 304,737 285,976
Less accumulated depreciation,
depletion and amortization...... (261,883) (257,143) (246,975)
--------- ------------ ------------
45,016 47,594 39,001
Unevaluated properties excluded
from amortization............... 15,288 10,171 4,919
--------- ------------ ------------
Total oil and gas
properties................ 60,304 57,765 43,920
--------- ------------ ------------
Pipeline and other facilities, net..... 6,773 5,371 5,579
Other property and equipment, net...... 1,577 1,633 1,633
Deferred tax asset..................... 5,462 5,462 5,462
Long-term gas balancing receivable..... 535 619 734
Other assets, net...................... 165 185 257
--------- ------------ ------------
Total assets................. $ 88,124 $ 83,867 $ 73,786
========= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade........... $ 11,549 $ 8,077 $ 10,391
Deferred income................... 43 43 43
Current maturities of long-term
debt............................ -- -- 3,871
--------- ------------ ------------
Total current liabilities.... 11,592 8,120 14,305
--------- ------------ ------------
Long-term debt......................... 100 100 15,363
Deferred income........................ 64 86 128
Long-term gas balancing payable........ 395 432 559
--------- ------------ ------------
Total liabilities............ 12,151 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;
5,754,636 at June 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................. 1,947 1,103 304
--------- ------------ ------------
Total stockholders' equity...... 75,973 75,129 43,431
--------- ------------ ------------
Total liabilities &
stockholders' equity...... $ 88,124 $ 83,867 $ 73,786
========= ============ ============
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>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Oil and gas sales..................... $ 12,249 $ 11,098 $ 23,210 $ 13,948 $ 10,048
Interest and other.................... 278 575 627 171 230
--------- --------- --------- --------- ---------
Total revenues................... 12,527 11,673 23,837 14,119 10,278
--------- --------- --------- --------- ---------
Costs and expenses:
Lease operating expenses.............. 3,686 3,245 6,732 4,042 3,713
Depreciation, depletion and
amortization....................... 4,844 5,266 10,376 6,049 3,411
General and administrative............ 1,707 2,082 3,880 3,717 2,350
Interest.............................. 48 891 1,794 624 196
--------- --------- --------- --------- ---------
Total costs and expenses......... 10,285 11,484 22,782 14,432 9,670
--------- --------- --------- --------- ---------
Income (loss) from operations........... 2,242 189 1,055 (313) 608
Income tax expense (benefit).......... -- -- -- (200) 113
--------- --------- --------- --------- ---------
Income (loss) before cumulative effect
of change in accounting principle..... 2,242 189 1,055 (113) 495
Cumulative effect of change in accounting
principle (Note 3).................... -- -- -- -- 5,262
--------- --------- --------- --------- ---------
Net income (loss)....................... 2,242 189 1,055 (113) 5,757
Preferred stock dividends............... 1,398 -- 256 -- --
--------- --------- --------- --------- ---------
Net income (loss) available to common
shares................................ $ 844 $ 189 $ 799 $ (113) $ 5,757
========= ========= ========= ========= =========
Pro forma adjustment (unaudited):
Provision for income taxes (Note 3)... -- -- -- -- 100
--------- --------- --------- --------- ---------
Pro forma net income (loss)........... $ 844 $ 189 $ 799 $ (113) $ 5,657
========= ========= ========= ========= =========
Income (loss) per common share:
Income (loss) per share before change
in accounting principle............ $ .15 $ .03 $ .14 $ (.03) $ .13
========= ========= ========= ========= =========
Cumulative effect of change in
accounting principle............... $ -- $ -- $ -- $ -- $ 1.40
========= ========= ========= ========= =========
Pro forma............................. $ .15 $ .03 $ .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).................. -- -- -- -- 2,242
Preferred stock dividends (Unaudited)... -- -- -- -- (1,398)
-------- --------- ------ ---------- --------
Balances, June 30, 1996 (Unaudited)..... $ -- $ 13 $ 58 $ 73,955 $ 1,947
======== ========= ====== ========== ========
</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>
SIX MONTHS ENDED
JUNE 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).................. $ 2,242 $ 189 $ 1,055 $ (113) $ 5,757
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, depletion and
amortization............... 4,982 5,406 10,600 6,328 3,657
Amortization of deferred
costs...................... 65 -- 133 88 35
Cumulative effect of change in
accounting principle....... -- -- -- -- (5,262)
Income tax expense
(benefit).................. -- -- -- (200) 113
--------- --------- ---------- ---------- ---------
7,289 5,595 11,788 6,103 4,300
Changes in current assets &
liabilities:
Accounts receivable,
trade................... 330 1,189 566 565 2,165
Other current assets....... 123 (16) (217) (8) (23)
Accounts payable, trade.... 3,029 (366) (2,314) (1,242) (2,171)
Change in gas balancing
receivable................. 84 59 115 (148) 25
Change in gas balancing
payable.................... (37) (131) (127) 210 108
Change in deferred income..... (22) (21) (42) (43) 143
Change in other assets, net... (45) 26 (61) (90) 188
--------- --------- ---------- ---------- ---------
Cash provided by operating
activities................. 10,751 6,335 9,708 5,347 4,735
--------- --------- ---------- ---------- ---------
Cash flows from investing activities:
Capital expenditures............... (9,166) (15,506) (24,323) (10,420) (4,096)
Equity issued to purchase CN cash
(Note 4)........................ -- -- -- 3,989 --
Cash proceeds from sale of mineral
interests....................... 299 80 86 8 1,386
--------- --------- ---------- ---------- ---------
Cash used in investing
activities................. (8,867) (15,426) (24,237) (6,423) (2,710)
--------- --------- ---------- ---------- ---------
Cash flows from financing activities:
Payments on debt................... -- (367) (25,134) (20,627) (2,783)
Increase in debt................... -- 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....... (1,398) -- (256) -- --
--------- --------- ---------- ---------- ---------
Cash provided by (used in)
financing activities....... (955) 5,633 11,509 3,916 (1,695)
--------- --------- ---------- ---------- ---------
Net increase (decrease) in cash and
cash equivalents................... 929 (3,458) (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............. $ 5,194 $ 3,827 $ 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 JUNE 30, 1996 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 June 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 six months ended June 30, 1996.
Net charge offs were $88,000 for the six months ended June 30, 1996 and net
recoveries were $79,000 for the six months ended June 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.
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., was the
high bidder on 12 offshore tracts at the Outer Continental Shelf Lease Sale,
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. Total expenditures through
June 30, 1996 were $3.6 million, with $7.8 million paid subsequent to June 30,
1996.
F-11
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. NOTES PAYABLE
Notes payable consisted of the following at:
DECEMBER 31,
JUNE 30, --------------------
1996 1995 1994
----------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
Credit Facility...................... $ 100 $ 100 $ 19,000
Building Mortgage, at prime, as
defined plus 2%
(9.75% at December 31, 1994)....... -- -- 234
----------- --------- ---------
100 100 19,234
Less: current portion................ -- -- 3,871
----------- --------- ---------
$ 100 $ 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
June 30, 1996 and December 31, 1995 was 8.25% 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.
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 June 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>
JUNE 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.............................. 210,000 600,000 -- 1,200,000 192,000 3,800,000
Average Price per Unit............... $ 22.71 1.75 -- $ 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 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 June 30, 1996, the Company had collar agreements for
average oil volumes of 45,000 barrels per month at a ceiling price of
F-12
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$19.62 and floor of $17.19 and average gas volumes of 188,000 MCF's per month at
a ceiling price of $2.57 and floor of $2.03 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 $1,274,000 for the six months ended June
30, 1996 under the swap 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>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------
1996 1995 1994 1993
----------- ---------- ---------- ----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Capitalized costs incurred:
Beginning of period balance........ $ 304,737 $ 285,976 $ 260,971 $ 258,554
Property acquisition............... 834 14,017 23,037 2,550
Exploration and development........ 1,627 4,830 1,976 1,253
Sale of mineral interests.......... (299 ) (86) (8) (1,386)
----------- ---------- ---------- ----------
End of period balance.............. $ 306,899 $ 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....... 4,740 10,168 6,049 3,411
----------- ---------- ---------- ----------
End of period balance.............. $ 261,883 $ 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 $5.83 for the six months
ended June 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 $4,302,000 at June
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.
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.
F-15
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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)
<S> <C> <C> <C> <C>
Revenues:
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
================================================================================
$15,000,000
[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...... $ 5,228
NASD filing fee...................... 2,225
Trustee fees......................... *
Printing costs....................... *
Legal fees and expenses.............. *
Accounting fees and expenses......... *
Engineering fees and expenses........ *
Miscellaneous........................ *
---------
TOTAL........................... $ *
=========
- ------------
* To be completed by amendment.
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
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) Exhibit Number and Description
<TABLE>
<CAPTION>
<S> <C> <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 -- 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)
4.5 -- Form of Notes Indenture
4.6 -- Form of Global Certificate (included in Exhibit 4.5)
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 (contained on the signature page of this Registration Statement)
25. -- Statement of Eligibility of Trustee**
26. -- Invitation for Competitive Bids*
27. -- Financial Data Schedule*
99. -- Additional exhibits*
</TABLE>
- ------------
* Inapplicable to this filing
** To be 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 5, 1996.
CALLON PETROLEUM COMPANY
By: /s/ FRED L. CALLON
Fred L. Callon
President and Chief Operating
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John S. Callon, Fred L. Callon and John S.
Weatherly, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
amendments that register additional securities of the same class to be declared
effective in accordance with Rule 462(b) promulgated under the Securities Act of
1933 and post-effective amendments) to this Registration Statement, and to file
the same, with all exhibits hereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or either of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
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 5, 1996
JOHN S. CALLON (Principal Executive Officer)
/s/ FRED L. CALLON President, Chief Operating November 5, 1996
FRED L. CALLON Officer, Director (Principal
Operating Officer)
/s/ DENNIS W. CHRISTIAN Senior Vice President, Director November 5, 1996
DENNIS W. CHRISTIAN
/s/ JOHN S. WEATHERLY Senior Vice President, Chief November 5, 1996
JOHN S. WEATHERLY Financial Officer and Treasurer
(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 5, 1996
JOHN C. WALLACE
/s/ B.F. WEATHERLY Director November 5, 1996
B.F. WEATHERLY
____________________ Director
RICHARD O. WILSON
</TABLE>
II-5
EXHIBIT 1.1
CALLON PETROLEUM COMPANY
____% SENIOR SUBORDINATED NOTES DUE 2001
UNDERWRITING AGREEMENT
__________, 1996
Morgan Keegan & Company, Inc.
50 Front Street
Memphis, Tennessee 38103
Dear Sirs:
SECTION 1. INTRODUCTORY. Callon Petroleum Company, a Delaware
corporation (the "Company"), proposes to issue and sell to the one or more
Underwriters named in Schedule I hereto (the "Underwriters"), $15,000,000
principal amount of its ____% Senior Subordinated Notes due 2001 (the "Firm
Notes") and, at the election of the Underwriters, up to an aggregate of
$2,250,000 additional principal amount of such Notes (the "Optional Notes")
solely to cover over-allotments, if any. The Firm Notes and the Optional Notes
are herein collectively referred to as the "Securities." The Securities are to
be issued pursuant to the provisions of an indenture to be dated as of
_________, 1996 (the "Indenture") between the Company and ____________________,
as trustee (the "Trustee"). As used herein, the terms "Underwriters" and "you"
shall be deemed to refer only to Morgan Keegan & Company, Inc., in the event
that such firm is the sole Underwriter named in Schedule I hereto.
The Company hereby agrees with the Underwriters as follows:
SECTION 2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
The Company represents and warrants to, and agree with, each of the Underwriters
that:
(a) The Company has filed, in accordance with the provisions of
the Securities Act of 1933, as amended (the "Act"), with the Securities
and Exchange Commission (the "Commission") a registration statement on
Form S-1, including a prospectus, relating to the Securities, which
incorporates by reference documents which the Company has filed or will
file in accordance with the provisions of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Company has furnished to you,
for use by the Underwriters and by dealers, copies of one or more
preliminary prospectuses and the documents incorporated by reference
therein (each thereof, including the documents incorporated therein by
reference, being herein called a "Preliminary Prospectus") relating to
the Securities. Except where the context otherwise requires, such
registration statement, as amended when it
becomes effective, including all documents filed as a part thereof or
incorporated by reference therein, and including any information
contained in a prospectus subsequently filed with the Commission
pursuant to Rule 424(b) under the Act and deemed to be part of the
registration statement at the time of
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<PAGE>
effectiveness pursuant to Rule 430(A) under the Act, is herein called
the "Registration Statement," and the prospectus, including all
documents incorporated therein by reference, in the form filed by the
Company with the Commission pursuant to Rule 424(b) under the Act or, if
no such filing is required, the form of final prospectus included in the
Registration Statement at the time it became effective, is herein called
the "Prospectus."
(b) When the Registration Statement becomes effective and at all
times subsequent thereto up to the latest Closing Date hereinafter
mentioned, the Registration Statement and the Prospectus, and any
amendments or supplements thereto, will conform in all material respects
with the requirements of the Act and the rules and regulations (the
"Rules and Regulations") of the Commission thereunder, and at such
effective time the Registration Statement will not include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, and the Prospectus, as it may be amended or supplemented at
the applicable Closing Date, will not contain any untrue statement of
material fact or omit to state a material fact necessary to make the
statements contained therein, in the light of the circumstances under
which they were made, not misleading; except that the foregoing does not
apply to (i) that part of the Registration Statement that constitutes
the Statement of Eligibility and Qualification (Form T-1) under the
Trust Indenture Act of 1939, as amended (the "1939 Act"), of the
Trustee, and (ii) statements or omissions in the Registration Statement
or the Prospectus, as amended or supplemented if applicable, based upon
written information furnished to the Company by any Underwriter through
you specifically for use therein.
(c) The documents incorporated by reference in the Prospectus, at
the time they were or hereafter are filed with the Commission, conformed
or will conform in all material respects to the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations thereunder, and when read together and with
the other information in the Prospectus, at the time the Registration
Statement and any amendment thereto become effective, will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(d) The only subsidiaries (as defined in the Rules and
Regulations) of the Company are the corporations listed on Schedule II
attached hereto (the "Subsidiaries"). The Company is, and at each
Closing Date will be, a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Each of the
Subsidiaries is, and as of each Closing Date will be, a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. CN Resources (the "Partnership") is the
only partnership of which the Company or any of its Subsidiaries is a
general partner or owns fifty percent or more of the partnership
interests. The Partnership
is a general partnership duly organized, validly existing and in good
standing under the laws of the State of ________, and the Company owns
all of the partnership interests in the Partnership. Each of the
Company, its Subsidiaries and the Partnership has, and at each Closing
Date will have, full power and authority to conduct all the activities
conducted by it, to own or lease all the assets owned or leased by it
and to conduct its business as described in the Registration Statement
and the Prospectus. Each of the Company, its Subsidiaries and the
Partnership is, and at each Closing Date will be, duly licensed or
qualified to do business and in good standing as a foreign corporation
or partnership in all jurisdictions in which the nature of the
activities conducted by it or the character of the assets owned or
leased by it makes such licensing or qualification necessary. All of the
issued
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<PAGE>
and outstanding capital stock of each Subsidiary has been duly
authorized and validly issued and is fully paid and non-assessable, and
all such capital stock of each Subsidiary is owned by the Company,
either directly or indirectly through Subsidiaries as indicated in
Schedule II hereto, free and clear of any mortgage, pledge, lien,
encumbrance, claim or equity [except for liens in favor of the lenders
under the Credit Facility (as defined in the Registration Statement)].
Except for the stock of the Subsidiaries and the interests in the
Partnership and as disclosed in the Registration Statement, the Company
does not own, and at each Closing Date will not own, directly or
indirectly, any shares of stock or any other equity or long-term debt
securities of any corporation or have any equity interest in any firm,
partnership, joint venture, association or other entity.
(e) The Securities have been duly authorized and, when issued,
authenticated by the Trustee and delivered in accordance with this
Agreement and the Indenture, will constitute valid and binding
obligations of the Company, enforceable against the Company in
accordance with their terms and entitled to the benefits provided by the
Indenture, except as may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance or other laws of general
application relating to or affecting creditors' rights generally or the
availability of equitable remedies, regardless of whether such
enforcement is considered in a proceeding in equity or at law; the
Indenture has been duly authorized and, when duly executed and delivered
by the Company and the Trustee, will constitute a valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except as may be limited by bankruptcy, solvency,
reorganization, fraudulent conveyance or other laws of general
application relating to or affecting creditors' rights generally or the
availability of equitable remedies, regardless of whether such
enforcement is considered in a proceeding in equity or at law.
(f) The consolidated financial statements and related notes and
schedules included or incorporated by reference in the Registration
Statement or the Prospectus present fairly the consolidated financial
position of the Company as of the respective dates thereof and the
consolidated results of operations and cash flows of the Company for the
respective periods covered thereby, all in conformity with generally
accepted accounting principles applied on a consistent basis throughout
the entire period involved, except as otherwise disclosed in such
consolidated financial statements or notes. No other historical
financial statements or schedules of the Company are required by the
Act, the Exchange Act or the Rules and Regulations to be included in the
Registration Statement or the Prospectus. Arthur Andersen LLP (the
"Accountants") who have reported on such consolidated financial
statements and schedules, are independent accountants with respect to
the Company and the Subsidiaries as required by the Act and the Rules
and Regulations. The statements included in the Registration Statement
with respect to the Accountants pursuant to Rule 509 of Regulation S-K
of the Rules and Regulations are true and correct in all material
respects.
(g) The selected financial information included in the
Registration Statement or the Prospectus presents fairly the information
shown therein and has been compiled on a basis consistent with that of
the audited consolidated financial statements of the Company included or
incorporated by reference therein. The pro forma financial statements
and other pro forma information (including the notes thereto) included
in the Registration Statement or the Prospectus (i) present fairly in
all material respects the information shown therein, (ii) have been
prepared in accordance with the applicable requirements of Rule 11-02 of
Regulation S-X promulgated under the Act and (iii) have been properly
computed on the basis described therein and the
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<PAGE>
assumptions used in preparing the pro forma financial statements and
other pro forma data included in the Registration Statement or the
Prospectus are reasonable.
(h) The Company maintains a system of internal accounting control
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
(i) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the
latest Closing Date, except as set forth in or contemplated by the
Registration Statement and the Prospectus, (i) there has not been and
will not have been any change in the capitalization of the Company, or
material adverse change in the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the
Company, its Subsidiaries and the Partnership, taken as a whole, arising
for any reason whatsoever, (ii) neither the Company nor any of its
Subsidiaries or the Partnership has incurred nor will it incur any
material liabilities or obligations, direct or contingent, nor has it
entered into nor will it enter into any material transactions other
than, in any case, pursuant to this Agreement and the transactions
referred to herein or in the ordinary course of business and (iii) the
Company has not and will not have paid or declared any dividends or
other distributions of any kind on any class of its capital stock
(except for dividends at an annual rate of $2.125 per share with respect
to the $2.125 Convertible Exchangeable Preferred Stock, Series A of the
Company (the "Series A Preferred Stock")).
(j) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of
1940, as amended.
(k) Except as set forth in the Registration Statement and the
Prospectus, there are no actions, suits or proceedings pending or
threatened against or affecting the Company, any of its Subsidiaries or
the Partnership, or any of their respective officers or partners in
their capacity as such, before or by any Federal or state court,
commission, regulatory body, administrative agency or other governmental
body, domestic or foreign, wherein an unfavorable ruling, decision or
finding might materially and adversely affect the Company, its
Subsidiaries and the Partnership, taken as a whole, or the business,
properties, business prospects, condition (financial or otherwise) or
results of operations of the Company, its Subsidiaries and the
Partnership, taken as a whole.
(l) Each of the Company, its Subsidiaries and the Partnership
has, and at each Closing Date will have, (i) all material governmental
licenses, permits, consents, orders, approvals and other authorizations
necessary to carry on its business as contemplated in the Prospectus,
(ii) complied in all respects with all laws, regulations and orders
applicable to it or its business, including without limitation,
environmental laws and regulations, except where noncompliance with such
laws, regulations or orders would not have a material adverse effect on
the Company, its Subsidiaries and the Partnership, taken as a whole, or
the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company,
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<PAGE>
its Subsidiaries and the Partnership, taken as a whole, and (iii)
performed all its obligations required to be performed by it, and is
not, and at each Closing Date will not be, in default, under any
indenture, mortgage, deed of trust, voting trust agreement, loan
agreement, bond, debenture, note agreement, lease, contract or other
agreement or instrument (collectively, a "contract or other agreement")
to which it is a party or by which its property is bound or affected,
except where such nonperformance or default would not, individually or
in the aggregate, have a material adverse effect on the Company, its
Subsidiaries and the Partnership, taken as a whole, or the business,
properties, business prospects, condition (financial or otherwise) or
results of operations of the Company, its Subsidiaries and the
Partnership, taken as a whole. To the knowledge of the Company, no other
party under any contract or other agreement to which it or any of its
Subsidiaries or the Partnership is a party is in default in any respect
thereunder. Neither the Company nor any of its Subsidiaries or the
Partnership is, nor at either Closing Date will any of them be, in
violation of any provision of its certificate of incorporation or bylaws
or other organizational documents, or of its certificate of limited
partnership or agreement of limited partnership.
(m) No consent, approval, authorization or order of, or any
filing or declaration with, any court or governmental agency or body is
required for the consummation by the Company of the transactions on its
part contemplated herein and in the Indenture and the Securities, except
such as have been obtained under the Act and the rules and regulations
promulgated thereunder, the 1939 Act or the Rules and Regulations and
such as may be required under the bylaws and rules of the National
Association of Securities Dealers, Inc. (the "NASD") in connection with
the purchase and distribution by the Underwriters of the Securities.
(n) The Company has full corporate power and authority to enter
into this Agreement. This Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance
with the terms hereof, except as may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance or other laws of
general application relating to or affecting creditors' rights generally
or the availability of equitable remedies, regardless of whether such
enforcement is considered in a proceeding in equity or at law. The
performance by the Company of its obligations under this Agreement, the
Indenture and the Securities and the consummation by it of the
transactions contemplated hereby and thereby will not result in the
creation or imposition of any lien, charge or encumbrance upon any of
the assets of the Company or any of its Subsidiaries or the Partnership
pursuant to the terms or provisions of, or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, or give any other party a right to terminate any of its
obligations under, or result in the acceleration of any obligation
under, the certificate or articles of incorporation, bylaws or other
organizational documents of the Company or any of its Subsidiaries, the
agreement of partnership of the Partnership, any contract or other
agreement to which the Company or any of its Subsidiaries or the
Partnership is a party or by which the Company or any of its
Subsidiaries or the Partnership, or any of their respective properties
is bound or affected, or violate or conflict with any judgment, ruling,
decree, order, statute, rule or regulation of any court or other
governmental agency or body applicable to the business or properties of
the Company or any of its Subsidiaries or the Partnership.
(o) The Company and each of its Subsidiaries and the Partnership
has good and indefeasible title to all properties and assets described
in the Prospectus as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the
Prospectus or are not material to the business of the Company or its
Subsidiaries or the
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<PAGE>
Partnership. Each of the Company, its Subsidiaries and the Partnership
has valid, subsisting and enforceable leases for the properties
described in the Prospectus as leased by it, with such exceptions as are
not material and do not materially interfere with the use made and
proposed to be made of such properties by it.
(p) There is no document or contract of a character required to
be described in the Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement which is not described
or filed as required. All such contracts to which the Company or any
Subsidiary or the Partnership is a party have been duly authorized,
executed and delivered by the Company or such Subsidiary or the
Partnership, constitute valid and binding agreements of the Company or
such Subsidiary or the Partnership and are enforceable against the
Company or such Subsidiary or the Partnership in accordance with the
terms thereof, except as may be limited by bankruptcy, insolvency,
reorganization or other laws of general application relating to or
affecting creditors' rights generally or the availability of equitable
remedies, regardless of whether such enforcement is considered in a
proceeding in equity or at law.
(q) No statement, representation, warranty or covenant made by
the Company in this Agreement or the Indenture or in any certificate or
document required by this Agreement to be delivered to the Underwriters
was or will be, when made, inaccurate, untrue or incorrect in any
material respect.
(r) Neither the Company nor, to its knowledge, any of its
directors, officers or controlling persons has taken, directly or
indirectly, any action intended, or which might reasonably be expected,
to cause or result, under the Act or otherwise, in, or which has
constituted, stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Securities.
(s) No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of
the Registration Statement which have not been waived.
(t) Neither the Company nor any of its Subsidiaries or the
Partnership is involved in any material labor dispute nor, to the
knowledge of the Company, is any such dispute threatened.
(u) The Company and its Subsidiaries and the Partnership own, or
are licensed or otherwise have the full exclusive right to use, all
material trademarks and trade names which are used in or necessary for
the conduct of their respective businesses as described in the
Prospectus. No claims have been asserted by any person to the use of any
such trademarks or trade names or challenging or questioning the
validity or effectiveness of any such trademark or trade name. The use,
in connection with the business and operations of the Company and its
Subsidiaries the and Partnership of such trademarks and trade names does
not, to the Company's knowledge, infringe on the rights of any person.
(v) The Company maintains insurance policies currently in effect,
including levels of deductibles, that are customary in the oil and gas
industry. Such policies provide coverage for operations of the Company,
its Subsidiaries and the Partnership in amounts and covering such risks
as the Company believes is necessary to conduct its business.
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(w) Neither the Company nor any of its Subsidiaries or the
Partnership nor, to the Company's knowledge, any employee or agent of
the Company or any Subsidiary or the Partnership has made any payment of
funds of the Company or any Subsidiary or the Partnership or received or
retained any funds in violation of any law, rule or regulation.
(x) The common stock of the Company is duly authorized for
trading on the Nasdaq National Market System.
(y) The Company has an authorized equity capitalization as set
forth in the Prospectus under the caption "Capitalization," and all of
the issued shares of capital stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable.
(z) Neither the Company nor any Subsidiary or the Partnership is
a "holding company" or a "subsidiary company" of a "holding company," or
an "affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company," or a "public utility" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
SECTION 3. PURCHASE, SALE AND DELIVERY OF SECURITIES. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, (i) the Company agrees to issue and
sell to the Underwriters, and each Underwriter agrees, severally and not
jointly, to purchase from the Company at a purchase price of _____% of the
principal amount per Security plus accrued interest, if any, from _________,
1996 to the date of payment and delivery, the respective principal amount of
Firm Notes set forth opposite such Underwriter's name in Schedule I hereto, and
(ii) in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Notes as provided below, the Company agrees to
issue and sell to the Underwriters, and the Underwriters agree to purchase from
the Company, at the same purchase price per Security set forth in clause (i) of
this Section 3, the aggregate principal amount of the Optional Notes as to which
such election shall have been exercised. If the option is exercised as to all or
any portion of the Optional Notes, the Optional Notes as to which the option is
exercised shall be purchased by the Underwriters, severally and not jointly, in
proportion to their purchases of the Firm Notes.
The Company hereby grants to the Underwriters the right to purchase at
their election up to $2,250,000 aggregate principal amount of Optional Notes, at
the purchase price per Security set forth in clause (i) of the first paragraph
of this Section 3, for the sole purpose of covering any over-allotments in the
sale of Firm Notes. Any such election to purchase Optional Notes may be
exercised by written notice from you to the Company, given within a period of 30
calendar days after the date of this Agreement, setting forth the aggregate
principal amount of Optional Notes to be purchased and the date on which such
Optional Notes are to be delivered, as determined by you but in no event earlier
than the First Closing Date (as hereinafter defined) or, unless you and the
Company otherwise agree in writing, earlier than two or later than ten business
days after the date of such notice.
The Securities to be purchased by each Underwriter hereunder will be
represented by one or more definitive global securities in book-entry form which
will be deposited by or on behalf of the Company with The Depository Trust
Company ("DTC") or its designated custodian. The Company will deliver the
Securities to Morgan Keegan & Company, Inc., for the account of each
Underwriter, against payment by or on behalf of such Underwriter of the purchase
price therefor by same day funds, by causing DTC to credit the Securities to the
account of Morgan Keegan & Company, Inc. at DTC. The time and date of such
delivery and payment shall be, with respect to the Firm Notes, 10:00 a.m.,
Eastern Time, on ______________, 1996, or such other time and date as the
Underwriters and the Company may agree
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upon in writing and, with respect to the Optional Notes, 10:00 a.m., Eastern
Time, on the date specified by the Underwriters in the written notice given by
them of their election to purchase such Optional Notes, or such other time and
date as the Underwriters and the Company may agree upon in writing. Such time
and date for delivery of the Firm Notes is herein called the "First Closing
Date," such time and date for delivery of the Optional Notes, if not the First
Closing Date, is herein called the "Second Closing Date," and each such time and
date for delivery is herein called a "Closing Date."
SECTION 4. OFFERING BY UNDERWRITERS. After the Registration Statement
becomes effective the several Underwriters will offer the Securities for sale to
the public on the terms as set forth in the Prospectus, but after the initial
public offering of the Securities they may, in their discretion, vary the public
offering price.
SECTION 5. COVENANTS OF THE COMPANY. The Company covenants and agrees
with each of the Underwriters that:
(a) The Company will advise you promptly of any proposal to amend
or supplement the registration statement as filed, or the related
prospectus, prior to the effectiveness of the Registration Statement,
and will not effect such amendment or supplement without your consent,
which will not be unreasonably withheld; the Company will also advise
you promptly of the effectiveness of the Registration Statement, of the
filing or effectiveness of any amendment or supplement to the
Registration Statement or the Prospectus, and of receipt of notification
of the institution by the Commission of any stop order proceedings in
respect of the Registration Statement or the initiation or threatening
of any proceeding for such purpose, and will use every reasonable effort
to prevent the issuance of any such stop order and to obtain as soon as
possible its lifting, if issued. The term "supplement" and "amendment"
or "amend" as used in this Agreement shall include all documents
subsequently filed by the Company with the Commission pursuant to the
Exchange Act that are deemed to be incorporated by reference in the
Prospectus.
(b) If, during such period of time after the first date of the
public offering of the Securities as in the opinion of counsel for the
Underwriters a prospectus relating to the Securities is required by law
to be delivered in connection with sales by an Underwriter or dealer,
any event occurs as a result of which the Prospectus as then amended or
supplemented would, in the judgment of the Underwriters and their
counsel, include an untrue statement of a material fact, or omit to
state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, or if
it is necessary at any time to amend the Prospectus to comply with the
Act or any other law, the Company promptly will prepare and file with
the Commission an amendment or supplement which will correct such
statement or omission or an amendment which will effect such compliance
and will notify you and, upon your request, prepare and furnish without
charge to each Underwriter and to any dealer in securities as many
copies as you may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which will correct such
statement or omission or effect such compliance.
(c) The Company will make generally available to the Company's
security holders as soon as practicable an earning statement covering
the twelve month period ending December 31, 1997, that satisfies the
provisions of Section 11 (a) of the Act and the Rules and Regulations
(including Rule 158).
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(d) The Company will deliver to each Underwriter one signed and
as many conformed copies of the Registration Statement (as originally
filed) and of each amendment thereto (including exhibits thereto and
documents incorporated therein by reference) as you may reasonably
request.
(e) The Company will use the net proceeds it receives from the
sale of the Securities in the manner specified in the Prospectus under
the caption "Use of Proceeds."
(f) So long as any Securities are outstanding, the Company will
furnish to each of the Underwriters, as soon as practicable after the
end of each fiscal year, a copy of its annual report to stockholders for
such year, and the Company will furnish to them (i) as soon as
available, a copy of each report or definitive proxy statement of the
Company filed with the Commission under the Exchange Act or mailed to
stockholders, (ii) every material press release in respect of the
Company that it may prepare or release and (iii) from time to time, such
other information concerning the Company as you may reasonably request.
(g) The Company, during the period when the Prospectus is
required to be delivered under the Act, will timely file all documents
required to be filed with the Commission pursuant to Section 13 or 14 of
the Exchange Act.
(h) Prior to the latest Closing Date, the Company will notify you
in writing immediately if any event occurs that renders any of the
representations and warranties of the Company contained herein
inaccurate or incomplete in any material respect.
SECTION 6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Securities
to be delivered on each Closing Date will be subject to the accuracy of the
representations and warranties on the part of the Company herein as of the date
hereof and as of such Closing Date with the same force and effect as if made as
of that date, to the performance by the Company of its obligations hereunder and
to the following additional conditions precedent:
(a) The Registration Statement shall have become effective (or if
a post-effective amendment is required to be filed pursuant to Rule 430A
under the Act, such post-effective amendment shall have become
effective) not later than 5:00 P.M., Eastern Time, on the date of this
Agreement, or such later time or date as shall have been consented to by
you; and prior to such Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been instituted, or to the
knowledge of the Company or you, shall be contemplated by the
Commission.
(b) You shall not have advised the Company that the Registration
Statement or Prospectus, or any amendment or supplement thereto,
contains an untrue statement of fact or omits to state a fact which, you
have concluded, is material and in the case of an omission is required
to be stated therein or is necessary to make the statements therein not
misleading.
(c) You shall have received a favorable opinion of Butler &
Binion, L.L.P., counsel for the Company, dated the Closing Date to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware with corporate
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power and authority to own, lease and operate its assets and
conduct its business as described in the Registration Statement;
and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction
in which the nature of its activities requires such
qualification.
(ii) Each of the Subsidiaries of the Company has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation,
has corporate power and authority to own, lease and operate its
assets and conduct its business as described in the Prospectus,
and is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which
the nature of its activities requires such qualification. The
Partnership is validly existing as a general partnership under
the laws of the State of ____________ and has partnership power
and authority to own, lease and operate its assets and conduct
its business as described in the Prospectus.
(iii) The Company is the sole record owner, directly or
indirectly, of all of the outstanding capital stock of each of
the Subsidiaries.
(iv) The Company has full corporate power and authority to
enter into this Agreement, and this Agreement has been duly
authorized, executed and delivered by the Company.
(v) The Indenture has been duly authorized, executed and
delivered by the Company and is duly qualified under the Trust
Indenture Act and (assuming it has been duly authorized, executed
and delivered by the Trustee) is a valid and binding agreement of
the Company, enforceable against the Company in accordance with
its terms except as may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance or other laws of general
application relating to or affecting creditors' rights generally
or the availability of equitable remedies, regardless of whether
such enforcement is considered in a proceeding in equity or at
law.
(vi) The Notes have been duly authorized, issued and
delivered by the Company (and assuming they have been duly
authenticated by the Trustee in accordance with the Indenture)
constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms
and entitled to the benefits provided by the Indenture, except as
may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance or other laws of general application
relating to or affecting creditors' rights generally or the
availability of equitable remedies, regardless of whether such
enforcement is considered in a proceeding in equity or at law.
(vii) The Registration Statement is effective under the
Act and, to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has
been issued under the Act or proceedings therefor initiated or
threatened by the Commission.
(viii) Statements set forth in the Prospectus under the
headings "Description of Existing Securities and Debt
Instruments" and "Description of Notes" and in the Registration
Statement in Item 15 insofar as such statements constitute a
summary of the
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legal matters, documents or proceedings referred to therein
fairly present the information called for with respect to such
legal matters, documents and proceedings.
(ix) No consent, approval, authorization or order of, or
any filing or declaration with any court or governmental agency
or body is required for the consummation by the Company of the
transactions on its part contemplated herein and in the Indenture
and the Securities, except such as have been obtained under the
Act and the Rules and Regulations, the 1939 Act or the rules and
regulations thereunder and such as may be required under the
bylaws and rules of the NASD in connection with the purchase and
distribution by the Underwriters of the Securities;
(x) The execution and delivery of this Agreement, the
Securities and the Indenture and the consummation of the
transactions contemplated herein will not conflict with or
constitute a breach of, or default under, or result in the
creation of any lien, charge or encumbrance on any property, or
assets of the Company or any of its Subsidiaries or the
Partnership pursuant to any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument known
to such counsel to which the Company or any of its Subsidiaries
or the Partnership is a party or by which it or any of them may
be bound or to which the property or assets of the Company or any
of its Subsidiaries or the Partnership is subject, nor will such
action result in a violation of the provisions of the charter or
bylaws of the Company or any law, administrative regulation or
administrative court decree.
(xi) To the knowledge of such counsel, except as set forth
in the Registration Statement and the Prospectus, there are no
actions, suits or proceedings pending or threatened against or
affecting the Company, any of its Subsidiaries or the
Partnership, or any of their respective officers or partners in
their capacity as such, before or by any Federal or state court,
commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, wherein an unfavorable
ruling decision or finding might materially and adversely affect
the Company, any of its Subsidiaries or the Partnership, or their
respective business, properties, business prospects, condition
(financial or otherwise) or results of operations; and
(xii) Such counsel (1) is of the opinion that each
document incorporated by reference in the Registration Statement
and the Prospectus complied as to form when filed with the
Commission in all material respects with the Exchange Act and the
rules and regulations of the Commission thereunder, (2) is of the
opinion that the Registration Statement complies as to form in
all material respects with the requirements of the Act and the
Rules and Regulations, and (3) believes that the Registration
Statement (excluding the part thereof that constitutes the Form
T-1), at the time it became effective, did not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and that the Prospectus, as amended or
supplemented at such Closing Date, does not contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(d) You shall have received from Vinson & Elkins L.L.P., counsel
for the Underwriters, an opinion, dated such Closing Date, with respect
to the matters set forth in the first
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clause of (i), and in (iv), (v), (vi),(viii) (but only as to the
statements in the Prospectus under "Description of Notes") and clauses
(2) and (3) of (xii) of paragraph (c) of this Section.
With respect to subparagraph (xii) of paragraph (c) above, Butler
& Binion, L.L.P. may state their opinion and belief are based upon their
participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and documents
incorporated therein by reference and review and discussion of the
contents thereof, but is without independent check or verification
except as specified. With respect to clauses (2) and (3) of subparagraph
(xii) of paragraph (c) above, Vinson & Elkins L.L.P. may state that
their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto (but not including documents
incorporated therein by reference) and review and discussion of the
contents thereof (including documents incorporated therein by reference
), but is without independent check or verification except as specified.
With respect to subparagraph (xii) of paragraph (c) above, Butler &
Binion, L.L.P. and Vinson & Elkins L.L.P. may state that they are not
giving advice as to the financial statements, schedules, reserve
information and other financial and statistical data included in the
Registration Statement or in the Prospectus or in any document
incorporated by reference therein.
(e) At such Closing Date there shall not have been, since the
date of this Agreement or since the respective dates as of which
information is given in the Registration Statement, any material adverse
change in the condition, financial or otherwise, earnings, business
affairs or business prospects of the Company, its Subsidiaries and the
Partnership, considered as a whole, whether or not arising in the
ordinary course of business, and you shall have received a certificate
of the chief executive officer and the chief financial officer of the
Company, dated as of such Closing Date, to the foregoing effect and to
the further effect that the representations and warranties of the
Company contained in Section 2 are true and correct with the same force
and effect as though made on and as of such Closing Date.
(f) You shall have received letters from the Accountants, the
first delivered the day of but prior to the execution of, and dated the
date of, this Agreement and the others dated the applicable Closing
Date, addressed to the Underwriters (with conformed copies for each of
the Underwriters), in the form heretofore agreed (and in the case of
each letter delivered on a Closing Date, consistent with the first such
letter) with such variations as are reasonably acceptable to you.
(g) The NASD, upon review of the terms of the public offering of
the Securities, shall not have objected to such offering, such terms or
the Underwriters' participation in the same.
If any of the conditions specified in this Section 6 shall not have been
fulfilled when and as required by this Agreement to be fulfilled, then this
Agreement may be terminated by you on notice to the Company at any time at or
prior to the First Closing Time, and such termination shall be without liability
of any party to the other, except as provided in Section 7. Notwithstanding any
such termination, the provisions of Sections 8, 12 and 14 shall remain in
effect.
SECTION 7. PAYMENT OF EXPENSES. The Company will pay all costs,
expenses, fees and taxes incident to (i) the preparation by the Company,
printing, filing and distribution under the Act of the Registration Statement
(including financial statements and exhibits), the Prospectus, each Preliminary
Prospectus and all amendments and supplements to any of them prior to or during
the period specified
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<PAGE>
in Section 5(b), (ii) the preparation, printing (including word processing and
duplication costs) and delivery of this Agreement, the Indenture, and all other
agreements, memoranda, correspondence and other documents printed and delivered
in connection with the offering of the Securities, (iii) the registration with
the Commission, and the issuance by the Company of the Securities, (iv) the
filings and clearance with the NASD in connection with the offering and (v) the
performance by the Company of its other obligations under this Agreement.
If this Agreement is terminated by you in accordance with the provisions
of Section 6 or Section 10(i), the Company shall reimburse you for all of your
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
SECTION 8. INDEMNIFICATION AND CONTRIBUTION. (a) The Company will
indemnify and hold harmless each Underwriter against any losses, claims, damages
or liabilities, joint or several, to which such Underwriter may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any breach of any warranty or covenant of the Company herein contained or
any untrue statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or arise out
of or are based upon the performance by the Underwriters in any capacity of any
services to the Company, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
expressly for use therein. In addition to its other obligations under this
Section 8(a), the Company agrees that, as an interim measure during the pendency
of any such claim, action, investigation, inquiry or other proceeding arising
out of or based upon any statement or omission, or any alleged statement or
omission, described in this Section 8(a), they will reimburse the Underwriters
on a monthly basis for all reasonable legal and other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation to reimburse the Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. Any such interim reimbursement payments that are not
made to an Underwriter within thirty (30) days of a request for reimbursement
shall bear interest at the prime rate (or reference rate or other commercial
lending rate for borrowers of the highest credit standing) published from time
to time by THE WALL STREET JOURNAL (the "Prime Rate") from the date of such
request. This indemnity agreement shall be in addition to any liabilities that
the Company may otherwise have. The Company will not, without the prior written
consent of each Underwriter, settle or compromise or consent to the entry of any
judgment in any pending or threatened action or claim or related cause of action
or portion of such cause of action in respect of which indemnification may be
sought hereunder (whether or not such Underwriter is a party to such action or
claim), unless such settlement, compromise or consent includes an unconditional
release of such Underwriter from all liability arising out of such action or
claim (or related cause of action or portion thereof).
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The indemnity agreement in this Section 8(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Underwriter within the meaning of the Act or the Exchange Act
to the same extent as such agreement applies to the Underwriters.
(b) Each Underwriter, severally, but not jointly, and in proportion to
their respective underwriting commitments, will indemnify and hold harmless the
Company against any losses, claims, damages or liabilities to which the Company
may become subject, under the Act, the Exchange Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any breach of any warranty or covenant by you
herein contained or any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in any Preliminary Prospectus, the Registration Statement or
the Prospectus or any such amendment or supplement thereto in reliance upon and
in conformity with written information furnished to the Company by such
Underwriter expressly for use therein; and will reimburse the Company for any
legal or other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action. In
addition to its other obligations under this Section 8(b), the Underwriters
agree that, as an interim measure during the pendency of any such claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in this
Section 8(b), they will reimburse the Company on a monthly basis for all
reasonable legal and other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of their obligation to reimburse the Company for such expenses
and the possibility that such payments might later be held to have been improper
by a court of competent jurisdiction. Any such interim reimbursement payments
that are not made to the Company within 30 days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request. This
indemnity agreement shall be in addition to any liabilities that the
Underwriters may otherwise have.
The indemnity agreement in this Section 8(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
director of the Company and each person, if any, who controls the Company within
the meaning of the Act or the Exchange Act to the same extent as such agreement
applies to the Company.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; no indemnification provided for in Section 8(a) or 8(b)
shall be available to any party who shall fail to give notice as provided in
this Section 8(c) if the party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was prejudiced by the
failure to give such notice, but the failure so to notify the indemnifying party
will not relieve the indemnifying party from any liability that it may have to
any indemnified party otherwise than under this Section 8. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), except that if the
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indemnified party has been advised by counsel in writing that there are one or
more defenses available to the indemnified party which are different from or
additional to those available to the indemnifying party, then the indemnified
party shall have the right to employ separate counsel and in that event the
reasonable fees and expenses of such separate counsel for the indemnified party
shall be paid by the indemnifying party; provided, however, that if the
indemnifying party is the Company, the Company shall only be obligated to pay
the reasonable fees and expenses of a single law firm (in addition to those of
its own counsel and any reasonably necessary local counsel) employed by all of
the indemnified parties and the persons referred to in Section 8(a) hereof. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
(d) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Section 8(a) and 8(b)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the indemnifying parties, shall be settled by arbitration
conducted pursuant to the Code of Arbitration Procedure of the National
Association of Securities Dealers, Inc. Any such arbitration must be commenced
by service of a written demand for arbitration or a written notice of intention
to arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 8(a) and 8(b) hereof
and will not resolve the ultimate propriety or enforceability of the obligation
to indemnify for expenses that is created by the provisions of Sections 8(a) and
8(b).
(e) In order to provide for just and equitable contribution in
circumstances under which the indemnity provided for in this Section 8 is for
any reason judicially determined (by the entry of a final judgment or decree by
a court of competent jurisdiction and the expiration of time to appeal or the
denial of the right of appeal) to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Company, on the one hand,
and the Underwriters, on the other hand, shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
such indemnity incurred by the Company and one or more of the Underwriters, as
incurred, in such proportions that (a) the Underwriters are responsible for that
portion represented by the percentage that the underwriting discount appearing
on the cover page of the Prospectus bears to the initial public offering price
(before deducting expenses) appearing thereon, and (b) the Company is
responsible for the balance, provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation; provided, further, that if the allocation provided
above is not permitted by applicable law, the Company, on the one hand, and the
Underwriters, on the other, shall contribute to the aggregate losses in such
proportion as is appropriate to reflect not only the relative benefits referred
to above but also the relative fault of the Company, on the one hand, and the
Underwriters, on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact relates to
information supplied by the Company, on the one hand, or by the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 8(e) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method
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of allocation which does not take account of the equitable considerations
referred to above in this Section 8(e). The amount paid or payable by a party as
a result of the losses, claims, damages or liabilities referred to above shall
be deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending such action or claim.
Notwithstanding the provisions of this Section 8(e), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. The Underwriters'
obligations in this Section 8(e) to contribute are several in proportion to
their respective underwriting obligations and not joint. For purposes of this
Section 8(e), each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act shall have the same rights to contribution as
such Underwriter, and each director of the Company, each officer of the Company
who signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Act shall have the same rights
to contribution as the Company.
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Company submitted
pursuant hereto, including indemnity and contribution agreements, shall remain
operative and in full force and effect, regardless of any termination of this
Agreement, or any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter by or on behalf of the Company or its
officers or directors, and shall survive acceptance and payment for the
Securities hereunder.
SECTION 10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement
shall become effective upon the later of (i) the execution and delivery hereof
by the parties hereto and (ii) such time after the Registration Statement
becomes effective as the Company may authorize the sale of the Securities to the
public by the Underwriters. By giving notice before the time this Agreement
becomes effective, you or the Company may prevent this Agreement from becoming
effective, without liability of any party to any other party, except that the
Company shall remain obligated to pay costs and expenses to the extent provided
in Section 7 hereof.
This Agreement may be terminated for any reason at any time prior to the
First Closing Date by you upon the giving of written notice of such termination
to the Company, if prior to the First Closing Date (i) there has been, since the
respective dates as of which information is given in the Registration Statement,
any material adverse change in the condition, financial or otherwise, earnings,
business affairs or business prospects of the Company, its Subsidiaries and the
Partnership, considered as a whole, whether or not arising in the ordinary
course of business, or (ii) there has occurred any outbreak or escalation of
hostilities or other calamity or crisis or material change in existing
financial, political, economic or securities market conditions, the effect of
which is such as to make it, in your judgment, impracticable or inadvisable to
market the Securities in the manner contemplated in the Prospectus or enforce
contracts for the sale of the Securities, or (iii) trading in the Common Stock
or Series A Preferred Stock of the Company has been suspended by the Commission
or the NASD or trading generally on either the American Stock Exchange or the
New York Stock Exchange or in the over-the-counter market has been suspended, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices for securities have been required by either of said exchanges or the NASD
or by order of the Commission or any other governmental authority, or (iv) a
banking moratorium has been declared by Federal, New York or Tennessee
authorities, or (v) any Federal or state statute, regulation, rule or order of
any court or other governmental authority has been enacted, published, decreed
or otherwise promulgated which in your reasonable opinion materially adversely
affects or will materially adversely
-16-
<PAGE>
affect the business or operations of the Company, its Subsidiaries and the
Partnership, taken as a whole, or (vi) any action has been taken by any
governmental authority in respect of its monetary or fiscal affairs which in
your reasonable opinion has a material adverse effect on the securities markets
in the United States. In the event of any such termination, the provisions of
Section 7, the indemnity agreement and contribution provisions set forth in
Section 8, and the provisions of Sections 9, 12 and 14 shall remain in effect.
SECTION 11. DEFAULT. If, on a Closing Date, any one or more of the
Underwriters shall fail or refuse to purchase Securities that it or they have
agreed to purchase hereunder on such date, and the aggregate principal amount of
Securities which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase is not more than one-tenth of the aggregate principal
amount of the Securities to be purchased on such date, the other Underwriters
shall be obligated severally in the proportions that the principal amount of
Securities set forth opposite their respective names in Schedule I bears to the
aggregate principal amount of Securities set forth opposite the names of all
such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Securities which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; PROVIDED
that in no event shall the principal amount of Securities that any Underwriter
has agreed to purchase pursuant to Section 3 be increased pursuant to this
Section 11 by an amount in excess of one-tenth of such principal amount of
Securities without the written consent of such Underwriter. If, on the Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase
Securities and the aggregate principal amount of Securities and the aggregate
principal amount of Securities with respect to which such default occurs is more
than one-tenth of the aggregate principal amount of Securities to be purchased
on such date, and arrangements satisfactory to you and the Company for the
purchase of such Securities are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone such Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
In the event there shall be only one Underwriter named in Schedule I
hereto, the foregoing provisions of this Section 11 shall have no force or
effect.
SECTION 12. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to you c/o Morgan Keegan & Company, Inc., 50
Front Street, Memphis, Tennessee 38103, Attention: Mike Harris, Managing
Director; notices to the Company shall be directed to it at 200 North Canal
Street, Natchez, Mississippi 39120, Attention: Fred L. Callon, President.
SECTION 13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the Company, the Underwriters, any controlling persons referred to
herein and their respective successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person, firm or corporation any legal or equitable right, remedy or claim under
or in respect of this Agreement or any provision herein contained. No purchaser
of Securities from any Underwriter shall be deemed to be a successor by reason
merely of such purchase.
-17-
<PAGE>
SECTION 14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF TENNESSEE.
This Agreement may be signed in two or more counterparts each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
-18-
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign this Agreement and return it to us.
Very truly yours,
CALLON PETROLEUM COMPANY
By___________________________
Name:
Title:
Confirmed and accepted as of the date first above written:
MORGAN KEEGAN & COMPANY, INC.
By___________________________________
Name:
Title:
-19-
<PAGE>
SCHEDULE I
PRINCIPAL AMOUNT
OF FIRM NOTES
UNDERWRITERS TO BE PURCHASED
- -------------- -----------------
Morgan Keegan & Company, Inc............................ $15,000,000
-----------
Total.................................... $15,000,000
===========
<PAGE>
SCHEDULE II
SUBSIDIARIES
NAME JURISDICTION OWNERSHIP (%)
---- ------------ -------------
Callon Petroleum Operating Company Delaware corporation 100%
Callon Offshore Production, Inc. Mississippi corporation 100% *
Mississippi Marketing, Inc. Mississippi corporation 100% *
Callon Exploration Company Mississippi corporation 100% *
- -------------------------
* Wholly-owned subsidiary of Callon Petroleum Operating Company.
EXHIBIT 4.5
CALLON PETROLEUM COMPANY
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
Trustee
----------------
INDENTURE
Dated as of November __, 1996
----------------
$15,000,000
___% 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, 609
Section 311...............................................605
Section 312 (a)...........................................701, 702
(b)...........................................702
(c)...........................................702
Section 313 (a)...........................................703
(b)(1)........................................Inapplicable
(b)(2)........................................703
(c)...........................................703
(d)...........................................703
Section 314 (a)...........................................704, 1012
(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.............................9
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE..........................10
SECTION 104. ACTS OF HOLDERS.................................................10
SECTION 105. NOTICES, ETC, TO TRUSTEE AND COMPANY............................11
SECTION 106. NOTICE TO HOLDERS OF NOTES; WAIVER..............................11
SECTION 107. LANGUAGE OF NOTICES.............................................12
SECTION 108. CONFLICT WITH TRUST INDENTURE ACT...............................12
SECTION 109. EFFECT OF HEADINGS AND TABLE OF CONTENTS........................12
SECTION 110. SUCCESSORS AND ASSIGNS..........................................12
SECTION 111. SEVERABILITY CLAUSE.............................................12
SECTION 112. BENEFITS OF INDENTURE...........................................12
SECTION 113. GOVERNING LAW...................................................12
SECTION 114. LEGAL HOLIDAYS..................................................12
SECTION 115. SCHEDULES.......................................................12
SECTION 116. COUNTERPARTS....................................................12
SECTION 117. INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS................13
SECTION 118. NO ADVERSE INTERPRETATIONS OF OTHER AGREEMENTS..................13
ARTICLE TWO FORM OF NOTES....................................................13
SECTION 201. FORMS GENERALLY.................................................13
SECTION 202. FORM OF FACE OF NOTE............................................13
SECTION 203. FORM OF REVERSE OF NOTE........................................15
SECTION 204. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.................17
ARTICLE THREE THE NOTES......................................................17
SECTION 301. TITLE AND TERMS.................................................17
SECTION 302. CURRENCY; DENOMINATIONS.........................................17
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING..................17
SECTION 304. TEMPORARY NOTES.................................................18
SECTION 305. REGISTRATION, TRANSFER AND EXCHANGE.............................18
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN NOTES.....................19
SECTION 307. PAYMENT OF INTEREST, RIGHTS TO INTEREST PRESERVED...............19
SECTION 308. PERSONS DEEMED OWNERS...........................................20
SECTION 309. CANCELLATION....................................................20
SECTION 310. AUTHENTICATION AND DELIVERY OF ORIGINAL ISSUE...................21
SECTION 311. COMPUTATION OF INTEREST.........................................21
SECTION 312. BOOK-ENTRY PROVISIONS FOR GLOBAL NOTE...........................21
ARTICLE FOUR SATISFACTION AND DISCHARGE......................................22
SECTION 401. SATISFACTION AND DISCHARGE OF INDENTURE.........................22
SECTION 402. APPLICATION OF TRUST MONEY......................................22
ARTICLE FIVE REMEDIES........................................................23
SECTION 501. EVENTS OF DEFAULT...............................................23
SECTION 502. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT..............24
SECTION 503. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT
BY TRUSTEE......................................................25
SECTION 504. TRUSTEE MAY FILE PROOFS OF CLAIM................................25
SECTION 505. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES..........26
SECTION 506. APPLICATION OF MONEY COLLECTED..................................26
SECTION 507. LIMITATION ON SUITS.............................................26
SECTION 508. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL
PREMIUM AND INTEREST............................................26
SECTION 509. RESTORATION OF RIGHTS AND REMEDIES..............................26
SECTION 510. RIGHTS AND REMEDIES CUMULATIVE..................................27
SECTION 511. DELAY OR OMISSION NOT WAIVER....................................27
SECTION 512. CONTROL BY HOLDERS..............................................27
SECTION 513. WAIVER OF PAST DEFAULTS.........................................27
SECTION 514. UNDERTAKING FOR COSTS...........................................27
SECTION 515. WAIVER OF STAY, EXTENSION OR USURY LAWS.........................28
ARTICLE SIX THE TRUSTEE......................................................28
SECTION 601. CERTAIN DUTIES AND RESPONSIBILITIES.............................28
SECTION 602. NOTICE OF DEFAULTS..............................................29
i
<PAGE>
SECTION 603. CERTAIN RIGHTS OF TRUSTEE.......................................29
SECTION 604. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES...............29
SECTION 605. MAY HOLD NOTES..................................................30
SECTION 606. MONEY HELD IN TRUST.............................................30
SECTION 607. COMPENSATION AND REIMBURSEMENT..................................30
SECTION 608. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.........................30
SECTION 609. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR...............31
SECTION 610. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR..........................32
SECTION 611. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.....32
SECTION 612. APPOINTMENT OF AUTHENTICATION AGENT.............................32
SECTION 613. CONFLICTING INTERESTS...........................................33
SECTION 614. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY...............33
ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY..............33
SECTION 701. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.......33
SECTION 702. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS..........34
SECTION 703. REPORTS BY TRUSTEE..............................................34
SECTION 704. REPORTS BY COMPANY..............................................34
ARTICLE EIGHT CONSOLIDATION, MERGER AND SALES................................35
SECTION 801. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS............35
SECTION 802. SUCCESSOR PERSON SUBSTITUTED FOR COMPANY........................35
ARTICLE NINE SUPPLEMENTAL INDENTURES.........................................36
SECTION 901. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS..............36
SECTION 902. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.................36
SECTION 903. EXECUTION OF SUPPLEMENTAL INDENTURES............................37
SECTION 904. EFFECT OF SUPPLEMENTAL INDENTURES...............................37
SECTION 905. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES...................37
SECTION 906. EFFECT ON SENIOR INDEBTEDNESS...................................37
SECTION 907. RECORD DATE.....................................................37
ARTICLE TEN COVENANTS........................................................38
SECTION 1001. PAYMENT OF PRINCIPAL AND INTEREST..............................38
SECTION 1002. MAINTENANCE OF OFFICE OR AGENCY................................38
SECTION 1003. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST....................38
SECTION 1004. CORPORATE EXISTENCE............................................39
SECTION 1005. MAINTENANCE OF PROPERTIES......................................39
SECTION 1006. RESTRICTIONS ON DIVIDENDS, REDEMPTION AND OTHER PAYMENTS.......39
SECTION 1007. LIMITATIONS ON INDEBTEDNESS FOR MONEY BORROWED.................40
SECTION 1008. LIMITATION LIENS...............................................40
SECTION 1009. INSURANCE......................................................40
SECTION 1010. PAYMENT OF TAXES AND OTHER CLAIMS..............................41
SECTION 1011. STATEMENT BY OFFICERS AS TO DEFAULT............................41
SECTION 1012. WAIVER OF CERTAIN COVENANTS....................................41
SECTION 1013. LIMITATION ON RANKING OF FUTURE INDEBTEDNESS...................41
SECTION 1014. LIMITATIONS ON RESTRICTING SUBSIDIARY DIVIDENDS................41
SECTION 1015. LIMITATION ON TRANSACTIONS WITH AFFILIATES.....................42
ARTICLE ELEVEN REDEMPTION OF NOTES...........................................42
SECTION 1101. RIGHT OF REDEMPTION............................................42
SECTION 1102. ELECTION TO REDEEM; NOTICE TO TRUSTEE..........................42
SECTION 1103. SELECTION BY TRUSTEE OF NOTES TO BE REDEEMED...................42
SECTION 1104. NOTICE OF REDEMPTION...........................................43
SECTION 1105. DEPOSIT OF REDEMPTION PRICE....................................43
SECTION 1106. NOTES PAYABLE ON REDEMPTION DATE...............................43
SECTION 1107. NOTES REDEEMED IN PART.........................................44
SECTION 1108. PURCHASE OF NOTES..............................................44
ARTICLE TWELVE DEFEASANCE AND COVENANT DEFEASANCE............................44
SECTION 1201. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT DEFEASANCE...44
SECTION 1202. DEFEASANCE AND DISCHARGE.......................................44
SECTION 1203. COVENANT DEFEASANCE............................................45
SECTION 1204. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE................45
SECTION 1205. DEPOSITED MONEY AND GOVERNMENT OBLIGATIONS TO BE HELD IN
TRUST; OTHER MISCELLANEOUS PROVISIONS..........................46
SECTION 1206. REINSTATEMENT..................................................46
ii
<PAGE>
ARTICLE THIRTEEN SUBORDINATION OF NOTES......................................46
SECTION 1301. NOTES SUBORDINATE TO SENIOR INDEBTEDNESS.......................46
SECTION 1302. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.................47
SECTION 1303. SUSPENSION OF PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT......47
SECTION 1304 . PAYMENT PERMITTED IF NO DEFAULT...............................48
SECTION 1305. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS........48
SECTION 1306 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.....................48
SECTION 1307. TRUSTEE TO EFFECTUATE SUBORDINATION............................48
SECTION 1308. NO WAIVER OF SUBORDINATION PROVISION...........................49
SECTION 1309. NOTICE TO TRUSTEE..............................................49
SECTION 1310. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING
AGENT BANK.....................................................50
SECTION 1311. RIGHTS OF TRUSTEE AS A HOLDER OF SENIOR INDEBTEDNESS:
PRESERVATION OF TRUSTEE'S RIGHTS..............................50
SECTION 1312. ARTICLE APPLICABLE TO PAYING AGENTS............................50
SECTION 1313. NO SUSPENSION OF REMEDIES......................................50
SECTION 1314. TRUST MONEY NOT SUBORDINATED...................................50
iii
<PAGE>
================================================================================
================================================================================
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 United States
(hereinafter called the "Trustee"), having its principal corporate trust office
at
- -----------------------------------.
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.
<PAGE>
"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.
2
<PAGE>
"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 issued 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 ______________________.
"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.
"DEFAULT NOTICE" has the meaning specified in Section 1301.
"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.
"EXCLUSIVE POWER" has the meaning specified in Section 1301.
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"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.
"GLOBAL NOTE" has the meaning specified in Section 201.
"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.
"INITIAL INTEREST ACCRUAL DATE" as to any Note means the date from which
interest shall begin to accrue in connection with the original issuance of such
Note, which shall be the date as of which such Note originally issued by the
Company to the initial purchaser thereof shall be dated, which shall be the date
upon which it was originally sold to such initial purchaser as designated by the
Company Order requesting authentication and delivery thereof.
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"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 proceeding 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 and liabilities of such Person.
"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 date on which
such 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.
"OFFICER'S 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.
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"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;
(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 the Notes, provided that, if the 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 with respect to which the Company has effected
defeasance pursuant to Clauses (1)(b) and (3) of Section 401
hereof; 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 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 "Payment Event of Default" means any default
in the payment or required prepayment of principal of or
interest on any Specified Senior Indebtedness when due (whether
at
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final maturity, upon scheduled installment, upon acceleration or
otherwise).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 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
Subordinate 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
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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.
"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 the 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.
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"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;
PROVIDED, HOWEVER, that in the 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;
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(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.
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
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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.
(4) If the Company shall solicit from the Holders of any Notes any
request, demand, authorization, direction, notice, consent, waiver or other Act,
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 Act. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act 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 Act, 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.
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SECTION 107. LANGUAGE OF NOTICES
Any request, demand, authorization, direction, notice, consent, election
or waiver required or permitted under this Indenture shall be in the English
language.
SECTION 108. CONFLICT WITH TRUST INDENTURE ACT
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(d) thereof, such
required provision shall control.
SECTION 109. EFFECT OF HEADINGS AND TABLE OF CONTENTS
The Article and Section headings herein 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 Texas applicable to agreements made or
instruments entered into and, in each case, performed in said state, without
regard to principles of conflict of laws.
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. SCHEDULES.
Any Schedules attached hereto are by this reference made a part hereof
with the same effect as if herein set forth in full.
SECTION 116. 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.
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SECTION 117. 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 or director, 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 or
directors, 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 or director, as such, 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 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 118. 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 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 DEPOSITARY 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 DEPOSITARY OR A NOMINEE THEREOF,
EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
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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 the Initial Interest
Accrual Date 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.
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), by check.
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 or imprinted 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 $15,000,000 (except for such
additional principal amounts, not to exceed $2,250,000, 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), (1) 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 and (2) is unsecured by
any collateral, including the assets of the Company or any of its Subsidiaries
or Affiliates. 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 such 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 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
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
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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 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 in any material respect.
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 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, stockholder 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, stockholder 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 Securities 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 Texas without regard to conflicts of law principles.
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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:
This is one of the Notes referred to in the within mentioned Indenture.
Authentication Date:_____________ , as Trustee
By_____________________________
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 $15,000,000 (except for such
additional principal amounts, not to exceed $2,250,000, 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 the 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 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.
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 United
States dollars or other equivalent unit of legal tender for payment of public or
private debts in the United States of America. 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
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
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such offices prior to the authentication and delivery of such Notes or did not
hold such offices at the date of such Notes.
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 officers 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.
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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
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
Note or 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.
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(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 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, interest on the Notes 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, 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.
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
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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 destroyed by the Trustee (who shall deliver a certificate of
destruction thereof to the Company), unless by a Company Order the Company
directs their return to the Company.
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
$15,000,000 (plus such additional principal amounts, not to exceed $2,250,000,
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. Interest shall be payable through and excluding any
Interest Payment Date and interest shall be payable through and including any
Redemption Date.
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 funds 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 funds 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 or upon redemption, 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 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, waived or consented 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 expressed 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 entry of a decree or order for relief in an involuntary proceeding under
any applicable bankruptcy, insolvency,
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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(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(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 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 10 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 Company and countersigned by the holders of such
Indebtedness or a trustee, fiduciary or agent for such holders or other evidence
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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 interest on any
overdue principal and, to the extent that payment of such interest shall be
legally enforceable, upon any overdue installment of interest, at the rate borne
by the Notes, 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 moneys 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 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 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
default hereunder known to the Trustee, unless such default shall have been
cured or waived; PROVIDED, HOWEVER, that, except in the case of a 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; and PROVIDED, FURTHER, that
in the case of any default of the character specified in Section 501 (3) with
respect to Notes, no such notice to Holders shall be given until at least 30
days after the occurrence thereof. For the purpose of this Section, the term
"default" means any event which is, or after notice or lapse of time or both
would become, an Event of Default.
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
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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 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 property
and funds held or collected by the Trustee as such, except funds 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 of America, any
state thereof or the District of Columbia, authorized under such laws to
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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) of at least
$50,000,000. 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 a majority in 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 a majority in 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 each resignation and each
removal of the Trustee and each appointment of a successor Trustee 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 property and Money 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. 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 $50,000,000. 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 thereof to such
Authenticating Agent and the Company. Upon receiving such a notice of
resignation or upon such a
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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 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 [July 15] and [January 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 30] or
[December 31], 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,
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.
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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(a) 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;
(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
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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 and notices
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 its properties and assets
substantially as an entirety 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, the properties and assets of the
Company substantially as an entirety 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 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
the properties and assets of the Company substantially as an entirety 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 defeasance and
discharge of any Notes pursuant to Article Four; 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 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 reduce 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 principal amount of the Outstanding
Notes, the consent of the Holders of which is required
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for any such supplemental indenture, or the consent of the Holders of 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; PROVIDED,
HOWEVER, this clause shall not be deemed to require the consent of any Holder of
Notes with respect to changes in the references to "the Trustee" and concomitant
changes in this Section, or the deletion of this proviso, in accordance with
Sections 610 and 901(6), 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 Act, 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
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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.
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 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.
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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 to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such Money. 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 a newspaper
published in the English language, customarily published on each Business Day
and of general circulation 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, REDEMPTION 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 for each fiscal year commencing
subsequent to September 30, 1996 (with 100% reduction for a loss in any fiscal
year), 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).
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(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
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) Neither the Company nor any Restricted Subsidiary will 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 Junior
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
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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.
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 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.
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 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 or make any other distribution on its capital
stock, (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 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
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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 such 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 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.
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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 prior to 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 funds
available for payment by the Trustee on the Redemption Date, 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
any Office or Agency for such Note (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, 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(6)) 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 or declaration or Act of 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 Sections 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 Note 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 nationally recognized
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 with respect to the Notes shall have
occurred and be continuing on the date of such deposit or, insofar as Section
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 Notes 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 Governmental 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 nationally recognized 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 1202 or 1203, as the case may be, 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 Notes (other than Permitted Junior Notes) 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 Notes (other than
a payment or distribution in the form of Permitted Junior Notes), 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 Notes, 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 Notes) 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 Notes) 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 and (2)
receipt by the Trustee and the Company of written notice of such occurrence from
one or more of the holders of 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 Notes) 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
Period will commence upon the earlier of the dates of receipt
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by the Trustee or the Company of such notice (the "Payment Blockage Notice")
from one or more of the holders of 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, notwithstanding the foregoing, the Company shall
make any payment to the Trustee or the Holder of any Note 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. In the event that the
Company shall make any payment in respect of the Notes to the Trustee and the
Trustee shall receive written notice of a Payment Event of Default or a
Non-payment Event of Default from one or more of the holders of Specified Senior
Indebtedness (or their representative) prior to making any payment to Holders in
respect of the Notes and 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, such payments shall be paid over by the Trustee
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
Notes 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
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Notes pursuant to this Indenture in the form required in said proceedings and
the causing of said claim to be approved.
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.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
50
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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:
Attest:
- -----------------------------
-----------------------------,
as Trustee
By_______________________________
Name:
Title:
Attest:
- -----------------------------
51
EXHIBIT 10.9
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of October 31, 1996
AMONG
CALLON PETROLEUM COMPANY
AS BORROWER
AND
CALLON PETROLEUM OPERATING COMPANY
CALLON OFFSHORE PRODUCTION COMPANY
AS SUBSIDIARY GUARANTORS
AND
THE CHASE MANHATTAN BANK, AS AGENT
AND
THE BANKS NAMED THEREIN
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of October 31, 1996, among
Callon Petroleum Company, a Delaware corporation (the "BORROWER"), Callon
Petroleum Operating Company, a Delaware corporation and a wholly-owned
subsidiary of the Borrower ("OPERATING"), Callon Offshore Production, Inc., a
Mississippi corporation, a wholly-owned subsidiary of Operating ("OFFSHORE"),
the several banks and other financial institutions from time to time parties to
this Amended and Restated Credit Agreement (the "BANKS") and The Chase Manhattan
Bank, a New York banking corporation ("CHASE"), acting as agent for the Banks
hereunder (in such capacity, the "AGENT").
WHEREAS, pursuant to an Assignment of Note and Liens dated as of the
Closing Date, as that term is hereinafter defined, (the "ASSIGNMENT"), Chase
will purchase and assume all of the rights and interests of Internationale
Nederlanden (U.S.) Capital Corporation, a Delaware corporation ("INCC") under
that certain Credit Agreement dated as of October 14, 1994, among Operating as
"Borrower", Borrower as "Parent", and INCC as "Lender", as said Credit Agreement
has been amended by First Amendment to Credit Agreement dated June 29, 1995, by
Second Amendment to Credit Agreement dated November 22, 1995, and by Third
Amendment to Credit Agreement dated February 22, 1996 (as so amended, the "INCC
CREDIT AGREEMENT"); and
WHEREAS, immediately after giving effect to the Assignment, but subject to
the conditions precedent set forth herein, the Borrower, Operating, Offshore,
Chase as the sole Bank, and Chase as agent for the benefit of the Banks desire
to amend and restate the INCC Credit Agreement in its entirety in order, among
other things, to increase the commitments thereunder, to extend the maturity of
the "Commitment Period", and to modify certain other provisions of the INCC
Credit Agreement.
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants, and agreements contained herein, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Borrower, Operating, Offshore, the Agent and the Banks agree
that upon satisfaction of each condition precedent set forth in ARTICLE IV
HEREOF, the INCC Credit Agreement shall be amended and restated in its entirety
on the terms and conditions set forth herein. It is the intention of the
Borrower, Operating, Offshore, the Agent, and the Banks that upon satisfaction
of such conditions precedent, this Amended and Restated Credit Agreement shall
amend, restate, supersede and replace the INCC Credit Agreement in its entirety;
provided, that (a) the foregoing shall operate to increase, renew, extend, amend
and modify the outstanding indebtedness, commitments and other rights and
obligations of the parties under the INCC Credit Agreement, but shall not effect
a novation thereof, and (b) all Liens securing the "Obligations" under and as
defined in the INCC Credit Agreement shall not be extinguished, but shall be
carried forward and shall secure such Obligations as defined herein and as
renewed, extended, increased, amended and modified hereby.
The parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND REFERENCES
SECTION 1.1. DEFINED TERMS. As used in this Credit Agreement, each of the
following terms has the meaning given it in this SECTION 1.1 or in the sections
and subsections referred to below:
<PAGE>
"AFFILIATE" means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person.
"AGENT" means Chase, as agent for the Banks hereunder and under the other
Loan Documents, and each successor Agent.
"APPLICABLE MARGIN" means, (a) with respect to each Base Rate Borrowing:
(i) on each day on which the Utilized Percentage of Borrowing Base
is less than fifty percent (50%), zero percent (0%) per annum;
and
(ii) on each day of which the Utilized Percentage of Borrowing Base
is equal to or greater than fifty percent (50%), one half of
one percent (0.50%) per annum; and
(b) with respect to each Eurodollar Borrowing:
(i) on each day on which the Utilized Percentage of Borrowing Base
is less than fifty percent (50%), one percent (1.00%) per
annum; and
(ii) on each day of which the Utilized Percentage of Borrowing Base
is equal to or greater than fifty percent (50%), one and
three-eighths of one percent (1.375%) per annum.
"ASSIGNMENT" means the Assignment of Note and Liens dated as of the
Closing Date from INCC in favor of the Agent for the benefit of the Banks and
delivered to the Agent pursuant to SECTION 4.1(O).
"BANK" means each of the financial institutions whose name appears on the
signature pages to this Credit Agreement and the Persons which from time to time
become a party hereto in accordance with SECTION 11.4.
"BANKRUPTCY CODE" means the Bankruptcy Reform Act of 1978 as codified
under 11 U.S.C. ss.101, et seq.
"BASE RATE" means for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greater of (a) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1% and (b) the Prime Rate in
effect on such day. For purposes hereof: "PRIME RATE" means, as of a particular
date, the rate of interest from time to time announced by Chase at the Principal
Office as its prime rate; which Prime Rate may not necessarily represent Chase's
lowest or best rate actually charged to a customer; "PRINCIPAL OFFICE" means the
principal office of Chase, presently located at 1 Chase Manhattan Plaza, New
York, New York 10081; "FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for the day of such transactions received by the
Agent from three federal funds brokers of recognized standing selected by it. If
for any reason the Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal
Funds Effective Rate for any reason, including the inability or failure of the
Agent to obtain sufficient quotations in accordance with the terms thereof, the
Base Rate shall be determined without
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<PAGE>
regard to clause (b) of the first sentence of this definition until the
circumstances giving rise to such inability no longer exist. Any change in the
Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate
shall be effective on the effective day of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively.
"BASE RATE BORROWING" means a Borrowing comprised of Base Rate Loans.
"BASE RATE LOANS" means Loans bearing interest at a rate determined by
reference to the Base Rate in accordance with the provisions of ARTICLE II.
"BORROWER" means Callon Petroleum Company, a Delaware corporation.
"BORROWING" means a borrowing comprised of simultaneous Loans or a single
Loan of the same Type made to the Borrower on the same date by the Banks, or a
single Bank, (or resulting from conversions or continuations on a given date
pursuant to SECTION 2.4), having the same Interest Period distributed ratably
among the Banks in the manner described in ARTICLE II, PROVIDED, HOWEVER, that
if there is only one (1) Bank party to this Credit Agreement, a borrowing shall
be comprised of a single Loan of the same Type made to the Borrower on the same
date by such Bank.
"BORROWING BASE" has the meaning set forth in SECTION 3.2 hereof;
provided, however, that in no event shall the Borrowing Base ever exceed the
Total Commitment, and PROVIDED, FURTHER, that the Borrowing Base shall not be
less than $15,000,000 during the period from and including the Effective Date to
but excluding May 15, 1997.
"BORROWING BASE DEFICIENCY" means a condition wherein the Utilized Credit
at any time exceeds the Borrowing Base in effect at such time.
"BORROWING BASE NOTICE" means a written notice sent to the Borrower by the
Agent addressed as specified in SECTION 11.3, notifying the Borrower of the
Borrowing Base determined by the Banks in accordance with ARTICLE III for the
upcoming Determination Date.
"BORROWING BASE PROPERTIES" means (a) all of the Oil and Gas Interests of
the Loan Parties, or any one such Loan Party, set forth in the Initial
Engineering Report, and (b) all other Oil and Gas Interests of the Loan Parties,
either now owned or hereafter acquired, which (i) have Proved Reserves
attributable thereto, (ii) are the subject of an Engineering Report prepared by
an independent petroleum engineer acceptable to the Required Banks and delivered
to the Banks by the Loan Parties, (iii) are subject to no Liens except as
permitted by SECTION 7.2, and (iv) are the subject of an environmental
assessment and a title review satisfactory to the Required Banks.
"BORROWING DATE" means any Business Day specified in a notice pursuant to
SECTION 2.2 as a date on which the Borrower requests the Banks to make Loans
hereunder.
"BORROWING REQUEST" means, with respect to each Borrowing, a request made
pursuant to SECTION 2.2 which request shall be in the form of EXHIBIT A.
"BUSINESS DAY" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in New York, New York.
Any Business Day in any way relating to any Eurodollar Borrowings (such as the
day on which an Interest Period begins or ends) must also be a
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<PAGE>
day on which, in the judgment of the Agent, significant transactions in dollars
are carried out in the interbank eurocurrency market.
"CAPITAL LEASE" means, when used with respect to any Person, any lease in
respect of which the obligations of such Person constitute Capitalized Lease
Obligations.
"CAPITALIZED LEASE OBLIGATIONS" means, when used with respect to any
Person, without duplication, all obligations of such Person to pay rent or other
amounts under any lease of (or other arrangement conveying the right to use)
real or personal property, or a combination thereof, which obligations shall
have been or should be, in accordance with GAAP, capitalized on the books of
such Person.
"CHANGE OF CONTROL" means the occurrence of either of the following events
at any time after the execution and delivery of this Credit Agreement: (i) any
Person or two or more Persons acting as a group shall acquire beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, and including
holding proxies to vote for the election of directors) of fifteen percent (15%)
or more of the outstanding common stock of the Borrower or (ii) fifteen percent
(15%) or more of the board of directors of the Borrower shall consist of Persons
not nominated by the Borrower.
"CHASE" means The Chase Manhattan Bank.
"CHANDELEUR CONTRACT" means that certain Gas Gathering Agreement dated as
of February 10, 1995 among the Borrower, Operating and Chevron Natural Gas Pipe
Line Company, formerly known as Chandeleur Pipe Line Company, pursuant to which
Chevron Natural Gas Pipe Line Company has purchased, and Borrower and Operating
have sold, gas gathering capacity and services as more particularly set forth in
the Chandeleur Contract.
"CLOSING DATE" means October 31, 1996.
"CODE" means Internal Revenue Code of 1986, as amended from time to time,
and the regulations promulgated thereunder.
"COLLATERAL" means all Property which is subject to a Lien in favor of the
Agent for the benefit of the Banks or which, under the terms of any Security
Document, is purported to be subject to such a Lien.
"COMMITMENT" means, when used with reference to any Bank at the time any
determination thereof is to be made, the amount of such Bank's Commitment
hereunder to extend credit to the Borrower by means of Loans or participations
in Letters of Credit, which, subject to SECTIONS 2.6 and 9.1, shall be an amount
equal to the amount set forth opposite the name of such Bank under the heading
"Amount of Commitment" on SCHEDULE 1.1 to this Credit Agreement.
"COMMITMENT FEE RATE" shall have the meaning specified in SECTION 2.5(A)
hereof.
"COMMITMENT PERCENTAGE" means, as to any Bank, a fraction (expressed as a
percentage), the numerator of which shall be the amount of such Bank's
Commitment set forth on the signature pages hereto, and the denominator of which
shall be the Total Commitment.
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<PAGE>
"COMMITMENT TRANSFER SUPPLEMENT" shall have the meaning assigned to that
term in SECTION 11.4(C).
"COMMODITY HEDGE TRANSACTION" means with respect to any Person, a
transaction pursuant to which such Person or any of its Subsidiaries hedge the
price to be received by them for future production of Hydrocarbons, including
price swap agreements under which such Person or its Subsidiaries agree to pay a
price for a specified amount of Hydrocarbons determined by reference to a
recognized market on a specified future date and the contracting counterparty
agrees to pay such Person or its Subsidiaries a fixed price for the same or
similar amount of Hydrocarbons.
"COMPLIANCE CERTIFICATE" shall have the meaning assigned to that term in
SECTION 6.2(B).
"CONSOLIDATED" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated Subsidiaries. References herein to a
Person's Consolidated financial statements, financial positions, financial
condition, liabilities, etc. refer to the consolidated financial statements,
financial positions, financial condition, liabilities, etc. of such Person and
its properly consolidated Subsidiaries.
"CONSOLIDATED ASSETS" means, when used with respect to the Borrower, all
items which should be classified as assets on the Consolidated financial
statements of the Borrower and its Subsidiaries, all as determined in conformity
with GAAP.
"CONSOLIDATED EQUITY" means, with respect to the Borrower, at anytime, the
Consolidated Assets of the Borrower and its Subsidiaries LESS the Consolidated
Liabilities of the Borrower and its Subsidiaries.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to the Borrower and
its Subsidiaries, for any fiscal period, the aggregate amount of all costs, fees
and expenses paid by the Borrower and its Subsidiaries in such fiscal period
which are classified as interest expense on the Consolidated financial
statements of the Borrower and its Subsidiaries, all as determined in conformity
with GAAP.
"CONSOLIDATED LIABILITIES" means, when used with respect to the Borrower
and its Subsidiaries, all items which should be classified as liabilities on the
Consolidated financial statements of the Borrower and its Subsidiaries, all as
determined in conformity with GAAP.
"CONSOLIDATED NET INCOME" means, for any fiscal period, without
duplication, the net earnings (or loss) after taxes from all operations of
Borrower and its Subsidiaries on a Consolidated basis for such period determined
in conformity with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" means, with respect to the Borrower, at
any time, the Consolidated Equity of Borrower and its Subsidiaries, at such
time, less the Consolidated Intangible Assets of Borrower and its Subsidiaries
at such time. For purposes of this definition, "Intangible Assets" means the
amount (to the extent reflected in determining Consolidated Equity) of all
unamortized debt discount and expense, unamortized deferred charges, goodwill,
patents, trademarks, service marks, trade names, copyrights and organization
expenses.
"CONTRACTUAL OBLIGATION" as applied to any Person, means any provision of
any stock or other securities issued by that Person or any indenture, mortgage,
deed of trust, contract, undertaking, document, instrument or other agreement or
instrument to which that Person is a party or by which it or
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<PAGE>
any of its Properties is bound, or to which it or any of its Properties is
subject (including, without limitation, any restrictive covenant affecting such
Person or any of its Properties).
"CREDIT AGREEMENT" means this Amended and Restated Credit Agreement, as
amended, supplemented, restated or otherwise modified from time to time.
"DEBT" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered pursuant to GAAP. Debt
includes, without limiting the foregoing, (a) indebtedness of such Person for
borrowed money or for the deferred purchase price of Property or services or
which is evidenced by a note, bond, debenture or similar instrument, (including
Environmental Liabilities and liabilities to the PBGC), (b) all obligations of
such Person under Capitalized Lease Obligations, (c) all obligations of such
Person in respect of letters of credit and acceptances issued or created for the
account of such Person, (d) all liabilities secured by any Lien on any Property
owned by such Person even though such Person has not assumed or otherwise become
liable for the payment thereof, (e) all Guarantee Obligations of such Person,
(f) indebtedness with respect to payments received in consideration of
Hydrocarbons yet to be produced from the Oil and Gas Interests at the time of
payment (including obligations under "take-or-pay" contracts to deliver gas in
return for payments already received and the undischarged balance of any
production payment created by such Person or for the creation of which such
Person directly or indirectly received payment), (g) indebtedness with respect
to other obligations to deliver goods or services in consideration of advance
payments therefor, and (h) all net payments or amounts due and payable by
Borrower or any Subsidiary of Borrower in respect of Interest Hedge Agreements
and/or Commodity Hedge Transactions. The Debt of a Person shall also include all
liabilities of such Person as a general or venture partner of a partnership or
joint venture for the obligations of such partnership or joint venture of the
nature described in subclauses (a) through (h) above. The Debt of a Person shall
NOT include (i) trade payables and expense accruals incurred or assumed in the
ordinary course of such Person's business, PROVIDED such payables have been
outstanding for one hundred twenty (120) days or less since the date that such
payable was incurred on ordinary trade terms and is owed by the Person incurring
the same to vendors, suppliers, or other Persons providing goods and services
for use by such Person in the ordinary course of its business or (ii) bonds,
letters of credit or deposits posted in favor of the United States of America or
any state securing obligations to plug abandoned wells or obligations to clean
up and restore the land on which such wells are located.
"DEBTOR RELIEF LAWS" means the Bankruptcy Code and all other applicable
dissolution, liquidation, conservatorship, bankruptcy, moratorium, readjustment
of debt, compromise, rearrangement, receivership, insolvency, reorganization, or
similar debtor relief laws from time to time in effect affecting the rights of
creditors generally.
"DEFAULT" means any Event of Default and any default, event or condition
which would, with the giving of any requisite notices and the passage of any
requisite periods of time, constitute an Event of Default.
"DEFAULT RATE" means, at the time in question, two percent (2.0%) per
annum plus the Base Rate then in effect; provided that, with respect to any
Eurodollar Borrowings with an Interest Period extending beyond the date such
Eurodollar Borrowing becomes due and payable, "Default Rate" means two percent
(2.0%) per annum plus the related Eurodollar Rate. The Default Rate shall in no
event, however, exceed the Highest Lawful Rate.
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<PAGE>
"DESIGNATED CONTRACTS": means the following agreements (whether one or
more) relating to the Borrowing Base Properties, as the same may, subject to
SECTION 7.10, be amended, supplemented, restated or otherwise modified from time
to time:
(i) All material Production Sales Contracts;
(ii) The Chandeleur Contract;
(iii) All organizational documents, including without limitation,
all articles/certificates of incorporation, bylaws, partnership
agreements, limited liability company agreements, joint venture documents
or management agreements, governing the Borrower or any Subsidiary
Guarantor;
(iv) All operating agreements, agency agreements, and joint
operating agreements and other similar agreements customary in the oil and
gas industry and entered into in the ordinary course of business which are
material to the Borrowing Base Properties;
(v) All fee leases, area of mutual interests agreements, joint
development/drilling agreements, farm out agreements, and farm in
agreements and other similar arrangements customary in the oil and gas
industry and entered into in the ordinary course of business which are
material to the Borrowing Base Properties;
(vi) All transportation, processing agreements, product sale
agreements, tolling agreements and throughput agreements which are
material to the Borrowing Base Properties; and
(vii) All pipeline, gas gathering, water disposal and other
easements, rights of way, surface damage, water disposal and surface use
agreements which are material to the Borrowing Base Properties.
"DETERMINATION" means any Periodic or Special Determination.
"DETERMINATION DATE" means (a) each May 15 and November 15, and (b) with
respect to any Special Determination, forty-five (45) Business Days following
the date of a request for a Special Determination.
"DISCLOSURE SCHEDULE" means (a) SCHEDULE 1.2 hereto and (b) any documents
listed on such schedule and expressly incorporated therein by reference, so long
as the Borrower has heretofore delivered true, correct and complete copies of
such document to the Banks. Insofar as any representations and warranties made
herein are incorporated by reference or otherwise remade in Loan Documents
delivered as of a date after the date hereof, the term "DISCLOSURE SCHEDULE"
shall in such representations and warranties be deemed to refer as well to all
other documents, PROVIDED, that the Borrower has at the time in question
delivered true, correct and complete copies of all such documents to the Banks.
"DISTRIBUTION" means (i) any dividend or distribution payable in cash,
obligations or Property with respect to any shares of capital stock of the
Borrower or any Subsidiary of the Borrower (other than dividends payable in
shares of the same class of common, preferred or other capital stock as the
shares upon which the dividend is being paid), any other distribution made with
respect to any shares of capital stock of the Borrower or any Subsidiary of the
Borrower, or any purchase, redemption or retirement of,
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or other payment with respect to, any shares of capital stock of the Borrower or
any Subsidiary of the Borrower and/or (ii) (A) any payment or prepayment of
principal, premium, or penalty on any Subordinated Obligations or any
defeasance, redemption, purchase, repurchase or other acquisition or retirement
for value, in whole or in part, of any Subordinated Obligations (including,
without limitation, the setting aside of assets or the deposit of funds
therefor) and (B) prepayment of interest on any of the Subordinated Obligations.
"DOLLARS" and the symbol "$" shall mean the lawful currency of the United
States.
"EBITDA" means, with respect to the Borrower on a Consolidated basis for
any fiscal period, without duplication, Consolidated Net Income of Borrower PLUS
(ii) Borrower's Consolidated depreciation, depletion, amortization and other
non-cash items reducing Consolidated Net Income PLUS (iii) Consolidated Interest
Expense PLUS (iv) Consolidated income tax expense, all determined in accordance
with GAAP.
"EFFECTIVE DATE" means the date on which all of the conditions precedent
to the making of the Loans set forth in ARTICLE IV are first satisfied or waived
by the Banks and the initial Loans are made.
"ENGINEERING REPORT" means the Initial Engineering Report and each
engineering report delivered pursuant to SECTION 6.2(D).
"ENVIRONMENTAL LAWS" means any federal, state, local or tribal statute,
law, rule, regulation, ordinance, code, permit, consent, approval, license,
written policy or rule of common law now or hereafter in effect and in each case
as amended, and any judicial or administrative interpretation thereof, including
any judicial or administrative order, injunction, consent decree or judgment, or
other authorization or requirement whenever promulgated, issued or modified,
including the requirement to register underground storage tanks, well plugging
and abandonment requirements, and oil and gas waste disposal requirements
relating to:
(i) emissions, discharges, spills, migration, movement, releases or
threatened releases of pollutants, contaminants, Hazardous Materials, or
hazardous or toxic materials or wastes into or onto soil, land, ambient
air, surface water, ground water, watercourses, publicly owned treatment
works, drains, sewer systems, wetlands or septic systems;
(ii) the use, treatment, storage, disposal, handling, manufacturing,
transportation, or shipment of Hazardous Materials or hazardous and/or
toxic wastes, material, products or by-products containing Hazardous
Materials (or of equipment or apparatus containing Hazardous Materials);
or
(iii) otherwise relating to pollution or the protection of human
health or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, 42 U.S.C. ss.ss. 9601 ET SEQ., as amended, the Resource Conservation
and Recovery Act, 42 U.S.C. ss.ss. 6901 ET SEQ., as amended, the Hazardous
Materials Transportation Act, 49 U.S.C. ss.ss. 1801 ET SEQ., as amended,
the Clean Water Act, 33 U.S.C. ss.ss. 1251 ET SEQ., as amended, the Toxic
Substances Control Act, 15 U.S.C. ss.ss. 2601 ET SEQ., as amended,; the
Clean Air Act, 42 U.S.C. ss.ss. 7401 ET SEQ., as amended, the federal
WatER Pollution Control Act, 33 U.S.C. ss.1251 et seq., as amended, the
Safe Drinking Water Act, 42 U.S.C. ss.ss. 300f ET SEQ., as amended, the
Atomic Energy Act, 42 U.S.C. ss.ss. 2011 ET SEQ., as amended, the Natural
Gas Pipeline Safety Act of 1968, 49 U.S.C. ss.1671 ET SEQ., as amended,
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the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. ss.ss.
136 ET SEQ., as amended, and the Occupational Safety and Health Act, 29
U.S.C. ss.ss. 651 ET SEQ., as amended, and all comparable statutes of the
States of Alabama, Colorado, Louisiana, Mississippi, Oklahoma, Texas and
Utah, and all comparable local Requirements of Law in such states, and
other environmental, conservation or protection laws in effect in any
jurisdiction where any real Property of the Borrower or any Subsidiary of
the Borrower is located.
"ENVIRONMENTAL LIABILITIES" means with respect to any Person, any and all
liabilities, responsibilities, losses, sums paid in settlement of claims,
obligations, charges, actions (formal or informal), claims (including, without
limitation, claims for personal injury or for Property damage), liens,
administrative proceedings, damages (including, without limitation, loss or
damage resulting from the occurrence of an Event of Default), punitive damages,
consequential damages, treble damages, penalties, fines, monetary sanctions,
interest, court costs, response and remediation costs, stabilization costs,
encapsulation costs, treatment, storage, or disposal costs, groundwater
monitoring or environmental sampling costs, other causes of action and any other
costs and expenses (including, without limitation, reasonable attorneys',
experts', and consultants' fees, costs of investigation and feasibility studies
and disbursements in connection with any investigative, administrative or
judicial proceeding) , whether direct or indirect, known or unknown, absolute or
contingent, past, present or future arising under, pursuant to or in connection
with any Environmental Law, or any other binding obligation of such Person
requiring abatement of pollution or protection of human health and the
environment.
"ENVIRONMENTAL LIEN" means a Lien in favor of any Governmental Authority
for (i) any liability under Environmental Laws or (ii) damages arising from, or
costs incurred by such Governmental Authority in response to, a Release or
threatened Release of a Hazardous Materials into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA PLAN" means any pension benefit plan subject to Title IV of ERISA
maintained by any Loan Party or any Affiliate thereof with respect to which any
Loan Party has a fixed or contingent liability.
"EURODOLLAR BORROWING" means a Borrowing comprised of Eurodollar Loans.
"EURODOLLAR LOANS" means Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.
"EURODOLLAR RATE" means, with respect to each particular Eurodollar
Borrowing and the associated Eurodollar Unadjusted Rate and Reserve Percentage,
the rate per annum calculated by the Agent (rounded upwards, if necessary, to
the next higher 0.01%) determined on a daily basis pursuant to the following
formula:
(EURODOLLAR UNADJUSTED RATE + APPLICABLE MARGIN)
------------------------------------------------
(100.0% - Reserve Percentage)
If the Reserve Percentage changes during the Interest Period for a Eurodollar
Borrowing, the Banks may, at their option, either change the Eurodollar Rate for
such Eurodollar Borrowing or leave it unchanged
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for the duration of such Interest Period. The Eurodollar Rate shall in no event,
however, exceed the Highest Lawful Rate.
"EURODOLLAR UNADJUSTED RATE" means, with respect to each Eurodollar
Borrowing comprised of Eurodollar Loans and the related Interest Period, the
rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%)
reported, on the date two Business Days prior to the first day of such Interest
Period, on Telerate Access Service Page 3750 (British Bankers Association
Settlement Rate) as the London Interbank Offered Rate for dollar deposits having
a term comparable to such Interest Period and in an amount of $1,000,000 or more
(or, if such Page shall cease to be publicly available or if the information
contained on such Page, in Agent's sole judgment, shall cease to accurately
reflect such London Interbank Offered Rate, as reported by any publicly
available source of similar market data selected by the Agent that, in the
Agent's sole judgment, accurately reflects such London Interbank Offered Rate).
"EVENT OF DEFAULT" has the meaning given it in SECTION 9.1.
"EXISTING LITIGATION" means all material actions, suits, proceedings,
governmental investigations or arbitrations pending or, to the best knowledge of
the Borrower after due inquiry, threatened against the Borrower or any
Subsidiary of the Borrower, which Existing Litigation is disclosed in the
DISCLOSURE SCHEDULE hereto.
"FEDERAL FUNDS EFFECTIVE RATE" shall have the meaning specified in the
definition of the term "BASE RATE".
"FISCAL QUARTER" means a three-month period ending on March 31, June 30,
September 30 or December 31 of any year.
"FISCAL YEAR" means a twelve-month period ending on December 31 of any
year.
"FUNDED DEBT" means, at any time, without duplication and with respect to
the Borrower and its Subsidiaries on a Consolidated basis, Debt in any of the
following categories:
(a) Debt of such Person for borrowed money or for the deferred purchase
price of Property or services;
(b) Debt of such Person which is evidenced by a note, bond, debenture or
similar instrument, but excluding bonds or deposits posted in favor
of the United States of America or any state securing obligations to
plug abandoned wells or obligations to clean up and restore the land
on which such wells are located;
(c) Debt of such Person in respect of Capitalized Lease Obligations;
(d) Debt of such Person in respect of letters of credit and acceptances
issued or created for the account of such Person, except letters of
credit in favor of the United States of America or any state
securing obligations to plug abandoned wells or obligations to clean
up and restore the land on which such wells are located;
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(e) all liabilities of such Person as a general partner of a partnership
or joint venture for the obligations of such partnership or joint
venture of the nature described in subclauses (a) through (d) above;
and
(f) all Guarantee Obligations of such Person with respect to Debt
described in subclauses (a) through (e) above.
"GAAP" means those generally accepted accounting principles and practices
which are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor) and which, in the case of the Borrower and its
Consolidated Subsidiaries, are applied for all periods after the date hereof in
a manner consistent with the manner in which such principles and practices were
applied to the Initial Financial Statements. If any change in any accounting
principle or practice is required by the Financial Accounting Standards Board
(or any such successor) in order for such principle or practice to continue as a
generally accepted accounting principle or practice, all reports and financial
statements required hereunder with respect to the Borrower, any Subsidiary of
the Borrower or the Borrower and its Consolidated Subsidiaries taken as a whole,
may be prepared in accordance with such change, but all calculations and
determinations to be made hereunder may be made in accordance with such change
only after notice of such change is given to the Required Banks and the Required
Banks agree to such change insofar as it affects the accounting of the Borrower,
any Subsidiary of the Borrower or of the Borrower and its Consolidated
Subsidiaries taken as a whole.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
other political subdivision thereof (including, without limitation, the Tribe)
and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"GUARANTEE OBLIGATION" means, as applied to Borrower or any of its
Subsidiaries, any Contractual Obligation, contingent or otherwise, of Borrower
or such Subsidiary of Borrower with respect to any Debt or other obligation or
liability of another, including, without limitation, any such Debt, obligation
or liability directly or indirectly guarantied, endorsed (otherwise than for
collection or deposit in the ordinary course of business), co-made or discounted
or sold with recourse by Borrower or such Subsidiary of Borrower, or in respect
of which Borrower or such Subsidiary of Borrower is otherwise directly or
indirectly liable, including Contractual Obligations (contingent or otherwise)
arising through any agreement to purchase, repurchase, or otherwise acquire such
Debt, obligation or liability or any security therefor, or to provide funds for
the payment or discharge thereof (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain solvency, assets,
level of income, or other financial condition, or any "keep well,"
"take-or-pay," "throughput" or other similar arrangement or to make payment
other than for value received. The amount of any Guarantee Obligation of any
guaranteeing person shall be deemed to be the lower of (a) an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Guarantee Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not stated
or determinable, in which case the amount of such Guarantee Obligation shall be
such guaranteeing person's maximum reasonably anticipated liability in respect
thereof as determined by such guaranteeing person in good faith.
"HAZARDOUS MATERIALS" means (1) hazardous materials, hazardous wastes, and
hazardous substances including, but not limited to, those substances, materials
and wastes listed in the United States Department of Transportation Hazardous
Materials Table, 49 C.F.R.. ss.172.101, as amended, or listed by the federal
Environmental Protection Agency as hazardous substances under or pursuant to 40
C.F.R. Part 302, as amended, or substances, materials, contaminants or wastes
which are or become regulated
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under any Environmental Law, including without limitation, those substances,
materials, contaminants or wastes as defined in the following statutes and their
implementing regulations: the Hazardous Materials Transportation Act, 49 U.S.C.
ss.1801 et seq., as amended, the Resource Conservation and Recovery Act, 42
U.S.C. ss.6901 et seq., as amended, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss.9601 et seq., as amended; the Toxic
Substances Control Act, 15 U.S.C. ss.2601 et seq., as amended; the Clean Air
Act, 42 U.S.C. ss.7401 et seq., as amended, the federal Water Pollution Control
Act, 33 U.S.C. ss.1251 et seq., as amended, the Occupational Safety and Health
Act, 2 U.S.C. ss.651 et seq., as amended, the Safe Drinking Water Act, 42 U.S.C.
ss.300f et seq., as amended and the Natural Gas Pipeline Safety Act of 1968, 49
U.S.C. ss.1671 et seq., as amended; (2) all substances, materials, contaminants
or wastes listed in all comparable statutes of the States of Alabama, Colorado,
Louisiana, Mississippi, Oklahoma, Texas and Utah and in comparable local
Requirements of Law in such states; (3) acid gas, sour water streams or sour
water vapor streams containing hydrogen sulfide or other forms of sulphur,
sodium hydrosulfide and ammonia; (4) Hydrocarbons; (5) natural gas, synthetic
gas, and any mixtures thereof; (6) asbestos and/or any material which contains
1% or more, by weight, of any hydrated mineral silicate, including but not
limited to chrysotile, amosite, crocidolite, tremolite, anthophylite and/or
actinolite, whether friable or non-friable; (7) PCB's, or PCB containing
materials or fluids; (8) radon; (9) naturally occurring radioactive material,
radioactive substances or waste; (10) salt water and other oil and gas wastes
and (11) any other hazardous or noxious substance, material, pollutant,
emission, or solid, liquid or gaseous waste.
"HIGHEST LAWFUL RATE" means, as of a particular date and as to any Bank,
the maximum nonusurious interest rate that may under applicable law then be
contracted for, charged or received by such Bank in connection with its Loans.
"HYDROCARBONS" means oil, gas, casinghead gas, condensate, distillate,
liquid hydrocarbons, gaseous hydrocarbons and all products separated, settled
and dehydrated therefrom and all products refined therefrom, including, without
limitation, kerosene, liquified petroleum gas, refined lubricating oils, diesel
fuel, drip gasoline, natural gasoline, helium, sulphur and all other minerals.
"INCC" means Internationale Nederlanden (U.S.) Capital Corporation, a
Delaware corporation.
"INCC CREDIT AGREEMENT" shall have the meaning assigned to that term in
the first Recital to this Credit Agreement.
"INITIAL ENGINEERING REPORTS" means, collectively, (i) the engineering
report concerning certain Oil and Gas Interests of the Loan Parties prepared by
Huddleston & Co., Inc. as of December 31, 1995, and (ii) the engineering report
concerning certain Oil and Gas Interests of the Loan Parties prepared by the
personnel of Borrower as of June 30, 1996.
"INITIAL FINANCIAL STATEMENTS" means the audited annual Consolidated
financial statements of the Borrower dated as of December 31, 1995 and the
quarterly Consolidated financial statements of the Borrower dated as of June 30,
1996.
"INTERCOMPANY LOAN DOCUMENTS" means (a) the Intercompany Notes, (b) any
other promissory notes executed by a Subsidiary Guarantor and payable to the
order of the Borrower to evidence Intercompany Loans, and (c) all other
documents, instruments and agreements which evidence secure or otherwise pertain
to the Intercompany Loans.
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"INTERCOMPANY LOANS" means revolving loans made by the Borrower to the
Subsidiary Guarantors in a maximum principal amount not to exceed the Total
Commitment, evidenced by the Intercompany Loan Documents.
"INTERCOMPANY NOTES" means collectively (a) that certain promissory note
dated October 31, 1996, in the original principal sum of $50,000,000 executed by
Operating and payable to the order of the Borrower; and (b) that certain
promissory note dated October 31, 1996, in the original principal sum of
$50,000,000 executed by Offshore and payable to the order of the Borrower.
"INTERCOMPANY OBLIGATIONS" means any obligation held by the Borrower with
respect to which the obligor is a Subsidiary Guarantor, whether evidenced by a
promissory note or other instrument, by open account or otherwise.
"INTEREST HEDGE AGREEMENTS" means any and all agreements, devices or
arrangements designed to protect at least one of the parties thereto from the
fluctuations of interest rates, exchange rates or forward rates applicable to
such party's assets, liabilities or exchange transactions, including, but not
limited to, dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, interest rate cap, swap or
collar protection agreements, and forward rate currency or interest rate
options, as the same may be amended or modified and in effect from time to time
and any and all cancellations, buy backs, reversals, terminations or assignments
of any of the foregoing.
"INTEREST PAYMENT DATE" means (a) as to any Base Rate Borrowing or Base
Rate Loan, the last day of each March, June, September and December to occur
while such Base Rate Borrowing or Base Rate Loan is outstanding, (b) as to any
Eurodollar Borrowing or Eurodollar Loan having an Interest Period of three
months or less, the last day of such Interest Period, and (c) as to any
Eurodollar Borrowing or Eurodollar Loan having an Interest Period longer than
three months, each day which is three months, or a whole multiple thereof, after
the first day of such Interest Period and the last day of such Interest Period.
"INTEREST PERIOD" means with respect to any Eurodollar Borrowing or
Eurodollar Loan:
(i) initially, the period commencing on the Borrowing Date or
conversion date, as the case may be, with respect to such Eurodollar
Borrowing or Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower in its Borrowing Request or Notice
of Conversion, as the case may be, given with respect thereto; and
(ii) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar Borrowing or
Eurodollar Loan and ending one, two, three or six months thereafter, as
selected by the Borrower in its Notice of Continuance given with respect
thereto;
PROVIDED that, all of the foregoing provisions relating to Interest Periods are
subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Borrowing or
Eurodollar Loan would otherwise end on a day that is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless the
result of such extension would be to carry such Interest Period into another
calendar month in which event such Interest Period shall end on the immediately
preceding Business Day;
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(2) any Interest Period that would otherwise extend beyond the Maturity
Date shall end on the Maturity Date; and
(3) any Interest Period pertaining to a Eurodollar Borrowing or Eurodollar
Loan that begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month at the end
of such Interest Period) shall end on the last Business Day of a calendar month.
"INVESTMENT" means as applied to any Person, any direct or indirect
purchase or other acquisition by such Person of stock, partnership interest or
other equity interest, or of a beneficial interest therein, of any other Person,
and any direct or indirect extension of credit, loan, advance (other than
deposits with financial institutions available for withdrawal on demand, prepaid
expenses, advances to employees and similar items made or incurred in the
ordinary course of business), or capital contribution by such Person to any
other Person, including all Debt and accounts owed by that other Person which
are not current assets or did not arise from sales of goods or services to such
Person in the ordinary course of business. The amount of any Investment shall be
determined in conformity with GAAP.
"IRS" means the Internal Revenue Service or any successor agency.
"ISSUING BANK" means Chase.
"LC APPLICATION" means an application or agreement for a standby Letter of
Credit in the form of EXHIBIT B hereto with appropriate insertions or in such
other form as shall be acceptable to the Issuing Bank in its sole discretion,
duly executed by the Borrower pursuant to SECTION 2.11(A).
"LC COLLATERAL" means any amounts held by the Agent as security for LC
Obligations of the Borrower.
"LC OBLIGATIONS" means, at the time in question, the sum of the Matured LC
Obligations PLUS the aggregate face amount of all Letters of Credit then
outstanding.
"LENDING OFFICE" means with respect to each Bank, the branch or branches
(or Affiliate or Affiliates) from which such Bank's Eurodollar Loans or Base
Rate Loans, as the case may be, are made or maintained and for the account of
which payments of principal of, and interest on, such Bank's Eurodollar Loans or
Base Rate Loans are made.
"LETTER OF CREDIT" means any stand-by letter of credit issued by the
Issuing Bank pursuant to this Credit Agreement and upon an LC Application.
"LIEN" means, with respect to any Property, any right or interest therein
of a creditor to secure Debt owed to him or any other arrangement with such
creditor which provides for the payment of such Debt out of such Property or
which allows him to have such Debt satisfied out of such Property prior to the
general creditors of any owner thereof, including any lien, mortgage, security
interest, pledge, deposit, production payment, rights of a vendor under any
title retention or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other charge or
encumbrance for security purposes, whether arising by law or agreement or
otherwise, but excluding any right of offset which arises without agreement in
the ordinary course of business. "Lien" also means any filed financing
statement, any registration of a pledge (such as with an issuer of unregistered
securities), or any other arrangement or action which would serve to perfect a
Lien described in the
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preceding sentence, regardless of whether such financing statement is filed,
such registration is made, or such arrangement or action is undertaken before or
after such Lien exists.
"LOANS" means the loans provided for by SECTION 2.1(A) hereof.
"LOAN DOCUMENTS" means this Credit Agreement, the Notes, any Letters of
Credit, any LC Applications and reimbursement agreements executed in connection
therewith, the Subsidiary Guaranty, the Security Documents, any Interest Hedge
Agreements entered into with any Bank, any Commodity Hedge Transactions entered
into with any Bank, each Borrowing Request, each Notice of Conversion or
Continuance, all Engineering Reports, all legal opinions, and all other
agreements, certificates, instruments and documents at any time delivered in
connection with this Credit Agreement or any of the other foregoing documents,
as the same may be amended, modified, supplemented or extended from time to
time.
"LOAN PARTIES" means any of the Borrower, Operating, Offshore and their
respective Subsidiaries.
"MARGIN STOCK" shall have the meaning given to such term under Regulation
U and Regulation X.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect on the
business, Properties, operations or condition (financial or otherwise) of the
Borrower, or of the Borrower and its Subsidiaries taken as a whole, or of any
Subsidiary Guarantor, (b) material impairment of the ability of any Loan Party
to perform its obligations under any Loan Document to which such Loan Party is a
party, or (c) a material adverse effect on the validity or enforceability of
this Credit Agreement, any of the Notes or any of the other Loan Documents or a
material impairment of the rights or remedies of the Agent or any of the Banks
hereunder or thereunder.
"MATERIAL CONTRACT" means any Contractual Obligation to which the Borrower
or any of its Subsidiaries is a party (i) which calls for payments to or from
the Borrower or any Subsidiary of the Borrower of an amount in excess of
$500,000 during any twelve month period or (ii) pursuant to which the Borrower
or any Subsidiary of the Borrower acquires any right to an interest in real or
personal Property or a right to obtain services if the Borrower or such
Subsidiary's inability to obtain any such right could reasonably be expected to
result in a Material Adverse Effect.
"MATURED LC OBLIGATIONS" means the aggregate amount of payments
theretofore made by the Issuing Bank in respect to Letters of Credit and not
theretofore reimbursed by the Borrower to the Issuing Bank or deemed Loans
pursuant to SECTION 2.11(D).
"MATURITY DATE" means October 31, 2000, or the earlier termination in
whole of the Commitments pursuant to the provisions of SECTIONS 2.6 OR 9.1
hereof.
"MORTGAGE AMENDMENTS" means those three (3) certain Amendments to
Mortgage, each dated as of the Effective Date from the Loan Parties in favor of
the Agent for the benefit of the Banks amending the mortgage instruments listed
in the Mortgage Schedule and delivered to the Agent pursuant to SECTION 4.1(O).
"MORTGAGE SCHEDULE" means SCHEDULE 1.3 hereto.
"MORTGAGED PROPERTIES" means all of the Borrowing Base Properties which
are subject to a Lien in favor of the Agent for the benefit of the Banks or
which, under the terms of any Mortgage, are purported to be subject to such a
Lien.
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"MORTGAGES" means the instruments listed in the MORTGAGE SCHEDULE, as the
same have been assigned to the Agent for the benefit of the Banks pursuant to
the Assignment and amended pursuant to the Mortgage Amendments.
"NOTES" means the promissory notes of the Borrower evidencing Loans, in
the form of EXHIBIT C attached hereto.
"NOTICE OF CONVERSION OR CONTINUATION" means a Notice of Conversion or
Continuation in the form of EXHIBIT D signed by a Responsible Officer of the
Borrower.
"OBLIGATIONS" means all obligations, liabilities and indebtedness of every
nature of any of the Loan Parties or any of their respective Subsidiaries from
time to time owing to any Bank under any Loan Document to which such Loan Party
or such Subsidiary of such Loan Party is a party, including, without limitation,
(a) the due and punctual payment of (y) the principal of and interest on the
Loans, Letters of Credit and reimbursement obligations under LC Applications,
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise, including, to the extent permitted by
applicable law, interest that accrues after the commencement of any proceeding
by or against any of the Loan Parties or any of their respective Subsidiaries
under the Bankruptcy Code and all other applicable Debtor Relief Laws, (and) all
other monetary obligations of any of the Loan Parties or any of their respective
Subsidiaries to any Bank under this Credit Agreement and each of the other Loan
Documents to which such Loan Party or such Subsidiary is a party, including any
and all fees, costs, expenses and indemnities, (b) the due and punctual
performance of all other obligations of any of the Loan Parties or any of their
respective Subsidiaries under this Credit Agreement and each other Loan Document
to which such Loan Party or such Subsidiary is a party, (c) the due and punctual
payment and performance of any and all present or future obligations of any Loan
Party according to the terms of any Commodity Hedge Transaction now existing or
hereafter entered into between such Loan Party, on the one hand, and a Bank (or
an Affiliate of such Bank) on the other, and (d) the due and punctual payment
and performance of any and all present or future obligations of any Loan Party
according to the terms of any present or future Interest Hedge Agreements
permitted by the terms of this Credit Agreement to be entered into between such
Loan Party, on the one hand, and a Bank (or an Affiliate of such Bank) on the
other. "Obligation" means any part of the Obligations.
"OFFSHORE" means Callon Offshore Production, Inc., a Mississippi
corporation, a wholly-owned Subsidiary of Operating.
"OIL AND GAS INTERESTS" means with respect to any Person, any and all
rights, estates, titles and interests in any oil wells, gas wells, oil and gas
wells, Hydrocarbons, and other mineral leaseholds and fee interests, all
overriding royalty interests, mineral interests, royalty interests, net profits
interests, oil payments, production payments, carried interests and any and all
other interests in Hydrocarbons, whether any of the same be real or personal,
now owned or hereafter acquired by such Person, directly or indirectly, of
record or beneficially, including Oil and Gas Interests owned, acquired or held
through a joint venture, partnership or other entity of which such Person or any
of its Subsidiaries is a partner or owner, together with rights, titles and
interests created by or arising under the terms of any unitization,
communitization, and pooling agreements or arrangements, and all Properties
covered thereby, whether arising by contract, by order, or by operation of laws,
which now or hereafter include all or any part of the foregoing.
"OPERATING" means Callon Petroleum Operating Company, a Delaware
corporation.
"PERMITTED INVESTMENTS" means Investments:
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(a) in open market commercial paper, maturing within 270 days after
acquisition thereof, which has the highest or second highest credit rating
given by either Standard & Poor's Corporation or Moody's Investors
Service, Inc;
(b) in marketable obligations, maturing within 12 months after
acquisition thereof, issued or unconditionally guaranteed by the United
States of America or an instrumentality or agency thereof and entitled to
the full faith and credit of the United States of America ("GOVERNMENT
SECURITIES");
(c) Certificates of deposit issued by, money market deposit accounts
with, eurodollar deposits through, bankers' acceptances of, and repurchase
and reverse repurchase agreements covering Government Securities executed
by, (i) any Bank, (ii) any other domestic commercial bank of recognized
standing whose deposits are insured through the FDIC, or any successor
thereto, and having (either itself or its holding company) on the date of
such Investment capital and surplus in excess of $250,000,000 and whose
certificates of deposit have at least the third highest credit rating
given by either Standard & Poor's Corporation or Moody's Investor's
Service, Inc. or (iii) any other foreign commercial bank of recognized
international standing having capital and surplus in excess of
$450,000,000, and long-term obligations rated AA or Aa2 or better,
respectively, by Standard & Poor's Corporation or Moody's Investors
Services, Inc. (or a successor credit rating agency), in each case
maturing within one year from the date of acquisition thereof; and
(d) "Money-market mutual funds" investing at least 95% of the mutual
fund assets in instruments of the types described in subparagraphs (a)
through (c) above.
"PERIODIC DETERMINATION" means any determination of the Borrowing Base
pursuant to SECTION 3.2.
"PERSON" means an individual, corporation, partnership, association, joint
stock company, trust or trustee thereof, estate or executor thereof,
unincorporated organization or joint venture, court or governmental unit or any
agency or subdivision thereof, or any other legally recognizable entity.
"PREFERRED STOCK" means the 1,315,500 shares of $2.125 Convertible
Exchangeable Preferred Stock, Series A issued by Callon Petroleum Company
pursuant to the prospectus dated November 21, 1995.
"PRODUCTION SALES CONTRACTS" means all Hydrocarbon sales agreements and
Hydrocarbon or water gathering, treatment and/or transportation agreements now
existing or hereafter entered into by or on behalf of any Loan Party covering
the Borrowing Base Properties of the Loan Parties.
"PROHIBITED LIEN" means any Lien not expressly allowed under SECTION 7.2.
"PROPERTY" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"PROVED DEVELOPED BEHIND PIPE HYDROCARBON RESERVES" means Proved
Hydrocarbon Reserves which are recoverable from zones behind casing in existing
wells, which will require additional completion work or a future recompletion
prior to the start of production.
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"PROVED DEVELOPED HYDROCARBON RESERVES" means collectively, the Proved
Developed Producing Hydrocarbon Reserves and the Proved Developed Non-Producing
Hydrocarbon Reserves.
"PROVED DEVELOPED NON-PRODUCING HYDROCARBON RESERVES" means the summation
of Proved Developed Behind Pipe Hydrocarbon Reserves and Proved Developed
Shut-in Hydrocarbon Reserves.
"PROVED DEVELOPED PRODUCING HYDROCARBON RESERVES" means those Proved
Hydrocarbon Reserves which are recoverable from completion intervals currently
open and producing to market. Improved recovery reserves are considered to be
producing only after an improved recovery project has been installed and is in
operation.
"PROVED DEVELOPED SHUT-IN HYDROCARBON RESERVES" means Proved Hydrocarbon
Reserves that are recoverable from completion intervals open as of the date of
estimation, but which are not producing as of such date.
"PROVED HYDROCARBON RESERVES" means, with respect to the Oil and Gas
Interests of each of the Loan Parties, those recoverable Hydrocarbons which have
been proved to a high degree of certainty by reason of existing production,
adequate testing, or in certain cases by adequate core data and other
engineering and geologic information on zones which are present in existing
wells or in known reservoirs. Reserves that can be produced economically through
the application of established improved recovery techniques are included in the
proved classification when (a) successful testing by a pilot project or the
operation of any installed program in that reservoir or one in the immediate
area with similar rock and fluid properties provides support for the engineering
analysis on which the project or program was based, and (b) it is reasonably
certain the project will proceed. Reserves to be recovered by improved recovery
techniques that have yet to be established through repeated economically
successful applications are included in the proved category only after
successful testing by a pilot project or after the operation of an installed
program in the reservoir provides support for the engineering analysis on which
the project or program was based. Improved recovery includes all methods for
supplement natural reservoir including (1) pressure maintenance, (2) cycling and
(3) secondary recovery in its original sense. Improved recovery also includes
the enhanced recovery methods of thermal, chemical flooding, and the use of
miscible and immiscible displacement fluids.
"PROVED RESERVES" means collectively the Proved Developed Hydrocarbon
Reserves and the Proved Undeveloped Hydrocarbon Reserves.
"PROVED UNDEVELOPED HYDROCARBON RESERVES" means Proved Hydrocarbon
Reserves that are recoverable (i) by new wells on undrilled acreage, (ii) by
replacement wells on previously drilled and producing acreage or (iii) from
existing wells where a relatively large expenditure is required for recompletion
and from acreage where the application of an improved recovery technique is
planned and the costs required to place the project in operation are relatively
large. Proved Undeveloped Hydrocarbon Reserves on undrilled acreage shall be
limited to those drilling units offsetting productive units that are reasonably
certain of production when drilled. Proved Hydrocarbon Reserves for other
undrilled units are Proved Undeveloped Hydrocarbon Reserves only where it can be
demonstrated with certainty that there is continuity of production from the
existing productive formation.
"PURCHASING BANKS" means as defined in SECTION 11.4(C).
"REGISTER" shall have the meaning assigned to that term in SECTION 11.4(F)
hereof.
"REGULATION D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect.
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"REGULATION G" means Regulation G of the Board (respecting margin credit
extended by Persons other than banks, brokers and dealers), as the same is from
time to time in effect, and all official rulings and interpretations thereunder
or thereof.
"REGULATION U" means Regulation U of the Board (respecting margin credit
extended by banks), as the same is from time to time in effect, and all official
rulings and interpretations thereunder or thereof.
"REGULATION X" means Regulation X of the Board (respecting borrowers who
obtain margin credit), as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"REIMBURSABLE TAXES" shall have the meaning assigned to that term in
SECTION 2.15 hereof.
"RELEASE" means any release, spill, emission, leak, injection, deposit,
disposal, discharge, dispersal, leaching or migration of any Hazardous Materials
into the environment or into or out of any real Property of any Loan Party or
any Subsidiary of any Loan Party, including the movement of Hazardous Materials
through or in the air, soil, surface water, groundwater and/or land which could
reasonably be expected to form the basis of an Environmental Liability against
any of the Loan Parties or any Subsidiary of any of the Loan Parties.
"REMEDIAL ACTION" means any action to (i) clean up, remove, treat or in
any other way address Hazardous Materials in the environment, (ii) prevent the
Release or threat of Release or minimize the further Release of Hazardous
Materials so they do not migrate or endanger or threaten to endanger public
health or welfare or the environment or (iii) perform pre-remedial studies and
investigations and post-remedial monitoring and care.
"REPORTABLE EVENT" means any of the events set forth in Section 4043 or
Section 4068(f) of ERISA for which the thirty day notice requirement of 29
C.F.R. ss.2615.3 has not been waived.
"REQUIRED BANKS" means, at any time, Banks holding at least sixty-six and
two-thirds percent (662/3%) of the Utilized Credit or, if there is no Utilized
Credit outstanding hereunder, Banks holding at least sixty-six and two-thirds
percent (662/3%) of the Total Commitment.
"REQUIREMENT OF LAW" means as to any Person, the certificate of
incorporation, by-laws, partnership agreement, or other organizational or
governing documents of such Person, and any federal, state or local law, treaty,
rule or regulation, permit or other binding determination of an arbitrator or a
court or other Governmental Authority, in each case applicable to or binding
upon such Person or any of its Property or to which such Person or any of its
Property is subject.
"RESPONSIBLE OFFICER" means with respect to any Loan Party, the chief
executive officer, the president, any vice president or the chief financial
officer of such Loan Party.
"RESERVE PERCENTAGE" means, on any day with respect to each particular
Eurodollar Borrowing or Eurodollar Loan, as the case may be, the maximum reserve
requirement, as determined by the Agent (including without limitation any basic,
supplemental, marginal, emergency or similar reserves), expressed as a
percentage and rounded to the next higher 0.01%, which would then apply to the
Agent under Regulation D with respect to "Eurocurrency liabilities" (as such
term is defined in Regulation D) equal in amount to such Eurodollar Borrowing,
were the Agent to have any such "Eurocurrency Liabilities". If such reserve
requirement shall change after the date hereof, the Reserve Percentage shall
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be automatically increased or decreased, as the case may be, from time to time
as of the effective time of each such change in such reserve requirement.
"RECOGNIZED RESERVE VALUE" means, with respect to all Borrowing Base
Properties of the Loan Parties, the pre-tax value of such properties determined
in all material respects in accordance with Financial Accounting Standards Board
Statement 69, generally known as the "standardized measure of discounted cash
flow" and the rules and regulations of the Securities and Exchange Commission.
"SECURITY AGREEMENT - INTERCOMPANY OBLIGATIONS" means that certain
Security Agreement Intercompany Obligations of even date herewith, executed by
the Borrower in favor of the Agent for the benefit of the Banks to secure the
Obligations substantially in the form of EXHIBIT E, either as originally
executed or as the same may from time to time be supplemented, modified,
amended, renewed, extended or supplanted.
"SECURITY DOCUMENTS" means the Security Agreement - Intercompany
Obligations, the Mortgages and all other security agreements, deeds of trust,
mortgages, chattel mortgages, pledges, financing statements, continuation
statements, extension agreements and other agreements or instruments now,
heretofore, or hereafter delivered by any Loan Party to the Agent for the
benefit of the Banks in connection with this Credit Agreement or any transaction
contemplated hereby to secure the payment of any part of the Obligations or the
performance of any Loan Parties's other duties and obligations under the Loan
Documents to which such Loan Party is a party.
"SPECIAL DETERMINATION" means any determination of the Borrowing Base
pursuant to SECTION 3.3.
"SUBORDINATED OBLIGATIONS" shall have the meaning specified in SECTION
7.1(I) hereof.
"SUBSIDIARY" means, with respect to any Person, any corporation,
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent or more by such Person.
"SUBSIDIARY GUARANTORS" means Operating, Offshore and such other Persons
who has guaranteed some or all of the Obligations, including any Subsidiary of
the Borrower which, with the concurrence of the Required Banks, now or hereafter
executes and delivers an Instrument of Joinder of the Subsidiary Guaranty in the
form of Exhibit A to the Subsidiary Guaranty pursuant to the provisions of
SECTION 8.5.
"SUBSIDIARY GUARANTY" means the guaranty of the Obligations executed by
each Subsidiary of the Borrower, now or hereafter existing, in favor of the
Agent for the benefit of the Banks to secure the Obligations substantially in
the form of EXHIBIT F, either as originally executed or as the same may from
time to time be supplemented, modified, amended, renewed, extended or
supplanted.
"TERMINATION EVENT" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections 4043(b)(5) or (6) of ERISA
or (ii) any other reportable event described in Section 4043(b) of ERISA other
than a reportable event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation
under Section 4043(a) of ERISA, or (b) the withdrawal of any Loan Party or of
any Affiliate of any Loan Party from an ERISA Plan during a plan year in which
it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or
(c) the filing of a notice of intent to terminate any ERISA Plan or the
treatment of any ERlSA Plan amendment as a termination under Section 4041 of
ERISA, or (d) the institution of proceedings to terminate any ERISA Plan by the
Pension Benefit Guaranty Corporation under Section 4042 of ERISA,
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or (e) any other event or condition which might constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any ERISA Plan.
"TOTAL COMMITMENT" means $50,000,000, as the same may be reduced from time
to time pursuant to SECTION 2.6, PROVIDED, HOWEVER, that so long as Chase is the
sole Bank party to this Credit Agreement, the Total Commitment shall not exceed
$30,000,000.
"TYPE" means shall have the meaning assigned to such term in SECTION 1.6
hereof.
"UNITED STATES" and "U.S." means the United States of America.
"UNUSED AVAILABILITY" means, at any time, an amount equal to (i) the
Borrowing Base in effect at that time, MINUS (ii) the Utilized Credit.
"UTILIZED PERCENTAGE OF BORROWING BASE" means on any date, (i) the amount
of Utilized Credit on such day divided by (ii) the Borrowing Base in effect on
such day.
"UTILIZED CREDIT" means, at the time in question, without duplication, an
amount equal to the sum of (i) the aggregate principal amount then outstanding
on Loans PLUS (ii) the aggregate LC Obligations then outstanding.
SECTION 1.2. EXHIBITS AND SCHEDULES: ADDITIONAL DEFINITIONS. All Exhibits
and Schedules attached to this Credit Agreement are a part hereof for all
purposes. Reference is hereby made to the MORTGAGE SCHEDULE for the meaning of
certain terms defined therein and used but not defined herein, which definitions
are incorporated herein by reference.
SECTION 1.3. AMENDMENT OF DEFINED INSTRUMENTS. Unless the context
otherwise requires or unless otherwise provided herein the terms defined in this
Credit Agreement which refer to a particular agreement, instrument or document
also refer to and include all renewals, extensions, modifications, amendments
and restatements of such agreement, instrument or document, provided that
nothing contained in this section shall be construed to authorize any such
renewal, extension, modification, amendment or restatement.
SECTION 1.4. REFERENCES AND TITLES. All references in this Credit
Agreement to Exhibits, Schedules, articles, sections, subsections and other
subdivisions refer to the Exhibits, Schedules, articles, sections, subsections
and other subdivisions of this Credit Agreement unless expressly provided
otherwise. Titles appearing at the beginning of any subdivisions are for
convenience only and do not constitute any part of such subdivisions and shall
be disregarded in construing the language contained in such subdivisions. The
words "this Credit Agreement", "this instrument", "herein", "hereof", "hereby",
"hereunder" and words of similar import refer to this Credit Agreement as a
whole and not to any particular subdivision unless expressly so limited. The
phrases "this section" and "this subsection" and similar phrases refer only to
the sections or subsections hereof in which such phrases occur. The word "or" is
not exclusive, and the word "including" (in its various forms) means "including
without limitation". Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
SECTION 1.5. CALCULATIONS AND DETERMINATIONS. All calculations under the
Loan Documents of interest chargeable with respect to Eurodollar Loans shall be
made on the basis of actual day elapsed (including the first day but excluding
the last) and a year of 360 days. All other calculations of fees and
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of interest made under the Loan Documents shall be made on the basis of actual
days elapsed (including the first day but excluding the last) and a year of 365
or 366 days, as appropriate. Unless the Required Banks otherwise consent in
writing all financial statements and reports furnished to the Banks hereunder
shall be prepared and all financial computations and determinations pursuant
hereto shall be made in accordance with GAAP.
SECTION 1.6. TYPES OF BORROWINGS. Borrowings hereunder are distinguished
by "Type". The "Type" of a Borrowing refers to the determination whether such
Borrowing is comprised of Eurodollar Loans or Base Rate Loans based on the
method by which the accrued interest on such Borrowing is calculated.
ARTICLE II
COMMITMENTS
SECTION 2.1. REVOLVING LOANS AND LETTERS OF CREDIT.
(a) Subject to the terms and conditions and relying upon the
representations and warranties set forth herein and in the other Loan Documents,
each Bank agrees, severally and not jointly, to make its Commitment Percentage
of advances to the Borrower (collectively, the "LOANS"), at any time and from
time to time on and after the Effective Date and up to, but excluding, the
Maturity Date, in an aggregate principal amount at any one time outstanding not
to exceed such Bank's Commitment Percentage of an amount equal to the Borrowing
Base then in effect. Notwithstanding the foregoing, Borrower shall not be
entitled to obtain a Loan(s) from a Bank and no Bank shall be permitted to make
Loans to Borrower in an amount which, after giving effect to such Loan(s), would
cause the Utilized Credit to exceed the Borrowing Base then in effect. Except as
otherwise provided in this Credit Agreement, the Loans shall mature and be due
and payable in full on the Maturity Date. Until the Maturity Date, the
Commitments of the Banks are revolving in nature and, within the limits set
forth above and subject to the terms and provisions of this Credit Agreement,
the Borrower may borrow, repay and reborrow hereunder. Each Borrowing comprised
of Loans shall be made in accordance with the procedures set forth in SECTION
2.2 and shall be in an aggregate principal amount (x) in the case of a Base Rate
Borrowing, $500,000 or a whole multiple of $100,000 in excess thereof (or, if
the then Unused Availability is less than $500,000, such lesser amount) and (y)
in the case of a Eurodollar Borrowing, $500,000 or a whole multiple of $500,000
in excess thereof. The Loans may from time to time be (i) Eurodollar Loans, (ii)
Base Rate Loans or (iii) a combination thereof, as determined by the Borrower
and notified to the Agent in accordance with SECTIONS 2.2 AND 2.4.
(b) Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, the Issuing Bank agrees to
issue Letters of Credit upon the request of the Borrower for the account of any
Loan Party at any time and from time to time on and after the Effective Date and
up to, but excluding, the Maturity Date. Each Bank (other than the Issuing Bank)
severally agrees, on the terms and conditions hereinafter set forth, to purchase
participations in the Letters of Credit issued by the Issuing Bank pursuant to
SECTION 2.11 in an aggregate amount not to exceed such Bank's Commitment
Percentage of an amount equal to the Borrowing Base then in effect reduced by
the aggregate principal amount then outstanding on Loans. No Letter of Credit
will be issued, and the Issuing Bank shall have no obligation to issue any
Letter of Credit, in a face amount which, after giving effect to the issuance of
such Letter of Credit, would cause the Utilized Credit to exceed the Borrowing
Base then in effect. On
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each day during the period commencing with the issuance by the Issuing Bank of
any Letter of Credit and until such Letter of Credit shall have expired or been
terminated, and, irrespective of whether such Letter of Credit has expired or
terminated, if same has been drawn upon prior to its expiration or lawful
termination and the amount so drawn has not been reimbursed to the Issuing Bank,
the Commitment of each Bank shall be deemed to be utilized for all purposes
hereof in an amount equal to such Bank's Commitment Percentage of the LC
Obligations.
SECTION 2.2. BORROWING PROCEDURE FOR LOANS.
(a) In order to effect a Borrowing(s), the Borrower shall submit a
Borrowing Request in writing or by telecopy (or telephone notice promptly
confirmed in writing or by telecopy) to the Agent, (i) in the case of a
Eurodollar Borrowing, not later than 12:00 noon, New York time, three (3)
Business Days before the Borrowing Date specified in the Borrowing Request for
such proposed Eurodollar Borrowing(s) and (ii) in the case of a Base Rate
Borrowing, not later than 1:00 p.m., New York time, on the Borrowing Date
specified in the Borrowing Request for such proposed Base Rate Borrowing. Such
Borrowing Request shall be irrevocable and shall in each case refer to this
Credit Agreement and specify (w) whether the Borrowing(s) then being requested
are to be Eurodollar Borrowing(s), or Base Rate Borrowing(s), or a combination
thereof, (x) the Borrowing Date of such Borrowing(s) (which shall be a Business
Day), (y) the aggregate principal amount of such Borrowing(s) and (z) in the
case of Eurodollar Borrowings, the Interest Periods with respect thereto. If no
Interest Period with respect to any Eurodollar Borrowing(s) is specified in any
such Borrowing Request, then the Borrower shall be deemed to have selected an
Interest Period of one (1) month's duration. The Agent shall promptly advise the
Banks of any Borrowing Request given pursuant to this SECTION 2.2 and of each
Bank's Commitment Percentage of the requested Borrowing(s) by telecopy (or
telephone notice promptly confirmed in writing or by telecopy).
(b) Each Bank may at its option make any Eurodollar Loan by causing any
Lending Office of such Bank to make such Eurodollar Loan; PROVIDED, HOWEVER,
that any exercise of such option shall not affect the obligation of the Borrower
to repay such Eurodollar Loan in accordance with the terms of this Credit
Agreement and the applicable Notes.
(c) No later than 2:00 p.m., New York time, on the Borrowing Date
specified in each Borrowing Request, each Bank will make available to the Agent
its Commitment Percentage of the Loans comprising the Borrowing(s) requested to
be made on such date, in Dollars and immediately available funds. Upon
fulfillment of the applicable conditions set forth in ARTICLE IV, the Agent will
make the proceeds of each Borrowing so requested available to the Borrower on
the Borrowing Date or, if a Borrowing shall not occur on such Borrowing Date
because any condition precedent specified in ARTICLE IV to this Credit Agreement
shall not have been met, the Agent will return the amounts so received to the
respective Banks as soon as practicable. All Borrowings shall be made by the
Banks pro rata in accordance with such Bank's Commitment Percentage of the Loans
comprising such Borrowing. Unless the Agent shall have received notice from a
Bank prior to any proposed Borrowing Date that such Bank will not make available
to the Agent such Bank's Commitment Percentage of such Borrowing, the Agent may
assume that such Bank has made its Commitment Percentage available to the Agent
on such Borrowing Date in accordance with this paragraph (c) and the Agent, in
reliance upon such assumption, may, (but under no circumstances shall the Agent
be obligated to) make available to the Borrower on such Borrowing Date a
corresponding amount. Each of such Bank and the Borrower agrees to repay to the
Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date such amount is made available to the
Borrower until the date such amount is repaid to the Agent (i) in the case of
the Borrower, the interest rate applicable to the Loans comprising such
Borrowing(s) and (ii) in the case of such Bank, at the Federal Funds Effective
Rate. Upon such Bank's repayment to
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the Agent of such corresponding amount, such amount shall constitute such Bank's
Commitment Percentage of such Borrowing for purposes of this Credit Agreement.
SECTION 2.3. USE OF PROCEEDS. The Borrower shall use all funds from Loans
to (a) refinance and extend the existing indebtedness and letters of credit of
the Borrower and its Subsidiaries to INCC under the INCC Credit Agreement, (b)
fund the general corporate needs of the Loan Parties, and (c) to fund Letters of
Credit issued for the account of any Loan Party hereunder drawn upon before the
Maturity Date. In no event shall the funds from any Loan be used directly or
indirectly by any Person for personal, family, household or agricultural
purposes or for the purpose, whether immediate, incidental or ultimate, of
purchasing, acquiring or carrying any Margin Stock) or to extend credit to
others directly or indirectly for the purpose of purchasing or carrying any such
Margin Stock. The Borrower represents and warrants to the Agent and each Bank
that the Borrower is not engaged principally, or as one of the Borrower's
important activities, in the business of extending credit to others for the
purpose of purchasing or carrying such Margin Stock.
SECTION 2.4. CONVERSIONS OR CONTINUATION OF BORROWINGS.
(a) Subject to the other provisions of this Credit Agreement, the Borrower
may elect from time to time to convert (i) all or any part of Eurodollar Loans
which comprise part of the same Eurodollar Borrowing to a Borrowing comprised of
Base Rate Loans and (ii) all or any part of Base Rate Loans which comprise part
of the same Borrowing to a Borrowing comprised of Eurodollar Loans, PROVIDED,
HOWEVER, in each case that any such conversion of Eurodollar Loans comprising a
Eurodollar Borrowing shall only be made on the last day of the applicable
Interest Period with respect thereto. All or any part of a Borrowing may be
converted as provided herein, PROVIDED that no Borrowing may be converted into a
Eurodollar Borrowing when any Default or Event of Default has occurred and is
continuing.
(b) Any Eurodollar Borrowing may be continued as such effective upon the
expiration of the applicable Interest Period with respect thereto; PROVIDED,
that no Eurodollar Borrowing may be continued as such when any Default or Event
of Default has occurred and is continuing, but in such event shall be
automatically converted to a Borrowing comprised of Base Rate Loans on the last
day of the then current Interest Period with respect thereto.
(c) In order to elect to convert or continue an Eurodollar Borrowing, or
any portion thereof, under this SECTION 2.4, the Borrower shall deliver an
irrevocable Notice of Conversion or Continuation to the Agent not later than
12:00 p.m., New York time, at least three (3) Business Days in advance of the
proposed conversion or continuation date in the case of a conversion to, or
continuation of, an Eurodollar Borrowing. Each such Notice of Conversion or
Continuation shall be by telecopy (confirmed thereafter by a delivery of the
original of such Notice of Conversion or Continuation by United States mail or a
reputable courier) and shall specify (v) the date of the requested conversion or
continuation (which shall be a Business Day), (w) the amount and the Borrowing
to be converted or continued, (y) whether a conversion or continuation is
requested, and, if a conversion, into what Type of Borrowing and (z) in the case
of a conversion to, or a continuation of, an Eurodollar Borrowing, the requested
Interest Period. Promptly after receipt of a Notice of Conversion or
Continuation under this SECTION 2.4, the Agent shall provide each Bank with a
copy thereof.
(d) No Borrowing, or any portion thereof, may be converted into an
Eurodollar Borrowing if, after giving effect to such conversion, there would be
more than eight (8) Eurodollar Borrowings outstanding at such time.
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(e) If the Borrower shall fail to deliver a timely Notice of Conversion or
Continuation with respect to any Eurodollar Borrowing, the Borrower shall be
deemed to have elected to convert such Eurodollar Borrowing to a Base Rate
Borrowing on the last day of the Interest Period with respect to such Eurodollar
Borrowing.
(f) For purposes of this SECTION 2.4, Eurodollar Borrowings having
different Interest Periods, regardless of whether they commence on the same date
or are of the same Type shall be considered Eurodollar Borrowings of different
Types.
SECTION 2.5. FEES.
(a) In consideration of each Bank's Commitment to make Loans, the Borrower
will pay to Agent for the account of each Bank a commitment fee determined on a
daily basis by applying the applicable Commitment Fee Rate to such Bank's
Commitment Percentage of the Unused Availability on each day from the Effective
Date up to, but excluding, the Maturity Date, determined for such day by
deducting from the amount of the Borrowing Base at the end of such day the
Utilized Credit at the end of such day. This commitment fee shall be due and
payable in arrears on or before the fifteenth day of the next succeeding Fiscal
Quarter, on the date of each reduction in the Total Commitment and at maturity
(by acceleration or otherwise). The applicable "COMMITMENT FEE RATE" shall be
based on the Utilized Percentage of Borrowing Base in effect on each such day
and calculated pursuant to the following table:
UTILIZED PERCENTAGE OF BORROWING BASE APPLICABLE COMMITMENT FEE RATE
Less than fifty percent (50%) one-fourth of one percent (0.25%)
per annum
Greater than or equal to three-eighths of one percent
fifty percent (50%) (0.375%) per annum
(b) The Borrower agrees to pay (i) to the Agent for the account of the
Banks a Letter of Credit fee for the issuance and maintenance of each Letter of
Credit, in an amount equal to the greater of (x) $500.00 and (y) one percent
(1.00%) per annum of the face amount of each Letter of Credit from the date of
issuance thereof to the date on which such Letter of Credit expires or is
terminated (such fees shall be prorated for any period less than a full year)
and (ii) to the Issuing Bank as a fronting fee for the issuance of each Letter
of Credit, in an amount equal to one-eighth of one percent (.125%) per annum of
the face amount of each Letter of Credit from the date of issuance thereof to
the date on which such Letter of Credit expires or is terminated (such fees
shall be prorated for any period less than a full year). The Agent shall pay to
each Bank its Commitment Percentage of the Letter of Credit fees paid pursuant
to SECTION 2.5(B)(I). The Agent shall pay to the Issuing Bank the Letter of
Credit fees paid pursuant to SECTION 2.5(B)(II).
(c) In the event the Borrower (i) requests an increase in the Borrowing
Base pursuant to SECTION 3.3 to finance the acquisition of oil and gas
properties having a value of $2,000,000 or more, and the Banks, in their sole
discretion, determine that it is necessary to include value attributable to the
oil and gas properties to be acquired in the Borrowing Base to grant such
increase, or (ii) requests more than one (1) increase in the Borrowing Base
pursuant to SECTION 3.3 in any twelve month period commencing November 15, 1996,
the Banks may condition such increase on the payment by Borrower to Agent, for
the ratable benefit of each Bank of a fee in an amount which the Banks determine
reasonably compensates them for the time and expense associated with the
evaluation of the oil and gas properties to be acquired; provided that such fee
shall not exceed one-half of one percent (0.50%) of the amount of the increase.
The right of the Banks to require the payment of the fee contemplated by this
SECTION 2.5(C) shall not limit or impair the discretion of the Banks to
determine the Borrowing Base pursuant to SECTIONS 3.2 and
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3.3, including the right of the Banks to condition any increase in the Borrowing
Base on such other conditions precedent as they shall deem necessary or
appropriate under the circumstances.
(d) The Borrower shall pay when due to the Agent such other fees as shall
have been separately agreed by the Agent and the Borrower in writing.
SECTION 2.6. TERMINATION OR REDUCTION OF TOTAL COMMITMENT. The Borrower
shall have the right upon not less than three (3) Business Days' prior written
notice to the Agent, to terminate the Total Commitment or, from time to time, to
reduce the amount of the Total Commitment, PROVIDED that no such termination or
reduction shall be permitted if, after giving effect thereto and to any
prepayments of the Loans made on the effective date thereof, the aggregate
principal amount of (i) the Utilized Credit would exceed the Borrowing Base in
effect at that time. Any such reduction shall be in an amount equal to
$2,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if the then
Total Commitment is less than $2,000,000, such lesser amount) and shall reduce
permanently and ratably the Commitments of the Banks then in effect.
SECTION 2.7. OPTIONAL PREPAYMENTS. The Borrower may upon one (1) Business
Day's notice to the Agent, from time to time prepay the Notes, in whole or in
part, so long as each partial prepayment of principal on the Notes is greater
than or equal to $100,000, and so long as the Borrower does not make any
prepayments which would reduce the unpaid principal balance of the Loans to less
than $100,000 without first either (a) terminating this Credit Agreement and the
Total Commitment or (b) providing assurance satisfactory to Banks in their sole
discretion that the legal rights of the Agent and/or the Banks under the Loan
Documents are in no way impaired by such reduction. Each prepayment of principal
under this section shall be accompanied by all interest then accrued and unpaid
on the principal so prepaid. Any principal or interest prepaid pursuant to this
section shall be in addition to, and not in lieu of, all payments otherwise
required to be paid under the Loan Documents at the time of such prepayment. All
prepayments under this SECTION 2.7 shall be subject to SECTION 2.16 (as to
prepayments of Eurodollar Loans), but otherwise without premium or penalty.
SECTION 2.8. MANDATORY PREPAYMENTS.
(a) If at any time there shall exist a Borrowing Base Deficiency, the
Borrower shall, at its election, within thirty (30) Business Days after the
Agent gives notice of such Borrowing Base Deficiency to the Borrower, either (1)
prepay the principal outstanding on the Loans to the Agent in an amount at least
equal to such excess, and, if the prepayment of the Loans is less than such
excess, the Borrower shall prepay to the Agent an additional amount equal to
such remaining excess, to be applied as the Agent elects to any of the various
LC Obligations; PROVIDED, HOWEVER, that all such amounts applied by the Agent to
the LC Obligations shall be applied (i) first to the Matured LC Obligations, and
(ii) second as LC Collateral, to be held by the Agent for the benefit of the
Banks until such other LC Obligations have either (A) become Matured LC
Obligations, at which time LC Collateral in the amount of such Matured LC
Obligations shall be applied to such Matured LC Obligations, or (B) expired
undrawn, at which time an amount of such LC Collateral equal to such expired and
undrawn LC Obligations shall be promptly returned to the Borrower, or (2)
provide to the Agent for the benefit of the Banks as Collateral, additional Oil
and Gas Interests satisfying the requirements set forth in subclause (b) of the
definition of "Borrowing Base Properties" and having collateral value
(determined by the Banks in the exercise of their sole discretion and in
accordance with their respective customary practices and standards for oil and
gas loans, which may vary from Bank to Bank) in an amount which is at least
equal to the amount of the Borrowing Base Deficiency or (3) any combination of
(1) and (2). The Borrower shall give written notice to the Agent of each
election made by it pursuant to this SECTION 2.8(A) within ten (10) Business
Days following receipt of the Borrowing Base Deficiency Notice from the Agent.
If the Borrower shall fail to give notice
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to the Agent as aforesaid, the Borrower shall be deemed to have elected to
prepay the Loans in accordance with subclause (1) of this SECTION 2.8(A). Each
prepayment of principal under this section shall be accompanied by all interest
then acquired and unpaid on the principal so prepaid.
(b) If at any time the aggregate amount of the Utilized Credit exceeds the
Total Commitment, the Borrower shall, within thirty (30) Business Days following
receipt of notice from the Agent of such event, prepay the Loans in an amount
equal to such excess, and, if the prepayment of the Loans is less than such
excess, the Borrower shall prepay an additional amount equal to such remaining
excess, to be applied as the Agent elects to any of the various LC Obligations
then due and payable; PROVIDED, HOWEVER, that all such amounts applied by the
Agent to the LC Obligations shall be applied (i) first to the Matured LC
Obligations, and (ii) second as LC Collateral, to be held by the Agent for the
benefit of the Banks until such other LC Obligations have either (A) become
Matured LC Obligations, at which time LC Collateral in the amount of such
Matured LC Obligations shall be applied to such Matured LC Obligations, or (B)
expired undrawn, at which time an amount of such LC Collateral equal to such
expired and undrawn LC Obligations shall be promptly returned to the Borrower.
(c) Any principal or interest prepaid pursuant to this SECTION 2.8 shall
be in addition to, and not in lieu of, all payments otherwise required to be
paid under the Loan Documents at the time of such prepayment. In the event the
Borrower fails to make such prepayment within the time period set forth above,
such failure shall constitute an Event of Default hereunder without any further
notice to the Borrower or the availability of any grace period with respect
thereto.
SECTION 2.9. INTEREST RATES AND PAYMENT DATES.
(a) Subject to the provisions of subsection (c) of this SECTION 2.9, each
Loan comprising a Eurodollar Borrowing shall bear interest for each day during
the Interest Period with respect thereto at a rate per annum equal to the
Eurodollar Rate determined for such Interest Period.
(b) Subject to the provisions of subsection (c) of this SECTION 2.9, each
Loan comprising a Base Rate Borrowing shall bear interest at a rate per annum
equal to the Base Rate for such day plus the Applicable Margin for such day.
(c) If all or a portion of (i) the principal amount of any Loan or (ii)
any interest payable thereon shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such overdue amount shall bear interest
at the Default Rate.
(d) Interest shall be payable in arrears on each Interest Payment Date,
PROVIDED that interest accruing pursuant to paragraph (c) of this SECTION 2.9
shall be payable on demand.
SECTION 2.10. DETERMINATION OF INTEREST RATE.
(a) The Agent shall as soon as practicable notify the Loan Parties and the
Banks of each determination of a Eurodollar Rate. Any change in the interest
rate on a Borrowing resulting from a change in the Base Rate shall become
effective as of the opening of business on the day on which such change in the
Base Rate is announced. The Agent shall as soon as practicable notify the
Borrower and the Banks of the effective date and the amount of each such change
in interest rate.
(b) Each determination of an interest rate by the Agent pursuant to any
provision of this Credit Agreement shall be conclusive and binding on the
Borrower and the Banks in the absence of
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manifest error. The Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Agent in determining any
interest rate pursuant to SECTION 2.9(A).
SECTION 2.11. ISSUING THE LETTERS OF CREDIT.
(a) In order to effect the issuance of a Letter of Credit, the Borrower
shall submit a Borrowing Request and a LC Application in writing by telecopy to
the Agent (who shall promptly notify the Issuing Bank) not later than 1:00 p.m.,
New York time, two (2) Business Days before the requested date of issuance of
such Letter of Credit. Each such Borrowing Request and LC Application shall be
signed by the Borrower, specify the Business Day on which such Letter of Credit
is to be issued, and specify the availability for Letters of Credit under the
Borrowing Base as of the date of issuance of such Letter of Credit and the
expiry date thereof which shall not be later than the earlier of (i) twelve (12)
months from the date of issuance of such Letter of Credit and (ii) the Maturity
Date.
(b) Upon satisfaction of the applicable terms and conditions set forth in
ARTICLE IV, the Issuing Bank shall issue such Letter of Credit to the specified
beneficiary not later than the close of business, New York time, on the date so
specified. The Agent shall provide the Borrower and each Bank with a copy of
each Letter of Credit so issued. Each such Letter of Credit shall (i) provide
for the payment of drafts, presented for honor thereunder by the beneficiary in
accordance with the terms thereon, at sight when accompanied by the documents
described therein and (ii) BE SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR
DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE
PUBLICATION NO. 500, (AND ANY SUBSEQUENT REVISIONS THEREOF APPROVED BY A
CONGRESS OF THE INTERNATIONAL CHAMBER OF COMMERCE) (THE "UCP") AND SHALL, AS TO
MATTERS NOT GOVERNED BY THE UCP, BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
(c) Upon the issuance date of each Letter of Credit, the Issuing Bank
shall be deemed, without further action by any party hereto, to have sold to
each other Bank, and each other Bank shall be deemed, without further action by
any party hereto, to have purchased from the Issuing Bank, a participation, to
the extent of such Bank's Commitment Percentage, in such Letter of Credit, the
obligations thereunder and in the reimbursement obligations of the Borrower due
in respect of drawings made under such Letter of Credit. If requested by the
Issuing Bank, the other Banks will execute any other documents reasonably
requested by the Issuing Bank to evidence the purchase of such participation.
(d) Upon the presentment of any draft for honor under any Letter of Credit
by the beneficiary thereof which the Issuing Bank determines is in compliance
with the conditions for payment thereunder, the Issuing Bank shall promptly
notify the Borrower, the Agent and each Bank of the intended date of honor of
such draft and the Borrower hereby promises and agrees, at the Borrower's
option, to either (i) pay to the Agent for the account of the Issuing Bank, by
2:00 p.m., New York time, on the date payment is due as specified in such
notice, the full amount of such draft in immediately available funds or (ii)
request a Loan pursuant to the provisions of SECTIONS 2.1(A) AND 2.2 of this
Credit Agreement in the full amount of such draft, which request shall specify
that the Borrowing Date is to be the date payment is due under the Letter of
Credit as specified in the Issuing Bank's notice. If the Borrower fails timely
to make such payment because a Loan cannot be made pursuant to SECTION 2.1(A)
and/or SECTION 4.2, each Bank shall, notwithstanding any other provision of this
Credit Agreement (including the occurrence and continuance of a Default or an
Event of Default), make available to the Agent for the benefit of the Issuing
Bank an amount equal to its Commitment Percentage of the presented draft on the
day the Issuing Bank is required to honor such draft. If such amount is not in
fact made available to the Agent by such Bank on such date, such Bank shall pay
to the Agent for the account of the Issuing Bank, on demand made by the Issuing
Bank, in addition to such amount, an amount equal to the product of (i) the
average
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daily Federal Funds Effective Rate per annum during the period referred to in
clause (iii) of this sentence TIMES (ii) the amount of such Bank's Commitment
Percentage of the presented draft TIMES (iii) the number of days that elapse
from the day the Issuing Bank honors such draft to the date on which the amount
equal to such Bank's Commitment Percentage of the presented draft becomes
immediately available to the Issuing Bank DIVIDED by 360. Upon receipt by the
Agent from the Banks of the full amount of such draft, notwithstanding any other
provision of this Credit Agreement (including the occurrence and continuance of
a Default or an Event of Default) the full amount of such draft shall
automatically and without any action by the Borrower, be deemed to have been a
Base Rate Borrowing as of the date of payment of such draft. Nothing in this
paragraph (d) or elsewhere in this Credit Agreement shall diminish the
Borrower's obligation under this Credit Agreement to provide the funds for the
payment of, or on demand to reimburse the Issuing Bank for payment of, any draft
presented to, and duly honored by, the Issuing Bank under any Letter of Credit,
and the automatic funding of a Loan as in this paragraph provided shall not
constitute a cure or waiver of the Event of Default for failure to provide
timely such funds as in this paragraph agreed.
(e) In order to induce the issuance of Letters of Credit by the Issuing
Bank and the purchase of participations therein by the other Banks, the Borrower
agrees with the Agent, the Issuing Bank and the other Banks that neither the
Agent nor any Bank (including the Issuing Bank) shall be responsible or liable
(except as provided in the following sentence) for, and the Borrower's
unconditional obligation to reimburse the Issuing Bank through the Agent for
amounts paid by the Issuing Bank, as provided in SUBSECTION 2.11(D) ABOVE, on
account of drafts so honored under the Letters of Credit shall not be affected
by, any circumstance, act or omission whatsoever (whether or not known to the
Agent or any Bank (including the Issuing Bank) other than a circumstance, act or
omission resulting from the gross negligence or willful misconduct of the Agent
or any Bank, including the Issuing Bank). The Borrower agrees that any action
taken or omitted to be taken by the Agent or any Bank (including the Issuing
Bank) under or in connection with any Letter of Credit or any related draft,
document or Property shall be binding on the Borrower and shall not put the
Agent or any Bank (including the Issuing Bank) under any resulting liability to
the Borrower, unless such action or omission is the result of the gross
negligence or willful misconduct of the Agent or any such Bank (including the
Issuing Bank). The Borrower hereby waives presentment for payment (except the
presentment required by the terms of any Letter of Credit) and notice of
dishonor, protest and notice of protest with respect to drafts honored under the
Letters of Credit. The Issuing Bank agrees promptly to notify the Borrower
whenever a draft is presented under any Letter of Credit, but failure to so
notify the Borrower shall not in any way affect the Borrower's obligations
hereunder. Subject to SECTIONS 2.19 AND 2.20, if while any Letter of Credit is
outstanding, any law, executive order or regulation is enforced, adopted or
interpreted by any public body, governmental agency or court of competent
jurisdiction so as to affect any of the Borrower's obligations or the
compensation to any Bank in respect of the Letters of Credit or the cost to such
Bank of establishing and/or maintaining the Letters of Credit (or any
participation therein), such Bank shall promptly notify the Borrower thereof in
writing and within ten (10) Business Days after receipt by the Borrower of such
Bank's request (through the Agent) for reimbursement or indemnification or
within thirty (30) days after receipt of a notice in respect of Reimbursable
Taxes, the Borrower shall reimburse or indemnify such Bank, as the case may be,
with respect thereto so that such Bank shall be in the same position as if there
had been no such enforcement, adoption or interpretation, unless the Borrower
notifies the Agent of its good faith contest to, and dispute of, the requested
amount. The foregoing agreement of the Borrower to reimburse or indemnify the
Banks shall apply in (but shall not be limited to) the following situations: an
imposition of or change in reserve, capital maintenance or other similar
requirements or in excise or similar taxes or monetary restraints, except a
change in franchise taxes imposed on such Bank or in tax on the net income of
such Bank.
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(f) In the event that any provision of a Letter of Credit Application is
inconsistent with, or in conflict of, any provision of this Credit Agreement,
including provisions for the rate of interest applicable to drawings thereunder
or rights of setoff or any representations, warranties, covenants or any events
of default set forth therein, the provisions of this Credit Agreement shall
govern.
(g) If the Obligations, or any part thereof, become immediately due and
payable pursuant to ARTICLE VIII of this Credit Agreement, then all LC
Obligations shall become immediately due and payable without regard for actual
drawings or payments on the Letters of Credit, and the Borrower shall be
obligated to pay to the Agent immediately an amount equal to the LC Obligations.
All amounts made due and payable by the Borrower under this SECTION 2.11(G) may
be applied as the Issuing Bank and the Banks elect to any of the various LC
Obligations; PROVIDED, HOWEVER, that an such amounts applied by the Issuing Bank
and the Banks to the LC Obligations shall be (a) first applied to the Matured LC
Obligations, and (b) second held by the Agent for the benefit of the Issuing
Bank and the Banks as LC Collateral until such remaining LC Obligations have
either (i) become Matured LC Obligations, at which time such LC Collateral paid
to the Agent shall be applied to such Matured LC Obligations, or (ii) have
expired undrawn, at which time an amount of such LC Collateral equal to such
expired and undrawn LC Obligation shall be promptly returned to the Borrower.
This SECTION 2.11(G) shall not limit or impair any rights which the Agent, the
Issuing Bank or any of the Banks may have under any other document or agreement
relating to any Letter of Credit or LC Obligation, including without limitation,
any LC Application.
SECTION 2.12. CAPITAL REIMBURSEMENT. If either (a) the introduction or
implementation of or the compliance with or any change in or in the
interpretation of any law, rule or regulation, or (b) the introduction or
implementation of or the compliance with any request, directive or guideline
from any central bank or other Governmental Authority (whether or not having the
force of law) affects or would affect the amount of capital required or expected
to be maintained by any Bank or any corporation controlling such Bank, then,
upon demand by such Bank, the Borrower will pay to such Bank, from time to time
as specified by such Bank, such additional amount or amounts which such Bank
shall determine to be appropriate to compensate such Bank or any corporation
controlling such Bank in light of such circumstances, to the extent that such
Bank reasonably determines that the amount of any such capital would be
increased or the rate of return on any such capital would be reduced by or in
whole or in part based on the existence of the face amount of such Bank's
Commitment under this Credit Agreement.
SECTION 2.13. INCREASED COSTS. If any applicable domestic or foreign law,
treaty, rule or regulation (whether now in effect or hereinafter enacted or
promulgated, including Regulation D) or any interpretation or administration
thereof by any Governmental Authority charged with the interpretation or
administration thereof (whether or not having the force of law):
(i) shall change the basis of taxation of payments to any Bank of any
principal, interest, or other amounts attributable to any Eurodollar
Loan of such Bank or otherwise due under this Credit Agreement in
respect of any Eurodollar Loan of such Bank (other than taxes imposed
on the overall net income of such Bank or any Lending Office of such
Bank by any jurisdiction in which such Bank or any such Lending Office
is located); or
(ii) shall change, impose, modify, apply or deem applicable any
reserve, special deposit or similar requirements in respect of any
Eurodollar Loan of any Bank (excluding those for which such Bank is
fully compensated pursuant to adjustments made in the definition of
Eurodollar Rate) or against assets of, deposits with or for the
account of, or credit extended by, such Bank; or
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(iii) shall impose on any Bank or the interbank eurocurrency deposit
market any other condition affecting any Eurodollar Loan of such Bank,
the result of which is to increase the cost to such Bank of funding or
maintaining any Eurodollar Loan(s) of such Bank or to reduce the
amount of any sum receivable by such Bank in respect of any Eurodollar
Loan(s) by an amount deemed by such Bank to be material,
then the affected Bank shall promptly notify the Agent and the Borrower in
writing of the happening of such event and (x) the Borrower shall upon demand
pay to the affected Bank such additional amount or amounts as will compensate
such Bank for such event (on an after-tax basis) and (y) the Borrower may elect,
by giving to the Agent and the Borrower not less than three (3) Business Days'
prior written notice, to convert all (but not less than all) of the Eurodollar
Loans of such Bank into Base Rate Loans.
SECTION 2.14. AVAILABILITY. If (a) any change in applicable laws, treaties,
rules or regulations or in the interpretation or administration thereof of or in
any jurisdiction whatsoever, domestic or foreign, shall make it unlawful or
impracticable for any Bank to fund or maintain Eurodollar Loans, or shall
materially restrict the authority of any Bank to purchase or take offshore
deposits of dollars (i.e., "eurodollars") or of the Issuing Bank to issue
Letters of Credit, or (b) any Bank determines that matching deposits appropriate
to fund or maintain its Eurodollar Loans are not available to it, or (c) any
Bank determines that the formula for calculating the Eurodollar Rate does not
fairly reflect the cost to such Bank of making or maintaining Loans based on
such rate, then the Borrower's right to borrow Eurodollar Loans or to apply for
Letters of Credit shall be suspended to the extent and for the duration of such
illegality, impracticability or restriction and all Eurodollar Borrowings (or
portions thereof) or Letters of Credit which are then outstanding or are then
the subject of any Borrowing Request or Notice of Conversion or Continuance and
which cannot lawfully or practicably be maintained or funded by such Bank shall
immediately become or remain Base Rate Loans. The Borrower agrees to indemnify
each Bank and hold each Bank harmless against all costs, expenses, claims,
penalties, liabilities and damages which may result from any such change in law,
treaty, rule, regulation, interpretation or administration as described in
clause (a) of this SECTION 2.14.
SECTION 2.15. REIMBURSABLE TAXES. The Borrower covenants and agrees that:
(a) The Borrower will indemnify each Bank against and reimburse each
Bank for all present and future income, stamp and other taxes, levies,
costs and charges whatsoever imposed, assessed, levied or collected on or
in respect of this Credit Agreement or any Eurodollar Loans (whether or not
legally or correctly imposed, assessed, levied or collected), excluding,
however, any taxes imposed on or measured by the overall net income of such
Bank or any applicable Lending Office of such Bank by any jurisdiction in
which such Bank or any such Banks's applicable Lending Office is located
(all such non-excluded taxes, levies, costs and charges being collectively
called "REIMBURSABLE TAXES" in this SECTION 2.15). Such indemnification
shall be on an aftertax basis, taking into account any income taxes imposed
on the amounts paid as indemnity.
(b) All payments on account of the principal of, and interest on, the
Loans and the Notes, and all other amounts payable by the Borrower to the
Banks hereunder, shall be made in full without set-off or counterclaim and
shall be made free and clear of and without deductions or withholdings of
any nature by reason of any Reimbursable Taxes (except as required by
applicable law), all of which will be for the account of the Borrower. In
the event of the Borrower being compelled by any Requirement of Law to make
any such deduction or withholding from any payment to any Bank, the
Borrower shall pay on the due date of such payment, by way of additional
interest, such additional amounts as are needed to cause the amount
receivable by such Bank after such deduction or withholding to equal the
amount which would have been receivable in the absence of such deduction or
withholding. If the Borrower should make any deduction or
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withholding as aforesaid, the Borrower shall within 60 days thereafter
forward to such Bank an official receipt or other official document
evidencing payment of such deduction or withholding.
(c) If the Borrower is ever required to pay any Reimbursable Tax with
respect to any Eurodollar Loans, the Borrower may elect, by giving to the
Banks not less than three (3) Business Days' notice, to convert all (but
not less than all) of any such Eurodollar Loans into Base Rate Loans, but
such election shall not diminish the Borrower's obligation to pay all
Reimbursable Taxes.
(d) Each Bank that is not incorporated under the laws of the United
States of America or a state thereof (including each Purchasing Bank that
becomes a party to this Credit Agreement pursuant to SECTION 11.4) that is
entitled to receive payments under this Credit Agreement and the Notes
without deduction or withholding of any United States federal income taxes
or is entitled to an exemption from backup withholding tax agrees that,
prior to the first date on which any payment is due to it hereunder, it
will deliver to the Borrower and the Agent, as the case may be, (i) two
duly completed copies of United States IRS Forms 1001 or 4224 or successor
applicable form, as the case may be, certifying in each case that such Bank
is entitled to receive payments under this Credit Agreement and the Notes
payable to it, without deduction or withholding of any United States
federal income taxes, and (ii) an IRS Forms W-8 or W-9 or successor
applicable form, as the case may be, to establish an exemption from United
States backup withholding tax. Each Bank which delivers to the Borrower and
the Agent a Forms 1001 or 4224 and Forms W-8 or W-9 pursuant to the
preceding sentence further undertakes to deliver to the Borrower and the
Agent two further copies of the said Forms 1001 or 4224 and Forms W-8 or
W-9, or successor applicable forms, or other manner of certification, as
the case may be, on or before the date that any such form expires or
becomes obsolete or after the occurrence of any event requiring a change in
the most recent form previously delivered by it to the Borrower, and such
extensions or renewals thereof as may reasonably be requested by the
Borrower, certifying in the case of a Forms 1001 or 4224 that such Bank is
entitled to receive payments under this Credit Agreement without deduction
or withholding of any United States federal income taxes, unless in any
such case an event (including, without limitation, any change in any
Requirement of Law) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Bank from duly completing and
delivering any such form with respect to it and such Bank advises the
Borrower that it is not capable of receiving payments without any deduction
or withholding of United States federal income tax, and in the case of a
Forms W-8 or W-9, establishing an exemption from United States backup
withholding tax.
(e) Each Bank (including each Purchasing Bank that becomes a party to
this Credit Agreement pursuant to SECTION 11.4) represents and warrants to
the Borrower that each Lending Office of such Bank hereunder will be
entitled to receive payments of principal of, and interest on, the Loans
made by such Bank from such Lending Office without withholding or deduction
for or on account of any United States federal income taxes.
SECTION 2.16. FUNDING LOSSES. Without duplication of other provisions
contained herein, the Borrower shall indemnify each Bank against any loss or
reasonable expense which such Bank may sustain or incur as a consequence of (i)
any failure by the Borrower to fulfill on the Borrowing Date for any Borrowing
hereunder the applicable conditions set forth in ARTICLE IV, (ii) any failure by
the Borrower to borrow hereunder after a Borrowing Request pursuant to this
ARTICLE II has been given, (iii) any failure by the Borrower to convert or
continue a Borrowing hereunder after a Notice of Conversion or Continuation
pursuant to this ARTICLE II has been given, (iv) any payment, prepayment,
continuance or
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conversion of a Eurodollar Borrowing required or permitted by any other
provision of this Credit Agreement including, without limitation, payments made
due to the acceleration of the maturity of the Notes pursuant to SECTION 9.1, or
otherwise made on a date other than the last day of the applicable Interest
Period, (v) any default in the payment or prepayment of the principal amount of
any Eurodollar Borrowing or any part thereof or interest accrued thereon, as and
when due and payable (at the due date thereof, by notice of prepayment or
otherwise) including, but not limited to, any loss or reasonable expense
sustained or incurred or to be sustained or incurred in liquidating or employing
deposits from third parties acquired to effect or maintain such Bank's
Commitment Percentage of any Eurodollar Borrowing or any part thereof as a
Eurodollar Borrowing. Such loss or reasonable expense shall include, without
limitation, an amount equal to the excess, if any, as reasonably determined by
such Bank of (i) its cost of obtaining the funds for its Commitment Percentage
of the Eurodollar Borrowing being paid, prepaid or converted or not borrowed
(based on the Eurodollar Rate applicable thereto) for the period from the date
of such payment, prepayment, continuance or conversion or failure to borrow to
the last day of the applicable Interest Period for such Eurodollar Borrowing
(or, in the case of a failure to borrow, the applicable Interest Period for the
Eurodollar Borrowing which would have commenced on the date of such failure to
borrow) over (ii) the amount of interest (as reasonably determined by such Bank)
that would be realized by such Bank in reemploying the funds so paid, prepaid,
continued or converted or not borrowed for such period or applicable Interest
Period, as the case may be, provided that such Bank will use its best efforts to
reemploy funds in investments of similar quality. A certificate of such Bank
signed by an officer setting forth in reasonable detail any amount or amounts
which such Bank is entitled to receive pursuant to this SECTION 2.16 shall be
delivered to the Borrower. The Borrower shall pay to such Bank the amount shown
as due on any certificate within thirty (30) Business Days after its receipt of
the same. Notwithstanding the foregoing, in no event shall any Bank be permitted
to receive any compensation hereunder constituting interest in excess of the
Highest Lawful Rate.
SECTION 2.17. SHARING OF PAYMENTS AND SETOFFS. Each Bank agrees that if it
shall, through the exercise of a right of banker's lien, setoff to the extent
not prohibited under SECTION 8.4, or counterclaim against the Borrower,
including, but not limited to, a secured claim under Section 506 of Title 11 of
the United States Code or other security or interest arising from, or in lieu
of, such secured claim, received by such Bank under any applicable Debtor Relief
Law or otherwise, or by similar means, obtain payment (voluntary or involuntary)
in respect of any Loan or Loans (other than pursuant to SECTIONS 2.12, 2.13,
2.15, or 2.16) as a result of which the unpaid principal portion of its Loans
shall be proportionately less than the unpaid principal portion of the Loans of
any other Bank, it shall simultaneously purchase from such other Banks at face
value a participation in the Loans of such other Banks, so that the aggregate
unpaid principal amount of Loans and participations in Loans held by each Bank
shall be in the same proportion to the aggregate unpaid principal amount of all
Loans then outstanding as the principal amount of its Loans prior to such
exercise of banker's lien, setoff, counterclaim or other event was to the
principal amount of all Loans outstanding prior to such exercise of banker's
lien, setoff pursuant to SECTION 8.4, counterclaim or other event; PROVIDED,
HOWEVER, that if any such purchase or purchases or adjustments shall be made
pursuant to this SECTION 2.17 and the payment giving rise thereto shall
thereafter be recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustment restored without interest. The Borrower expressly consents to the
foregoing arrangements and agrees that any Bank holding a participation in any
Note deemed to have been so purchased may exercise any and all rights of
banker's lien, setoff or counterclaim with respect to any and all moneys owing
by the Borrower to such Bank as fully as if such Bank had made a Loan directly
to such the Borrower in the amount of such participation.
SECTION 2.18. METHOD OF PAYMENTS PRO RATA TREATMENT.
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(a) The Borrower shall make each payment hereunder and under the Notes
delivered hereunder not later than 2:00 p.m., New York time, on the day when due
in lawful money of the United States (in freely transferable Dollars) to the
Agent for the account of the Banks entitled thereto at the Agent's address
referred to in SECTION 11.3 in immediately available funds and any funds
received by the Agent after such time shall, for all purposes hereof (including
the following sentence), be deemed to have been paid on the next succeeding
Business Day. Except as otherwise specifically provided herein, the Agent shall
thereafter cause to be distributed on the date of receipt thereof to each Bank
in like funds its Commitment Percentage (or, if the Loan of such Bank with
respect to which such payment is being made is not of the same Type as the Loans
of the other Banks with respect to which such payment is being made, such Bank's
appropriate share) of the payments so received for the account of such Bank's
Lending Office for such Loans in respect of which such payment is made.
(b) Except as otherwise provided herein, (i) each Borrowing hereunder shall
be obtained from the Banks, each payment of fees shall be paid for the account
of the Banks and each partial reduction of the Total Commitment under SECTION
2.6 shall be applied to the Commitments of the Banks, in each case
simultaneously and PRO RATA in accordance with each Bank's Commitment
Percentage, (ii) each conversion of a Borrowing comprised of Loans of a
particular Type shall be made PRO RATA among the Banks according to their
respective Commitment Percentage of such Borrowing and (iii) each payment and
prepayment of principal of or interest on any Loans will be made to the Agent
for the account of each of the Banks simultaneously and PRO RATA in accordance
with their respective Commitment Percentage of unpaid principal amounts of such
Loans made by the Banks.
(c) Whenever any payment hereunder or under the Notes (including principal
of or interest on any Loan or any fees or other amounts), shall be stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest, fee or other amount, as the
case may be; PROVIDED, HOWEVER, if such extension would cause payment of
interest on or principal of a Eurodollar Loan to be made in the next following
calendar month, such payment shall be made on the next preceding Business Day.
When the Agent collects or receives money on account of the Obligations, the
Banks may apply such money as they elect to the various Obligations then due and
payable.
SECTION 2.19. LIMITATION ON REIMBURSEMENT; MITIGATION.
(a) If any Bank fails to give notice to the Borrower of any event that
would obligate the Borrower to pay any amount owing pursuant to SECTIONS 2.12,
2.13 OR 2.15, within thirty (30) days after such Bank obtains knowledge of such
event, and subsequently gives notice to the Borrower of such event, the Borrower
shall pay only such amounts for costs incurred for the one hundred eighty (180)
day period immediately prior to the date of such notice.
(b) Any Bank claiming any additional amounts payable pursuant to SECTIONS
2.12, 2.13, OR 2.15 or any Bank subject to SECTION 2.14 shall use reasonable
efforts (consistent with its internal policy and legal and regulatory
restrictions) to change the jurisdiction of its lending office for the Loans, if
the making of such a change would avoid the need for, or reduce the amount of,
any such additional amounts which may thereafter accrue under SECTIONS 2.12,
2.13 OR 2.15 or would avoid the unavailability of Eurodollar Loans under SECTION
2.14 and would not, in any such case, in the judgment of such Bank, be otherwise
disadvantageous to such Bank.
SECTION 2.20. REPLACEMENT OF BANKS. If any Bank (an "AFFECTED BANK") shall
have (i) failed to fund any Loan that such Bank is obligated to fund hereunder
and such failure has not been cured, or (ii) requested compensation from the
Borrower under SECTIONS 2.12, 2.13 OR 2.15 to recover costs or
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taxes incurred by such Bank which are not being incurred generally by the other
Banks, (iii) given notice pursuant to SECTION 2.14 that such Bank has suspended
the Borrower's right to elect Eurodollar Loans from such Bank for reasons not
generally applicable to the other Banks, then the Borrower may give written
notice to such Affected Bank of the occurrence of an event set forth in
subsections (i), (ii) or (iii), of this SECTION 2.20, and during the thirty (30)
day period following such notice, the Borrower may make written demand on such
Affected Bank (with a copy to Agent and each other Bank), for such Affected Bank
to assign to one or more financial institutions acceptable to the Required Banks
(a "REPLACEMENT BANK"), all of such Affected Bank's rights and obligations under
this Credit Agreement and the other Loan Documents (including such Affected
Bank's Commitment, LC Obligations and Loans owing to such Affected Bank),
PROVIDED, such assignment shall be consummated in accordance with and shall be
subject to the terms of SECTION 11.4). Pursuant to SECTION 11.4, upon any such
assignment, such Affected Bank shall cease to be a party hereto, provided,
HOWEVER, such Affected Bank shall continue to be entitled to the benefits of
SECTIONS 2.12, 2.13, 2.15 AND 9.3 accruing with respect to such Affected Bank
prior to such assignment, as well as any fees accrued for its account and not
yet paid. If an Eligible Assignee cannot be obtained within the thirty (30) day
period following said notice to the Affected Bank, to assume the Commitment of
such Affected Bank, and provided that no Default or Event of Default shall have
occurred and be continuing, then the Borrower may prepay immediately all Loans
and Matured LC Obligations, if any, of such Affected Bank and terminate such
Affected Bank's entire Commitment (including its Commitment to participate in
Letters of Credit) hereunder PROVIDED, HOWEVER, that in the event the Borrower
makes any prepayment pursuant to this sentence, then on the date of such
prepayment, the Total Commitment of the Banks shall be permanently reduced by
the amount of such Affected Bank's Commitments and the Commitment Percentage
(including each non-affected Bank's Commitment Percentage of outstanding Letters
of Credit) of each other Bank shall be redetermined based upon the amount each
such other Bank's Commitment is of the Total Commitment as so reduced.
ARTICLE III
BORROWING BASE
SECTION 3.1. ENGINEERING REPORT; PROPOSED BORROWING BASE. As soon as
available and in any event by March 31 and September 30 of each year, but
effective as of the preceding December 31 and June 30, respectively, commencing
March 31, 1997, the Borrower shall furnish to the Agent all information, reports
and data which the Banks have then requested concerning the Borrower's
businesses and Properties (including all Borrowing Base Properties of the Loan
Parties, and the Proved Reserves and production relating thereto), together with
the Engineering Reports described in SECTION 6.2(D). On or before each April 25
and October 25 of each year, the Agent shall discuss with the Borrower the
Agent's recommendation as to the Borrowing Base amount which the Agent has
determined should be available to Borrower pursuant to the Total Commitment as
of the next Determination Date and the Borrower shall advise the Agent in
writing of the Borrowing Base the Borrower is requesting for the period
commencing on the next Determination Date.
SECTION 3.2. DETERMINATION OF BORROWING BASE. Based in part on the
Engineering Report delivered pursuant to SECTION 6.2(D), additional information
delivered to the Agent pursuant to SECTION 6.2(E), the Agent shall submit to the
Banks in writing on or before April 30 or October 31, as the case may be, the
Agent's recommendation as to the maximum aggregate amount of credit to be
available to the Borrower pursuant to the terms and provisions of this Credit
Agreement (the "Borrowing Base") to be in effect on the next succeeding
Determination Date, which shall in no event, exceed the Borrowing Base requested
by the Borrower pursuant to SECTION 3.1. The Banks shall approve or disapprove
of the
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Borrowing Base. Such determination by the Agent and approval or disapproval by
the Banks shall be made in good faith by all the Banks and the Agent, in the
exercise of their sole discretion and in accordance with their respective
customary practices and standards for oil and gas loans, which may include
varying (from Bank to Bank) (A) assumptions regarding appropriate existing and
projected pricing, (B) assumptions modifying projected rates of future
production and/or quantities of future production, (C) considerations related to
the projected cash requirements of the Loan Parties and their respective
Subsidiaries assumed to be provided from production of the Borrowing Base
Properties, including present and future debt service of the Loan Parties and/or
such Subsidiaries of the Loan Parties, general and administrative expenses and
Distributions in respect of equity, and (D) such other considerations as each
Bank deems appropriate, it being recognized that the ultimate determination to
be reached is more predicated upon the aggregate amount of credit available
hereunder which, at the time of the determination, each Bank determines should
be available as reasonably expected to be repayable by the Loan Parties,
considering all then existing and projected other items which are expected to be
payable or repayable, without undue risk of failure to timely repay. Each Bank
shall submit to the Agent in writing on or before May 5 or November 5, as the
case may be, such Bank's approval or disapproval of the Agent's recommended
Borrowing Base and any such disapproval shall state the maximum Borrowing Base
acceptable to such Bank. If the Agent has not received such notice from a Bank
on or before the close of business on May 5 or November 5, as the case may be,
such Bank shall be deemed to have approved the Agent's recommended Borrowing
Base. Thereafter, the Banks shall consult with each other in order to agree on
the Borrowing Base to be effective on such Determination Date. In the event the
Banks agree on such Borrowing Base on or before the expiration of such ten (10)
day period, the Borrowing Base agreed to by the Banks shall become effective on
the next succeeding Determination Date and shall remain in effect until the next
Determination. In the event the Banks are unable to agree on the Borrowing Base,
the Borrowing Base which becomes effective on the next Determination Date shall
be the lowest determination agreed to by the Required Banks. The Agent shall
notify the Borrower of the Borrowing Base to become effective on each
Determination Date no later than 2:00 p.m., New York time on such Determination
Date; provided that if, due to any failure by the Borrower to submit in a timely
manner any Engineering Report or other information required to be submitted by
the Borrower or any Subsidiary Guarantor hereunder or, if requested in writing
by the Agent, any additional information or data needed in connection with a
determination of the Borrowing Base or due to any other reason beyond the
control of the Agent, the Agent does not provide a Borrowing Base Notice at the
time described above, then, unless the Agent gives notice to the Loan Parties of
a new Borrowing Base, the Borrowing Base from the previous period shall be
carried over into the new period until a Borrowing Base Notice is sent to the
Loan Parties by the Agent; which Borrowing Base Notice shall be sent to the Loan
Parties by the Agent within thirty (30) days after the cessation or cure of the
circumstances causing the Borrowing Base Notice to not be previously delivered
in a timely manner, and the remainder of the procedures described in this
SECTION 3.2 have been completed.
SECTION 3.3. SPECIAL DETERMINATION OF TOTAL BORROWING BASE.
(a) In addition to the Periodic Determinations of the Borrowing Base
pursuant to SECTION 3.2 above, the Borrower may request one redetermination of
the Borrowing Base during each six month period commencing on May 15 and
November 15 of each year. In the event Borrower requests a Special
Determination, the Borrower shall deliver written notice of such request to the
Banks which shall include (i) an Engineering Report prepared as of a date not
more than thirty (30) days prior to the date of such request, (ii) additional
information required pursuant to SECTION 6.2(E), and (iii) the amount of the
Borrowing Base requested by Borrower to become effective on the Determination
Date applicable to such Special Determination. Upon receipt of such Engineering
Report and additional information, the Agent and the Banks shall redetermine the
Borrowing Base in accordance with the procedure set forth in SECTION
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3.2 which Borrowing Base shall become effective on the Determination Date
applicable to such Special Determination and shall remain in effect until the
next Determination.
(b) In addition to the Periodic Determinations of the Borrowing Base
pursuant to SECTION 3.2 and SECTION 3.3(A), the Banks shall have the right to
request one (1) redetermination of the Borrowing Base during any twelve month
period commencing on November 15 of each year. In the event the Required Banks
request such a Special Determination, the Agent shall promptly deliver notice of
such request to the Borrower and the Borrower shall, within thirty (30) calendar
days of such request, deliver to the Banks an Engineering Report and such other
information regarding the Borrowing Base Properties as the Agent shall
reasonably request prepared as of the last day of the calendar month preceding
the date of such request. Upon receipt of such Engineering Report and additional
information, the Agent and the Banks shall redetermine the Borrowing Base in
accordance with the procedure set forth in SECTION 3.2 which Borrowing Base
shall become effective on the Determination Date applicable to such Special
Determination and shall remain in effect until the next Determination.
SECTION 3.4. INITIAL BORROWING BASE. Notwithstanding anything to the
contrary contained herein, the Borrowing Base in effect during the period
commencing on the Effective Date and continuing until the first Determination
after the date hereof shall be $30,000,000, PROVIDED, HOWEVER, that the
Borrowing Base shall not be less than $15,000,000 at any time during the period
from and including the Effective Date to but excluding May 15, 1997.
ARTICLE IV
CONDITIONS PRECEDENT TO LENDING
SECTION 4.1. DOCUMENTS TO BE DELIVERED. The Banks have no obligation to
make their initial Loans or issue Letters of Credit unless the Banks shall have
received all of the following, duly executed and delivered and in form,
substance and date satisfactory to the Banks:
(a) This Credit Agreement;
(b) The Notes;
(c) The Subsidiary Guaranty;
(d) The Security Agreement - Intercompany Obligations, together with the
Intercompany Notes evidencing the Intercompany Loans duly endorsed to the Agent,
and UCC-1 financing statement perfecting the Liens created by the Security
Agreement - Intercompany Obligations;
(e) An "Omnibus Certificate" of the Secretary and of the Senior Vice
President, Chief Financial Officer and Treasurer of the Borrower, which shall
contain the names and signatures of the officers of the Borrower authorized to
execute Loan Documents on behalf of the Borrower and which shall certify to the
truth, correctness and completeness of the following exhibits attached thereto:
(i) a copy of resolutions duly adopted by the Board of Directors of the Borrower
and in full force and effect at the time this Credit Agreement is entered into,
authorizing the execution of this Credit Agreement and the other Loan Documents
delivered or to be delivered by the Borrower in connection herewith and the
consummation of the transactions contemplated herein and therein, (ii) a copy of
the charter documents
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of the Borrower and all amendments thereto, certified by the appropriate
official of the Borrower's state of organization, and (iii) a copy of any bylaws
of the Borrower;
(f) An "Omnibus Certificate" of the Secretary and of the Senior Vice
President, Chief Financial Officer and Treasurer of Operating, which shall
contain the names and signatures of the officers of Operating authorized to
execute Loan Documents on behalf of Operating and which shall certify to the
truth, correctness and completeness of the following exhibits attached thereto:
(i) a copy of resolutions duly adopted by the Board of Directors of Operating
and in full force and effect at the time this Credit Agreement is entered into,
authorizing the execution of this Credit Agreement and the other Loan Documents
delivered or to be delivered by Operating in connection herewith and the
consummation of the transactions contemplated herein and therein, (ii) a copy of
the charter documents of Operating and all amendments thereto, certified by the
appropriate official of Operating's state of organization, and (iii) a copy of
any bylaws of Operating;
(g) An "Omnibus Certificate" of the Secretary and of the Vice President,
Chief Financial Officer and Treasurer of Offshore, which shall contain the names
and signatures of the officers of Offshore authorized to execute Loan Documents
on behalf of Offshore and which shall certify to the truth, correctness and
completeness of the following exhibits attached thereto: (i) a copy of
resolutions duly adopted by the Board of Directors of Offshore and in full force
and effect at the time this Credit Agreement is entered into, authorizing the
execution of this Credit Agreement and the other Loan Documents delivered or to
be delivered by Offshore in connection herewith and the consummation of the
transactions contemplated herein and therein, (ii) a copy of the charter
documents of Offshore and all amendments thereto, certified by the appropriate
official of Offshore's state of organization, and (iii) a copy of any bylaws of
Offshore;
(h) with respect to the Borrower, a certificate of existence and good
standing from the Secretary of State of the State of Delaware dated no more than
fifteen (15) calendar days prior to the Effective Date and certificates of
authorization to do business and good standing in the States of Alabama,
Louisiana, and Mississippi;
(i) with respect to Operating, a certificate of existence and good standing
from the Secretary of State of Delaware dated no more than fifteen (15) calendar
days prior to the Effective Date and certificates of authorization to do
business and good standing in the States of Alabama, Louisiana, and Mississippi;
(j) with respect to Offshore, a certificate of existence and good standing
from the Secretary of State of Mississippi dated no more than fifteen (15)
calendar days prior to the Effective Date and certificates of authorization to
do business and good standing in the States of Alabama and Louisiana;
(k) A "Compliance Certificate" signed by the Senior Vice President, Chief
Financial Officer and Treasurer of each Loan Party dated as of the Borrowing
Date, in which such officer certifies to the satisfaction of the conditions set
out in SECTION 4.2;
(l) A favorable opinion of Messrs. Butler & Binion, counsel to the Loan
Parties, substantially in the form set forth in EXHIBIT G hereto;
(m) A favorable opinion of local counsel for the Agent (as reasonably
acceptable to the Borrower) in Alabama, substantially in the form of EXHIBIT H;
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(n) A favorable opinion of local counsel for the Agent (as reasonably
acceptable to the Borrower) in Louisiana, substantially in the form of EXHIBIT
I;
(o) In sufficient executed counterparts for recording purposes when
applicable, as security for the Notes, the Subsidiary Guaranty, the Security
Agreement - Intercompany Obligations and other Obligations of the Loan Parties
under the Loan Documents, the Assignment covering each Mortgage listed in the
MORTGAGE SCHEDULE and the Mortgage Amendments covering each Mortgage listed in
the MORTGAGE SCHEDULE;
(p) Updated title opinions addressed to the Agent on behalf of the Banks
that verify the Loan Parties' title as of the Closing Date to the Borrowing Base
Properties set forth on SCHEDULE 5.10, free and clear of all Liens other than as
permitted under SECTION 7.2 and (ii) reliance letters dated as of the Closing
Date, entitling the Banks to rely on the "Title Opinions" covering such
Borrowing Base Properties rendered to INCC under the INCC Credit Agreement;
(q) The Agent shall have received copies of all environmental assessments
with respect to the Loan Parties and their Properties rendered to INCC under the
INCC Credit Agreement and any supplements thereto or additional assessments in
the possession of the Loan Parties;
(r) Each of the Banks shall be satisfied that sufficient documentation
exists to (i) verify the working interests and net revenue interests of the Loan
Parties in the Borrowing Base Properties; (ii) verify the satisfactory
compliance of the Loan Parties with Environmental Laws; (iii) verify that
Designated Contracts, including the Production Sales Contracts, have been duly
executed and delivered which permit the Hydrocarbons to be produced and marketed
from the Borrowing Base Properties of the Loan Parties at economic levels
consistent with accepted engineering practices; (iv) verify that one or more of
the Designated Contracts are gas gathering, treatment, processing and
transportation agreements containing terms satisfactory to the Banks;
(s) Insurance certificates, in form and substance reasonably satisfactory
to the Agent, with respect to all the insurance policies required under SECTION
6.8 hereof including any necessary endorsements to reflect the Agent for the
ratable benefit of the Banks as loss payee;
(t) Favorable results of a recent search of the Uniform Commercial Code
filings central filings wherein the Borrowing Base Properties are located and/or
the principal place of business of each of the Loan Parties are located
reflecting the absence of Liens thereof except as permitted pursuant to SECTION
7.2 of this Credit Agreement;
(u) The Borrower shall have repaid, or shall concurrently repay, the
indebtedness described in SECTION 2.3(A);
(v) The Agent shall have received payment in full of all fees due and
payable pursuant to the provisions of SECTION 2.5(D) hereof;
(w) The Agent shall have received each additional document, instrument, or
item of information reasonably requested by it, including, without limitation,
copies of any debt instruments, security agreements or other material contracts
to which any of the Loan Parties are a party, and copies of documents evidencing
governmental authorizations, consents, approvals, licenses and exemptions; and
(x) The consummation of the transactions contemplated hereby shall not
contravene, violate or conflict with, nor involve the Agent or any Bank in any
violation of, any Requirement of Law;
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SECTION 4.2. ADDITIONAL CONDITIONS PRECEDENT. The Banks shall have no
obligation to make any Loans and the Issuing Bank has no obligation to issue any
Letter of Credit (including the initial Loans and Letter of Credit) unless the
following conditions precedent have been satisfied:
(a) The Agent shall have received, with a copy for each Bank, a Borrowing
Request requesting a Borrowing on such date, duly completed and executed by a
Responsible Officer of the Borrower, which Borrowing Request shall affirmatively
certify that:
(i) All representations and warranties made by any Loan Party in any
Loan Document shall be true on and as of the Borrowing Date (except to
the extent that the facts upon which such representations are based
have been changed by the extension of credit hereunder) as if such
representations and warranties have been made as of the Borrowing Date
(ii) No Borrowing Base Deficiency would exist after giving effect to
the Loans requested to be made, or Letters of Credit requested to be
issued, on such date;
(iii) No Default or Event of Default then exists either before or
after giving effect to the making of such Loan or the issuing of such
Letter of Credit;
(iv) No material litigation (other than Existing Litigation) is
pending or, to the best knowledge of the Borrower after due inquiry,
threatened against the Borrower or any Subsidiary of the Borrower and
no material adverse development has occurred in any Existing
Litigation; and
(v) No event or state of affairs which could reasonably be expected to
result in a Material Adverse Effect has occurred since December 31,
1995.
(b) Each Loan Party shall have performed and complied with all agreements
and other conditions required in the Loan Documents to be performed or complied
with by it on or prior to the Borrowing Date.
(c) The making of such Loans or the issuance of such Letter of Credit shall
not be prohibited by any Requirement of Law and shall not subject the Agent, the
Issuing Bank or any Bank to any penalty or other onerous condition under or
pursuant to any such law, regulation or order.
(d) The Maturity Date shall not have occurred.
Each Borrowing hereunder shall constitute a representation and warranty by the
Loan Parties as of the of the Borrowing Date that all of the conditions
contained in this SECTION 4.2 have been satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
To confirm the Banks' understanding concerning each of the Loan Parties
and the business, Properties and obligations of each of the Loan Parties and to
induce the Banks to enter into this Credit Agreement and to make the Loans and
to induce the Issuing Bank(s) to issue Letters of Credit, each Loan
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Party represents and warrants as to itself and the Borrower represents and
warrants as to each of its Subsidiaries, to the Agent and each Bank that the
following statements are true, correct, and complete.
SECTION 5.1. NO DEFAULT.
(a) No Loan Party nor any Subsidiary of a Loan Party is a party to any
Material Contract that has resulted or could reasonably be expected to result in
a Material Adverse Effect.
(b) No Loan Party nor any Subsidiary of a Loan Party is in default in any
material respect under any Material Contract.
(c) No Loan Party nor any Subsidiary of a Loan Party is in default in the
performance of any of the covenants and agreements contained herein. No event
has occurred and is continuing which constitutes a Default.
SECTION 5.2. ORGANIZATION AND GOOD STANDING. Each Loan Party that is a
corporation or partnership is duly organized, validly existing and in good
standing under the laws of its state of organization, having all corporate or
partnership powers required to carry on its business and enter into and carry
out the transactions contemplated hereby. Each such Person is duly qualified, in
good standing, and authorized to do business in all other jurisdictions within
the United States wherein the character of the Properties owned or held by it or
the nature of the business transacted by it makes such qualification necessary
(except only for jurisdictions in which the failure to be so qualified or in
good standing would not, individually or in the aggregate, result in a Material
Adverse Effect). Each such Person has taken all actions and procedures
customarily taken in order to enter, for the purpose of conducting business or
owning Property, each jurisdiction outside the United States wherein the
character of the Properties owned or held by it or the nature of the business
transacted by it makes such actions and procedures desirable.
SECTION 5.3. AUTHORIZATION. Each Loan Party that is a corporation or
partnership has duly taken all corporate or partnership action necessary to
authorize the execution and delivery by it of the Loan Documents to which it is
a party and to authorize the consummation of the transactions contemplated
thereby and the performance of its obligations thereunder. The Borrower is duly
authorized to borrow funds hereunder. No consent or authorization of, filing
with or other act by or in respect of, any Governmental Authority or any other
Person is required in connection with the Borrowings hereunder by the Borrower
or with the execution, delivery, performance, validity or enforceability of this
Credit Agreement, the Notes or the other Loan Documents to which any Loan Party
is a party.
SECTION 5.4. ENFORCEABLE OBLIGATIONS. This Credit Agreement has been, and
each Note of the Borrower and each other Loan Document to which the Borrower is
a party will be, duly executed and delivered on behalf of the Borrower. This
Credit Agreement has been, and each other Loan Document to which any Loan Party
(other than the Borrower) is a party will be, duly executed and delivered on
behalf of such Loan Party. This Credit Agreement constitutes, and each Note of
the Borrower and each other Loan Document to which the Borrower is a party when
executed and delivered will constitute, a legal, valid and binding obligation of
the Borrower enforceable against the Borrower in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law). This Credit Agreement
constitutes, and each other Loan Document to which any Loan Party (other than
the Borrower) is a party when executed and delivered will constitute, a legal,
valid and binding obligation of such Loan Party enforceable against such Loan
Party in accordance with its terms, except as
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enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
SECTION 5.5. FINANCIAL CONDITION. The Consolidated balance sheet of the
Borrower and its Subsidiaries as of December 31, 1995 and the related
Consolidated statements of income, of cash flows and of changes in owners'
equity of the Borrower and its Subsidiaries for the fiscal year ended on such
date, reported on by Arthur Andersen & Co., copies of which have heretofore been
furnished to each Bank, are complete and correct and present fairly the
financial condition of the Borrower and its Subsidiaries as of such date, and
the results of its Consolidated operations and changes in cash flows and changes
in owners' equity for the fiscal year then ended. The unaudited Consolidated
balance sheet of the Borrower and its Subsidiaries as of June 30, 1996 and the
related unaudited Consolidated statements of income, and of cash flows of the
Borrower and its Subsidiaries for the six-month period ended on such date,
certified by a Responsible Officer of the Borrower, copies of which have
heretofore been furnished to each Bank are complete and correct and present
fairly the Consolidated financial condition of the Borrower and its Subsidiaries
as of such date, and the results of its operations and changes in cash flows for
the six-month period then ended (subject to normal year-end audit adjustment).
All such financial statements, including the related schedules and notes
thereto, have been prepared according to GAAP. Neither the Borrower nor any
Subsidiary of the Borrower has, at the date of the most recent balance sheet
referred to above, any material Guarantee Obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any Commodity Hedge Transaction, any
Interest Hedge Agreement, or any Investment in any Person which is not reflected
in the foregoing statements or in the notes thereto.
SECTION 5.6. NO CHANGE. Except as disclosed in the Initial Financial
Statements or in the DISCLOSURE SCHEDULE, since December 31, 1995 to and
including the date hereof, (a) there has been no sale, transfer or other
disposition by any Loan Party of any material part of its business or Property
and no purchase or other acquisition of any business or Property material in
relation to the Consolidated financial condition of the Borrower at December 31,
1995, (b) there has been no development or event nor any prospective development
or event, which has had or has any reasonable likelihood of having a Material
Adverse Effect, and (c) other than those Distributions paid with respect to the
Preferred Stock disclosed in the DISCLOSURE SCHEDULE, no Distributions have been
declared, paid or made by the Borrower or any of its Subsidiaries to any
stockholder, partner or other equity owner of the Borrower or any of its
Affiliates.
SECTION 5.7. NO CONFLICT. The execution, delivery and performance by each
Loan Party of the Loan Documents to which such Loan Party is a party, the
compliance by such Loan Party with the terms and provisions thereof and the
consummation of each of the transactions contemplated thereby, do not and will
not (i) require any consent or approval of the stockholders of such Loan Party,
or any authorization, consent or approval by any Governmental Authority or (ii)
by the lapse of time, the giving of notice or otherwise, (a) constitute a
violation of any Requirement of Law binding on such Loan Party or a breach of
any provision contained in the articles or certificate of incorporation or
bylaws of such Loan Party, (b) constitute a breach of any Material Contract of
such Loan Party or by which any Property of such Loan Party is bound, or (c)
result in or require the creation or imposition of any Lien whatsoever upon any
of the Properties of such Loan Parties (other than Liens permitted pursuant to
SECTION 7.2 and Liens in favor of INCC which are being assigned to the Agent and
the Banks concurrently with the closing of this Credit Agreement).
SECTION 5.8. FULL DISCLOSURE. No certificate, statement or other
information delivered herewith or heretofore by any Loan Party to the Agent or
the Banks in connection with the negotiation of this
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Credit Agreement or in connection with any transaction contemplated hereby
contains any untrue statement of a material fact or omits to state any material
fact known to any Loan Party (other than industry-wide risks normally associated
with the types of businesses conducted by such Loan Party) necessary to make the
statements contained herein or therein not misleading as of the date made or
deemed made. There is no fact known to any Loan Party that has not been
disclosed to the Banks in writing which could materially and adversely affect
any Loan Party's Properties, business, prospects or conditions (financial or
otherwise) or any Loan Party's Consolidated Properties, business, prospects or
condition (financial or otherwise). There are no statements or conclusions in
any Engineering Report which are based upon or include any material misstatement
of information or fail to take into account or omit to state a material
information regarding the matters reported therein, it being understood that
each Engineering Report is necessarily based upon professional opinions,
estimates and projections and that the Loan Parties do not warrant that such
opinions, estimates and projections will ultimately prove to have been accurate.
The Borrower has heretofore delivered to the Banks true, correct and complete
copies of the Initial Financial Statements and the Initial Engineering Reports.
SECTION 5.9. LITIGATION. Except as disclosed in the Initial Financial
Statements or in the DISCLOSURE SCHEDULE: (i) there are no actions, suits or
legal, equitable, arbitrative or administrative proceedings pending, or to the
knowledge of any Loan Party threatened, against any Loan Party before any
Governmental Authority, which could reasonably be expected to result in a
Material Adverse Effect and (ii) there are no outstanding judgments,
injunctions, writs, rulings or orders by any such Governmental Authority against
any Loan Party or any such Loan Party's stockholders, partners, directors or
officers which have or could reasonably be expected to result in a Material
Adverse Effect.
SECTION 5.10. OIL AND GAS INTERESTS; PROPERTIES GENERALLY.
(a) Each Loan Party owns not less than the undivided working and net
revenue interests in the Borrowing Base Properties of such Loan Party set forth
in the Initial Engineering Reports. Each of the oil and gas leases covering the
Borrowing Base Properties is in full force and effect, free and clear of
defaults thereunder by such Loan Party, except such defaults which would not be
regarded as material by a prudent oil and gas operator and which could not
reasonably be expected to result in a Material Adverse Effect. No Loan Party has
received any notices or claims of default by such Loan Party under any of such
oil and gas leases which are outstanding and unresolved. Each Loan Party has
good and defensible title to all Borrowing Base Properties of such Loan Party
described in the most recent Engineering Report delivered to the Banks, free and
clear of (a) all Liens except the Liens permitted by SECTION 7.2 and (b) all
other title defects or rights or claims of third Persons, except such title
defects, rights or claims which would not be regarded as material by a prudent
oil and gas operator and which will not have a Material Adverse Effect. The
Borrowing Base Properties may be subjected to the Liens contemplated by the
Security Documents without violation of the terms of any oil and gas lease or
any other agreement pertaining thereto, and upon any foreclosure or other
realization of rights by the secured party under any Security Document, the
Borrowing Base Properties subject thereto may be transferred to the secured
party, or its assignee, in accordance with the terms of such Security Document.
(b) With respect to all other Properties of Borrower and its Subsidiaries
not covered by SECTION 5.10(A) above, Borrower and each of its Subsidiaries have
good and valid fee simple or leasehold title to all material Properties
purported to be owned by them, including, without limitation, all assets
reflected in the balance sheets referred to in SECTION 5.5(A) and all assets
which are used by Borrower and its Subsidiaries in the operation of their
respective businesses, and none of such Properties is subject to any Lien other
than Liens permitted by SECTION 7.2.
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SECTION 5.11. TAXES. Each of the Loan Parties and each of its Subsidiaries
has filed or caused to be filed all tax returns which, to the knowledge of such
Loan Party or its Subsidiary, as the case may be, are required to be filed and
has paid all taxes shown to be due and payable on said returns or on any
assessments made against such Loan Party, any Subsidiary of such Loan Party or
any of such Loan Party's Property or the Property of any Subsidiary of such Loan
Party and all other taxes, fees or other charges imposed on such Loan Party, any
Subsidiary of such Loan Party or any Property of such Loan Party or Subsidiary
of such Loan Party by any Governmental Authority (other than any the amount or
validity of which are currently being contested in good faith by appropriate
proceedings and with respect to which adequate reserves (based on such Loan
Party's good faith estimate of the contested liability) have been provided on
the books of such Loan Party or Subsidiary of such Loan Party); no tax Lien has
been filed, and, to the knowledge of such Loan Party, no claim is being
asserted, with respect to any such tax, fee or other charge.
SECTION 5.12. ERISA LIABILITIES. All currently existing ERISA Plans are
listed in the DISCLOSURE SCHEDULE. Except as disclosed in the Initial Financial
Statements or in the DISCLOSURE SCHEDULE, no Termination Event has occurred with
respect to any ERISA Plan and each Loan Party is in compliance with ERISA in all
material respects. No Loan Party is required to contribute to, or has any other
absolute or contingent liability in respect of, any "multiemployer plan" as
defined in Section 4001 of ERISA. Except as set forth in the DISCLOSURE
SCHEDULE: (i) no "accumulated funding deficiency" (as defined in Section 412(a)
of the Internal Revenue Code of 1986, as amended) exists with respect to any
ERISA Plan, whether or not waived by the Secretary of the Treasury or his
delegate, and (ii) the current value of each ERISA Plan's benefits does not
exceed the current value of such ERISA Plan's assets available for the payment
of such benefits by more than $500,000.
SECTION 5.13. NAMES AND PLACES OF BUSINESS. No Loan Party has, since
formation, had, been known by, or used any other partnership, trade or
fictitious name, except as disclosed in the DISCLOSURE SCHEDULE. Except as
otherwise indicated in the DISCLOSURE SCHEDULE, the chief executive office and
principal place of business of each Loan Party are (and since formation have
been) located at the address of the Borrower set out in SECTION 11.3. Except as
indicated in the DISCLOSURE SCHEDULE, no Loan Party has any other office or
place of business.
SECTION 5.14. LOAN PARTIES' SUBSIDIARIES. No Loan Party presently has any
Subsidiary or own any stock in any other corporation or association except those
listed in the DISCLOSURE SCHEDULE. No Loan Party is a member of any general or
limited partnership, joint venture or association of any type whatsoever except
those listed in the DISCLOSURE SCHEDULE. As of the date hereof each Loan Party
owns, directly or indirectly, the equity interest in each of its Subsidiaries
which is indicated in the DISCLOSURE SCHEDULE.
SECTION 5.15. GOVERNMENT REGULATION. No Loan Party is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Investment Company Act of 1940 (as any of the preceding acts have been amended)
or any other statute, law, regulation or decree which regulates the incurring by
such Person of Debt, including statutes, laws, regulations or decrees relating
to common contract carriers or the sale of electricity, gas, steam, water or
other public utility services.
SECTION 5.16. INSIDER. No Loan Party nor any Person having "control" (as
that term is defined in 12 U.S.C. ss. 375(b)(5) or in regulations promulgated
pursuant thereto) of any Loan Party is an "executive officer", "director" or
"principal shareholder" (as those terms are defined in 12 U.S.C. ss. 375(b) or
in regulations promulgated pursuant thereto) of any Bank, of a bank holding
company of which any Bank is a Subsidiary or of any Subsidiary of a bank holding
company of which any Bank is a Subsidiary.
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SECTION 5.17. PROCEEDS OF LOANS; REGULATION U. The proceeds of the Loans
shall be used as set forth in SECTION 2.3. The Borrower is not engaged
principally, or as one of the Borrower's important activities, in the business
of extending credit to others for the purpose of purchasing or carrying such
Margin Stock, and no part of the proceeds of any Loans will be used to purchase
or carry any Margin Stock or to extend credit to others for the purpose of
purchasing or carrying any Margin Stock. No more than 25% of the assets of the
Borrower and its Subsidiaries are Margin Stock. None of the Borrower and its
Subsidiaries nor any agent acting on their behalf, have taken or will knowingly
take any action which would cause this Credit Agreement or any other Loan
Document to violate Regulation U or Regulation X or to violate the Securities
Exchange Act of 1934, as amended.
SECTION 5.18. ENVIRONMENTAL MATTERS. Except as disclosed on the DISCLOSURE
SCHEDULE or as could not reasonably be expected to result in a Material Adverse
Effect:
(a) Each Loan Party and each of its Subsidiaries is in compliance with all
applicable Environmental Laws;
(b) Each Loan Party and each of its Subsidiaries has obtained all consents
and permits required under all applicable Environmental Laws to operate its
business as presently conducted or as proposed to be conducted and all such
consents and permits are in full force and effect and such Loan Party and its
Subsidiaries are in compliance with all terms and conditions of such approvals;
(c) No Loan Party nor any of its Subsidiaries or any of the present
Property or operations or the past Property or operations of such Loan Party or
any Subsidiary of such Loan Party is subject to any order from or agreement with
any Governmental Authority or private party respecting (i) failure to comply
with any Environmental Law or any Remedial Action or (ii) any Environmental
Liabilities arising from the Release or threatened Release except those orders
and agreements with which such Loan Party or such Subsidiary of such Loan Party
has complied;
(d) None of the operations of such Loan Party or any Subsidiary of such
Loan Party is subject to any judicial or administrative proceeding alleging a
violation of, or liability under, any Environmental Law;
(e) None of the operations of such Loan Party or any Subsidiary of such
Loan Party, to its best knowledge after due inquiry, is the subject of any
investigation by any Governmental Authority evaluating whether any Remedial
Action is needed to respond to a Release or threatened Release;
(f) Neither such Loan Party nor any Subsidiary of such Loan Party has been
required to file any notice under any Environmental Law indicating past or
present treatment, storage or disposal of a hazardous waste as defined by 40 CFR
Part 261 or any state or local equivalent;
(g) Neither such Loan Party nor any Subsidiary of such Loan Party has been
required to file any notice under any applicable Environmental Law reporting a
Release (other than minor or DE MINIMIS Releases);
(h) There is not now, nor, to the best knowledge of such Loan Party, has
there ever been, on or in any Property of such Loan Party or of any Subsidiary
of such Loan Party:
(i) any unauthorized generation, treatment, recycling, storage or
disposal of any hazardous waste as defined by 40 CFR Part 261 or
any state or local equivalent,
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(ii) any underground storage tanks or surface impoundments without
proper permits,
(iii)any asbestos-containing material, or
(iv) any polychlorinated biphenyls (PCBs) used in hydraulic oils,
electrical transformers or other equipment;
(i) There have been no written commitments or agreements involving such
Loan Party or any Subsidiary of such Loan Party from or with any Governmental
Authority or any private entity (including, without limitation, the owner of the
Property or any portion thereof) relating to the generation, storage, treatment,
presence, Release, or threatened Release on or into any of the Properties of
such Loan Party or any Subsidiary of such Loan Party or the environment
(including off-site disposal of Hazardous Materials) or any Remedial Action with
respect thereto in non-compliance or violation of any Environmental Law;
(j) No Loan Party nor any Subsidiary of such Loan Party has received any
written notice or claim to the effect that it is or may be liable to any Person
as a result of the Release or threatened Release;
(k) No Loan Party nor any Subsidiary of such Loan Party has any known
liability in connection with any material Release or material threatened
Release; and
(l) After due inquiry, no Environmental Lien has attached to any Properties
of such Loan Party or any Subsidiary of such Loan Party.
(m) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or which are in the possession of
any Loan Party in relation to any Properties or facility now or previously owned
or leased by any Loan Party which have not been made available to the Banks.
SECTION 5.19. REGULATORY CONTROLS. Except as disclosed on the DISCLOSURE
SCHEDULE, no Loan Party has received any notices concerning, and there are no
existing orders of, proceedings pending before or other requirements of any
Governmental Authority, expressly including the Bureau of Land Management,
Minerals Management Service, or the Federal Energy Regulatory Commission and the
comparable Governmental Authority for the States of Alabama, Colorado,
Louisiana, Mississippi, Oklahoma, Texas and Utah, other than as may affect the
oil and gas industry in general, which (a) could or will materially interfere
with such Loan Party's development, production, operation, transportation and/or
marketing of the such Loan Party's Oil and Gas Interests or (b) could or will
require such Loan Party to refund any portion of the proceeds received or to be
received from the sale of Hydrocarbons from such Loan Party's Oil and Gas
Interests.
SECTION 5.20. ENGINEERING REPORT. The Initial Engineering Reports are based
upon the working and net revenue interests of the Loan Parties in the Borrowing
Base Properties which are identified in SCHEDULE 5.10 and represent an estimate
of the value of the Proved Reserves of the Borrowing Base Properties. No Loan
Party is aware of any misstatement of fact in the statement of assumptions
underlying the preparation of the Initial Engineering Reports. There have been
no changes (other than projected production declines disclosed in the Initial
Engineering Reports) in the Borrowing Base Properties that would result in a
Material Adverse Effect since the effective date of the Initial Engineering
Reports.
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SECTION 5.21. DESIGNATED CONTRACTS. None of the Designated Contracts
contain any unusual or burdensome provisions that will materially affect or
impair the operation of the Borrower or any of its Subsidiaries. None of the
Designated Contracts have been terminated or modified (other than modifications
made prior to the date hereof and disclosed to the Banks, or as permitted under
this Credit Agreement) and each such Designated Contract is in full force and
effect as of the date hereof. As of the date hereof such Designated Contracts
constitute all material agreements with respect to the Borrowing Base Properties
of the Borrower and the Subsidiary Guarantors. Neither the Borrower nor any
Subsidiary of the Borrower is a partner or joint venturer in any other
partnership or joint venture covering or affecting the Borrowing Base Properties
not covered by the Designated Contracts. Neither the Borrower nor any Subsidiary
or Affiliate of the Borrower is in default in any material respect under any
Designated Contract to which it is a party, and the Borrower has no knowledge
that any other party to any Designated Contract is in default in any material
respect thereof.
SECTION 5.22. SOLVENCY. No Loan Party nor any Subsidiary of a Loan Party
(i) is "insolvent" (within the meaning of Section 101(32) of the Bankruptcy
Code, Section 2 of the Uniform Fraudulent Conveyance Act or Section 2 of the
Uniform Fraudulent Transfer Act) or will become insolvent as a result of the
incurrence of any obligation under any Loan Document to which it is a party;
(ii) has unreasonably small capital (after giving effect to the transactions
contemplated in any Loan Document to which it is a party) for the conduct of its
existing and contemplated business and (iii) is unable to perform its contingent
obligations and other commitments as they mature in the normal course of
business.
SECTION 5.23. BUSINESS. No Loan Party nor any Subsidiary of any Loan Party
has conducted or is conducting any business other than business relating to the
acquisition, exploration, development, financing, ownership, operation,
maintenance, storage, trading, transporting and marketing of its Oil and Gas
Interests as currently conducted.
SECTION 5.24. MORTGAGED PROPERTY. As of the Effective Date, the Borrowing
Base Properties described on SCHEDULE 5.10 hereto are (i) subject to and covered
by the Lien of the Mortgages, (ii) the subject of updated title opinions
satisfactory to the Required Banks, and (iii) have an aggregate Recognized
Reserve Value of at least $30,000,000.
SECTION 5.25. CONSOLIDATED BUSINESS ENTITY. The Borrower and its
Subsidiaries are operated as a part of one consolidated business entity and are
directly or indirectly dependent upon each other for and in connection with
their respective business activities.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as this Credit Agreement shall remain in effect or the principal of
or interest on any Loan, or any Letter of Credit, or any reimbursement
obligation with respect to any Letter of Credit, or any commitment or other fee,
expense, compensation or any other amount payable under any Loan Document shall
remain unpaid or outstanding or the Banks shall have any Commitments hereunder
unless the Required Banks shall otherwise consent in writing, the Borrower
warrants, covenants and agrees that:
SECTION 6.1. PAYMENT AND PERFORMANCE. The Borrower will pay all amounts due
under each Loan Document to which it is a party in accordance with the terms
thereof and will observe, perform and
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comply with every covenant, term and condition expressed or implied therein. The
Borrower will cause each other Loan Party to pay all amounts due under each Loan
Document to which such Loan Party is a party in accordance with the terms
thereof and to observe, perform and comply with every such term, covenant and
condition expressed or implied therein.
SECTION 6.2. BOOKS, FINANCIAL STATEMENTS AND REPORTS. The Borrower will at
all times maintain, and will cause each other Loan Party to at all times
maintain, full and accurate books of account and records. The Borrower will
maintain, and will cause each other Loan Party to maintain, a standard system of
accounting and the Borrower will furnish, or cause to be furnished, the
following statements and reports to the Banks at the Borrower's expense:
(a) As soon as available, and in any event within ninety (90) days after
the end of each Fiscal Year, complete Consolidated financial statements of the
Borrower and its Subsidiaries together with all notes thereto, prepared in
reasonable detail in accordance with GAAP, together with an opinion, based on an
audit using generally accepted auditing standards, by Arthur Andersen & Co., or
other independent certified public accountants selected by the Borrower and
acceptable to the Required Banks, stating that such Consolidated financial
statements have been so prepared. These financial statements shall contain a
Consolidated balance sheet as of the end of such Fiscal Year and Consolidated
statements of earnings, of cash flows, and of changes in owners' equity for such
Fiscal Year, each setting forth in comparative form the corresponding figures
for the preceding Fiscal Year. In addition, within ninety (90) days after the
end of each Fiscal Year the Borrower will furnish a report signed by such
accountants stating that they have read this Credit Agreement, containing
calculations showing compliance (or non-compliance) at the end of such Fiscal
Year with the requirements of SECTION 7.14 and further stating that in making
the examination and reporting on the Consolidated financial statements described
above they did not conclude that any Default existed at the end of such Fiscal
Year or at the time of their report, or, if they did conclude that a Default
existed, specifying its nature and period of existence.
(b) As soon as available, and in any event within forty-five (45) days
after the end of each Fiscal Quarter, the Borrower's Consolidated balance sheet
as of the end of such Fiscal Quarter and Consolidated statements of the
Borrower's earnings and cash flows for the period from the beginning of the then
current Fiscal Year to the end of such Fiscal Quarter, all in reasonable detail
and prepared in accordance with GAAP, subject to changes resulting from normal
year-end adjustments. In addition, the Borrower will, together with each such
set of financial statements and each set of financial statements furnished under
subsection (b)(i) of this section, furnish a certificate in the form of EXHIBIT
J (the "COMPLIANCE CERTIFICATE") (i) signed by the chief financial officer of
the Borrower stating that such financial statements are accurate and complete,
stating that he has reviewed the Loan Documents, containing calculations showing
compliance (or non-compliance) at the end of such Fiscal Quarter with the
requirements of SECTION 7.14 and stating that no Default exists at the end of
such Fiscal Quarter or at the time of such certificate or specifying the nature
and period of existence of any such Default and (ii) signed by the Responsible
Officer of the Borrower in charge of environmental compliance stating that the
Borrower and its Subsidiaries are in substantial compliance with all
Environmental Laws and permits.
(c) Promptly upon their becoming available, copies of all financial
statements, reports and notices sent by any Loan Party to its joint venturers,
partners or shareholders, and all registration statements, periodic reports and
other statements and schedules filed by any Loan Party with any securities
exchange, the Securities and Exchange Commission or any similar Governmental
Authority.
(d) By March 31 of each year, an Engineering Report effective as of
December 31 of such year prepared by Huddleston & Co., Inc., or other
independent petroleum engineers chosen by the Loan Parties and acceptable to the
Banks, and by September 30 of each year, an Engineering Report effective as of
June 30 of such year prepared by personnel of the Loan Parties. Each Engineering
Report shall
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be in form and substance reasonably satisfactory to each Bank covering all of
the Borrowing Base Properties, shall set forth the Proved Reserves attributable
to such Borrowing Base Properties and a projection of the rate of production and
net income with respect to the Proved Reserves as of the date of such
Engineering Report, all in accordance with the guidelines published by the
Securities and Exchange Commission. If requested by the Banks, the Loan Parties
shall permit and cooperate with, at the Borrower's cost and expense, an annual
review on or about June 30 of each year of the changes since the preparation of
the most recent Engineering Reports prepared by the independent petroleum
engineer which review shall be conducted by an independent consulting engineer
selected by the Banks. Each report shall take into account any "over-produced"
status under gas balancing arrangements, and, if applicable, shall contain
information and analysis comparable in scope to that contained in the Initial
Engineering Reports. Each report concerning all Borrowing Base Properties of the
Loan Parties shall distinguish (or shall be delivered together with a
certificate from an appropriate officer of such Loan Party which distinguishes)
those Properties treated in the report which are Collateral from those
Properties treated in the report which are not Collateral.
(e) As soon as available, and in any event within forty-five (45) days
after the end of each month, a report describing by lease or reporting unit the
gross volume of production and sales attributable to production during such
month from the Borrowing Base Properties described in SECTION 6.2(D) above and
describing the related severance taxes, other taxes, leasehold operating
expenses and capital costs attributable thereto and incurred during such month.
(f) If requested by the Agent, each Loan Party shall permit and cooperate
with an environmental and safety review made in connection with any of the Loan
Party's Borrowing Base Properties acquired after the Closing Date. Such review
shall be made no more than one time during each Fiscal Year beginning with the
Fiscal Year 1997, by Pilko & Associates or other consultants selected by the
Required Banks.
(g) Concurrently with the annual renewal of the insurance policies of each
Loan Party, the Borrower shall, if requested by the Agent in writing, cause a
certificate or report to be issued by J.H. Blades & Associates or other
insurance consultants satisfactory to the Required Banks certifying that each
Loan Party's insurance for the next succeeding year after such renewal (or for
such longer period for which such insurance is in effect) complies with the
provisions of this Credit Agreement and the Security Documents.
SECTION 6.3. OTHER INFORMATION AND INSPECTIONS. Each Loan Party will
furnish to the Agent any information which the Banks may from time to time
reasonably request through the Agent concerning any covenant, provision or
condition of the Loan Documents or any matter in connection with such Persons'
businesses and operations, including without limitation business plans,
environmental compliance matters, budgets, forecasts and sales reports. Subject
to SECTION 6.2(F), each Loan Party will permit representatives appointed by the
Agent (including independent accountants, agents, attorneys, appraisers and any
other Persons) to visit during normal business hours at their sole risk and
inspect any of such Person's Property, including its books of account, other
books and records, and any facilities or other business assets, and to make
extra copies therefrom and photocopies and photographs thereof, and to write
down and record any information such representatives obtain, and each Loan Party
shall permit the Agent or its representatives to investigate and verify the
accuracy of the information furnished to the Agent in connection with the Loan
Documents and to discuss all such matters with its officers, employees and
representatives. Each of the Agent, the Issuing Bank and each Bank agrees that
it will take all reasonable steps to keep confidential any proprietary
information given to it by any Loan Party, provided, however, that this
restriction shall not apply to information which (i) has at the time in question
entered the public domain, (ii) is required to be disclosed by any Requirement
of Law (whether valid or invalid)
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of any Governmental Authority, (iii) is disclosed to any Affiliate of the Agent,
the Issuing Bank or any Bank, auditors, attorneys, or agents, or (iv) is
furnished to any purchaser or prospective purchaser of participations or other
interests in the Loans or the Notes or the Letters of Credit. Notwithstanding
anything to the contrary contained herein, none of the Agent, the Issuing Bank
nor any Bank nor any of their respective representatives shall be entitled to
view or copy any information in any Loan Party's possession which is subject to
any confidentiality agreement with any third party without having first entered
into and agreeing to be bound by such confidentiality agreement.
SECTION 6.4. NOTICE OF MATERIAL EVENTS AND CHANGE OF ADDRESS. The Borrower
shall deliver, or cause to be delivered, to the Agent:
(a) promptly and in any event within five (5) Business Days after any
Responsible Officer of the Borrower obtains knowledge thereof, notice of
any event or change which could reasonably be expected to result in a
Material Adverse Change,
(b) promptly (but in all events within five (5) Business Days) after
any Responsible Officer obtains knowledge thereof, notice of the occurrence
of any event which constitutes a Default or Event of Default, such notice
to specify the nature and period of existence of such Default or Event of
Default, and what action the Borrower has taken, are taking or propose to
take with respect thereto,
(c) promptly and in any event within five (5) Business Days after any
Responsible Officer of the Borrower obtains knowledge thereof, notice of
the occurrence of any Termination Event,
(d) promptly and in any event within five (5) Business Days after any
Responsible Officer of the Borrower obtains knowledge thereof, notice of
the institution of or threat in writing of, any material action, suit,
proceeding, governmental investigation or arbitration against or affecting
any Loan Party or any Subsidiary of a Loan Party not previously disclosed
in writing to the Banks, which if adversely determined, is likely to result
in a material judgment or liability in excess of $500,000 in the aggregate
and/or could reasonably be expected to result in a Material Adverse Effect,
or any material adverse development in any Existing Litigation,
Upon the occurrence of any of the foregoing each Loan Party, as relevant,
will take all necessary or appropriate steps to remedy promptly any such
material adverse change, Default, or Termination Event, to protect against any
such adverse claim or to defend any such suit or proceeding, and to resolve all
controversies on account of any of the foregoing. The Borrower will also notify
the Agent, the Issuing Bank, each Bank and the Agent's counsel in writing at
least twenty Business Days prior to the date that any Loan Party changes its
name or the location of its chief executive office or principal place of
business or the place where it keeps its books and records concerning the
Collateral, furnishing with such notice any necessary financing statement
amendments or requesting the Agent and its counsel to prepare the same.
SECTION 6.5. MAINTENANCE OF OWNERSHIP; PROPERTIES.
(a) Except as expressly permitted by the terms of this Credit Agreement,
each Loan Party shall maintain at all times (i) a net revenue interest in the
Borrowing Base Properties of such Loan Party not less than the net revenue
interest set forth in the most recent Engineering Report utilized by the Banks
in determining the then effective Borrowing Base, and (ii) a working interest in
the Borrowing Base Properties of such Loan Party not greater than the working
interest set forth in the most recent Engineering Report utilized by the Banks
in determining the then effective Borrowing Base.
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(b) Each Loan Party will comply, and will cause each of its Subsidiaries to
comply, in all material respects with all Material Contracts applicable to or
relating to the Borrowing Base Properties.
(c) Each Loan Party will maintain, preserve, protect, and keep all
Collateral and all other material Property necessary in the conduct of its
business in good condition and in compliance with all applicable laws, rules and
regulations, and will from time to time make all repairs, renewals and
replacements needed to enable the business and operations carried on in
connection therewith to be properly and advantageously conducted at all times.
SECTION 6.6. MAINTENANCE OF EXISTENCE AND QUALIFICATIONS. Each Loan Party
which is a corporation or partnership will maintain and preserve its corporate
or partnership existence and its rights and franchises in full force and effect
and will qualify to do business as a foreign corporation or partnership in all
states or jurisdictions where required by applicable law, except where the
failure so to qualify could not reasonably be expected to result in a Material
Adverse Effect.
SECTION 6.7. PAYMENT OF TRADE DEBT, TAXES, ETC. Each Loan Party will (i)
timely file all required tax returns; (ii) timely pay all taxes, assessments,
and other governmental charges or levies imposed upon it or upon its income,
profits or Property; (iii) within ninety (90) days after the same becomes due
pay all Debt owed by it on ordinary trade terms to vendors, suppliers and other
Persons providing goods and services used by it in the ordinary course of its
business; (iv) pay and discharge when due all other Debt now or hereafter owed
by it; and (v) maintain appropriate accruals and reserves for all of the
foregoing Debt in accordance with GAAP. Each Loan Party may, however, delay
paying or discharging any such Debt so long as it is in good faith contesting
the validity thereof by appropriate proceedings and has set aside on its books
adequate reserves therefor.
SECTION 6.8. INSURANCE. Each Loan Party will maintain or cause to be
maintained, and will cause each Subsidiary of such Loan Party to maintain or
cause to be maintained (and will use all reasonable and necessary efforts to
cause all operators of Borrowing Base Properties to maintain or cause to be
maintained) at all times, insurance covering such risks as are customarily
carried by businesses similarly situated. Each Loan Party will maintain the
additional insurance coverage as described in the respective Security Documents.
Each Loan Party shall cause any insurance policies covering Collateral to be
endorsed (i) to provide for payment of losses to the Agent for the benefit of
the Banks as loss payee as its interests may appear, (ii) to provide that such
policies may not be canceled or reduced or affected in any material manner for
any reason without fifteen days prior notice to the Banks, (iii) to provide for
any other matters specified in any applicable Security Document or which
Required Banks may reasonably require; and (iv) to provide for insurance against
fire, casualty and any other hazards normally insured against, in the amount of
the full value (less a reasonable deductible not to exceed amounts customary in
the industry for similarly situated businesses and Properties) of the Property
insured. Each Loan Party shall at all times maintain insurance against its
liability for injury to Persons or Property with financially sound and reputable
insurers, and shall cause the Agent for the benefit of the Banks to be named as
additional insured on any such policies.
SECTION 6.9. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated by this Credit Agreement are consummated, the Loan Parties will
promptly (and in any event, within thirty (30) calendar days after any invoice
or other statement or notice) pay (i) all reasonable costs and expenses incurred
by or on behalf of the Agent (including reasonable attorneys' fees, consultants
fees and engineering fees and out-of-pocket expenses) in connection with (1) the
negotiation, preparation, execution and delivery of the Loan Documents, and any
and all consents, waivers or other documents or instruments relating thereto
(other than any costs or expenses incurred in connection with an assignment
under SECTION 11.4, including the preparation, execution and delivery of any
assignment
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documents or new Notes), (2) the filing, recording, refiling and re-recording of
any Loan Documents and any other documents or instruments or further assurances
required to be filed or recorded or refiled or re-recorded by the terms of any
Loan Document, (3) the borrowings hereunder and other action reasonably required
in the course of administration hereof, (4) monitoring or confirming (or
preparation or negotiation of any document related to) any Loan Party's
compliance with any covenants or conditions contained in this Credit Agreement
or in any Loan Document, and (5) Upon and during the continuance of a Default,
the defense or enforcement of the Loan Documents (including this section) or the
defense of the Agent's, the Issuing Bank's or any Bank's exercise of its
respective rights under any of the Loan Documents; and (ii) all transfer, stamp,
mortgage, documentary or other similar taxes, assessments or charges levied by
any Governmental Authority in respect of this Credit Agreement or any of the
other Loan Documents or any other document referred to herein or therein. In
addition to the foregoing, until all Obligations have been paid in full, the
Loan Parties will also pay or reimburse the Agent for all reasonable
out-of-pocket costs and expenses of the Agent and its respective agents or
employees in connection with the continuing administration of the Loans, the
Letters of Credit and the related due diligence of the Agent.
SECTION 6.10. PERFORMANCE ON LOAN PARTIES' BEHALF. If any Loan Party fails
to pay any taxes, insurance premiums, expenses, attorneys' fees or other amounts
it is required to pay under any Loan Document, the Agent and/or the Banks may
pay the same. The Borrower shall immediately reimburse the Banks and/or the
Agent for any such payments and each amount paid by Banks and/or the Agent shall
constitute an Obligation owed hereunder which is due and payable on the date
such amount is paid by the Banks and/or the Agent.
SECTION 6.11. INTEREST. Each of the Loan Parties hereby promises to pay
interest to the Banks and/or the Agent, as the case may be, at the Default Rate
on all Obligations which such Loan Party has in this Credit Agreement or the
other Loan Documents promised to pay (including Obligations to pay fees or to
reimburse or indemnify the Banks and/or the Agent) and which are not paid when
due.
SECTION 6.12. COMPLIANCE WITH AGREEMENTS AND LAW. Each Loan Party will
perform all material obligations it is required to perform under the terms of
each Material Contract to which it is a party or by which it or any of its
Properties is bound. Each Loan Party will conduct its business and affairs in
compliance with all laws, regulations, and order applicable thereto.
SECTION 6.13. ENVIRONMENTAL MATTERS.
(a) Each Loan Party will comply in all material respects with all
Environmental Laws now or hereafter applicable to such Loan Party and shall
obtain, at or prior to the time required by applicable Environmental Laws, all
environmental, health and safety permits, licenses and other authorizations
necessary for its operations and will maintain such authorizations in full force
and effect.
(b) Each Loan Party will promptly furnish to the Agent all written notices
of violation, orders, claims, citations, complaints, penalty assessments, suits
or other proceedings received by any Loan Party, or of which it has notice,
pending or threatened against any Loan Party, by any Governmental Authority with
respect to any alleged violation of or non-compliance with any Environmental
Laws or any permits, licenses or authorizations in connection with its ownership
or use of its Properties or the operation of its business, except where any such
alleged violations or incidents of non-compliance would not, individually or in
the aggregate, result in a penalty, assessment, fine or other cost or liability
exceeding $500,000.
(c) Each Loan Party will promptly furnish to the Agent all requests for
information, notices of claim, demand letters, and other notifications, received
by any Loan Party in connection with its
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ownership or use of its Properties or the conduct of its business, relating to
potential responsibility with respect to any investigation or clean-up of
Hazardous Materials at any location, except where any such alleged
responsibility would not, individually or in the aggregate, result in a penalty,
assessment, fine or other cost or liability exceeding $500,000.
SECTION 6.14. EVIDENCE OF COMPLIANCE. Each Loan Party will furnish to the
Agent at such Loan Party's expense all evidence which the Agent from time to
time reasonably request on behalf of the Banks, or any Bank, as to the accuracy
and validity of or compliance with all representations, warranties and covenants
made by any Loan Party in the Loan Documents, the satisfaction of all conditions
contained therein, and all other matters pertaining thereto.
ARTICLE VII
NEGATIVE COVENANTS
So long as this Credit Agreement shall remain in effect or the principal of
or interest on any Loan, or any Letter of Credit, or any reimbursement
obligation with respect to any Letter of Credit, or any commitment or other fee,
expense, compensation or any other amount payable under any Loan Document shall
remain unpaid or outstanding or the Banks shall have any Commitments hereunder
unless the Required Banks shall otherwise consent in writing, the Borrower
warrants, covenants, and agrees that:
SECTION 7.1. LIMITATIONS ON DEBT. The Borrower shall not, and shall not
permit any of its Subsidiaries to, create, incur, assume or otherwise become or
remain liable with respect to, any Debt, except for:
(a) Debt arising hereunder and under the other Loan Documents;
(b) Debt outstanding on the Effective Date and described in the DISCLOSURE
SCHEDULE, in each case in a principal amount at any one time outstanding not to
exceed the amount set forth in the DISCLOSURE SCHEDULE hereof and secured only
by the Property described in the DISCLOSURE SCHEDULE;
(c) Endorsements of negotiable instruments for collection in the ordinary
course of business;
(d) Current liabilities (exclusive of Funded Debt) for accounts payable and
expense accruals incurred or assumed in the ordinary course of business,
PROVIDED such accounts payable have not remained unpaid for a period of one
hundred twenty (120) days after the same were incurred unless currently being
contested in good faith or by appropriate proceedings;
(e) Liabilities for taxes, assessments, governmental charges or levies not
yet due and payable;
(f) Liabilities incurred under Commodity Hedge Transactions permitted
pursuant to SECTION 7.3 hereof;
(g) Debt of the Subsidiary Guarantors owing to the Borrower evidenced by
the Intercompany Loan Documents, PROVIDED, that the aggregate amount of all Debt
incurred by the Subsidiary Guarantors pursuant to this SUBSECTION 7.1(G) shall
not exceed the Total Commitment at any one time outstanding;
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(h) Debt of the Loan Parties which is also an Investment to the extent
permitted by SUBSECTION 7.7(D), (E) ,(F) OR (G) hereof;
(i) Unsecured Debt of Borrower issued subsequent to the Closing Date (a) in
a principal sum that is acceptable to the Required Banks in their sole and
absolute discretion, (b) that is expressly subordinated to the Obligations on
terms acceptable to the Required Banks in their sole and absolute discretion,
(c) that does not provide for payment of any principal (including sinking fund
payments) prior to the October 31, 2000, other than redemptions or prepayments,
if any, which may be required in the event of the death of a holder of such
Subordinated Obligations, PROVIDED, that such prepayments or redemptions shall
not exceed $300,000 in any Fiscal Year, and (d) that contains such affirmative
and negative covenants and events of default as may be acceptable to the
Required Banks in their sole and absolute discretion ("Subordinated
Obligations"); and
(j) Additional Debt not permitted by SUBSECTIONS 7.1(A) THROUGH (I) above,
PROVIDED, HOWEVER, that the aggregate amount of all Debt incurred by the
Borrower and its Subsidiaries pursuant to SECTIONS 7.1(J), 7.7(F) AND 7.11 shall
not exceed $5,500,000 at any one time outstanding.
SECTION 7.2. LIMITATIONS ON LIENS. The Borrower shall not, and shall not
permit any of its Subsidiaries to, create, assume or permit to exist any Lien
upon any of the Properties which it now owns or hereafter acquires, except, to
the extent not otherwise forbidden by the Security Documents:
(a) Liens which secure Obligations only;
(b) Statutory Liens for taxes, statutory mechanics' and materialmen's Liens
incurred in the ordinary course of business, and other similar Liens incurred in
the ordinary course of business, provided such Liens do not secure Funded Debt
and secure only Debt which is not delinquent or which is being contested as
provided in SECTION 6.7;
(c) Production Sales Contracts, division orders, operating agreements and
other agreements customary in the oil and gas business for processing and
selling Hydrocarbons, PROVIDED that no Debt which is secured by any Liens
created thereunder is overdue, or if overdue, such Debt is being contested in
good faith by appropriate proceedings and adequate reserves are maintained on
the books of such Person with respect thereto (based on the Borrower's good
faith estimate of the contested Debt) and only insofar as they do not (i) reduce
the net revenue interest of any Loan Party in any Borrowing Base Property below
the undivided net revenue interest specified for such Loan Party in the most
recent Engineering Report utilized by the Banks in determining the then
effective Borrowing Base and/or (ii) increase the undivided working interest
specified for such Loan Party in the most recent Engineering Report utilized by
the Banks in determining the then effective Borrowing Base; and
(d) Liens on the Property located at 200 North Canal Street, Natchez,
Mississippi 39120 securing the Debt described in SECTION 7.1(B) above.
(e) Liens consisting of pledges or deposits made in the ordinary course of
business in compliance with workers' compensation, unemployment insurance and
other social security laws or regulations;
(f) Liens consisting of deposits of Property to secure the performance of
bids, trade contracts (other than for Debt), leases (other than Capitalized
Lease Obligations), statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the ordinary course of
business;
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(g) Liens in respect of margin deposits permitted under SUBSECTION 7.7(F)
securing Debt permitted under SUBSECTION 7.1(F);
(g) Purchase money Liens upon or in any Property acquired by a Loan Party
or any of its Subsidiaries in the ordinary course of business to secure the
deferred portion of the purchase price of such Property or any indebtedness
incurred to finance the acquisition of such Property PROVIDED, HOWEVER, that (i)
no such Lien shall be extended to cover Property other than the Property being
acquired, and (ii) the Debt secured thereby is permitted pursuant to SUBSECTION
7.1(J); and
(h) All other non-consensual Liens arising in the ordinary course of any
Loan Party's or such Subsidiary's business or incidental to the ownership of
their respective Properties;
PROVIDED, that no such Lien shall secure the payment of Debt that is delinquent
and PROVIDED, FURTHER, that no Permitted Lien referred to in subclauses (b)
through (h) above shall in the aggregate materially detract from the value or
marketability of the Property subject thereto or materially impair the use or
operation thereof in the operation of the business of the Borrower or such
Subsidiary.
SECTION 7.3. HEDGE TRANSACTIONS. The Borrower will not enter into, and the
Borrower will not permit any of its Subsidiaries to enter into, any Commodity
Hedge Transaction or Interest Hedge Transactions, or in any manner be liable on
any Commodity Hedge Transaction or Interest Hedge Agreement, except:
(a) Commodity Hedge Transactions entered into with the purpose and effect
of fixing pricing on oil and/or gas expected to be produced by any Loan Party,
provided that at all times: (1) no such contract fixes a price for a term of
more than twenty-four (24) months unless approved in writing by the Required
Banks not to be unreasonably withheld; (2) the aggregate monthly production
covered by all such contracts (determined, in the case of contracts that are not
settled on a monthly basis, by a monthly proration acceptable to the Required
Banks) for any single month does not in the aggregate exceed seventy-five
percent (75%) of Loan Parties' aggregate projected oil and gas production from
Proved Developed Producing Hydrocarbon Reserves anticipated to be sold in the
ordinary course of the Loan Parties' businesses for such month, (3) no such
contract requires any Loan Party to put up any security against the event of its
nonperformance other than letters of credit or deposits of money prior to actual
default by such Loan Party in performing its obligations thereunder permitted by
SECTION 7.7(F) and (4) each such contract shall be either in existence as of the
Closing Date or with a Bank or any Affiliate of such Bank, Enron Risk Management
Services Corp. (so long as Enron Corporation, its corporate parent, has
investment grade-rated long-term obligations by Standard & Poor's Corporation or
Moody's Investors Services), or with a counterparty or have a guarantor of the
obligation of the counterparty who, at the time the contract is made, has
long-term obligations rated AA or Aa2 or better, respectively, by Standard &
Poor's Corporation or Moody's Investors Services, Inc. (or a successor credit
rating agency) or approved in writing by the Required Banks.
(b) Interest Hedge Agreements entered into with the purpose and effect of
fixing interest rates on a principal amount of indebtedness of the Borrower that
is accruing interest at a variable rate, provided that (1) the aggregate
notional amount of such contracts never exceeds eighty percent (80%) of the
anticipated outstanding principal balance of the indebtedness of the Borrower to
be hedged by such contracts or an average of such principal balances calculated
using a generally accepted method of matching interest swap contracts to
declining principal balances, (2) the floating rate index of each such contract
generally matches the index used to determine the floating rates of interest on
the corresponding indebtedness of the Borrower to be hedged by such contract and
(3) each such contract shall be with a Bank or an Affiliate of such Bank or with
a counterparty or have a guarantor of the obligation of the counterparty who, at
the time the contract is made, has long-term obligations rated AA or Aa2 or
better,
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respectively, by Standard & Poor's Corporation or Moody's Investors Services,
Inc. (or a successor credit rating agency).
SECTION 7.4. LIMITATION ON CONSOLIDATION, MERGERS AND ACQUISITIONS;
FUNDAMENTAL CHANGES. The Borrower shall not, and shall not permit any of its
Subsidiaries to, merge or acquire substantially all of the outstanding capital
stock or assets of any other Person or liquidate, wind up or dissolve (or suffer
any liquidation or dissolution), or convey, lease, sell, transfer or otherwise
dispose of, in one transaction or series of transactions, all or any substantial
part of its business, property or assets, whether now or hereafter acquired,
except for transactions in the nature of a consolidation and/or merger (i)
involving the Borrower in which the Borrower is the surviving entity, or (ii)
involving a Subsidiary Guarantor in which the surviving entity is a wholly owned
Subsidiary of the Borrower and has duly executed and delivered a joinder to the
Subsidiary Guaranty pursuant to SECTION 8.5, or (iii) involving any other wholly
owned Subsidiary of the Borrower in which such wholly owned Subsidiary is the
surviving entity, subject in each case to the condition that immediately after
such merger or consolidation and after giving effect and PRO FORMA effect
thereto for the immediately preceding twelve-month period, no Event of Default
or Default shall have occurred, exist or be continuing. No Subsidiary Guarantor
will issue any additional units of ownership or shares of capital stock or other
securities or any options, warrants or other rights to acquire such additional
units, shares or other securities unless such additional units of ownership or
shares of capital stock or other securities or any options, warrants or other
rights to acquire such additional units, shares or other securities are owned by
the Borrower or a Subsidiary Guarantor. No Subsidiary of a Loan Party which is a
partnership or joint venture will allow any diminution of such Loan Party's
interest (direct or indirect) therein.
SECTION 7.5. LIMITATION ON SALES OF PROPERTY. The Borrower shall not, and
shall not permit any of its Subsidiaries to, sell, assign, transfer, lease,
convey or otherwise dispose of any of any of its material Properties or any
material interest therein except, to the extent not otherwise forbidden under
the Security Documents:
(a) sales of equipment which is worthless or obsolete or which is replaced
by equipment of equal suitability and value;
(b) sales of inventory (including Hydrocarbons sold as produced and seismic
data) which is sold in the ordinary course of business on ordinary trade terms;
or
(c) sales of Properties for fair market value on an arm's length basis in
an aggregate amount for Borrower and its Subsidiaries not to exceed $1,000,000
during any six month period between Periodic Determinations.
No Loan Party will sell, transfer or otherwise dispose of units of
ownership or capital stock of any other Loan Party, except to the Borrower or
another Loan Party. No Loan Party will discount, sell, pledge or assign any
notes payable to it, accounts receivable or future income except to the extent
expressly permitted under the Loan Documents.
SECTION 7.6. LIMITATION ON DISTRIBUTIONS. The Borrower will not directly or
indirectly declare or pay or incur any liability to pay, and the Borrower will
not permit any of its Subsidiaries to directly or indirectly declare or pay, or
incur any liability to pay any Distributions, except that:
(a) any Subsidiary of the Borrower may make unlimited Distributions to the
Borrower or any Subsidiary Guarantor; and
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(b) the Borrower may pay regularly scheduled Distributions to the holders
of Preferred Stock from funds legally available for such purpose; and
(c) the Borrower may make payments of Subordinated Obligations permitted in
accordance with SECTION 7.1(I)(C) above.
It shall be a condition to each Distribution permitted by the provisions of
SECTION 7.6(B) that at the time such Distribution is made: (i) no payment of
principal, interest, fees or other amount required hereunder or under the Loan
Documents has become due and has not been paid, (ii) no Default or Event of
Default has occurred, is continuing and has not been waived by the Banks or
would occur as a result of the making of such Distribution, (iii) no Borrowing
Base Deficiency exists or is reasonably expected to exist as of the next
Determination Date, and (iv) after giving effect to the proposed Distribution
the Borrower is in compliance with covenants contained in SECTION 7.14 as of
(and as if the most recently ended Fiscal Quarter of the Borrower had ended on)
the date such Distribution is made.
SECTION 7.7. LIMITATION ON INVESTMENTS. The Borrower shall not, and shall
not permit any of its Subsidiaries to, make, directly or indirectly, any
Investments, except:
(a) Investments existing on the date hereof and disclosed on the DISCLOSURE
SCHEDULE;
(b) Permitted Investments;
(c) Customary and prudent extensions of credit to customers buying goods
and services in the ordinary course of business;
(d) Intercompany Loans made by the Borrower to a Subsidiary Guarantor
pursuant to the Intercompany Loan Documents;
(e) Investments in the Borrower made in the ordinary course of business;
(f) Margin deposits or Letters of Credit posted in connection with any
Hedge Transaction permitted pursuant to SECTION 7.3, PROVIDED such margin
deposits and Letters of Credit do not exceed, in the aggregate for all such
margin deposits and Letters of Credit at any one time outstanding, the sum of
$2,500,000;
(g) Acquisitions permitted under SECTION 7.4 hereof; and
(h) Investments in connection with or related to farm-out, farm-in, joint
operating, joint venture or area of mutual interest agreements, gathering
systems, pipelines or other similar or customary arrangements entered into in
the ordinary course of business only insofar as they do not (i) reduce the net
revenue interest of the Loan Parties in any Borrowing Base Property below the
undivided net revenue interest specified for such Loan Parties in the most
recent Engineering Report utilized by the Banks in determining the then
effective Borrowing Base and/or (ii) increase the undivided working interest
without a corresponding increase in the net revenue interest specified for such
Loan Parties in the most recent Engineering Report utilized by the Banks in
determining the then effective Borrowing Base.
SECTION 7.8. LIMITATION ON NEW BUSINESSES. No Loan Party will (i) make any
expenditure or commitment or incur any obligation or enter into or engage in any
transaction except in the ordinary course of business, (ii) engage directly or
indirectly in any business or conduct any operations except in connection with
or incidental to its present businesses and operations, or (iii) make any
significant
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acquisitions or investments in any Properties other than Oil and Gas Interests
and related Properties, including without limitation, mineral leases and related
facilities, located in, or offshore of, the United States or as otherwise
approved in writing by the Required Banks.
SECTION 7.9. TRANSACTIONS WITH AFFILIATES. Except for transactions
disclosed in the DISCLOSURE SCHEDULE, no Loan Party will engage in any material
transaction with any of its Affiliates on terms which are less favorable to it
than those which would have been obtainable at the time in arm's-length dealing
with Persons other than such Affiliates.
SECTION 7.10. CERTAIN CONTRACTS; AMENDMENTS; MULTIEMPLOYER ERISA PLANS.
(a) Except as expressly provided for in the Loan Documents, no Loan Party
will, directly or indirectly, enter into, create, or otherwise allow to exist
any contract or other consensual restriction on the ability of any Person to:
(i) make Distributions to the Loan Parties, (ii) to redeem equity interests held
in it by any Loan Party, (iii) repay loans and other indebtedness owing by it to
any Loan Party, (iv) transfer any of its assets to any Loan Party, or (v)
create, incur, assume or suffer to exist any Lien in favor of Agent for the
benefit of the Banks on any of the Borrower's or any of its Subsidiaries'
assets. No Loan Party will enter into any "take-or-pay" contract or other
contract or arrangement for the purchase of goods or services which is a
Material Contract and which obligates it to pay for such goods or service
regardless of whether they are delivered or furnished to it. No Loan Party will
amend or permit any amendment to any Material Contract which releases,
qualifies, limits, makes contingent or otherwise detrimentally affects any
material right or benefit of the Agent, the Issuing Bank or any Bank under or
acquired pursuant to any Security Documents. No Loan Party will incur any
obligation to contribute to any "multiemployer plan" as defined in Section 4001
of ERISA.
(b) Neither the Borrower nor any Subsidiary of Borrower, shall enter into
or permit any modification or amendment of, or waive any material right or
obligation of any Person under, or terminate any Material Contract other than
amendments, modifications and waivers which could not have, in the reasonable
judgment of the Borrower, individually or in the aggregate, (a) a detrimental
effect on the Borrower or any of its material assets or (b) a detrimental effect
on the Agent or the Banks or any of their rights, remedies and interests under
the Loan Documents.
SECTION 7.11. SALES AND LEASEBACKS. The Borrower shall not, and shall not
permit any of its Subsidiaries to, become liable, directly or by way of
Guaranteed Obligation, with respect to any lease or any property (whether real
or personal or mixed) whether now owned or hereafter acquired, (i) which the
Borrower or such Subsidiary of the Borrower has sold or transferred or is to
sell or transfer to any other Person or (ii) which the Borrower or such
Subsidiary of the Borrower intends to use for substantially the same purposes as
any other property which has been or is to be sold or transferred by the
Borrower or such Subsidiary of the Borrower to any other Person in connection
with such lease, except that the Borrower and its Subsidiaries may enter into
such sale and leaseback arrangements with respect to compressors, PROVIDED,
HOWEVER, that the aggregate obligations of the Borrower and its Subsidiaries on
a Consolidated basis for the payment of rent or hire of any such property (real
or personal) under all such sale and leaseback arrangements shall not exceed
$2,000,000 in any period of twelve consecutive calendar months.
SECTION 7.12. MARGIN REGULATION. The Borrower shall not use or permit any
other Person to use any portion of the proceeds of any credit extended under
this Credit Agreement in any manner which might cause the extension of credit or
the application of such proceeds to violate the Securities Act of 1933 or
Securities Exchange Act of 1934 (each as amended to the date hereof and from
time to time hereafter, and any successor statute) or to violate Regulation G,
Regulation U, or Regulation X, or any
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other regulation of the Federal Reserve Board, in each case as in effect on the
date or dates of such extension of credit and such use of proceeds.
SECTION 7.13. FISCAL YEAR. No Loan Party will change its Fiscal Year.
SECTION 7.14. FINANCIAL COVENANTS. From and after the Effective Date, the
Borrower on a Consolidated basis shall not:
(a) Permit its Consolidated Tangible Net Worth at any time to be LESS than
the sum of (i) $60,000,000 PLUS, if any, (ii) fifty percent (50%) of the net
proceeds from the sale of equity securities of the Borrower and its Subsidiaries
for the period from and after the Effective Date; or
(b) Permit the ratio of the Borrower's Consolidated current assets to the
Borrower's Consolidated current liabilities to be less than 1.0 to 1.0. For
purposes of this subsection, "the Borrower's Consolidated current liabilities"
will be calculated without including any payments of principal on the Notes
which are required to be repaid within one year from the time of calculation.
(c) Permit the ratio, at the end of any Fiscal Quarter, of (i) EBITDA to
(ii) Consolidated Interest Expense to be less than 2.5 to 1.0, to be calculated
at the end of each Fiscal Quarter, for the four-Fiscal Quarter period ending
with such Fiscal Quarter.
SECTION 7.15. AMENDMENTS AND WAIVERS OF SUBORDINATED OBLIGATIONS. The
Borrower shall not, and shall not permit any Subsidiary to, change or amend (or
take any action or fail to take any action the result of which is an effective
amendment or change) or accept any waiver or consent with respect to, any
document, instrument or agreement relating to any Subordinated Obligations that
would result in (a) an increase in the principal, interest, overdue interest,
fees or other amounts payable under the Subordinated Obligations (including,
without limitation, as a result of any redemption), (c) a change in any
financial covenant under the Subordinated Obligations making such financial
covenants more restrictive, (d) a change in any default or event of default
(however designated) under the Subordinated Obligations which makes such default
or event of default more restrictive, (e) a change in any of the subordination
provisions of the Subordinated Obligations, (f) a change in any covenant, term
or provision in the Subordinated Obligations which would result in such term or
provision being more restrictive than the terms of this Credit Agreement and the
other Loan Documents, or (g) a change in any term or provision of the
Subordinated Obligations that could have, in any material respect, an adverse
effect on the interest of the Banks.
ARTICLE VIII
SECURITY
SECTION 8.1. THE SECURITY. The Obligations will be secured by the Security
Documents listed in the MORTGAGE SCHEDULE and any additional Security Documents
hereafter delivered by any Loan Party and accepted by the Banks.
SECTION 8.2. MORTGAGED PROPERTIES. The Loan Parties shall at all times (i)
cause to be subjected to the Lien of the Mortgages, Borrowing Base Properties
having an aggregate Recognized Reserve Value, as determined by reference to the
most recent Engineering Report utilized by the Banks in determining the then
effective Borrowing Base, equal to at least eighty percent (80%) of the
aggregate Recognized
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Reserve Value for all of the Borrowing Base Properties and (ii) provide, or
cause to be provided, to the Agent title opinions or other indicia of ownership
satisfactory the Banks covering the Mortgaged Properties. Each Loan Party agrees
that it shall, upon the request of the Agent, prepare a schedule of its
Borrowing Base Properties in decreasing order of Recognized Reserve Value. Each
Loan Party shall within ninety (90) calendar days from the receipt of such
request from the Agent cause to be subjected to the Lien of the Mortgages,
Borrowing Base Properties, in decreasing order of value, having an aggregate
Recognized Reserve Value equal to at least eighty percent (80%) of the aggregate
Recognized Reserve Value for all of the Borrowing Base Properties.
SECTION 8.3. FURTHER ASSURANCES; ADDITIONAL COLLATERAL. Subject to SECTION
8.2 above, each Loan Party agrees to deliver and to cause its Subsidiaries to
deliver, to further secure the Obligations whenever requested by the Agent in
its sole and absolute discretion, deeds of trust, mortgages, chattel mortgages,
security agreements, financing statements and other Security Documents in form
and substance satisfactory to the Banks for the purpose of granting, confirming,
and perfecting first and prior liens or security interests in any Property now
owned or hereafter acquired by any Loan Party. Each Loan Party will from time to
time deliver to the Agent any financing statements, continuation statements,
extension agreements and other documents, properly completed and executed (and
acknowledged when required) by any Loan Party in form and substance satisfactory
to the Banks, which the Agent reasonably requests for the purpose of perfecting,
confirming, or protecting any Liens or other rights in Collateral securing any
Obligations.
SECTION 8.4. OFFSET. To secure the repayment of the Obligations each Loan
Party hereby grants to the Agent for the benefit of the Secured Parties a
security interest, a lien, and a right of offset, each of which shall be in
addition to all other interests, liens, and rights of the Agent, the Issuing
Bank or any Bank at common law, under the Loan Documents, or otherwise, and each
of which shall be upon and against (a) any and all moneys, securities or other
Property (and the proceeds therefrom) of such Loan Party now or hereafter held
or received by or in transit to Agent from or for the account of such Loan
Party, whether for safekeeping, custody, pledge, transmission, collection or
otherwise, (b) any and all deposits (general or special, time or demand,
provisional or final) of such Loan Party with the any Bank, and (c) any other
credits and claims of such Loan Party at any time existing against the Agent,
the Issuing Bank or any Bank, including claims under certificates of deposit.
Upon the occurrence of any Default, the Agent, the Issuing Bank and each Bank is
hereby authorized to foreclose upon, offset, appropriate, and apply, at any time
and from time to time, without notice to such Loan Party, any and all items
hereinabove referred to against the Obligations then due and payable.
SECTION 8.5. GUARANTIES OF THE BORROWER'S SUBSIDIARIES. Each Subsidiary of
the Borrower now existing or created, acquired or coming into existence after
the date hereof shall execute and deliver to the Agent an Instrument of Joinder
of the Subsidiary Guaranty in the form of Exhibit A to the Subsidiary Guaranty.
The Borrower will (i) cause each of its Subsidiaries to deliver to the Agent,
simultaneously with its delivery of such a Instrument of Joinder, written
evidence satisfactory to the Agent's counsel that such Subsidiary has taken all
corporate or partnership action necessary to duly approve and authorize its
execution, delivery and performance of the Subsidiary Guaranty and any other
documents which it is required to execute.
SECTION 8.6. PRODUCTION PROCEEDS. Notwithstanding that, by the terms of the
various Security Documents, the Loan Parties are and will be assigning to the
Agent for the benefit of the Secured Parties all of the "Production Proceeds"
(as defined therein) accruing to the Mortgaged Property covered thereby, so long
as no Default has occurred and is continuing, such Loan Parties shall be
entitled to receive from the purchasers of production all such Production
Proceeds, subject, however, to the liens created under the Security Documents,
which liens are hereby affirmed and ratified. Upon the occurrence and during the
continuance of a Default, the Agent may exercise all rights and remedies granted
under the Security
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Documents, including the right to obtain possession of all Production Proceeds
then held by any Loan Party or to receive directly from the purchaser of
production all other Production Proceeds. In no case shall any failure, whether
purposed or inadvertent, by the Agent to collect directly any such Production
Proceeds constitute in any way a waiver, remission or release of any of its
rights under the Security Documents, nor shall any release of any Production
Proceeds by the Agent to any Loan Party constitute a waiver, remission, or
release of any other Production Proceeds or of any rights of the Agent to
collect other Production Proceeds thereafter. Each Loan Party will, upon the
instructions of the Required Banks (which such instructions may be given only
after the occurrence of an Event of Default, as herein defined, but the giving
of such instructions shall as to all such parties be conclusive as to the
occurrence of an Event of Default), join with the Banks in notifying the
purchaser or purchasers of Hydrocarbons produced from the Mortgaged Properties
of the existence of the Security Documents, such notification to be in writing
and accompanied (if necessary) by certified copies of the Security Documents.
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
SECTION 9.1. EVENTS OF DEFAULT. Each of the following events constitutes an
Event of Default under this Credit Agreement:
(a) The Borrower shall fail to pay when due any payment of any principal of
the Loans; or
(b) (i) The Borrower shall fail to pay when due the payment of any accrued
interest on the Loans and such failure shall continue for two (2) Business Days;
or (ii) any Loan Party shall fail to pay when due the payment of any fee,
expense, compensation, reimbursement or other amount when due under this Credit
Agreement, the Notes or any other Loan Document to which such Loan Party is a
party or other agreement or document contemplated by or delivered pursuant to or
in connection with this Credit Agreement or such Loan Document or any material
document executed in connection therewith and, in any event, such failure shall
continue for fifteen (15) calendar days after the earlier of (x) notice thereof
from the Agent or any Bank to such Loan Party and (y) discovery thereof by such
Loan Party; or
(c) Any "default" or "event of default" occurs under any Loan Document
which defines either such term, and the same is not remedied within the
applicable period of grace (if any) provided in such Loan Document; or
(d) Any Loan Party fails to duly observe, perform or comply with any
covenant, agreement, condition or provision contained in SECTION 6.4 or ARTICLE
VII of this Credit Agreement; or
(e) Any Loan Party fails (other than as referred to in subsections (a),
(b), (c) and (d) above) to duly observe, perform or comply with any covenant,
agreement, condition or provision of any Loan Document, and such failure is not
remedied within thirty (30) calendar days after written notice thereof is given
by the Agent to such Loan Party, provided that such grace period shall not apply
to any such failure if Borrower or such Loan Party has not given notice thereof
to the Banks as required in SECTION 6.4(II); or
(f) Any representation or warranty previously, presently or hereafter made
in writing by or on behalf of any Loan Party in connection with any Loan
Document shall prove to have been false or
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incorrect in any material respect on any date on or as of which made, or any
Loan Document at any time ceases to be valid, binding and enforceable as
warranted in SECTION 5.4 for any reason other than its release, termination, or
subordination by the Banks; or
(g) Any Loan Party, shall (i) fail to pay any Debt (including principal,
interest or premium thereon) in excess of $500,000 (other than the amounts
referred to in subsections (a) and (b) of this SECTION 9.1) owing by such
Person, when due (or, if permitted by the terms of the relevant document, within
any applicable grace period), whether such Debt shall become due by scheduled
maturity, by required prepayment, by acceleration, by demand or otherwise unless
such failure to pay such Debt shall be effectively waived or consented to by the
holder or holders of such Debt in accordance with the documents evidencing such
Debt or (ii) fail to observe or perform any material term, covenant or condition
on its respective part to be performed under any agreement or instrument
evidencing, securing or relating to any such Debt, when required to be performed
unless such failure is effectively waived or consented to by the holder or
holders of such Debt, and such failure shall continue after the applicable grace
period, if any, specified in such agreement or instrument if the effect of any
failure is to cause, or to permit the holder or holders of such Debt or a
trustee on its or their behalf to cause such Debt to become due prior to its
stated maturity; or (iii) fails to duly observe, perform or comply with any
agreement with any Person or any term or condition of any instrument, if such
agreement or instrument is materially significant to any Loan Party or to any
Loan Party and its Subsidiaries on a Consolidated basis, and such failure is not
remedied within the applicable period of grace (if any) provided in such
agreement or instrument, PROVIDED, none of the foregoing shall constitute an
Event of Default hereunder if such Loan Party contests in good faith the
validity of such Debt or obligation by appropriate proceedings and with respect
to which adequate reserves (based upon such Loan Party's good faith estimate of
the contested liability) have been provided; or
(h) Either (i) any "accumulated funding deficiency (as defined in Section
412(a) of the Internal Revenue Code of 1986, as amended) in excess of $500,000
exists with respect to any ERISA Plan, whether or not waived by the Secretary of
the Treasury or his delegate, or (ii) any Termination Event occurs with respect
to any ERISA Plan and the then current value of such ERISA Plan's benefit
liabilities exceeds the then current value of such ERISA Plan's assets available
for the payment of such benefit liabilities by more than $500,000 (or in the
case of a Termination Event involving the withdrawal of a substantial employer,
the withdrawing employer's proportionate share of such excess exceeds such
amount); or
(i) Any Loan Party:
(i) suffers the entry against it of a judgment, decree or order for
relief by a court of competent jurisdiction in an involuntary proceeding
commenced under any applicable Debtor Relief Law of any jurisdiction now or
hereafter in effect, or has any such proceeding commenced against it which
remains undismissed for a period of sixty days; or
(ii) commences a voluntary case under any applicable Debtor Relief Law
now or hereafter in effect; or applies for or consents to the entry of an
order for relief in an involuntary case under any such Debtor Relief Law,
or makes a general assignment for the benefit of creditors; or fails
generally to pay (or admits in writing its inability to pay) its debts as
such debts become due; or takes corporate or other action to authorize any
of the foregoing; or
(iii) suffers the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official
of all or a substantial part of its assets or of any part of the Collateral
in a proceeding brought against or initiated by it, and such appointment or
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taking possession is neither made ineffective nor discharged within sixty
days after the making thereof, or such appointment or taking possession is
at any time consented to, requested by, or acquiesced to by it; or
(iv) suffers the entry against it of a final judgment for the payment
of money in excess of $500,000, unless the same is either paid in
accordance with such judgment, discharged within sixty days after the date
of entry thereof, or an appeal or appropriate proceeding for review thereof
is taken within such period and a stay of execution pending such appeal is
obtained; or
(v) suffers a writ or warrant of attachment or any similar process to
be issued by any court against all or any substantial part of its assets or
any part of the Collateral, and such writ or warrant of attachment or any
similar process is not stayed or released within sixty days after the entry
or levy thereof or after any stay is vacated or set aside; or
(j) a Change of Control shall occur; or
(k) (i) Any Environmental Liability shall have been asserted against any
Loan Party or any Subsidiary of a Loan Party which could reasonably be expected
to have a Material Adverse Effect or (ii) any Release shall have occurred, and
such event could form the basis of an Environmental Liability against such Loan
Party or such Subsidiary of such Loan Party which could reasonably be expected
to result in a Material Adverse Effect; or
(l) Any Loan Document shall, at any time after its execution and delivery
and for any reason, cease to be in full force and effect or shall be declared to
be null and void, or the validity or enforceability thereof shall be contested
by any Person party thereto (other than the Agent or any Bank) or any such
Person party thereto (other than the Agent or any Bank) shall deny that it has
any or further liability or obligation thereunder, or the Obligations shall be
subordinated for any reason (other than by the consent of the Banks); or
THEN, (x) upon the occurrence of any Event of Default described in SECTION 9.1
(I)(I), (I)(II) OR (I)(III) with respect to any Loan Party or any Subsidiary of
any Loan Party (i) all of the Commitments shall automatically terminate, and
Borrower shall deposit with the Agent cash equal to the outstanding LC
Obligations in accordance with SECTION 2.11(G) and (ii) the entire unpaid amount
of all Obligations shall automatically become immediately due and payable,
without presentment for payment, demand, protest, notice of intent to
accelerate, notice of acceleration or further notice of any kind, all of which
are hereby expressly waived by each Loan Party and every Subsidiary Guarantor
who at any time ratifies or approves this Credit Agreement and the obligation of
each Bank to make any Loan, and of the Issuing Bank(s) to issue any Letters of
Credit, hereunder shall thereupon terminate and (y) upon the occurrence of any
other Event of Default, the Agent shall at the request, or may with the consent,
of the Required Banks, (i) by written notice to Borrower declare all of the
Commitments to be terminated, whereupon all of the Commitments and the
obligations of each Bank to make any Loan hereunder, and of the Issuing Bank(s)
to issue any Letter of Credit, shall forthwith terminate, and Borrower shall
deposit with the Agent cash equal to the outstanding LC Obligations in
accordance with SECTION 2.11(G) and (ii) by written notice to Borrower declare
the entire unpaid amount of all Obligations to be forthwith due and payable,
whereupon all Obligations shall become and be forthwith due and payable, without
presentment for payment, demand, protest, notice of intent to accelerate, notice
of acceleration or further notice of any kind, all of which are hereby expressly
waived by each Loan Party and every Subsidiary Guarantor who at any time
ratifies or approves this Credit Agreement. Borrower hereby grants to the Agent
for the ratable benefit of the Banks a security interest in, and Lien on, any
Dollars delivered to the Agent pursuant to this SECTION 9.1, as security for the
Obligations.
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SECTION 9.2. REMEDIES. If any Default shall occur and be continuing, the
Agent may, and at the request of the Required Banks, shall protect and enforce
the rights and remedies of the Secured Parties under the Loan Documents by any
appropriate proceedings, including proceedings for specific performance of any
covenant or agreement contained in any Loan Document, and may enforce the
payment of any Obligations due or enforce any other legal or equitable right.
All rights, remedies and powers conferred upon the Agent for the benefit of the
Secured Parties under the Loan Documents shall be deemed cumulative and not
exclusive of any other rights, remedies or powers available under the Loan
Documents or at law or in equity.
SECTION 9.3. INDEMNITY. EACH LOAN PARTY, JOINTLY AND INDIVIDUALLY, AGREES
TO INDEMNIFY EACH SECURED PARTY, UPON DEMAND, FROM AND AGAINST ANY AND ALL
LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES, PENALTIES, FINES, ACTIONS,
JUDGMENTS, SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS (INCLUDING
REASONABLE FEES OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND ADVISORS) OF ANY KIND OR
NATURE WHATSOEVER (IN THIS SECTION COLLECTIVELY CALLED "LIABILITIES AND COSTS")
WHICH TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST SUCH SECURED PARTY GROWING OUT OF, RESULTING FROM OR IN ANY
OTHER WAY ASSOCIATED WITH ANY OF THE COLLATERAL, THE LOAN DOCUMENTS, OR THE
TRANSACTIONS AND EVENTS (INCLUDING THE ENFORCEMENT OR DEFENSE THEREOF) AT ANY
TIME ASSOCIATED THEREWITH OR CONTEMPLATED THEREIN (INCLUDING ANY VIOLATION OR
NONCOMPLIANCE WITH ANY ENVIRONMENTAL LAWS BY ANY LOAN PARTY OR ANY LIABILITIES
OR DUTIES OF ANY LOAN PARTY OR OF THE SECURED PARTIES WITH RESPECT TO HAZARDOUS
MATERIALS FOUND IN OR RELEASED INTO THE ENVIRONMENT). THE FOREGOING
INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY
WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR
OMISSION OF ANY KIND BY ANY OF THE SECURED PARTIES, PROVIDED ONLY THAT NO
SECURED PARTY SHALL BE ENTITLED UNDER THIS SECTION TO RECEIVE INDEMNIFICATION
FOR THAT PORTION, IF ANY, OF ANY LIABILITIES AND COSTS WHICH IS PROXIMATELY
CAUSED BY ITS OWN INDIVIDUAL GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AS
DETERMINED IN A FINAL JUDGMENT. AS USED IN THIS SECTION THE TERM "SECURED
PARTIES" SHALL REFER NOT ONLY THE PERSON DESIGNATED AS SUCH IN SECTION 1.1 BUT
ALSO TO EACH DIRECTOR, OFFICER, AGENT, ATTORNEY, EMPLOYEE, REPRESENTATIVE AND
AFFILIATE OF SUCH PERSON.
ARTICLE X
THE AGENT
SECTION 10.1. APPOINTMENT. Each Bank hereby irrevocably designates and
appoints Chase as the Agent of such Bank under this Credit Agreement and the
other Loan Documents, and each such Bank irrevocably authorizes Chase, as the
Agent for such Bank, to take such action on its behalf under the provisions of
this Credit Agreement and the other Loan Documents and to exercise such powers
and perform such duties as are expressly delegated to the Agent by the terms of
this Credit Agreement and the other Loan Documents, together with such other
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary elsewhere in this Credit Agreement, the Agent shall not have any
duties or responsibilities, except those expressly set forth herein, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Credit Agreement or any other Loan Document
or otherwise exist against the Agent. The duties of the Agent are mechanical and
administrative in nature. The Agent shall have no fiduciary relationship in
respect of any Bank by reason of this Credit Agreement or any other Loan
Document.
SECTION 10.2. DELEGATION OF DUTIES. The Agent may execute any of its duties
under this Credit Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled
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to advice of counsel concerning all matters pertaining to such duties. The Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
SECTION 10.3. EXCULPATORY PROVISIONS. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Credit Agreement or any other Loan
Document (except for its or such Person's own gross negligence or willful
misconduct) or (ii) responsible in any manner to any of the Banks for any
recitals, statements, representations or warranties made by any Loan Party or
any officer of any Loan Party in this Credit Agreement or any other Loan
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agent under or in connection with, this
Credit Agreement or any other Loan Document or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Credit
Agreement or the Notes or any other Loan Document or for any failure of any of
the Loan Parties to perform its obligations hereunder or thereunder. The Agent
shall not be under any obligation to any Bank to ascertain or to inquire as to
the observance or performance of any of the agreements contained in, or
conditions of, this Credit Agreement or any other Loan Document, or to inspect
the Properties, books or records of any of the Loan Parties.
SECTION 10.4. RELIANCE BY AGENT. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any Note, writing, resolution, notice,
content, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Loan Parties), independent accountants,
engineers and other experts selected by the Agent. The Agent may deem and treat
the payee of any Note as the owner thereof for all purposes unless a written
notice of assignment, negotiation or transfer thereof shall have been filed with
the Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Credit Agreement or any other Loan Document unless it shall
first receive such advice or concurrence of the Required Banks as it deems
appropriate or it shall first be indemnified to its satisfaction by the Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Credit
Agreement, the Notes and the other Loan Documents in accordance with a request
of the Required Banks, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Banks and all future holders of
the Notes.
SECTION 10.5. NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Bank or any Loan Party
referring to this Credit Agreement, describing such Default or Event of Default
and stating that such notice is a "notice of default." In the event that the
Agent receives such a notice, the Agent shall give notice thereof to the Banks.
The Agent shall take such action with respect to such Default or Event of
Default as shall be reasonably directed by the Required Banks; PROVIDED that
unless and until the Agent shall have received such directions, the Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it shall deem
advisable in the best interests of the Banks.
SECTION 10.6. NON-RELIANCE OF AGENT AND OTHER BANKS. Each Bank expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of any Loan Party shall be deemed to constitute any
representation or warranty by the Agent to any Bank. Each Bank represents to the
Agent that it has, independently and without
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reliance upon the Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, Property, financial and other
condition and creditworthiness of each Loan Party and made its own decision to
make its Loans hereunder and enter into this Credit Agreement. Each Bank also
represents that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Credit Agreement and the
other Loan Documents, and to make such investigation as it deems necessary to
inform itself as to the business, operations, Property, financial and other
condition and creditworthiness of each Loan Party. Except for notices, reports
and other documents expressly required to be furnished to the Banks by the Agent
hereunder the Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the business, operations,
Property, condition (financial or otherwise), prospects or creditworthiness of
any Loan Party which may come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates.
SECTION 10.7. INDEMNIFICATION. Each Bank hereby indemnifies the Agent in
its capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to the
respective amounts of their original Commitments, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Notes)
be imposed on, incurred by or asserted against the Agent in any way relating to
or arising out of this Credit Agreement, any of the other Loan Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing; PROVIDED that no Bank shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the Agent's gross negligence or willful misconduct. It is
the express intention of the parties hereto that the Agent shall be indemnified
and held harmless against any and all losses, liabilities, claims, damages,
expenses, penalties, actions, judgments, suits, costs or disbursements arising
out of or from the ordinary negligence of the Agent. The agreements in this
SECTION 10.7 shall survive the payment of the Notes and all other amounts
payable hereunder.
SECTION 10.8. AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Loan Parties, or any Loan Party, as though the Agent
were not the agent hereunder and under the other Loan Documents. With respect to
the Loans made or renewed by it and any Note issued to it, the Agent shall have
the same rights and powers under this Credit Agreement and the other Loan
Documents as any Bank and may exercise the same as though it were not the Agent,
and the terms "Bank" and "Banks" shall include the Agent in its individual
capacity.
SECTION 10.9. SUCCESSOR AGENT. The Agent may resign as Agent upon ten (10)
calendar days' notice to the Banks. If the Agent shall resign as Agent under
this Credit Agreement and the other Loan Documents, then the Required Banks
shall appoint from among the Banks a successor agent for the Banks, which
successor agent shall be approved by the Borrower, whereupon such successor
agent shall succeed to the rights, powers and duties of the Agent, and the term
"Agent" shall mean such successor agent effective upon its appointment, and the
former Agent's rights, powers and duties as Agent shall be terminated, without
any other or further act or deed on the part of such former Agent or any of the
parties to this Credit Agreement or any holders of the Notes. After any retiring
Agent's resignation as Agent, the provisions of this SECTION 10.9 shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Credit Agreement and the other Loan Documents.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.1. WAIVERS AND AMENDMENTS; ACKNOWLEDGEMENTS.
(a) WAIVERS AND AMENDMENTS. Neither this Credit Agreement nor any other
Loan Document to which the Borrower or any other Loan Party is a party nor any
terms hereof or thereof may be amended, supplemented, waived or otherwise
modified except in accordance with the provisions of this subsection. Any
provision of this Credit Agreement or any other Loan Document may be amended,
supplemented, waived, or otherwise modified if and only if such amendment,
supplement, waiver or other modification (x) is in writing, (y) is signed by
each other party thereto except that in the case of a waiver, the party whose
performance is being waived need not be a signatory, and (z) with respect to the
Banks, is signed by the Required Banks (if the Banks are a party thereto) or by
the Agent with the consent of the Required Banks (if the Agent is a party
thereto and the Banks are not); PROVIDED no such amendment, supplement, waiver
or other modification shall do any of the following unless signed by all of the
Banks (if the Banks are a party thereto) and by the Agent with the consent of
all of the Banks (if the Agent is a party thereto and the Banks are not):
(i) extend the Maturity Date, the date of payment of any principal,
interest or fees, or the date of payment of any required principal
prepayment;
(ii) reduce the amount of any principal, interest or fees, the rate of
interest paid with respect to any unpaid principal, interest or fees,
or the amount of any fee payable to the Banks hereunder;
(iii) change the amount of any Commitment of any Bank;
(iv) amend, modify, or waive any of the conditions set forth in ARTICLE IV
(other than any condition which refers therein to the Required Banks);
(v) amend, modify or waive any provision which calls for the consent of,
the approval of, or direction from all of the Banks;
(vi) amend, modify or waive any provision of this SECTION 11.1 or the
definition of Required Banks;
(vii) consent to or permit the assignment or transfer by the Borrower of any
of its rights and obligations under this Credit Agreement or any other
Loan Document; or
(viii) release any Subsidiary Guarantor from its obligations under the
Subsidiary Guaranty to which such Subsidiary Guarantor is a party or
under any Security Document to which such Subsidiary Guarantor is a
party;
and PROVIDED, FURTHER, without the prior written consent of the Agent, no such
amendment, supplement, waiver or modification shall amend, supplement, waive or
otherwise modify any provision of ARTICLE X or any other provision of any Loan
Document if the effect thereof is to affect the rights or duties of the Agent;
and PROVIDED, FURTHER, that no amendment, waiver or consent shall, unless in
writing and signed by the Issuing Bank(s) in addition to the Banks required
above to take such action, affect the rights and
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duties of the Issuing Bank(s) with respect to the Letters of Credit and the
Letter of Credit Applications, if any, outstanding under this Credit Agreement.
Any such amendment, supplement, modification or waiver shall apply to each of
the Banks equally and shall be binding upon the Banks, the Agent, all future
holders of the Notes and Obligations, and all parties to the Loan Document so
amended, supplemented, waived or otherwise modified.
(b) ACKNOWLEDGEMENTS AND ADMISSIONS. Each Loan Party hereby represent,
warrant, acknowledge and admit that (i) it has been advised by counsel in the
negotiation, execution and delivery of the Loan Documents to which it is a
party, (ii) it has made an independent decision to enter into this Credit
Agreement and the other Loan Documents to which it is a party, without reliance
on any representation, warranty, covenant or undertaking by the Agent, the
Issuing Bank or any Bank, whether written, oral or implicit, other than as
expressly set out in this Credit Agreement or in another Loan Document delivered
on or after the date hereof, (iii) there are no representations, warranties,
covenants, undertakings or agreements by the Agent, the Issuing Bank or any Bank
as to the Loan Documents except as expressly set out in this Credit Agreement or
in another Loan Document delivered on or after the date hereof, (iv) None of the
Agent, the Issuing Bank nor any Bank owes a fiduciary duty to any Loan Party
with respect to any Loan Document or the transactions contemplated thereby, and
no Loan Party owes a fiduciary duty to the Agent, the Issuing Bank and the Bank
with respect to any Loan Document or the transactions contemplated thereby, (v)
the relationship pursuant to the Loan Documents between Loan Parties, on one
hand, and the Agent, the Issuing Bank and the Banks, on the other hand, is and
shall be solely that of debtor and creditor, respectively, (vi) no partnership
or joint venture exists with respect to the Loan Documents between any Loan
Party and the Agent, the Issuing Banks and the Banks, (vii) should an Event of
Default or Default occur or exist the Agent, the Issuing Bank and the Banks will
determine in their sole discretion and for their own reasons what remedies and
actions they will or will not exercise or take at that time, (viii) without
limiting any of the foregoing, no Loan Party is relying upon any representation
or covenant by the Agent, the Issuing Bank, or any Bank, or any representative
thereof, and no such representation or covenant has been made, that each of the
Agent, the Issuing Bank and each Bank will, at the time of an Event of Default
or Default, or at any other time, waive, negotiate, discuss, or take or refrain
from taking any action permitted under the Loan Documents with respect to any
such Event of Default or Default or any other provision of the Loan Documents,
and (ix) the Agent, the Issuing Bank and each Bank has relied upon the
truthfulness of the acknowledgements in this section in deciding to execute and
deliver this Credit Agreement and to make the Loans and issue the Letters of
Credit.
SECTION 11.2. REPRESENTATION BY THE BANKS. Each Bank hereby represents that
it will acquire its Notes for its own account in the ordinary course of its
commercial lending business; however, the disposition of such Bank's Property
shall at all times be and remain within such Bank's control and, in particular
and without limitation, such Bank may sell or otherwise transfer its Notes, any
participation interests or other interests in its Notes, or any of its other
rights and obligations under the Loan Documents.
SECTION 11.3. NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy, telegraph or telex), and, unless otherwise expressly provided herein,
shall be deemed to have been duly given or made when delivered by hand, or five
(5) calendar days after being deposited in the mail, postage prepaid, or, in the
case of telecopy notice, when received, or, in the case of telegraphic notice,
when delivered to the telegraph company, or, in the case of telex notice, when
sent, answerback received, addressed as follows, and as set forth in SCHEDULE
1.1 in the case of the other parties hereto, or to such other address as may be
hereafter notified by the respective parties hereto and any future holders of
the Notes:
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The Borrower: Callon Petroleum Company
200 North Canal Street
Natchez, Mississippi 39120
Attention: John S. Weatherly, Senior Vice President
Telephone: (601) 442-1601
Telecopy: (601) 446-1410
Subsidiary c/o Callon Petroleum Company
Guarantors: 200 North Canal Street
Natchez, Mississippi 39120
Attention: John S. Weatherly, Senior Vice President
Telephone: (601) 442-1601
Telecopy: (601) 446-1410
The Agent & The Chase Manhattan Bank
Issuing Bank: c/o Texas Commerce Bank National Association
Global Oil and Gas
707 Travis Street, 5 TCB N
Houston, Texas 77252-8086
Telephone Number: (713) 216-4288
Telecopy Number: (713) 216-4117
Attention: Scott H. Richardson, Vice President
If such notice to the Agent relates to fundings or payments, with a copy
to:
The Chase Manhattan Bank
140 East 45th Street, 29th Floor
New York, New York 10017
Telephone Number: (212) 622-0005
Telecopy Number: (212) 622-0002
Attention: Sandra Miklave, Vice President
If to any Bank, as specified on the signature pages hereto or in the
appropriate Commitment Transfer Supplement pursuant to SECTION 11.4; PROVIDED
that any notice, request or demand to or upon the Agent or the Banks pursuant to
SECTIONS 2.2, 2.4, 2.6, 2.7, 2.8, 2.11(A), OR 2.15(C) shall not be effective
until received.
SECTION 11.4. SUCCESSORS AND ASSIGNS; PARTICIPATIONS.
(a) Whenever in this Credit Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and permitted
assigns of such party; and all covenants, promises and agreements by or on
behalf of the Borrower, the Agent or the Banks that are contained in this Credit
Agreement shall bind and inure to the benefit of their respective successors and
permitted assigns. No Loan Party may assign or transfer any of its rights or
obligations hereunder or under any other Loan Document without the written
consent of all of the Banks.
(b) Each of the Banks may, without the consent of the Borrower or the
Agent, sell participation to one or more banks or other financial institutions
in all or a portion of its rights and obligations under this Credit Agreement
and the other Loan Documents, including, without limitation, all or a portion of
its Commitment, the Loans owing to it, the LC Obligations owing to it, its
participation interests in Letters of Credit and the Notes held by it (in
respect of any such Bank, the "CREDIT EXPOSURE"); PROVIDED,
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HOWEVER, that (i) such Bank's obligations under this Credit Agreement and the
other Loan Documents shall remain unchanged, (ii) such Bank shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) the Borrower, the Agent and the other Banks shall continue to deal solely
and directly with such Bank in connection with such Bank's rights and
obligations under this Credit Agreement and the other Loan Documents; PROVIDED,
HOWEVER, that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrower relating to the Loans including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Credit Agreement or any other Loan Document; and PROVIDED,
FURTHER, such Bank may grant participant rights, as between such Bank and its
participant(s), with respect to amendments, modifications or waivers with
respect of any fees payable hereunder (including, without limitation, the amount
and the dates fixed for the payment of any such fees) or the amount of
principal, or the rate of interest payable on, or the dates fixed for any
payment of principal of or interest on the Loans or the release of any
Subsidiary under the Subsidiary Guaranty and (iv) such Bank shall disclose in
writing to the Agent the number of participating banks or other entities and the
dollar amount of each such participation. Each Bank also agrees that it shall
retain the right (but shall have no obligation) to buy back any participating
interest sold by it from the holder thereof if such holder refuses to consent to
any proposed amendment, modification, supplement or waiver of this Credit
Agreement or any other Loan Document.
(c) With the prior written consent of the Agent and the Borrower, which
consents shall not be unreasonably withheld, each of the Banks may assign to one
or more additional banks or financial institutions ("PURCHASING BANKS"), and
without the consent of the Agent and the Borrower, each of the Banks may assign
to a Bank, all or a portion of its Credit Exposure; PROVIDED, HOWEVER, that (i)
each such assignment shall be of a constant, and not a varying, percentage of
the assigning Bank's Credit Exposure, i.e., any such assignment shall include a
constant percentage of, INTER ALIA the rights and obligations of such assigning
Bank with respect to the Commitment, the Loans, (ii) the parties to each such
assignment shall execute and deliver to the Agent for its acceptance and
recording in the Register, a Commitment Transfer Supplement, substantially in
the form of EXHIBIT K, together with the Notes subject to such assignment, (iii)
the amount of each such assignment (determined as of the date the Commitment
Transfer Supplement with respect to such assignment is delivered to the Agent)
shall be in a minimum principal amount of $5,000,000 and (iv) if the assigning
Bank has retained any Commitment hereunder, such assigning Bank's remaining
Commitment shall be at least $10,000,000 after giving effect to such assignment.
Upon (i) the execution and delivery to the Agent of such Commitment Transfer
Supplement by the assigning Bank, the purchasing bank or other entity and the
Borrower, (ii) the payment by the assigning Bank or the purchasing bank or other
entity to the Agent of a processing and recordation fee of $2,500 and (iii) the
acceptance and recording of such Commitment Transfer Supplement in the Register
by the Agent, from and after the effective date specified in each Commitment
Transfer Supplement, which effective date shall be (unless otherwise agreed
among the Agent, the assigning Bank and the purchasing Bank or entity) at least
five Business Days after the date of acceptance and recording by the Agent, (x)
the Purchasing Bank thereunder shall be a party hereto and, to the extent
provided in such Commitment Transfer Supplement have the rights and obligations
of a Bank hereunder and (y) the assigning Bank thereunder shall, to the extent
provided in such Commitment Transfer Supplement, be released from its
obligations under this Credit Agreement and the other Loan Documents (and, in
the case of an assignment covering all of the remaining portion of an assigning
Bank's rights and obligations under this Credit Agreement and the other Loan
Documents, such assigning Bank shall cease to be a party hereto).
(d) Any Bank may, in the ordinary course of its business and in accordance
with applicable law, at any time assign to any other Bank all or any part of its
Credit Exposure. The Borrower, the Agent and the Banks agree that to the extent
of any assignment the assignee Bank shall be deemed to have the same rights and
benefits under the Loan Documents and the same rights of setoff and obligation
to share
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pursuant to SECTIONS 2.17 AND 8.4 as it would have had if it were a Bank
hereunder; PROVIDED that the Borrower and the Agent shall be entitled to
continue to deal solely and directly with the assignor Bank in connection with
the interests so assigned to the assignee Bank unless and until such assignee
Bank becomes a purchasing Bank pursuant to clause (c) above.
(e) By executing and delivering a Commitment Transfer Supplement, the
assigning Bank thereunder and the Purchasing Bank thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:
(i) other than the representation and warranty that it is the legal and
beneficial owner of the interest being assigned thereby free and clear of any
adverse claim known to such assigning Bank, such assigning Bank makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Credit Agreement and the other Loan Documents of the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Credit
Agreement or any other instrument or document furnished pursuant hereto or
thereto; (ii) such assigning Bank makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Borrower or any Subsidiary of the Borrower, the performance or observance of
their respective obligations under this Credit Agreement, any Loan Document, any
other instrument or document furnished pursuant hereto or thereto; (iii) such
Purchasing Bank confirms that it has received a copy of this Credit Agreement
together with copies of the most recent financial statements delivered pursuant
to SECTION 5.5 or SECTION 6.2 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such Commitment Transfer Supplement; (iv) such Purchasing Bank will,
independently and without reliance upon the Agent, such assigning Bank or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Credit Agreement and the other Loan Documents; (v)
such Purchasing Bank appoints and authorizes the Agent to take such action on
behalf of such Purchasing Bank and to exercise such powers under this Credit
Agreement and the other Loan Documents as are delegated to the Agent by the
terms hereof, together with such powers as are reasonably incidental thereto;
(vi) such Purchasing Bank agrees that it will perform in accordance with their
terms all of the obligations which by the terms of this Credit Agreement and the
other Loan Documents are required to be performed by it as a Bank and (vii) such
Purchasing Bank confirms that it is an Purchasing Bank as defined herein.
(f) The Agent shall maintain at its office a copy of each Commitment
Transfer Supplement delivered to it and a register for the recordation of the
names and addresses of the Banks and the Commitments of, and principal amount of
the Loans owing to, each Bank pursuant to the terms hereof from time to time
(the "REGISTER"). The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Agent and the Banks may treat
each Person whose name is recorded in the Register as a Bank hereunder for all
purposes of this Credit Agreement. The Register shall be available for
inspection by the Borrower or any Bank at any reasonable time and from time to
time upon reasonable prior notice.
(g) Upon its receipt of a Commitment Transfer Supplement executed by an
assigning Bank and an Purchasing Bank together with any Note subject to such
Commitment Transfer Supplement, the Agent shall (i) accept such Commitment
Transfer Supplement, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Banks and the Borrower.
Within five (5) Business Days after receipt of such notice, the Borrower, the
Assigning Bank and the Agent shall make the appropriate arrangements for the
execution and delivery by the Borrower to the Agent in exchange for the
surrendered Notes, replacement Notes payable to the order of such Purchasing
Bank in an aggregate amount equal to the Commitment assumed by it pursuant to
such Commitment Transfer Supplement and, if the assigning Bank has retained any
of its Commitment hereunder, replacement Notes payable to the order of the
assigning Bank in an aggregate amount equal to the Commitment retained by it.
Such
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replacement Notes shall be in an aggregate principal amount equal to the
aggregate principal amount of such surrendered Notes and shall be dated the date
of the surrendered Notes which they replace and shall otherwise be in
substantially the form of EXHIBIT C hereto, as appropriate and shall contain
specific language stating that such replacement Notes is given in exchange for
and substitution of the surrendered Notes and that the indebtedness evidenced by
the surrendered Notes constitutes the same indebtedness evidenced by the
replacement Notes. Canceled Notes shall be returned as soon as practical to the
Borrower marked "Replaced."
(h) Notwithstanding any other language in this Credit Agreement, any Bank
may at any time assign all or any portion of its rights under this Credit
Agreement and the Notes to a Federal Reserve Bank as collateral in accordance
with Regulation A and the applicable operating circular of such Federal Reserve
Bank.
(i) Notwithstanding any other provision herein, any Bank may, in connection
with any assignment or participation or proposed assignment or participation
pursuant to this SECTION 11.4 disclose to the assignee or participant or
proposed assignee or participant, any information relating to the Borrower or
any Subsidiary of the Borrower furnished to such Bank by or on behalf of the
Borrower or by or on behalf of the Borrower or any Subsidiary of the Borrower;
PROVIDED, that prior to any such disclosure, each such assignee or participant
or proposed assignee or participant shall agree to preserve the confidentiality
of any confidential information relating to the Borrower or any Subsidiary of
the Borrower received from such Bank.
SECTION 11.5. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Agent or any Bank, any right, remedy,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law. No failure or delay (whether by course of
conduct or otherwise) by any Secured Party in exercising any right, power or
remedy which such Secured Party may have under any of the Loan Documents shall
operate as a waiver thereof or of any other right, power or remedy, nor shall
any single or partial exercise by such Secured Party of any such right, power or
remedy preclude any other or further exercise thereof or of any other right,
power or remedy. No waiver of any provision of any Loan Document and no consent
to any departure therefrom shall ever be effective unless it is in writing and
signed by the Agent, the Required Banks, or all of the Banks, as required by
such Loan Document, and then such waiver or consent shall be effective only in
the specific instances and for the purposes for which given and to the extent
specified in such writing. No notice to or demand on any Loan Party shall in any
case of itself entitle any Loan Party to any other or further notice or demand
in similar or other circumstances. This Credit Agreement and the other Loan
Documents set forth the entire understanding and agreement of the parties hereto
and thereto with respect to the transactions contemplated herein and therein and
supersede all prior discussions and understandings with respect to the subject
matter hereof and thereof, and no modification or amendment of or supplement to
this Credit Agreement or the other Loan Documents shall be valid or effective
unless the same is in writing and signed by the party against whom it is sought
to be enforced.
SECTION 11.6. SURVIVAL OF AGREEMENTS; CUMULATIVE NATURE. All of any Loan
Party's various representations, warranties, covenants and agreements in the
Loan Documents shall survive the execution and delivery of this Credit Agreement
and the other Loan Documents and the performance hereof and thereof, including
the making or granting of the Loans and the delivery of the Notes and the other
Loan Documents, and shall further survive until all of the Obligations are paid
in full and all of the
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Commitments to extend credit to the Borrower under this Credit Agreement are
terminated. All statements and agreements contained in any certificate or other
instrument delivered by any Loan Party to the Agent and/or the Banks under any
Loan Document shall be deemed representations and warranties by each Loan Party
or agreements and covenants of each Loan Party under this Credit Agreement. The
representations, warranties, and covenants made by any Loan Party in the Loan
Documents, and the rights, powers and privileges granted to the Agent and the
Secured Parties in the Loan Documents, are cumulative, and, except for expressly
specified waivers or consents contained herein, in the other Loan Documents or
granted in writing pursuant to SECTION 11.1, no Loan Document shall be construed
in the context of another to diminish, nullify, or otherwise reduce the benefit
to the Agent, the Issuing Bank or to any Bank of any such representation,
warranty, covenant, right, power or privilege. In particular and without
limitation, no exception set out in this Credit Agreement to any representation,
warranty or covenant herein contained shall apply to any similar representation,
warranty or covenant contained in any other Loan Document, and each such similar
representation, warranty or covenant shall be subject only to those exceptions
which are expressly made applicable to it by the terms of the various Loan
Documents.
SECTION 11.7. JOINT AND SEVERAL LIABILITY; PARTIES IN INTEREST. All
Obligations which are incurred by two or more Loan Parties shall be their joint
and several obligations and liabilities. All grants, covenants and agreements
contained in the Loan Documents shall bind and inure to the benefit of the
parties thereto and their respective successors and assigns; provided, however,
that no Loan Party may assign or transfer any of its rights or delegate any of
its duties or obligations under any Loan Document without the prior consent of
the Banks.
SECTION 11.8. GOVERNING LAW; SUBMISSION TO PROCESS. EXCEPT TO THE EXTENT
THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN DOCUMENT,
THE LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE UNDER THE LAWS
OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND THE LAWS OF THE UNITED
STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE
BORROWER HEREBY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST THE BORROWER
WITH RESPECT TO THIS CREDIT AGREEMENT, THE NOTES OR ANY OF THE LOAN DOCUMENTS
MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AS THE AGENT MAY ELECT, AND, BY
EXECUTION AND DELIVERY HEREOF, THE BORROWER ACCEPTS AND CONSENTS FOR ITSELF AND
IN RESPECT TO ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF
THE AFORESAID COURTS, WITH RESPECT TO ANY ACTION OR PROCEEDING BROUGHT BY IT
AGAINST THE BANKS AND ANY QUESTIONS RELATING TO USURY. EACH LOAN PARTY AGREES
THAT SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK SHALL APPLY TO THE LOAN DOCUMENTS AND WAIVES ANY RIGHT TO STAY OR TO
DISMISS ANY ACTION OR PROCEEDING BROUGHT BEFORE SAID COURTS ON THE BASIS OF
FORUM NON CONVENIENS. IN FURTHERANCE OF THE FOREGOING, EACH LOAN PARTY HEREBY
IRREVOCABLY DESIGNATES AND APPOINTS CT CORPORATION SYSTEM, 1633 BROADWAY, NEW
YORK, NEW YORK, AS ITS AGENT TO RECEIVE SERVICE OF ALL PROCESS BROUGHT AGAINST
IT WITH RESPECT TO ANY SUCH PROCEEDING IN ANY SUCH COURT IN NEW YORK, SUCH
SERVICE BEING HEREBY ACKNOWLEDGED BY IT TO BE EFFECTIVE AND BINDING SERVICE IN
EVERY RESPECT. COPIES OF ANY SUCH PROCESS SO SERVED SHALL ALSO, IF PERMITTED BY
LAW, BE SENT BY REGISTERED MAIL TO EACH LOAN
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PARTY AT ITS ADDRESS SET FORTH BELOW, BUT THE FAILURE OF ANY LOAN PARTY TO
RECEIVE SUCH COPIES SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS AS
AFORESAID. EACH LOAN PARTY SHALL FURNISH TO THE AGENT A CONSENT OF CT
CORPORATION SYSTEM AGREEING TO ACT HEREUNDER PRIOR TO THE EFFECTIVE DATE OF THIS
CREDIT AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY BANK
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT
OF THE AGENT OR ANY BANK TO BRING PROCEEDINGS AGAINST ANY LOAN PARTY IN THE
COURTS OF ANY OTHER JURISDICTION. IF FOR ANY REASON CT CORPORATION SYSTEM SHALL
RESIGN OR OTHERWISE CEASE TO ACT AS AGENT, EACH LOAN PARTY HEREBY IRREVOCABLY
AGREES TO (A) IMMEDIATELY DESIGNATE AND APPOINT A NEW AGENT ACCEPTABLE TO THE
AGENT AND THE BANKS TO SERVE IN SUCH CAPACITY AND, IN SUCH EVENT, SUCH NEW AGENT
SHALL BE DEEMED TO BE SUBSTITUTED FOR CT CORPORATION SYSTEM FOR ALL PURPOSES
HEREOF AND (B) PROMPTLY DELIVER TO THE AGENT AND THE BANKS THE WRITTEN CONSENT
(IN FORM AND SUBSTANCE SATISFACTORY TO THE BANKS) OF SUCH NEW AGENT AGREEING TO
SERVE IN SUCH CAPACITY.
If and to the extent Texas law applies, the Agent, the Banks and the
Borrower further agree that insofar as the provisions of Article 1.04, Subtitle
1, Title 79, of the Revised Civil Statutes of Texas, 1925, as amended, are
applicable to the determination of the Highest Lawful Rate with respect to the
Notes, the indicated rate ceiling computed from time to time pursuant to Section
(a) of such Article shall apply to the Notes; PROVIDED, HOWEVER, that to the
extent permitted by such Article, the Agent may from time to time by notice from
the Agent to the Borrower revise the election of such interest rate ceiling as
such ceiling affects then current or future balances of the Loans outstanding
under the Notes. The provisions of Chapter 15 of Subtitle 3 of the said Title 79
do not apply to this Credit Agreement or the Notes issued hereunder.
SECTION 11.9. INTEREST. Each provision in this Credit Agreement and each
other Loan Document is expressly limited so that in no event whatsoever shall
the amount paid, or otherwise agreed to be paid, to the Agent or any Bank for
the use, forbearance or detention of the money to be loaned under this Credit
Agreement or any Loan Document or otherwise (including any sums paid as required
by any covenant or obligation contained herein or in any other Loan Document
which is for the use, forbearance or detention of such money), exceed that
amount of money which would cause the effective rate of interest to exceed the
Highest Lawful Rate, and all amounts owed under this Credit Agreement and each
other Loan Document shall be held to be subject to reduction to the effect that
such amounts so paid or agreed to be paid which are for the use, forbearance or
detention of money under this Credit Agreement or such Loan Document shall in no
event exceed that amount of money which would cause the effective rate of
interest to exceed the Highest Lawful Rate. Anything in this Credit Agreement,
any Note or any other Loan Document to the contrary notwithstanding, with
respect to each Note, the maker of such Note shall never be required to pay
unearned interest on such Note or ever be required to pay interest on such Note
at a rate in excess of the Highest Lawful Rate, and if the effective rate of
interest which would otherwise be payable with respect to such Note would exceed
the Highest Lawful Rate, or if the holder of such Note shall receive any
unearned interest or shall receive monies that are deemed to constitute interest
which would increase the effective rate of interest payable by the maker of such
Note to a rate in excess of the Highest Lawful Rate, then (i) the amount of
interest which would otherwise be payable by the maker of such Note shall be
reduced to the amount allowed under applicable law and (ii) any unearned
interest paid by the maker of such Note or any interest paid by the maker of
such Note in excess of the Highest Lawful Rate shall be in the first instance
credited on the principal of such Note with the excess thereof, if any, refunded
to the maker thereof. It is further agreed that, without limitation of
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the foregoing, all calculations of the rate of interest contracted for, charged
or received by any Bank under the Note held by it, or under this Credit
Agreement or the other Loan Documents, are made for the purpose of determining
whether such rate exceeds the Highest Lawful Rate applicable to such Bank (such
Highest Lawful Rate being the Bank's "MAXIMUM PERMISSIBLE RATE"), shall be made,
to the extent permitted by usury laws applicable to such Bank (now or hereafter
enacted), by (a) characterizing any non-principal payment as an expense, fee or
premium rather than as interest and (b) amortizing, prorating and spreading in
equal parts during the period of the full stated term of the Loans evidenced by
said Note all interest at any time contracted for, charged or received by such
Bank in connection therewith.
SECTION 11.10. SEVERABILITY. If any term or provision of any Loan Document
shall be determined to be illegal or unenforceable all other terms and
provisions of the Loan Documents shall nevertheless remain effective and shall
be enforced to the fullest extent permitted by applicable law.
SECTION 11.11. COUNTERPARTS. This Credit Agreement may be separately
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to
constitute one and the same Agreement.
SECTION 11.12. WAIVER OF JURY TRIAL, DAMAGES, ETC. TO THE EXTENT PERMITTED
BY LAW, EACH LOAN PARTY, EACH BANK AND THE AGENT HEREBY KNOWINGLY, VOLUNTARILY,
AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER,
OR IN CONNECTION WITH, THIS CREDIT AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF SUCH PERSONS. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT'S
AND THE BANKS' ENTERING INTO THIS CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS.
EACH LOAN PARTY, EACH BANK AND THE AGENT HEREBY FURTHER (a) IRREVOCABLY WAIVES,
TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR
RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES,
OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (b) CERTIFIES THAT NO
PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (c)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS CREDIT AGREEMENT, THE
OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
SECTION.
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IN WITNESS WHEREOF, this Credit Agreement is executed as of the date first
written above.
THE BORROWER:
CALLON PETROLEUM COMPANY
By:
Name: John S. Weatherly
Title: Senior Vice President,
Chief Financial Officer and Treasurer
THE SUBSIDIARY GUARANTORS
CALLON PETROLEUM OPERATING COMPANY
By:
Name: John S. Weatherly
Title: Senior Vice President, Chief Financial
Officer and Treasurer
CALLON OFFSHORE PRODUCTION, INC.
By:
Name: John S. Weatherly
Title: Vice President, Chief Financial
Officer and Treasurer
Address of the Borrower and each Subsidiary Guarantor:
200 North Canal Street
Natchez, Mississippi 39120
Attention: John S. Weatherly
Telephone: 601/442-1601
Telecopy: 601/446-1410
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<PAGE>
THE AGENT
THE CHASE MANHATTAN BANK
By:
Name:
Title:
Address of the Agent:
The Chase Manhattan Bank
c/o Texas Commerce Bank National Association
707 Travis, 5 TCB-N 86
Houston, Texas 77002
Attention: Scott Richardson
Telephone: 713/216-4288
Telecopy: 713/216-4117
THE BANKS:
THE CHASE MANHATTAN BANK
By:
Name:
Title:
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TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS AND REFERENCES....................... 1
SECTION 1.1. Defined Terms.......................................... 1
SECTION 1.2. Exhibits and Schedules: Additional Definitions......... 21
SECTION 1.3. Amendment of Defined Instruments....................... 21
SECTION 1.4. References and Titles.................................. 21
SECTION 1.5. Calculations and Determinations........................ 22
SECTION 1.6. Types of Borrowings.................................... 22
ARTICLE II
COMMITMENTS.............................. 22
SECTION 2.1. Revolving Loans and Letters of Credit.................. 22
SECTION 2.2. Borrowing Procedure for Loans.......................... 23
SECTION 2.3. Use of Proceeds........................................ 24
SECTION 2.4. Conversions or Continuation of Borrowings.............. 24
SECTION 2.5. Fees................................................... 25
SECTION 2.6. Termination or Reduction of Total Commitment........... 26
SECTION 2.7. Optional Prepayments................................... 26
SECTION 2.8. Mandatory Prepayments.................................. 26
SECTION 2.9. Interest Rates and Payment Dates....................... 27
SECTION 2.10. Determination of Interest Rate......................... 27
SECTION 2.11. Issuing the Letters of Credit.......................... 28
SECTION 2.12. Capital Reimbursement.................................. 30
SECTION 2.13. Increased Costs........................................ 30
SECTION 2.14. Availability........................................... 31
SECTION 2.15. Reimbursable Taxes..................................... 31
SECTION 2.16. Funding Losses......................................... 32
SECTION 2.17. Sharing of Payments and Setoffs........................ 33
SECTION 2.18. Method of Payments Pro Rata Treatment.................. 34
SECTION 2.19. Limitation on Reimbursement; Mitigation................ 34
SECTION 2.20. Replacement of Banks................................... 35
ARTICLE III
BORROWING BASE............................. 35
SECTION 3.1. Engineering Report; Proposed Borrowing Base............ 35
SECTION 3.2. Determination of Borrowing Base........................ 35
SECTION 3.3. Special Determination of Total Borrowing Base.......... 36
SECTION 3.4. Initial Borrowing Base................................. 37
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ARTICLE IV
CONDITIONS PRECEDENT TO LENDING.................... 37
SECTION 4.1. Documents to be Delivered.............................. 37
SECTION 4.2. Additional Conditions Precedent........................ 40
ARTICLE V
REPRESENTATIONS AND WARRANTIES..................... 40
SECTION 5.1. No Default............................................. 41
SECTION 5.2. Organization and Good Standing......................... 41
SECTION 5.3. Authorization.......................................... 41
SECTION 5.4. Enforceable Obligations................................ 41
SECTION 5.5. Financial Condition.................................... 42
SECTION 5.6. No Change.............................................. 42
SECTION 5.7. No Conflict............................................ 42
SECTION 5.8. Full Disclosure........................................ 42
SECTION 5.9. Litigation............................................. 43
SECTION 5.10. Oil and Gas Interests; Properties Generally............ 43
SECTION 5.11. Taxes.................................................. 44
SECTION 5.12. ERISA Liabilities...................................... 44
SECTION 5.13. Names and Places of Business........................... 44
SECTION 5.14. Loan Parties' Subsidiaries............................. 44
SECTION 5.15. Government Regulation.................................. 44
SECTION 5.16. Insider................................................ 44
SECTION 5.17. Proceeds of Loans; Regulation U........................ 45
SECTION 5.18. Environmental Matters.................................. 45
SECTION 5.19. Regulatory Controls.................................... 46
SECTION 5.20. Engineering Report..................................... 46
SECTION 5.21. Designated Contracts................................... 47
SECTION 5.22. Solvency............................................... 47
SECTION 5.23. Business............................................... 47
SECTION 5.24. Mortgaged Property..................................... 47
SECTION 5.25. Consolidated Business Entity........................... 47
ARTICLE VI
AFFIRMATIVE COVENANTS......................... 47
SECTION 6.1. Payment and Performance................................ 47
SECTION 6.2. Books, Financial Statements and Reports................ 48
SECTION 6.3. Other Information and Inspections...................... 49
SECTION 6.4. Notice of Material Events and Change of Address........ 50
SECTION 6.5. Maintenance of Ownership; Properties................... 50
SECTION 6.6. Maintenance of Existence and Qualifications............ 51
SECTION 6.7. Payment of Trade Debt, Taxes, etc...................... 51
SECTION 6.8. Insurance.............................................. 51
SECTION 6.9. Payment of Expenses.................................... 51
SECTION 6.10. Performance on Loan Parties' Behalf.................... 52
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<PAGE>
SECTION 6.11. Interest............................................... 52
SECTION 6.12. Compliance with Agreements and Law..................... 52
SECTION 6.13. Environmental Matters.................................. 52
SECTION 6.14. Evidence of Compliance................................. 53
ARTICLE VII
NEGATIVE COVENANTS........................... 53
SECTION 7.1. Limitations on Debt.................................... 53
SECTION 7.2. Limitations on Liens................................... 54
SECTION 7.3. Hedge Transactions..................................... 55
SECTION 7.4. Limitation on Consolidation, Mergers and Acquisitions;
Fundamental Changes....................................... 56
SECTION 7.5. Limitation on Sales of Property........................ 56
SECTION 7.6. Limitation on Distributions............................ 56
SECTION 7.7. Limitation on Investments.............................. 57
SECTION 7.8. Limitation on New Businesses........................... 57
SECTION 7.9. Transactions with Affiliates........................... 58
SECTION 7.10. Certain Contracts; Amendments; Multiemployer ERISA Plans 58
SECTION 7.11. Sales and Leasebacks................................... 58
SECTION 7.12. Margin Regulation...................................... 58
SECTION 7.13. Fiscal Year............................................ 59
SECTION 7.14. Financial Covenants.................................... 59
SECTION 7.15. Amendments and Waivers of Subordinated Obligations..... 59
ARTICLE VIII
SECURITY................................ 59
SECTION 8.1. The Security........................................... 59
SECTION 8.2. Mortgaged Properties................................... 59
SECTION 8.3. Further Assurances; Additional Collateral.............. 60
SECTION 8.4. Offset................................................. 60
SECTION 8.5. Guaranties of the Borrower's Subsidiaries.............. 60
SECTION 8.6. Production Proceeds.................................... 60
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES..................... 61
SECTION 9.1. Events of Default...................................... 61
SECTION 9.2. Remedies............................................... 64
SECTION 9.3. Indemnity.............................................. 64
ARTICLE X
THE AGENT............................... 64
SECTION 10.1. Appointment............................................ 64
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<PAGE>
SECTION 10.2. Delegation of Duties................................... 65
SECTION 10.3. Exculpatory Provisions................................. 65
SECTION 10.4. Reliance by Agent...................................... 65
SECTION 10.5. Notice of Default...................................... 65
SECTION 10.6. Non-Reliance of Agent and Other Banks.................. 66
SECTION 10.7. Indemnification........................................ 66
SECTION 10.8. Agent in Its Individual Capacity....................... 66
SECTION 10.9. Successor Agent........................................ 66
ARTICLE XI
MISCELLANEOUS............................. 67
SECTION 11.1. Waivers and Amendments; Acknowledgements............... 67
SECTION 11.2. Representation by the Banks............................ 68
SECTION 11.3. Notices................................................ 69
SECTION 11.4. Successors and Assigns; Participations................. 69
SECTION 11.5. No Waiver; Cumulative Remedies......................... 72
SECTION 11.6. Survival of Agreements; Cumulative Nature.............. 73
SECTION 11.7. Joint and Several Liability; Parties in Interest....... 73
SECTION 11.8. GOVERNING LAW; SUBMISSION TO PROCESS................... 73
SECTION 11.9. Interest............................................... 74
SECTION 11.10. Severability........................................... 75
SECTION 11.11. Counterparts........................................... 75
SECTION 11.12. WAIVER OF JURY TRIAL, DAMAGES, ETC..................... 75
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SCHEDULES
Schedule 1.1 - Names, Addresses and Commitments of the Banks
Schedule 1.2 - Disclosure Schedule
Schedule 1.3 - Mortgage Schedule
Schedule 5.10 - Description of Material Borrowing Base Properties of the Loan
Parties
EXHIBITS
Exhibit A - Form of Borrowing Request
Exhibit B - Form of Letter of Credit Application
Exhibit C - Form of Promissory Note
Exhibit D - Form of Notice of Conversion or Continuation
Exhibit E - Form of Security Agreement - Intercompany Obligations
Exhibit F - Form of Subsidiary Guaranty
Exhibit G - Form of Opinion of Borrower's Counsel
Exhibit H - Form of Opinion of Alabama Counsel
Exhibit I - Form of Opinion of Louisiana Counsel
Exhibit J - Form of Compliance Certificate
Exhibit K - Form of Commitment Transfer Supplement
-v-
EXHIBIT 10.10
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") by and between Callon Petroleum
Company, a Delaware corporation ("Company"), and John S. Callon ("Consultant")
is made this 19th day of June, 1996 and is effective as of the day John S.
Callon ceases to be Chief Executive Officer of the Company ("Effective Date").
RECITALS
WHEREAS, Consultant desires to retire as the Chief Executive Officer of
the Company; and
WHEREAS, the Company desires to retain Consultant, upon the terms and
conditions provided herein, so that the Company may continue to benefit from the
expertise and contacts in the oil and gas industry developed by Consultant over
the past 46 years; and
WHEREAS, Consultant desires to be so retained.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the above recitals, and for and in
consideration of the mutual promises set forth below, the parties agree as
follows:
1. SCOPE OF SERVICES
Consultant shall, at the Company's election and request, provide
consultation to the Company from time to time on any matters pertaining to
corporate or financial strategy, investor relations, including relations with
institutional investors, and public/private financing opportunities; provided,
however, that Consultant shall not be obligated to perform such services for
more than 20 hours per month, 10 months per year. The Company shall give
reasonable advance notice of any request to provide consultant services
hereunder.
Subject to Section 6, during the term of this Agreement, Consultant may
engage in other activities which require similar services provided that
Consultant shall not engage in activities which require such substantial
services on the part of Consultant that he is unable to perform the duties
assigned to him by the Company hereunder. Consultant may maintain or make
investments or engage in other business or enterprises, provided such
investments, businesses or enterprises do not require services on the part of
Consultant which would materially impair the performance of his duties under
this Agreement.
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<PAGE>
2. TERM OF AGREEMENT
This Agreement shall commence on the Effective Date and shall continue
in full force and effect through December 31, 2001 ("Expiration Date");
provided, however, that unless Consultant has delivered notice of termination to
the Company prior to the Expiration Date, the Expiration Date shall
automatically be extended to the end of succeeding five year periods subject to
cancellation by Consultant upon not less than thirty (30) days written notice to
the Company prior to December 31 of any fifth year.
3. COMPENSATION OF CONSULTANT
As compensation for the services provided hereunder, commencing on the
Effective Date Consultant shall be paid a fee ("Consultation Fee") of not less
than one hundred ninety thousand dollars ($190,000.00) per year increased
annually (pro rated for partial years) based upon the change in the Consumer
Price Index published by the Department of Labor, Bureau of Labor Statistics
(provided, however, if the Consumer Price Index for any year exceeds 4%, the
increase shall be 4% plus one-half of the excess of the Consumer Price Index
over 4%, which amount is herein referred to as the "Inflation Factor"), for each
year of this Agreement, payable in substantially equal semi-monthly installments
during the term hereof. It is understood that the Company will review annually
and may, in the discretion of its Board, increase the Consultation Fee, in which
case the amount of such increased compensation shall thereafter be deemed to be
the amount of the Consultation Fee.
All compensation paid hereunder shall be subject to such payroll and
withholding deductions as are required by the laws of any federal, state or
local jurisdiction with taxing authority with respect to such compensation.
4. OTHER BENEFITS
(a) The Company shall maintain in full force and effect, and
Consultant and his spouse shall be entitled to participate in,
the Company's major medical benefit plan. In addition,
Consultant shall be entitled to receive, as disability insurance
protection, the disability coverage provided to full-time
executives of the Company. In the event the participation of
Consultant or Consultant's spouse in any such plan or program is
barred, the Company shall arrange to provide Consultant and
Consultant's spouse with benefits substantially similar to those
which they would otherwise have been entitled to receive under
such plans and programs from which their continued participation
is barred.
(b) The Company shall reimburse Consultant for reasonable expenses
incurred in connection with the performance of services
hereunder. The Company shall reimburse Consultant for expenses
incurred for travel, lodging, food, tolls and parking in
connection with the performance of Consultant's duties
hereunder. If
2
<PAGE>
Consultant travels by private plane, the Company shall reimburse
Consultant an amount equal to the coach or equivalent class
ticket applicable to such travel. Consultant shall provide to
the Company receipts or other appropriate documentation
substantiating the expenses to be reimbursed under this
provision. Reimbursement shall be made within fifteen (l5) days
of the Company's receipt of the required information.
Notwithstanding the foregoing, in the event that Consultant is
required to travel outside the state of Mississippi (so long as
Consultant resides in Mississippi) in the course of his duties
hereunder, the Company shall advance a reasonable travel
allowance to Consultant.
(d) As an inducement to Consultant's agreement to provide the
services set forth hereunder, the Company shall issue to
Consultant 25,000 shares of common stock of the Company, $0.01
par value per share, 20% of which shall vest on each of the
first five anniversaries of the Effective Date of this
Agreement, as contemplated by the Restricted Stock Agreement
attached as Exhibit A.
(e) The benefits and covenants described in subsections (a) and (c)
are referred to herein as the Benefits.
5. AUTHORITY AND CAPACITY
Consultant shall at all times be an independent contractor, and nothing
in this Agreement shall be construed to constitute Consultant as an employee,
agent, joint venturer or partner of the Company.
6. INFORMATION, MATERIALS AND INVENTIONS
Consultant shall hold in strict confidence and not disclose to others or
use, either before or after termination of this Agreement, confidential
information, whether technical, scientific or business, concerning the Company's
business activities and interests with which Consultant becomes familiar in
contacts with the Company. Similarly, Consultant shall not disclose to others
without the Company's prior written consent the results or specific nature of
Consultant's work with the Company.
7. OTHER OBLIGATIONS AND AGREEMENTS
This Agreement shall not affect any of the following agreements between
the Consultant and the Company: the Stockholders Agreement, dated September 16,
1994 among the Company, the Consultant, other members of the Consultant's
family, and NOCO Enterprises, L.P.; the Contingent Share Agreement, dated
September 16, 1994 among the Company, Consultant, other members of Consultant's
family; the Registration Rights Agreement, dated September 16, 1996 between the
Company and Consultant and certain other owners of common stock of the Company;
any stock option or other award granted to Consultant under the Company's stock
incentive plans;
3
<PAGE>
any amounts contributed by or for the account of Consultant in the Company's
401(k) Plan.. This Agreement replaces any other agreements between Consultant
and the Company made before the execution of this Agreement.
8. COMPLIANCE WITH LAWS
Consultant agrees that, in the performance of services hereunder, he
shall comply with all laws, rules and regulations of any governmental authority
applicable in connection therewith.
9. TERMINATION
(a) All obligations of the Company and Consultant hereunder, except
for the Company's obligations pursuant to Paragraph 9(b) below,
shall terminate (i) upon the earlier to occur of (a) the death
or disability of Consultant or (b) a Change in Control of the
Company, unless otherwise agreed to by the Company and
Consultant; or (ii) on or after the fifth anniversary of the
Effective Date, at the option of the Company acting through its
Board of Directors. A "Change in Control" shall have occurred
only if: (i) any person or group of persons acting in concert
(within the meaning of Section 13(d) of the Securities Exchange
Act of 1934) shall have become the beneficial owner of a
majority of the outstanding common stock of the Company; (ii)
the stockholders of the Company shall cause a change in a
majority of the members of the Board within a twelve-month
period, provided, however, that the election of a newly-elected
director shall not be deemed to be a change in the membership of
the Board if the nomination for election by the Company's
stockholders of such new director was approved by either the
vote of two-thirds of the directors then still in office who
were directors at the beginning of such twelve-month period or
by "NOCO" or the "Callon Family" under the terms of, and as
defined in, the Stockholders' Agreement, dated September 16,
1994, between the Company, NOCO and the Callon Family; (iii) the
Company or its stockholders shall enter into an agreement to
dispose of all or substantially all of the assets or outstanding
capital stock of the Company in any manner (including, but not
limited to, by means of sale, merger, reorganization or
liquidation); or (iv) Fred L. Callon shall no longer serve as a
Director of the Company.
(b) In the event this Agreement is terminated pursuant to Paragraph
9(a) or upon breach by the Company, Consultant and, if
Consultant predeceases his wife, Consultant's wife, shall be
entitled to receive a Termination Payment which shall be payable
during the Termination Period. The Termination Payment shall
equal the Consultation Fee in effect on the date of termination,
increased annually by the Inflation Factor, which shall be paid
annually, in substantially equal semi-monthly installments;
provided, however, that in lieu of semi-monthly payment of the
Termination Payment, Consultant or Consultant's wife, as the
case may be, may elect to receive, and, subject to approval of
the Board of Directors, the Company shall pay, $1.5 million,
increased annually from the date hereof by the Inflation
4
<PAGE>
Factor, in one lump sum payment; provided further, that in the
event this Agreement is terminated at the option of the Company
after the fifth anniversary of the Effective Date, the Company
may elect to pay $1.5 million, increased annually from the date
hereof by the Inflation Factor, in one lump sum payment in lieu
of semi-monthly payment of the Termination Payment. In addition
to the Termination Payment, the Company shall maintain in full
force and effect, and Consultant and Consultant's spouse shall
be entitled to the Benefits. "Termination Period" means the
period of time from the date of termination of this Agreement to
the later of the death of Consultant and the death of
Consultant's spouse.
(c) If this Agreement shall terminate because of the Company's
breach, then, in addition to the Termination Payment and
Benefits to which Consultant and his spouse are entitled, the
Company shall pay as liquidated damages and not as a penalty,
the sum of $1.5 million, increased annually from the date hereof
by the Inflation Factor, which is intended to compensate
Consultant for all other damages to which Consultant or
Consultant's spouse, as applicable, may suffer as a result of
such breach, including damages for any and all loss of benefits
to Consultant and his spouse under the Benefits, which
Consultant would have received if the Company had not breached
this Agreement. The parties hereto agree that the actual amounts
of such damages are impossible of calculation and that the
liquidated damages provided for herein is a reasonable measure
of such damages.
(d) Consultant shall not be required to mitigate the amount of any
payment provided for in this Paragraph 9 by seeking and
accepting employment or otherwise. Termination of this Agreement
shall not affect the Company's obligation under the indemnity
provisions set forth in Paragraph 10. Upon termination pursuant
to Paragraph 9(a), all stock previously granted to Consultant
under Paragraphs 4(d) and 4(e) and any other incentive
compensation program or plan in which Consultant has been
granted awards or in which Consultant participates, shall
immediately vest.
(e) If the aggregate of the Termination Payment and other benefits
to Consultant or Consultant's spouse pursuant to this Paragraph
9 (the "Aggregate Amount") or payment pursuant to Paragraph 9(c)
("Liquidated Damages") would constitute a "parachute payment"
(as defined in Section 280G of the Internal Revenue Code of
1986, as amended or supplemented (the "Code")), the Termination
Payment or Liquidated Damages, as the case may be, shall be
reduced to the largest amount as will result in no portion of
the Aggregate Amount or Liquidated Damages being subject to the
excise tax imposed by Section 4999 of the Code. The
determination of any reduction in the Termination Payment or
Liquidated Damages pursuant to this Paragraph shall be made by
Consultant or Consultant's spouse and the Company in good faith,
and in the event of disagreement, such determination shall be
made by means of arbitration to be conducted at the Company's
expense. Any such arbitration shall be conducted in Natchez or
Jackson, Mississippi, by one arbitrator, who shall be a member
of a nationally recognized accounting firm that is
5
<PAGE>
not then engaged by the Company or any of its major
stockholders, and who shall be jointly designated by the
parties; provided, that if the parties cannot agree on the
selection of an arbitrator, the Company's then current
independent auditors shall select such arbitrator. The findings
of the arbitrator shall be conclusive and binding on the
parties. Notwithstanding the above, Consultant or Consultant's
spouse may elect to receive, in lieu of the reduced amount
described above, the full amount of the Termination Payment,
together with the other benefits that Consultant or Consultant's
spouse has the right to receive from the Company, or the full
amount of Liquidated Damages, as the case may be, provided the
Company is so notified in writing within 15 days of the date of
termination.
(f) The Company may terminate this Agreement "for cause". As used
herein, "for cause" shall mean the willful misconduct or
intentional and continual neglect of duties which has materially
and adversely affected the Company; provided, however, that
Consultant shall have first received written notice from the
Board advising of the acts or omissions that constitute the
misconduct or neglect of duties, and such misconduct or neglect
of duties continues after Consultant shall have had a reasonable
opportunity to correct the same.
10. COUNSEL FEES AND INDEMNIFICATION.
(a) In the event the Consultant is required to employ legal counsel
to enforce the performance of this Agreement or recover damages
because of any breach of this Agreement, the Consultant shall be
entitled to recover from the Company reasonable attorneys' fees
and the reimbursement of all necessary expenses and court costs
up to a maximum of $300,000.
(b) The Company shall indemnify and hold Consultant harmless to the
maximum extent permitted by law against judgments, fines,
amounts paid in settlement and reasonable expenses, including
attorneys' fees and costs incurred by Consultant in connection
with the defense of, or as a result of any action or proceeding
(or any appeal from any action or proceeding) in which
Consultant is made or is threatened to be made a party by reason
of the fact that Consultant is or was acting in furtherance of
his duties hereunder and in the best interests of the Company,
regardless of whether such action or proceeding is one brought
by or in the right of the Company or any of its subsidiaries or
affiliates, to procure a judgment in its favor.
The undertakings of subparagraph (a) above, are
independent of, and shall not be limited or prejudiced by the
undertakings of this subparagraph (b).
11. MISCELLANEOUS
(a) Notice may be sent by facsimile, overnight mail or first class
mail. Notice sent by
6
<PAGE>
facsimile shall be deemed to have been received upon the sending
party's receipt of its facsimile machine's confirmation of
successful transmission, if the day on which such facsimile is
received is not a business day or is after five p.m. on a
business day, then such facsimile shall be deemed to have been
received on the next following business day. Notice by overnight
mail or courier shall be deemed to have been received on the
next business day after it was sent or such earlier time as is
confirmed by the receiving party. Notice via first class mail
shall be considered delivered three business days after mailing.
For purposes hereof, "business day" shall mean any day except
Saturday, Sunday or Federal Reserve Bank holidays.
All invoices and other documents required by this Agreement
shall be sent to the Company at the following address:
Callon Petroleum Company
200 North Canal Street
Natchez, Mississippi 39120
All invoices and other documents required by this Agreement
shall be sent to Consultant at the following address:
John S. Callon
200 North Canal Street
Natchez, Mississippi 39120
(b) This Agreement is not assignable or transferable by either
party, in whole or in part, except with the prior written
consent of the other party. Consultant shall not subcontract any
work under this Agreement to any subcontractor except with the
Company's prior written consent.
(c) Should any one or more of the provisions hereof be determined to
be illegal or unenforceable, all other provisions hereof shall
be given effect separately therefrom and shall not be affected
thereby.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware.
(e) This Agreement represents the entire agreement and understanding
between the Company and Consultant relative to the subject
matter hereof, and there are no understandings, agreements,
conditions or representations, oral or written, express or
implied, with reference to the subject matter hereof that are
not merged or superseded hereby. No amendment, modification or
release from any provision hereof shall be of any force or
affect unless it specifically refers to this Agreement, is in
writing and is signed by the party claimed to be bound thereby.
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<PAGE>
(f) The Company shall pay all reasonable costs of legal counsel
retained by Consultant to represent Consultant for purposes of
Consultant's decision to enter into this Agreement and
negotiation of the terms hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date set forth above.
CALLON PETROLEUM COMPANY ("COMPANY")
BY:_________________________________
DATE:
JOHN S. CALLON ("CONSULTANT")
---------------------------------
DATE:
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Exhibit A
RESTRICTED STOCK AGREEMENT UNDER THE
CALLON PETROLEUM COMPANY
1994 STOCK INCENTIVE PLAN
THIS AGREEMENT is entered into this th day of , 1996, between Callon
Petroleum Company, a Delaware corporation (the "Company") and John S. Callon
("Grantee"), pursuant to the provisions of the Callon Petroleum Company 1994
Stock Incentive Plan (the "Plan") as adopted by the Board of Directors of the
Company and approved by the sole stockholder of the Company on July 14, 1994.
The Board of Directors of the Company has determined that Grantee is eligible to
participate as a Grantee under the Plan, and, to carry out its purposes, has
this day authorized the issue, pursuant to the Plan, of the shares of common
stock of the Company, par value $0.01 per share ("Common Stock"), set forth
below to Grantee.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties do hereby agree as follows:
1. GRANT. Subject to all of the terms, conditions and provisions of the
Plan and of this Agreement, the Company hereby grants to Grantee 25,000 shares
of Common Stock ("Shares") under the Plan, which Shares shall consist of
authorized but unissued shares or issued shares reacquired by the Company.
2. VESTING. The Shares shall vest pursuant to the vesting schedule set
forth below or as otherwise described in that certain Consulting Agreement dated
, between the Company and Grantee and to which a copy of this Agreement is
attached as Exhibit A.
VESTING DATE VESTED PERCENTAGE
------------ -----------------
, 1997 20%
, 1998 20%
, 1999 20%
, 2000 20%
, 2001 20%
3. GRANTEE'S AGREEMENT. Grantee expressly and specifically agrees that:
(a) With respect to the calendar year in which any portion of the
Shares vest, the Grantee shall include in his gross income for
federal income tax purposes the amount the fair market value (as
determined in Section 6.7 of the Plan) of the Shares issuable on
the date of vesting;
(b) The grant of the Shares is special incentive compensation which
shall not be taken into account as "wages" or "salary" in
determining the amount of payment or benefit
9
<PAGE>
to the Grantee under any pension, thrift, stock or deferred
compensation plan of the Company; and
(c) On behalf of the Grantee's beneficiary, such grant shall not
affect the amount of any life insurance coverage available to
such beneficiary under any life insurance plan of the Company.
4. OTHER TERMS, CONDITIONS AND PROVISIONS. As previously provided, the
Shares herein granted by the Company to Grantee are issued subject to all of the
terms, conditions and provisions of the Plan. Grantee hereby acknowledges
receipt of a copy of the Plan and the parties agree that the entire text of such
Plan be, and it is, hereby incorporated herein by reference as fully as if
copied herein in full. Reference to such Plan is therefore made for a full
description of the rights of Grantee, adjustments to be made in the event of
changes in the capital structure of the Company, and all of the other
provisions, terms and conditions of the Plan applicable to the Shares granted
herein. If any of the provisions of this Agreement shall vary from or be in
conflict with the Plan, the provisions of the Plan shall be controlling.
5. NON-TRANSFERABILITY. Unvested Shares granted hereunder are not
transferable or assignable by Grantee except by will or the laws of descent and
distribution.
IN WITNESS WHEREOF, this Agreement is executed and entered into
effective on the day and year first above expressed.
ATTEST: CALLON PETROLEUM COMPANY
- --------------------------- --------------------------------
H. Michael Tatum, Secretary Fred L. Callon, President
GRANTEE
--------------------------------
John S. Callon
10
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
Registration Statement on Form S-1 of Callon Petroleum Company.
ARTHUR ANDERSEN LLP
November 5, 1996
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM AND GEOLOGICAL ENGINEERS
The undersigned hereby consents to the use in the Prospectus
constituting part of this Registration Statement on Form S-1 of our reserve
reports relating to the oil and gas reserves of Callon Petroleum Company, Callon
Consolidated Partners, L.P. and CN Resources at December 31, 1993, 1994 and
1995. We also consent to the references to us under the headings "Risk
Factors--Estimates of Oil and Gas Reserves," "Experts" and "Business and
Properties" and elsewhere in such Prospectus.
Huddleston & Co. Inc.
By: /s/ PETER D. HUDDLESTON
Name: PETER D. HUDDLESTON, P.E.
Title: PRESIDENT
November 4, 1996
