As filed with the Securities and Exchange Commission on September 25, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CALLON PETROLEUM COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1311 64-0844345
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) 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)
John S. Weatherly
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)
COPY TO:
BUTLER & BINION, L.L.P
1000 Louisiana, Suite 1600
Houston, Texas 77002
Attn: George G. Young III
Telephone: (713) 237-3605
Telecopy : (713) 237-3202
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of the Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
maximum maximum
Title of each class of Amount to be offering price aggregate Amount of
securities to be registered registered per unit offering price registration fee
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10.125% Senior
Subordinated Notes
due 2002 $36,000,000 $ 100% $ 36,000,000 $ 10,909.09(1)
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</TABLE>
(1) Calculated in accordance with Rule 457(f)(2).
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the 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.
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<PAGE>
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* *
* 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. *
* *
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Subject to Completion, dated September 25, 1997
Preliminary Prospectus
CALLON PETROLEUM COMPANY
OFFER TO EXCHANGE ITS 10.125% SERIES B SENIOR SUBORDINATED NOTES DUE 2002 THAT
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OF ITS
OUTSTANDING 10.125% SERIES A SENIOR SUBORDINATED NOTES DUE 2002
The Exchange Offer and Withdrawal Rights will expire at 5:00
P.M., New York City time, on __________, 1997, unless
extended (the "Expiration Date")
Callon Petroleum Company, a Delaware corporation (the "Company" or
"Callon"), hereby offers, upon the terms and subject to the conditions set forth
in this Prospectus (as the same may be amended or supplemented from time to
time, the "Prospectus") and in the accompanying Letter of Transmittal (which
together constitute the "Exchange Offer"), to exchange up to $36,000,000
aggregate principal amount of its 10.125% Series B Senior Subordinated Notes due
2002 (the "Exchange Notes") that have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement
(as defined) of which this Prospectus constitutes a part, for a like principal
amount of its outstanding 10.125% Series A Senior Subordinated Notes due 2002
(the "Outstanding Notes" and, together with the Exchange Notes, the "Notes"), of
which $36,000,000 aggregate principal amount is outstanding.
The terms of the Exchange Notes are identical in all material respects to
the terms of the Outstanding Notes, except that (i) the Exchange Notes have been
registered under the Securities Act and therefore will not be subject to certain
restrictions on transfer applicable to the Outstanding Notes and generally will
not be entitled to registration rights, and (ii) the Exchange Notes will not
provide for any increase in the interest rate thereon related to such
registration rights. In that regard, the Outstanding Notes provide that if an
(i) exchange offer registration statement or resale shelf registration statement
is not filed by October 1, 1997 or (ii) exchange offer registration statement is
not declared effective by November 15, 1997, Special Interest (as defined) will
accrue and be payable semi-annually until such time as an exchange offer
registration statement is filed or becomes effective, as the case may be. In
addition, (i) if an exchange offer is not consummated or a resale shelf
registration statement is not declared effective by December 31, 1997 or (ii) if
either the exchange offer registration statement or the resale shelf
registration statement has been declared effective and such registration
statement ceases to be effective or usable (subject to certain exceptions),
Special Interest will accrue and be payable quarterly until such time as an
exchange offer is consummated or a resale shelf registration statement is
declared effective, as the case may be. See "Description of the Exchange Notes"
and "Description of the Outstanding Notes." The Exchange Notes are being offered
for exchange in order to satisfy certain obligations of the Company under the
Registration Agreement dated July 31, 1997 (the "Registration Agreement")
between the Company and the Initial Purchaser (as defined) of the Outstanding
Notes. The Exchange Notes will be issued under the same Indenture (as defined)
as the Outstanding Notes. In the event that the Exchange Offer is consummated,
any Outstanding Notes that remain outstanding after consummation of the Exchange
Offer and the Exchange Notes issued in the Exchange Offer will vote together as
a single class for purposes of determining whether holders of the requisite
percentage in outstanding principal amount of Notes have taken certain actions
or exercised certain rights under the Indenture.
The Exchange Notes will be general, unsecured obligations of the Company,
subordinated in right of payment to all existing and any future Senior
Indebtedness (as defined) of the Company. The Exchange Notes will rank pari
passu with existing and any future senior subordinated indebtedness and senior
to any future subordinated indebtedness of the Company. See "Description of the
Exchange Notes -- Subordination of the Exchange Notes." The Indenture permits
the Company and its Restricted Subsidiaries (as defined) to incur additional
Indebtedness (as defined) under certain circumstances. See
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"Use of Proceeds," "Description of Outstanding Securities and Debt Instruments"
and "Description of the Exchange Notes."
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Outstanding Notes where
such Outstanding Notes were acquired by such broker-dealer as a result of market
making activities or other trading activities. The Company has agreed that,
starting on the Expiration Date (as defined) and ending on the close of business
on the forty-fifth day following the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
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.
The date of this Prospectus is , 1997.
2
<PAGE>
The Company is making the Exchange Offer in reliance on the position of
the staff of the Division of Corporation Finance of the Securities and Exchange
Commission (the "Commission") as set forth in certain interpretive letters
addressed to third parties in other transactions. However, the Company has not
sought its own interpretive letter and there can be no assurance that the staff
of the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance, and subject to the two immediately following
sentences, the Company believes that the Exchange Notes issued pursuant to this
Exchange Offer in exchange for the Outstanding Notes may be offered for resale,
resold and otherwise transferred by a holder thereof (other than a holder who is
a broker-dealer) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such Exchange Notes
are acquired in the ordinary course of such holder's business and that such
holder is not participating, and has no arrangement or understanding with any
person to participate, in a distribution (within the meaning of the Securities
Act) of such Exchange Notes. However, any holder of the Outstanding Notes who is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or who intends to participate in the Exchange Offer for the
purpose of distributing Exchange Notes, or any broker-dealer who purchased
Outstanding Notes from the Company to resell pursuant to Rule 144A under the
Securities Act ("Rule 144A") or any other available exemption under the
Securities Act, (a) will not be able to rely on the interpretations of the staff
of the Division of Corporation Finance of the Commission set forth in the above
mentioned interpretive letters, (b) will not be permitted or entitled to tender
such Outstanding Notes in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Outstanding Notes unless such
sale is made pursuant to an exemption from such requirements. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Outstanding
Notes, where such Outstanding Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. See "Plan of Distribution." In the event that applicable interpretations
by the staff of the Division of Corporation Finance of the Commission change or
otherwise do not permit resales of the Exchange Notes without compliance with
the registration and prospectus delivery requirements of the Securities Act,
holders of Exchange Notes who transfer Exchange Notes in violation of the
prospectus delivery provisions of the Securities Act or without an exemption
from registration thereunder may incur liability thereunder.
Each holder of Outstanding Notes who wishes to exchange Outstanding Notes
for Exchange Notes in the Exchange Offer will be required to represent that (i)
it is not an "affiliate" of the Company, (ii) any Exchange Notes to be received
by it are being acquired in the ordinary course of its business, (iii) it has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Notes, and (iv) if
such holder is not a broker-dealer, such holder is not engaged in, and does not
intend to engage in, a distribution (within the meaning of the Securities Act)
of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its
own account pursuant to the Exchange Offer must acknowledge that it acquired the
Outstanding Notes for its own account as the result of market-making activities
or other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. Based on the
position taken by the staff of the Division of Corporation Finance of the
Commission in the interpretive letters referred to above, the Company believes
that broker-dealers who acquired Outstanding Notes for their own accounts as a
result of market-making activities or other trading activities ("Participating
Broker-Dealers") may fulfill the prospectus delivery requirements with respect
to the Exchange Notes received upon exchange of such Outstanding Notes (other
than Outstanding Notes that represent an unsold allotment from the original sale
of the Outstanding Notes) with a prospectus meeting the requirements of the
Securities Act, which may be the prospectus prepared for an exchange offer so
long as it contains a
3
<PAGE>
description of the plan of distribution with respect to the resale of such
Exchange Notes. Accordingly, this Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of Exchange Notes
received in exchange for Outstanding Notes, where such Outstanding Notes were
acquired by such Participating Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject to certain provisions set
forth in the Registration Agreement, the Company has agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such Exchange
Notes for a period ending forty-five days after the consummation of the Exchange
Offer or, if earlier, when all such Exchange Notes have been disposed of by such
Participating Broker-Dealer. See "Plan of Distribution." Any Participating
Broker-Dealer who is an "affiliate" of the Company may not rely on such
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale of
Exchange Notes. See "The Exchange Offer -- Resales of Exchange Notes."
In that regard, each Participating Broker-Dealer who surrenders
Outstanding Notes pursuant to the Exchange Offer will be deemed to have agreed,
by execution of the Letter of Transmittal, that, upon receipt of notice from the
Company of the occurrence of any event or the discovery of any fact which makes
any statement contained in the Prospectus untrue in any material respect or
which causes this Prospectus to omit to state a material fact necessary in order
to make the statements contained herein, in light of the circumstances under
which they were made, not misleading or of the occurrence of certain other
events specified in the Registration Agreement, such Participating Broker-Dealer
will suspend the sale of Exchange Notes pursuant to this Prospectus until the
Company has amended or supplemented this Prospectus to correct such misstatement
or omission and has furnished copies of the amended or supplemented Prospectus
to each such Participating Broker-Dealer or the Company has give notice that the
sale of Exchange Notes may be resumed, as the case may be. If the Company gives
such notice to suspend the sale of the Exchange Notes, it shall extend the
forty-five day period referred to above during which Participating
Broker-Dealers are entitled to use this Prospectus in connection with the resale
of Exchange Notes by the number of days during the period from and including the
date of the giving of such notice to and including the date when Participating
Broker-Dealers shall have received copies of the amended or supplemented
Prospectus necessary to permit resales of the Exchange Notes or to and including
the date on which the Company has given notice that the sale of Exchange Notes
may be resumed, as the case may be.
Prior to the Exchange Offer, there has been only a limited secondary
market and no public market for the Outstanding Notes. The Exchange Notes will
be a new issue of securities for which there is currently no market.
Accordingly, there can be no assurance as to the development or liquidity of any
market for the Exchange Notes. Although the Initial Purchaser has informed the
Company that it currently intends to make a market in the Exchange Notes, it is
not obligated to do so, and any such market making may be discontinued at any
time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Exchange Notes. The Company
currently does not intend to apply for listing of the Exchange Notes on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
Any Outstanding Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Indenture (except
for those rights that terminate upon the consummation of the Exchange Offer).
Following consummation of the Exchange Offer, the holders of Outstanding Notes
will continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to such holders (other than the
Initial Purchaser or under certain limited circumstances relating to holders who
are not eligible to participate in the Exchange Offer) to provide the
registration under the Securities Act of the Outstanding Notes held by them. If
Outstanding Notes are tendered and accepted in the
4
<PAGE>
Exchange Offer, the market for untendered Outstanding Notes is likely to
diminish; accordingly, holders who do not tender their Outstanding Notes may
encounter difficulties in selling such notes following the Exchange Offer. See
"Risk Factors -- Consequences of a Failure to Exchange Outstanding Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OUTSTANDING NOTES ARE URGED TO READ THIS PROSPECTUS AND
THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER
THEIR OUTSTANDING NOTES PURSUANT TO THE EXCHANGE OFFER.
Outstanding Notes may be tendered for exchange on or prior to 5:00 p.m.,
New York City time, on ____________, 1997 ("Expiration Date"), unless the
Exchange Offer is extended by the Company (in which case the term "Expiration
Date" shall mean the latest date and time to which the Exchange Offer is
extended). Tenders of Outstanding Notes may be withdrawn at any time on or prior
to the Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Outstanding Notes being tendered for exchange. However, the
Exchange Offer is subject to certain events and conditions and to the terms and
provisions of the Registration Agreement. See "The Exchange Offer --
Conditions to the Exchange Offer." Outstanding Notes may be tendered in whole or
in part in a principal amount of $1,000 and integral multiples thereof. The
Company has agreed to pay all expenses of the Exchange Offer. Each Exchange Note
will bear interest from the most recent date to which interest has been paid or
duly provided for on the Outstanding Note surrendered in exchange for such
Exchange Note or, if no such interest has been paid or duly provided for on such
Outstanding Note, from July 31, 1997. Holders of the Outstanding Notes whose
Outstanding Notes are accepted for exchange will not receive accrued interest on
such Outstanding Notes for any period from and after the last interest payment
date to which interest has been paid or duly provided for on such Outstanding
Notes prior to the original issue date of the Exchange Notes or, if no such
interest has been paid or duly provided for, will not receive any accrued
interest on such Outstanding Notes, and will be deemed to have waived the right
to receive any interest on such Outstanding Notes accrued from and after such
interest payment date or, if no such interest has been paid or duly provided
for, from and after July 31, 1997. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders of the Outstanding Notes as
of ___________, 1997.
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. See "Use of Proceeds." No dealer-manager is being
used in connection with this Exchange Offer. See "Plan of Distribution."
Solicitation of tenders of Outstanding Notes may be made in person or by mail,
telephone or telegram, by directors, officers and regular employees of the
Company. Such persons will receive no additional compensation for any
solicitation activities. The Company may employ third-party agents to solicit
tenders of Outstanding Notes, for which services such agents would be paid their
usual and customary fee.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY
OR ITS SUBSIDIARIES SINCE THE DATE HEREOF.
5
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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, proxy statements and other information with the
Commission. Such reports and other information may be inspected and copied at
the public reference facilities of the Commission, Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the following
Regional Offices: 7 World Trade Center, Suite 1300, New York, New York 10048,
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials can be obtained from the Commission by mail at
prescribed rates. Requests should be directed to the Commission's Public
Reference Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a website at
http://www.sec.gov that contains reports, proxy statements, and other
information. Callon's common stock is listed on the Nasdaq Stock Market.
Reports, proxy and information statements and other information relating to
Callon can be inspected at the offices of the National Association of Securities
Dealers, Inc. In addition, for so long as any of the Outstanding Notes remains
outstanding, the Company has agreed to make available to any prospective
purchaser of the Outstanding Notes or beneficial owner of the Outstanding Notes
in connection with any sale thereof the information required by Rule 144A(d)(4)
under the Securities Act. Any such request and requests for the agreements
summarized herein should be directed to H. Michael Tatum, Secretary, Callon
Petroleum Company, 200 North Canal Street, Natchez, Mississippi 39120.
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission, and reference is
hereby made to the Registration Statement and to the exhibits relating thereto
for further information with respect to the Company and the Notes. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and, in each instance, reference is made to a copy of such
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission. Each such statement is qualified in its entirety by such
reference.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Consolidated
Financial Statements, and the notes thereto appearing elsewhere in this
Prospectus. Prospective purchasers should carefully consider the information set
forth in "Risk Factors" in evaluating the Exchange Offer. Unless the context
otherwise requires, all references in this Prospectus to "Callon" or the
"Company" are to Callon Petroleum Company and its subsidiaries. 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, 1996, the Company had estimated net
proved reserves of 73.3 Bcfe with a PV-10 Value of $160.2 million, representing
increases of 26% and 151% respectively, from December 31, 1995.
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 and one-half years, the Company has increasingly
supplemented the acquisition of producing properties with the acquisition of
acreage with development and exploratory drilling opportunities to further
increase potential recoverable reserves. Since 1995, the Company has generated
47 prospects on 217,000 gross acres. 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 three areas in the Gulf of Mexico:
(i) the state waters of Alabama and the federal outer continental shelf ("OCS")
in the Gulf of Mexico where the Company explores for shallow gas deposits
("Shallow Gas focus area"); (ii) the Breton Sound area located primarily in the
shallow state waters of Louisiana, where the Company explores for hydrocarbon
deposits at total well depths of between 8,000 to 14,000 feet ("Breton Sound
focus area"); and (iii) other regions of the OCS, where the Company explores for
hydrocarbon deposits at total well depths of between 9,000 and 18,000 feet
("Deep OCS focus area"). Wells drilled in the Shallow Gas focus area are
characterized by relatively low exploration and development costs, high initial
production rates and short reserve lives. Wells drilled in the Breton Sound
focus area and Deep OCS focus area are more expensive to drill and complete and
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 its Shallow Gas focus
area and, during 1996, completed four proprietary high resolution 2-D seismic
surveys over an eight block area. Based on these surveys, in October and
November of 1996, the Company drilled two gross (1.52 net) successful
development wells and one gross (1.0 net) successful exploratory well in this
area. These wells were placed on production by the end of December 1996 and,
coupled with the replacement of compression equipment at the related production
facilities, the Company's average daily oil and gas production increased to 43.5
MMcfe/d during the first half of 1997, representing a 67% increase over 1996
average daily production rates. During the first six months of 1997, the Company
drilled one additional successful development well (1.0 net), one unsuccessful
development well for a net cost of $1.2 million, and performed one major
recompletion in its Shallow Gas focus area. Production from the new well
commenced in July 1997 and the recompletion is currently producing 6.3 MMcf/d
(3.6 MMcf/d net to the Company). The Company's capital budget for the last six
months of 1997 includes the drilling of five gross (2.7 net) exploratory wells
in its Shallow Gas focus area, for an aggregate net cost to drill and complete
of approximately $10.0 million.
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In its Breton Sound focus area, the Company owns and operates several old
prolific fields. In November 1996, the Company completed a 36 square-mile 3-D
seismic survey on its Main Pass 35 Field and adjoining acreage which resulted in
the identification of one development and seven exploratory drilling prospects.
Based upon this new data, the Company acquired an additional 5,170 gross acres,
which increased its holdings in the Breton Sound focus area to almost 10,000
gross acres. In July 1997, the Company entered into a joint venture agreement
with Burlington Resources Oil & Gas Company to drill these prospects. The
Company will operate these prospects and has retained an approximate 42.4%
working interest. In addition, the Company acquired a 100% working interest in a
development prospect on an adjacent block. The Company's capital budget for the
last six months of 1997 in the Breton Sound focus area includes the drilling of
two gross (1.45 net) development and one gross (0.45 net) exploratory wells for
an aggregate net cost to Callon to drill and complete of approximately $8.2
million.
In 1996, the Company joined with Murphy Exploration and Production, Inc.
("Murphy") to acquire 18 federal blocks in the Deep OCS focus area and in 1997
joined with Murphy and another oil company to acquire an additional 13 blocks,
four of which are located in the Shallow Gas focus area. The Company owns a 25%
working interest in 23 of these blocks and a 20% working interest in the
remaining eight. Murphy operates these properties. To date Callon has
participated with Murphy in the drilling of four gross (1.0 net) unsuccessful
exploratory wells at a total cost of $6.1 million, net to the Company. The
Company's capital budget for the last six months of 1997 includes the drilling
of one gross (0.2 net) Deep OCS focus area exploratory prospect at a net cost to
Callon to drill and complete of approximately $2.9 million.
In total, the Company's current capital budget includes the drilling of
two gross (1.5 net) development wells and seven gross (3.3 net) exploratory
wells during the last six months of 1997 at an estimated net cost to the Company
to drill and complete of approximately $21.2 million. These drilling operations
will be financed from cash flows from operations, the net proceeds of the
offering of the Outstanding Notes and borrowings under the Company's credit
facility with a commercial bank ("Credit Facility"). See "Use of Proceeds."
PRODUCING PROPERTY ACQUISITIONS. Over the past eight 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 additional
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 December 31, 1996,
Callon acquired producing properties in 21 negotiated transactions, on behalf of
itself and, in certain cases, its primary institutional investor, for an
aggregate net purchase price of approximately $206 million and, during that
period, the Company had an average Reserve Replacement Cost of $0.84 per Mcfe.
ELF ACQUISITION. In June 1997, the Company purchased from Elf Exploration,
Inc. ("Elf Exploration") an 18.8% working interest in the Mobile Area Block 864
Unit for approximately $11.8 million. The transaction also included Elf
Exploration's 17.5% working interest in Mobile Area Blocks 863 and 907 and a 35%
working interest in Mobile Area Block 908. The Mobile Area Block 864 Unit,
operated by Chevron, is located in the Company's Shallow Gas focus area about 12
miles south-southwest of the Company's North Dauphin Island Field and is
currently producing 26 MMcf/d through the unit's facilities from sub-sea depths
of 2,400 feet and 2,700 feet. The Company believes exploratory drilling
opportunities exist on the three blocks. See the Company's MAB 864 Acquisition
Financial Statements for further information regarding the acquisition from Elf
Exploration.
8
<PAGE>
TECHNOLOGICAL EXPERTISE. Through its acquisition program, the Company has
assembled an operational and technical database in certain 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 five largest producing fields and for all other properties combined at
December 31, 1996.
ESTIMATED NET PROVED
PERCENT
PV-10 TOTAL OIL GAS
PRIMARY VALUE PV-10 RESERVES RESERVES
FIELD NAME/LOCATION OPERATOR(S) ($000)(1) VALUE (MBBLS) (MMCF)
- -------------------------- ------- -------- ------- ------ ------
Main Pass 163 Area
Federal Waters .......... Callon $ 55,604 34.7% -- 20,196
Chandeleur Block 40
Federal Waters .......... Callon 48,000 30.0 -- 16,782
Big Escambia Creek
Southeast Alabama ....... Exxon 14,492 9.1 991 2,673
Black Bay Complex
Louisiana State Waters .. Callon 11,394 7.1 1,920 684
North Dauphin Island Field
Alabama State Waters .... Callon 6,455 4.0 -- 2,685
Other properties ......... Various 24,226 15.1 908 7,404
-------- ------- ------ ------
Total ............... $160,171 100.0% 3,819 50,424
======== ======= ====== ======
- ----------------
(1) Future net cash flows attributable to the Company's estimated proved
reserves and the present value of such cash flows were based on an average
gas price of $3.88 per Mcf and an average oil price of $23.58 per Bbl at
December 31, 1996. The average price received for production in 1996 was
$2.63 per Mcf for gas and $20.55 per Bbl for oil, without the effects of
hedging.
9
<PAGE>
THE EXCHANGE OFFER
EXCHANGE OFFER...................... Up to $36,000,000 aggregate principal
amount of Exchange Notes are being
offered in exchange for a like principal
amount of Outstanding Notes. Outstanding
Notes may be tendered for exchange in
whole or in part in a principal amount of
$1,000 and multiples thereof. The Company
is making the offer in order to satisfy
its obligations under the Registration
Agreement relating to the Outstanding
Notes. The Company will issue the
Exchange Notes to tendering holders of
the Outstanding Notes promptly following
the Expiration Date.
REGISTRATION AGREEMENT.............. The Outstanding Notes were sold by the
Company on July 31, 1997 to Morgan Keegan
& Company, Inc. (the "Initial
Purchaser"), who placed the Outstanding
Notes with Qualified Institutional Buyers
("QIBs"). In connection therewith, the
Company executed and delivered for the
benefit of the holders of the Outstanding
Notes the Registration Agreement
providing for, among other things, the
Exchange Offer.
EXPIRATION DATE..................... 5:00 p.m., New York City time, on , 1997
unless the Exchange Offer is extended by
the Company. See "The Exchange Offer --
Expiration Date; Extensions; Amendments."
CONDITIONS TO THE EXCHANGE OFFER.... The Exchange Offer is subject to certain
conditions, which may be waived by the
Company in its sole discretion. See "The
Exchange Offer - Conditions to the
Exchange Offer." The Exchange Offer is
not conditioned upon any minimum
aggregate principal amount of Outstanding
Notes being tendered or accepted for
exchange. The Company reserves the right
(i) to delay the acceptance of the
Outstanding Notes for exchange, (ii) to
terminate the Exchange Offer at any time
prior to the Expiration Date upon the
occurrence of certain conditions, (iii)
to extend the Expiration Date of the
Exchange Offer and retain all of the
Outstanding Notes tendered pursuant to
the Exchange Offer, subject, however, to
the right of holders of the Outstanding
Notes to withdraw their tendered
Outstanding Notes and (iv) to waive any
condition or otherwise amend the terms of
the Exchange Offer in any respect. See
"The Exchange Offer -- Expiration Date;
Extensions; Amendments."
PROCEDURES FOR TENDERING OUTSTANDING
NOTES............................... Each holder of Outstanding Notes wishing
to accept the Exchange Offer must
complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in
accordance with
10
<PAGE>
the instructions contained herein and
therein, and mail or otherwise deliver
such Letter of Transmittal, or such
facsimile, together with such Outstanding
Notes and any other required
documentation to the Exchange Agent (as
defined) at the address set forth herein.
By executing the Letter of Transmittal
each holder will represent to the Company
that, among other things, (i) the
Exchange Notes acquired pursuant to the
Exchange Offer by the holder and any
beneficial owners of Outstanding Notes
are being acquired in the ordinary course
of business of the person receiving such
Exchange Notes, (ii) neither the holder
nor such beneficial owner is
participating in, intends to participate
in or has an arrangement or understanding
with any person to participate in the
distribution of such Exchange Notes and
(iii) neither the holder nor such
beneficial owner is an "affiliate," as
defined under Rule 405 of the Securities
Act, of the Company, or, if it is an
affiliate of the Company, that it will
comply with the registration and
prospectus delivery requirements of the
Securities Act to the extent applicable.
Each broker-dealer that receives Exchange
Notes for its own account in exchange for
Outstanding Notes, where such Outstanding
Notes were acquired by such broker-dealer
as a result of market making activities
or other trading activities, may
participate in the Exchange Offer but may
be deemed an "underwriter" under the
Securities Act and, therefore, must
acknowledge in the Letter of Transmittal
that it will deliver a prospectus in
connection with any resale of such
Exchange Notes. The Company has
undertaken, for a period of forty-five
days from the consummation of the
Exchange Offer, to maintain the
effectiveness of this Prospectus for use
in satisfaction of such persons'
obligations to deliver a prospectus. The
Letter of Transmittal states that by so
acknowledging and by delivering a
prospectus, a broker-dealer will not be
deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. See "The Exchange Offer
-- Resales of Exchange Notes."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS................... Any beneficial owner whose Outstanding
Notes are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee and who wishes
to tender such Outstanding Notes in the
Exchange Offer should contact such
registered holder promptly and instruct
such registered holder to tender on such
beneficial owner's behalf. If such
beneficial owner wishes to tender on its
own behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering its
Outstanding Notes, either make
appropriate
11
<PAGE>
arrangements to register ownership of the
Outstanding Notes in such owner's name or
obtain a properly completed bond power
from the registered holder. The transfer
of registered ownership may take
considerable time and may not be able to
be completed prior to the Expiration
Date.
GUARANTEED DELIVERY PROCEDURES...... Holders of Outstanding Notes who wish to
tender their Outstanding Notes and whose
Outstanding Notes are not immediately
available or who cannot deliver their
Outstanding Notes, the Letter of
Transmittal or any other documents
required by the Letter of Transmittal to
the Exchange Agent prior to the
Expiration Date must tender their
Outstanding Notes according to the
guaranteed delivery procedures set forth
in "The Exchange Offer -- Guaranteed
Delivery."
WITHDRAWAL RIGHTS................... Tenders may be withdrawn at any time
prior to the Expiration Date. See "The
Exchange Offer -- Withdrawal Rights."
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES........................ The exchange of the Outstanding Notes for
Exchange Notes by tendering holders will
not be a taxable exchange for federal
income tax purposes, and such holders
will not recognize any taxable gain or
loss or any interest income for federal
income tax purposes as a result of such
exchange. Holders should review the
information set forth under "Certain
Federal Income Tax Consequences" for a
discussion of certain U.S. tax
considerations relating to the Exchange
Notes prior to tendering the Outstanding
Notes in the Exchange Offer.
USE OF PROCEEDS..................... The Company will not receive any cash
proceeds from the issuance of the
Exchange Notes offered hereby. See "Use
of Proceeds."
EXCHANGE AGENT...................... American Stock Transfer & Trust Company,
New York, is serving as Exchange Agent in
connection with the Exchange Offer. See
"The Exchange Offer -- Exchange Agent."
THE EXCHANGE NOTES
EXCHANGE NOTES...................... $36,000,000 in aggregate principal amount
of 10.125% Series B Senior Subordinated
Notes due 2002. The form and terms of the
Exchange Notes are identical in all
material respects to the terms of the
respective Outstanding Notes for which
they may be exchanged
12
<PAGE>
pursuant to the Exchange Offer, except
for certain transfer restrictions and
registration rights relating to the
Outstanding Notes and except for certain
interest provisions relating to such
registration rights. See "Description of
the Exchange Notes."
MATURITY............................ September 15, 2002
INTEREST ON THE EXCHANGE NOTES...... The Exchange Notes will bear interest at
the rate of 10.125% per annum, payable
quarterly on December 15, March 15, June
15, and September 15 commencing December
15, 1997.
OPTIONAL REDEMPTION................. The Exchange Notes will be redeemable at
the option of the Company, in whole or in
part, at any time on or after September
15, 2000, at the redemption prices set
forth herein, plus accrued and unpaid
interest, if any, to the date of
redemption. See "Description of the
Exchange Notes -- Redemption at Option of
the Company."
REDEMPTION AT THE OPTION OF
HOLDERS UPON THE COMPANY EXCEEDING
CERTAIN LEVELS OF INDEBTEDNESS...... If Senior Indebtedness of the Company and
its Restricted Subsidiaries is not less
than the greater of (i) $50 million and
(ii) 45% of Total Consolidated Assets for
at least 30 consecutive days during any
consecutive 12 month period after August
1, 1997, each holder of Notes may require
the Company to redeem the Notes, in whole
or in part, for cash at the redemption
prices set forth herein, plus accrued
interest to the date of redemption. See
"Description of the Exchange Notes --
Repurchase at Option of Holders in
Certain Circumstances."
SUBORDINATION OF EXCHANGE NOTES..... The Exchange Notes will be unsecured and
subordinated in right of payment to all
existing and future Senior Indebtedness
of the Company and will rank pari passu
with the Company's existing and future
senior subordinated indebtedness,
including the Company's 10% Senior
Subordinated Notes due 2001 ("Existing
Notes"). The Exchange Notes will also be
structurally subordinated to all
liabilities of the Company's
subsidiaries. As of June 30, 1997, on a
pro forma basis giving effect to the
issuance of the Notes, the Company had
outstanding $100,000 of Senior
Indebtedness, $36.0 million of Notes and
$24.2 million of Existing Notes. The
total amount of liabilities of the
Company's subsidiaries as of June 30,
1997 was $13.9 million, excluding
guarantees of Senior Indebtedness. The
Exchange Notes will rank senior to the
Company's existing $2.125 Convertible
Exchangeable Preferred Stock, Series A
("Series A Preferred Stock") and any
13
<PAGE>
8.5% Convertible Subordinated Debentures
due 2010 ("Convertible Debentures") that
may be issued upon the exchange of such
Series A Preferred Stock. The Indenture
pursuant to which the Exchange Notes will
be issued will prohibit the Company's
Restricted Subsidiaries from incurring
subordinated indebtedness. See
"Description of Exchange Notes --
Subordination" and -- "Certain Covenants
-- Limitation on Indebtedness for Money
Borrowed" and "Description of Existing
Securities and Debt Instruments."
CERTAIN COVENANTS................... The Indenture pursuant to which the
Exchange Notes will be issued contains
certain 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 the Exchange Notes --
Certain Covenants."
LISTING............................. None. See "Risk Factors -- Lack of Public
Market."
SINKING FUND........................ None.
For additional information with respect to the Exchange Notes (including
defined terms), see "Description of the Exchange Notes."
14
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Revenues:
Oil and gas sales .............................. $ 20,844 $ 12,249 $ 25,764 $ 23,210 $ 13,948
Interest and other ............................. 695 278 946 627 171
---------- ---------- ---------- ---------- ----------
Total revenues ............................... 21,539 12,527 26,710 23,837 14,119
---------- ---------- ---------- ---------- ----------
Costs and Expenses:
Lease operating expenses ....................... 4,164 3,686 7,562 6,732 4,042
Depreciation, depletion and amortization ....... 7,581 4,844 9,832 10,376 6,049
General and administrative ..................... 2,382 1,707 3,495 3,880 3,717
Interest ....................................... 210 48 313 1,794 624
---------- ---------- ---------- ---------- ----------
Total costs and expenses ..................... 14,337 10,285 21,202 22,782 14,432
---------- ---------- ---------- ---------- ----------
Income (loss) from operations ..................... 7,202 2,242 5,508 1,055 (313)
Provision (benefit) for income taxes .............. 2,311 -- 50 -- (200)
---------- ---------- ---------- ---------- ----------
Net income (loss) ................................. 4,891 2,242 5,458 1,055 (113)
Preferred stock dividends ......................... 1,398 1,398 2,242 256 --
---------- ---------- ---------- ---------- ----------
Net income (loss) available to common shares ...... $ 3,493 $ 844 $ 2,663 $ 799 $ (113)
========== ========== ========== ========== ==========
Net income (loss) per common share:
Primary ........................................ $ 0.55 $ 0.15 $ 0.45 $ 0.14 $ (0.03)
========== ========== ========== ========== ==========
Assuming full dilution ......................... $ 0.52 $ 0.15 $ 0.43 $ 0.14 $ (0.03)
========== ========== ========== ========== ==========
Shares used in computing earnings per common share:
Primary ........................................ 6,307 5,755 5,952 5,755 4,346
========== ========== ========== ========== ==========
Assuming full dilution ......................... 9,318 5,755 6,135 5,755 4,346
========== ========== ========== ========== ==========
STATEMENT OF CASH FLOWS DATA (1):
Net income (loss) ................................. $ 4,891 $ 2,242 $ 5,458 $ 1,055 $ (113)
Depreciation, depletion and amortization .......... 7,791 4,982 10,131 10,600 6,328
Other non-cash items .............................. 2,499 65 164 133 (112)
Net change in assets and liabilities .............. 1,981 3,462 (1,502) (2,336) (756)
========== ========== ========== ========== ==========
Cash provided by operating activities ............. 17,162 10,751 14,251 9,452 5,347
========== ========== ========== ========== ==========
Cash provided by (used in) investing activities ... (33,690) (8,867) (32,717) (24,237) (6,423)
========== ========== ========== ========== ==========
Cash provided by (used in) financing activities ... 17,799 (955) 21,870 11,765 3,916
========== ========== ========== ========== ==========
BALANCE SHEET DATA (1):
Working capital ................................... 4,477 1,716 $ 4,878 $ 4,712 $ 1,896
Oil and gas properties, net ....................... 108,253 60,304 82,489 57,765 43,920
Total assets ...................................... 140,341 88,124 118,520 83,867 73,786
Total debt ........................................ 42,750 100 24,250 100 19,234
Total stockholders' equity ........................ 82,054 75,973 77,864 75,129 43,431
OTHER FINANCIAL DATA (1):
Capital expenditures .............................. $ 33,690 $ 8,867 $ 32,717 $ 24,237 $ 10,412
EBITDA(2) ......................................... $ 15,391 $ 7,337 $ 16,066 $ 13,582 $ 6,727
Ratio of earnings to fixed charges (3) ............ 35.3 47.7 18.6 1.6 --
</TABLE>
(FOOTNOTES ON NEXT PAGE)
15
<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) EBITDA is earnings before interest, taxes, depreciation, depletion 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.
(3) 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>
SUMMARY OPERATING AND RESERVE DATA(1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- ------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PRODUCTION DATA:
Oil (MBbls) ...................... 237 302 585 594 364
Gas (MMcf) ....................... 6,448 2,912 6,269 6,694 4,076
Total production (MMcfe) ......... 7,869 4,725 9,781 10,261 6,260
AVERAGE SALES PRICE:
Oil (per Bbl) .................... $ 19.36 $ 18.12 $ 18.27 $ 16.68 $ 15.63
Gas (per Mcf) .................... 2.52 2.33 2.40 1.96 2.00
Total production (per Mcfe) ..... 2.65 2.59 2.63 2.24 2.21
OTHER OPERATING DATA:
Lease operating expenses/Mcfe .... $ 0.43 $ 0.58 $ 0.57 $ 0.49 $ 0.49
Severance taxes/Mcfe ............. 0.09 0.20 0.20 0.17 0.16
Capital expenditures (net) (000's) 33,690 8,867 32,717 24,237 10,412
</TABLE>
DECEMBER 31,
----------------------------------
1996(2) 1995 1994
-------- -------- --------
Reserve Replacement Costs/Mcfe(3) ....... $ 0.74 $ 1.05 $ 0.97
ESTIMATED NET PROVED RESERVES:
Oil (MBbls) ........................... 3,819 4,766 4,424
Gas (MMcf) ............................ 50,424 29,667 24,102
Gas equivalent (MMcfe) ................ 73,338 58,263 50,646
Estimated future net cash flows,
before income taxes (000's) ......... $216,154 $ 95,730 $ 59,477
PV-10 Value (000's) ................... $160,171 $ 63,764 $ 41,383
- --------------------
(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) Future net cash flows attributable to the Company's estimated proved
reserves and the present value of such cash flows were based on an average
gas price of $3.88 per Mcf and an average oil price of $23.58 per Bbl at
December 31, 1996. The average price received for production in 1996 was
$2.63 per Mcf for gas and $20.55 per Bbl for oil, without the effects of
hedging.
(3) See "Glossary."
17
<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
As of June 30, 1997, as adjusted to give effect to the sale of the Notes
and the application of the net proceeds therefrom, the Company's total long-term
debt would have been approximately $60.3 million. See "Capitalization" and "Use
of Proceeds." 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 Outstanding Notes are and the Exchange Notes will be subordinated in
right of payment to all existing and future Senior Indebtedness of the Company
and will rank PARI PASSU with the Company's existing and future senior
subordinated indebtedness, including the Existing Notes. 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. As of June 30, 1997, on a pro forma basis giving effect to the
issuance of the Notes, the Company had outstanding $100,000 of Senior
Indebtedness, $36.0 million of Notes and $24.2 million of Existing Notes, and
the total amount of liabilities of the Company's subsidiaries as of June 30,
1997 was $13.9 million, excluding guarantees of Senior Indebtedness. The
Existing Notes rank PARI PASSU with the Outstanding Notes and will rank PARI
PASSU with the Exchange Notes. 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
18
<PAGE>
are structurally senior to the Notes. See "Description of the Exchange Notes --
Subordination of the Exchange Notes."
CONSEQUENCES OF A FAILURE TO EXCHANGE OUTSTANDING NOTES
The Outstanding Notes have not been registered under the Securities Act or
any state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions, including the
Company's and the Trustee's right in certain cases to require the delivery of
opinions of counsel, certifications and other information prior to any such
transfer. Outstanding Notes that remain outstanding after the consummation of
the Exchange Offer will continue to bear a legend reflecting such restrictions
on transfer. In addition, upon consummation of the Exchange Offer, holders of
Outstanding Notes that remain outstanding will not be entitled to any rights to
have such Outstanding Notes registered under the Securities Act or to any
similar rights under the Registration Agreement (subject to certain limited
exceptions). The Company currently intends to register under the Securities Act
Outstanding Notes that remain outstanding after consummation of the Exchange
Offer only if such Outstanding Notes are held by the Initial Purchaser and
persons ineligible to participate in the Exchange Offer. If Outstanding Notes
are tendered and accepted in the Exchange Offer, the market for untendered
Outstanding Notes is likely to diminish; accordingly, holders who do not tender
their Outstanding Notes may encounter difficulties in selling such notes
following the Exchange Offer.
The Exchange Notes and any Outstanding Notes that remain outstanding after
consummation of the Exchange Offer will constitute a single series of debt
securities under the Indenture and, accordingly, will vote together as a single
class for purposes of determining whether holders of the requisite percentage in
outstanding principal amount thereof have taken certain actions or exercised
certain rights under the Indenture. See "Description of the Exchange Notes."
The Indenture provides that if (i) an exchange offer registration
statement or resale shelf registration statement is not filed by October 1, 1997
or (ii) an exchange offer registration statement is not declared effective by
November 15, 1997, Special Interest will accrue and be payable quarterly until
such time as a registration statement is filed or becomes effective, as the case
may be. In addition, if (i) an exchange offer is not consummated or a resale
shelf registration statement is not declared effective by December 31, 1997 or
(ii) either the exchange offer registration statement or the resale shelf
registration statement has been declared effective and such registration
statement ceases to be effective or usable (subject to certain exceptions),
Special Interest will accrue and be payable quarterly until such time as an
exchange offer is consummated or a resale shelf registration statement is
declared effective, as the case may be. Following consummation of the Exchange
Offer neither the Outstanding Notes nor the Exchange Notes will be entitled to
any increase in the interest rate thereon. See "Description of the Outstanding
Notes" and "Description of the Exchange Notes."
LACK OF PUBLIC MARKET
The Outstanding Notes were issued to, and the Company believes are
currently owned by, a relatively small number of beneficial owners. The
Outstanding Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for Exchange Notes. See "-- Consequences of a Failure to Exchange
Outstanding Notes."
Although the Exchange Notes will generally be permitted to be resold or
otherwise transferred by the holders (who are not affiliates of the Company)
without compliance with the registration and prospectus delivery requirements
under the Securities Act, they will constitute a new issue of securities
19
<PAGE>
with no established trading market. See "The Exchange Offer -- Resales of
Exchange Notes." The Company has been advised by the Initial Purchaser that the
Initial Purchaser presently intends to make a market in the Exchange Notes.
However, the Initial Purchaser is not obligated to do so and any market making
activity with respect to the Exchange Notes may be discontinued at any time
without notice. In addition, such market making activity will be subject to the
limits imposed by the Securities Act and the Exchange Act and may be limited
during the Exchange Offer. If the Exchange Notes are traded after their initial
issuance, they may trade at a discount from their initial offering price,
depending upon prevailing interest rates, the market for similar securities and
other factors including general economic conditions and the financial condition
of the Company. The Company does not intend to apply for a listing or quotation
of the Exchange Notes on any securities exchange or stock market. Accordingly,
there can be no assurance as to the development or liquidity of any market for
the Exchange Notes.
The liquidity of, and trading market for, the Notes also may be adversely
affected by general declines in the market for similar securities. Such a
decline may adversely affect such liquidity and trading markets independent of
the financial performance of, and prospects for, the Company.
Notwithstanding the registration of the Exchange Notes in the Exchange
Offer, holders who are "affiliates" (as defined under Rule 405 of the Securities
Act) of the Company may publicly offer for sale or resell the Exchange Notes
only in compliance with the provisions of Rule 144 under the Securities Act. See
"The Exchange Offer -- Resales of Exchange Notes."
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such broker-dealer as a result of market making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "The Exchange Offer -- Resales of
Exchange Notes."
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Outstanding Notes
pursuant to the Exchange Offer will be made only after timely receipt by the
Company of such Outstanding Notes, a properly completed and duly executed Letter
of Transmittal and all other required documents. Therefore, holders of the
Outstanding Notes desiring to tender such Outstanding Notes in exchange for
Exchange Notes should allow sufficient time to ensure timely delivery. The
Company is under no duty to give notification of defects or irregularities with
respect to tenders of Outstanding Notes for exchange.
VOLATILITY OF OIL AND GAS PRICES; MARKETABILITY OF PRODUCTION
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.
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The Company's estimated proved reserves, future net cash flows
attributable to the Company's estimated net proved reserves and the present
value of such cash flows were based on an average gas price of $3.88 per Mcf and
an average oil price of $23.58 per Bbl at December 31, 1996. The average price
received for production in 1996 was $2.63 per Mcf for gas and $20.55 per Bbl for
oil, without the effects of hedging.
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.
In addition, the marketability of the Company's production depends upon
the availability and capacity of gas gathering systems, pipelines and processing
facilities. Federal and state regulation of oil and gas production and
transportation, general economic conditions and changes in supply and demand all
could adversely affect the Company's ability to produce and market its oil and
natural gas. If market factors were to change dramatically, the financial impact
on the Company could be substantial. The availability of markets and the
volatility of product prices are beyond the control of the Company and represent
a significant risk.
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 in its Deep OCS focus area 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.
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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.
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")
and by the Company's 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 Commission, 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 includes drilling two gross (1.5 net) development wells
and seven gross (3.3 net) exploratory wells during the last six months of 1997.
The estimated cost, net to the Company, to drill and complete these wells is
approximately $21.2 million with dry hole costs of approximately $10.3 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
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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, proceeds from bank borrowings and
issuance of debt and equity securities. The Company's total capital expenditure
budget for the last half of 1997 is approximately $25 million and for 1998 will
range from approximately $49 million to $74 million depending on the success of
the Company's drilling activities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Capital Expenditures." The
Company makes unsolicited offers for the acquisition of oil and gas properties
in the normal course of business. In the event that any such offers are
accepted, the amount or composition of the Company's capital expenditure budget
could be revised significantly.
The Company believes that it will have sufficient cash provided by
operating activities, the proceeds from the offering of the Outstanding Notes
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. Approximately 27% of the Company's estimated oil production for the
last six months of 1997 is hedged at a New York Mercantile Exchange ("NYMEX")
floor price of $18.00 per Bbl and a ceiling price of $24.00 per Bbl (NYMEX). In
addition, from July 1997 through March 1998, the Company has hedged 30% of its
estimated natural gas equivalent production at an average floor price of $2.00
per MMBtu (NYMEX) and an average ceiling price of $2.66 per MMBtu (NYMEX).
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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 may require the
acquisition of a permit before drilling commences, restrict the types,
quantities and concentration of various substances that can be released into the
environment in connection with drilling and production activities, limit or
prohibit drilling activities on certain lands lying within wilderness, wetlands
and other protected areas, require remedial measures to mitigate pollution from
former operations such as plugging abandoned wells, 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. If such stricter legislation were to be
enacted or regulations adopted, it could have a significant impact on the
operating costs of the Company, as well as the oil and gas industry in general.
Management believes that the Company is in substantial compliance with current
applicable environmental laws and regulations and that continued compliance with
existing requirements will not have a material adverse impact on the Company.
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. Moreover, 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 the privilege to continue exploration or production
activities upon substantial portions of its properties in the event of certain
environmental damages. See "Business and Properties -- Environmental
Regulations."
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. NOCO has informed the Company that it
intends to transfer 1,839,386 of the Common Shares owned by it to Fred. Olsen
Energy AS ("FOE").
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Upon such transfer, the Common Shares owned by FOE will continue to be subject
to the Stockholders' Agreement. 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 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.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Outstanding Notes, the Company entered
into the Registration Agreement with the Initial Purchaser, pursuant to which
the Company agreed to file and to use its best efforts to cause to become
effective with the Commission a registration statement with respect (subject to
certain exceptions) to the exchange of the Outstanding Notes for debt securities
with terms identical in all material respects to the terms of the Outstanding
Notes. A copy of the Registration Agreement has been filed as an Exhibit to the
Registration Statement of which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
the Company under the Registration Agreement. The form and terms of the Exchange
Notes are the same as the form and terms of the Outstanding Notes except that:
(i) the Exchange Notes have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable to
the Outstanding Notes and will not be entitled to resale registration under the
Registration Agreement, although the Registration Agreement does provide for
prospectus delivery procedures to assist resales of Exchange Notes, and (ii) the
Exchange Notes will not provide for any increase in the interest rate thereon.
In that regard, the Outstanding Notes provide that if (i) an exchange offer
registration statement or resale shelf registration statement is not filed by
October 1, 1997 or (ii) an exchange offer registration statement is not declared
effective by November 15, 1997, Special Interest will accrue and be payable
quarterly until such time as a registration statement is filed or becomes
effective, as the case may be. In addition, if (i) an exchange offer is not
consummated or a resale shelf registration statement is not declared effective
by December 31, 1997 or (ii) either the exchange offer registration statement or
the resale shelf registration statement has been declared effective and such
registration statement ceases to be effective or usable (subject to certain
exceptions), Special Interest will accrue and be payable quarterly until such
time as an exchange offer is consummated or a resale shelf registration
statement is declared effective, as the case may be. See "Description of the
Exchange Notes" and "Description of the Outstanding Notes."
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Outstanding Notes in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction. Unless the context
requires otherwise, the term "holder" with respect to the Exchange Offer means
any person in whose name the Outstanding Notes are registered on the books of
the Company or any other person who has obtained a properly completed bond power
from the registered holder, or any person whose Outstanding Notes are held of
record by The Depository Trust Company who desires to deliver such Outstanding
Notes by book-entry transfer at The Depository Trust Company.
TERMS OF THE EXCHANGE
The Company hereby offers, upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $36,000,000 aggregate principal amount of Exchange Notes for a
like aggregate principal amount of Outstanding Notes properly tendered on or
prior to the Expiration Date and not properly withdrawn in accordance with the
procedures described below. The Company will issue, promptly after the
Expiration Date, an aggregate principal amount of up to $36,000,000 of Exchange
Notes in exchange for a like principal amount of Outstanding Notes tendered and
accepted in connection with the Exchange Offer. Holders may tender their
Outstanding Notes in whole or in part in a principal amount of $1,000 and
integral multiples thereof.
The Exchange Offer is not conditioned upon any minimum number of
Outstanding Notes being tendered. As of the date of this Prospectus $36,000,000
aggregate principal amount of the Outstanding Notes is outstanding.
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<PAGE>
Holders of Outstanding Notes do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Outstanding Notes that are not
tendered for or are tendered but not accepted in connection with the Exchange
Offer will remain outstanding and be entitled to the benefits of the Indenture,
but will not be entitled to any further registration rights under the
Registration Agreement, except under limited circumstances. See "Risk Factors --
Consequences of a Failure to Exchange Outstanding Notes".
If any tendered Outstanding Notes are not accepted for exchange because of
an invalid tender, or upon the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Outstanding Notes will
be returned, without expense, to the tendering holder thereof promptly after the
Expiration Date.
Holders who tender Outstanding Notes in connection with the Exchange Offer
will not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Outstanding Notes in connection with the Exchange Offer. The Company
will pay all charges and expenses, other than certain applicable taxes described
below, in connection with the Exchange Offer. See "-- Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY RECOMME
NDATION TO HOLDERS OF OUTSTANDI NG NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OUTSTANDI NG NOTES PURSUANT TO THE
EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZE D TO MAKE ANY SUCH
RECOMME NDATION. HOLDERS OF OUTSTANDING NOTES MUST MAKE THEIR OWN DECISION
WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGAT E
AMOUNT OF OUTSTANDI NG NOTES TO TENDER AFTER READING THIS PROSPECTU S AND THE
LETTER OF TRANSMITT AL AND CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON
THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on , 1997
unless the Exchange Offer is extended by the Company (in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended).
The Company expressly reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and from time to time, (i) to
delay the acceptance of the Outstanding Notes for exchange, (ii) to terminate
the Exchange Offer (whether or not any Outstanding Notes have theretofore been
accepted for exchange) if any of the events or conditions referred to under "--
Conditions to the Exchange Offer" have occurred or exist or have not been
satisfied, (iii) to extend the Expiration Date of the Exchange Offer and retain
all Outstanding Notes tendered pursuant to the Exchange Offer, subject, however,
to the right of holders of Outstanding Notes to withdraw their tendered
Outstanding Notes as described under "-- Withdrawal Rights," and (iv) to waive
any condition or otherwise amend the terms of the Exchange Offer in any respect.
If the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, or if the Company waives a material condition of
the Exchange Offer, the Company will promptly disclose such amendment by means
of a prospectus supplement that will be distributed to the registered holders of
the Outstanding Notes, and the Company will extend the Exchange Offer to the
extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and
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such announcement in the case of an extension will be made no later than 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Without limiting the manner in which the Company may
choose to make any public announcement and subject to applicable law, the
Company shall have no obligation to publish, advertise or otherwise communicate
any such public announcement other than by issuing a release to an appropriate
news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange, and will issue to the Exchange Agent, Exchange Notes for
Outstanding Notes validly tendered and not withdrawn (pursuant to the withdrawal
rights described under "-- Withdrawal Rights") promptly after the Expiration
Date.
In all cases, delivery of Exchange Notes in exchange for Outstanding Notes
tendered and accepted for exchange pursuant to the Exchange Offer will be made
only after timely receipt by the Exchange Agent of (i) Outstanding Notes or a
book-entry confirmation of a book-entry transfer of Outstanding Notes into the
Exchange Agent's account at the DTC, (ii) the Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and (iii) any other documents required by the Letter of
Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Outstanding Notes into the Exchange Agent's account at
DTC.
Subject to the terms and conditions of the Exchange Offer, the Company
will be deemed to have accepted for exchange, and thereby exchanged, Outstanding
Notes validly tendered and not withdrawn as, if and when the Company gives oral
or written notice to the Exchange Agent of the Company's acceptance of such
Outstanding Notes for exchange pursuant to the Exchange Offer. The Exchange
Agent will act as agent for the Company for the purpose of receiving tenders of
Outstanding Notes, Letters of Transmittal and related documents, and as agent
for tendering holders for the purpose of receiving Outstanding Notes, Letters of
Transmittal and related documents and transmitting Exchange Notes to validly
tendering holders. Such exchange will be made promptly after the Expiration
Date. If for any reason whatsoever, acceptance for exchange or the exchange of
any Outstanding Notes tendered pursuant to the Exchange Offer is delayed
(whether before or after the Company's acceptance for exchange of Outstanding
Notes) or the Company extends the Exchange Offer or is unable to accept for
exchange or exchange Outstanding Notes tendered pursuant to the Exchange Offer,
then, without prejudice to the Company's rights set forth herein, the Exchange
Agent may, nevertheless, on behalf of the Company and subject to Rule 14e-1(c)
under the Exchange Act, retain tendered Outstanding Notes and such Outstanding
Notes may not be withdrawn except to the extent tendering holders are entitled
to withdrawal rights as described under "-- Withdrawal Rights."
Pursuant to the Letter of Transmittal, a holder of Outstanding Notes will
warrant and agree in the Letter of Transmittal that it has full power and
authority to tender, exchange, sell, assign and transfer Outstanding Notes, that
the Company will acquire good, marketable and unencumbered title to the tendered
Outstanding Notes, free and clear of all liens, restrictions, charges and
encumbrance s, and the Outstanding Notes tendered for exchange are not subject
to any adverse claims or proxies. The holder also will warrant and agree that it
will, upon request, execute and deliver any additional documents deemed by the
Company or the Exchange Agent to be necessary or desirable to complete the
exchange, sale, assignment, and transfer of the Outstanding Notes tendered
pursuant to the Exchange Offer.
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PROCEDURES FOR TENDERING OUTSTANDING NOTES
VALID TENDER
Except as set forth below, in order for Outstanding Notes to be validly
tendered pursuant to the Exchange Offer, the Exchange Agent must receive, at of
its address set forth under "--Exchange Agent," a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents (collectively, the "Letter
of Transmittal") and either (i) tendered Outstanding Notes, or (ii) Outstanding
Notes tendered pursuant to the procedures for book-entry transfer set forth
below and a book-entry confirmation, in each case on or prior to the Expiration
Date, or (iii) Outstanding Notes tendered in accordance with the guaranteed
delivery procedures set forth below.
If less than all of the Outstanding Notes are tendered, a tendering holder
should fill in the amount of Outstanding Notes being tendered in the appropriate
box on the Letter of Transmittal. The entire amount of Outstanding Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the
Outstanding Notes at DTC for purposes of the Exchange Offer within two business
days after the date of this Prospectus. Any financial institution that is a
participant in DTC's book-entry transfer facility system may make a book-entry
delivery of the Outstanding Notes by causing DTC to transfer such Outstanding
Notes into the Exchange Agent's account at DTC in accordance with DTC's
procedures for transfers. However, although delivery of Outstanding Notes may be
effected through book-entry transfer into the Exchange Agent's account at DTC,
the Letter of Transmittal must in any case be delivered to and received by the
Exchange Agent at the Exchange Agent's address set forth under "-- Exchange
Agent" on or prior to the Expiration Date, or the guaranteed delivery procedure
set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. THE LETTER OF TRANSMITTAL MUST BE
RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO , 1997.
SIGNATURE GUARANTEES
Certificates for the Outstanding Notes need not be endorsed and signature
guarantees on the Letter of Transmittal are unnecessary unless (a) a certificate
for the Outstanding Notes is registered in a name other than that of the person
surrendering the certificate or (b) such registered holder completes the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" in
the Letter of Transmittal. In the case of (a) or (b) above, such certificates
for Outstanding Notes must be duly endorsed or accompanied by a properly
executed bond power, with the endorsement or signature on the bond power and on
the Letter of Transmittal guaranteed by a firm or other entity identified in
Rule 17Ad-15 under the Exchange
29
<PAGE>
Act as an "eligible guarantor" institution, including (as such terms are defined
therein): (i) a bank; (ii) a broker, dealer, municipal securities broker or
dealer or government securities broker or dealer; (iii) a credit union; (iv) a
national securities exchange, registered securities association or clearing
agency; or (v) a savings association that is a participant in a Securities
Transfer Association (an "Eligible Institution"), unless surrendered on behalf
of such Eligible Institution. See Instruction 1 to the Letter of Transmittal.
GUARANTEED DELIVERY
If a holder desires to tender Outstanding Notes pursuant to the Exchange
Offer and the certificates for such Outstanding Notes are not immediately
available or time will not permit the Letter of Transmittal to reach the
Exchange Agent on or before the Expiration Date, or the procedures for
book-entry transfer cannot be completed on a timely basis, such Outstanding
Notes may nevertheless be tendered, provided that all of the following
guaranteed delivery procedures are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of
Transmittal, is received by the Exchange Agent, as provided below, on or
prior to Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing
all tendered Outstanding Notes, in proper form for transfer, together with
a properly completed and duly executed Letter of Transmittal, are received
by the Exchange Agent within five New York Stock Exchange trading days
after the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of Exchange Notes
in exchange for Outstanding Notes tendered and accepted for exchange pursuant to
the Exchange Offer will in all cases be made only after timely receipt by the
Exchange Agent of Outstanding Notes, or of a book-entry confirmation with
respect to such Outstanding Notes, and a properly completed and duly executed
Letter of Transmittal (or facsimile thereof). Accordingly, the delivery of
Exchange Notes might not be made to all tendering holders at the same time, and
will depend upon when Outstanding Notes, book-entry confirmations with respect
to Outstanding Notes and other required documents are received by the Exchange
Agent.
The Company's acceptance for exchange of Outstanding Notes tendered
pursuant to any of the procedures described above will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions of the Exchange Offer.
DETERMINATION OF VALIDITY
All questions as to the form of documents, validity, eligibility
(including time of receipt) and acceptance for exchange of any tendered
Outstanding Notes will be determined by the Company, in its sole discretion,
whose determination shall be final and binding on all parties. The Company
reserves the absolute right, in its sole and absolute discretion, to reject any
and all tenders determined by it not to be in proper form or the acceptance of
which, or exchange for, may, in the view of counsel to the Company, be unlawful.
The Company also reserves the absolute right, subject to applicable law, to
waive any of the conditions of the Exchange Offer as set forth under "--
Conditions to the Exchange Offer" or any
30
<PAGE>
condition or irregularity in any tender of Outstanding Notes of any particular
holder whether or not similar conditions or irregularities are waived in the
case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding. No tender of Outstanding Notes will be deemed to have been
validly made until all irregularities with respect to such tender have been
cured or waived. Neither the Company, any affiliates or assigns of the Company,
the Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in tenders or incur any liability for failure
to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in- fact, officer of a
corporation or other person acting in a fiduciary or representative capacity
such person should so indicate when signing, and unless waived by the Company,
proper evidence satisfactory to the Company, in its sole discretion, of such
person's authority to so act must be submitted.
A beneficial owner of Outstanding Notes that are held by or registered in
the name of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
RESALES OF EXCHANGE NOTES
The Company is making the Exchange Offer in reliance on a position of the
staff of the Division of Corporation Finance of the Commission as set forth in
certain interpretive letters addressed to third parties in other transactions.
However, the Company has not sought its own interpretive letter and there can be
no assurance that the staff of the Division of Corporation Finance of the
Commission would make a determination with respect to the Exchange Offer similar
to that made in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance, and subject
to the two immediately following sentences, the Company believes that Exchange
Notes issued pursuant to this Exchange Offer in exchange for Outstanding Notes
may be offered for resale, resold and otherwise transferred by a holder thereof
(other than a holder who is a broker-dealer) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holder's business and that such holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such Exchange Notes. However, any
holder of Outstanding Notes who is an "affiliate" of the Company or who intends
to participate in the Exchange Offer for the purpose of distributing Exchange
Notes, or any broker-dealer who purchased Outstanding Notes from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act, (a) will not be able to rely on the interpretations of the staff
of the Division of Corporation Finance of the Commission set forth in the
above-mentioned interpretive letters, (b) will not be permitted or entitled to
tender such Outstanding Notes in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Outstanding Notes unless such
sale is made pursuant to an exemption from such requirements. In addition, as
described below, if any broker-dealer holds Outstanding Notes acquired for its
own account as a result of market- making or other trading activities and
exchanges such Outstanding Notes for Exchange Notes, then such broker-dealer
must deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such Exchange Notes. In the event that applicable
interpretations by the staff of the Division of Corporation Finance change or
otherwise do not permit resales of the Exchange Notes without compliance with
the registration and prospectus delivery requirements of the Securities Act,
holders of Exchange Notes who transfer Exchange Notes in violation of the
prospectus delivery
31
<PAGE>
requirements of the Securities Act or without an exemption from registration
thereunder may incur liability thereunder.
Each holder of Outstanding Notes who wishes to exchange Outstanding Notes
for Exchange Notes in the Exchange Offer will be required to represent that (i)
it is not an affiliate of the Company, (ii) any Exchange Notes to be received by
it are being acquired in the ordinary course of its business, (iii) it has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Exchange Notes, and (iv) if
such holder is not a broker-dealer, such holder is not engaged in, and does not
intend to engage in, a distribution (within the meaning of the Securities Act)
of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its
own account pursuant to the Exchange Offer must acknowledge that it acquired the
Outstanding Notes for its own account as the result of market-making activities
or other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledgin g
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. Based on the
position taken by the staff of the Division of Corporation Finance of the
Commission in the interpretive letters referred to above, the Company believes
that broker-dealers who acquired Outstanding Notes for their own accounts as a
result of market-making activities or other trading activities (Participating
Broker- Dealers) may fulfill their prospectus delivery requirements with respect
to the Exchange Notes received upon exchange of such Outstanding Notes (other
than Outstanding Notes that represent an unsold allotment from the original sale
of the Outstanding Notes) with a prospectus meeting the requirements of the
Securities Act, which may be the prospectus prepared for an exchange offer so
long as it contains a description of the plan of distribution with respect to
the resale of such Exchange Notes. Accordingly, this Prospectus, as it may be
amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales of
Exchange Notes received in exchange for Outstanding Notes where such Outstanding
Notes were acquired by such Participating Broker-Dealer for its own account as a
result of market-making or other trading activities. Subject to certain
provisions set forth in the Registration Agreement, the Company has agreed that
this Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of such
Exchange Notes for a period ending forty-five days after the consummation of the
Exchange Offer or, if earlier, when all such Exchange Notes have been disposed
of by such Participating Broker- Dealer. See "Plan of Distribution." Any
Participating Broker-Dealer who is an "affiliate" of the Company may not rely on
such interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
In that regard, each Participating Broker-Dealer who surrenders
Outstanding Notes pursuant to the Exchange Offer will be deemed to have agreed,
by execution of the Letter of Transmittal, that, upon receipt of notice from the
Company of the occurrence of any event or the discovery of any fact which makes
any statement contained in this Prospectus untrue in any material respect or
which causes this Prospectus to omit to state a material fact necessary in order
to make the statements herein, in light of the circumstances under which they
were made, not misleading or of the occurrence of certain other events specified
in the Registration Agreement, such Participating Broker-Dealer will suspend the
sale of Exchange Notes pursuant to this Prospectus until the Company has amended
or supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the Exchange
Notes may be resumed, as the case may be. If the Company gives such notice to
suspend the sale of the Exchange Notes, it shall extend the forty-five day
period referred to above during which Participating Broker- Dealers are entitled
to use this Prospectus in connection with the resale of Exchange Notes by the
number of days during the period from and including the date of the giving of
such notice to and including the date when Participating Broker- Dealers shall
have received copies of the
32
<PAGE>
amended or supplemented Prospectus necessary to permit resales of the Exchange
Notes or to and including the date on which the Company has given notice that
the sale of Exchange Notes may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective, a written, telegraphic, telex
or facsimile transmission of such notice of withdrawal must be timely received
by the Exchange Agent at its address set forth under "-- Exchange Agent" on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Outstanding Notes to be withdrawn, the
aggregate principal amount of Outstanding Notes to be withdrawn, and (if
certificates for such Outstanding Notes have been tendered) the name of the
registered holder of the Outstanding Notes as set forth on the Outstanding
Notes, if different from that of the person who tendered such Outstanding Notes.
If Outstanding Notes have been delivered or otherwise identified to the Exchange
Agent, then prior to the physical release of such Outstanding Notes, the
tendering holder must submit the serial numbers shown on the particular
Outstanding Notes to be withdrawn and the signature on the notice of withdrawal
must be guaranteed by an Eligible Institution, except in the case of Outstanding
Notes tendered for the account of an Eligible Institution. If Outstanding Notes
have been tendered pursuant to the procedures for book-entry transfer set forth
in "-- Procedures for Tendering Outstanding Notes," the notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawal of Outstanding Notes, in which case a notice of withdrawal will be
effective if delivered to the Exchange Agent by written, telegraphic, telex or
facsimile transmission. Withdrawals of tenders of Outstanding Notes may not be
rescinded. Outstanding Notes properly withdrawn will not be deemed validly
tendered for purposes of the Exchange Offer, but may be retendered at any
subsequent time on or prior to the Expiration Date by following any of the
procedures described above under "-- Procedures for Tendering Outstanding
Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Outstanding Notes which have been
tendered but which are withdrawn will be returned to the holder thereof promptly
after withdrawal.
INTEREST ON THE EXCHANGE NOTES
Each Exchange Note will bear interest at the rate of 10.125% per annum
from the most recent date to which interest has been paid or duly provided for
on the Outstanding Note surrendered in exchange for such Exchange Note or, if no
interest has been paid or duly provided for on such Outstanding Note, from July
31, 1997 (the date of original issuance of such Outstanding Notes). Interest on
the Exchange Notes will be payable quarterly on September 15, December 15, March
15 and June 15 of each year, commencing on the first such date following the
original issuance date of the Exchange Notes.
Holders of Outstanding Notes whose Outstanding Notes are accepted for
exchange will not receive accrued interest on such Outstanding Notes for any
period from and after the last interest payment date to which interest has been
paid or duly provided for on such Outstanding Notes prior to the original issue
date of the Exchange Notes or, if no such interest has been paid or duly
provided for, will not receive any accrued interest on such Outstanding Notes,
and will be deemed to have waived the right to receive any
33
<PAGE>
interest on such Outstanding Notes accrued from and after such interest payment
date or, if no such interest has been paid or duly provided for, from and after
July 31, 1997.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Outstanding Notes for any Exchange Notes, and, as
described below, may terminate the Exchange Offer (whether or not any
Outstanding Notes have theretofore been accepted for exchange), or may waive any
conditions to or amend the Exchange Offer, if any of the following conditions
have occurred or exist or have not been satisfied:
(a) the Exchange Offer, or the making of any exchange pursuant to
the Exchange Offer, violates applicable law or any applicable
interpretation of the staff of the Commission; or
(b) any action or proceeding shall have been instituted or
threatened in any court or by or before any governmental agency or body
with respect to the Exchange Offer; or
(c) any law, statute, rule or regulation shall have been adopted or
enacted prohibiting or limiting the Exchange Offer; or
(d) a banking moratorium shall have been declared by United States
federal, New York or Texas state authorities; or
(e) trading on the New York Stock Exchange or generally in the
United States over-the-counter market shall have been suspended by order
of the Commission or any other governmental authority; or
(f) such other conditions reasonably acceptable to the Initial
Purchaser which, in the Company's judgment, would reasonaly be expected to
impair the ability of the Company to proceed with the Exchange Offer.
If the Company determines in its sole and absolute discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied, the Company may, subject to applicable law and the provisions of the
Registration Agreement, terminate the Exchange Offer (whether or not any
Outstanding Notes have theretofore been accepted for exchange) or may waive any
such condition or otherwise amend the terms of the Exchange Offer in any
respect. If such waiver or amendment constitutes a material change to the
Exchange Offer, the Company will promptly disclose such waiver by means of a
prospectus supplement that will be distributed to the registered holders of the
Outstanding Notes, and the Company will extend the Exchange Offer to the extent
required by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
American Stock Transfer & Trust Company has been appointed as Exchange
Agent for the Exchange Offer. Delivery of the Letter of Transmittal and any
other required documents, questions, requests for assistance, and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent as follows:
34
<PAGE>
American Stock Transfer & Trust Company
40 Wall Street
New York, New York
718-921-8206 (Telephone)
718-921-8336 (Facsimile)
Delivery to other than the above address or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Outstanding Notes, and in handling or tendering for
their customers.
Holders who tender their Outstanding Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith. If, however,
Exchange Notes are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of the Outstanding Notes tendered, or if
a transfer tax is imposed for any reason other than the exchange of Outstanding
Notes in connection with the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Outstanding Notes was
$34.8 million. The Company used $18.5 million of the net proceeds of the
offering of the Outstanding Notes to repay borrowings under the Credit Facility.
Approximately $11.8 million of such borrowings under the Credit Facility were
incurred to finance the acquisition from Elf Exploration of a working interest
in Mobile Area Block 864 Unit in June 1997. The Company intends to use the
remaining net proceeds together with internally generated cash flows and
borrowings under its Credit Facility, to fund its capital expenditure budget for
the last six months of 1997 estimated to be approximately $25 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 invest in short-term investments. As of
June 30, 1997, $18.6 million was outstanding under the Credit Facility with a
weighted average interest rate of 6.70%.
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Agreement. The Company will not receive any
cash proceeds from the issuance of the Exchange Notes in the Exchange Offer. In
consideration for issuing the Exchange Notes as contemplated in this Prospectus,
the Company will receive Outstanding Notes in like principal amount. The form
and terms of the Exchange Notes are identical in all material respects to the
form and terms of the Outstanding Notes, except certain transfer restrictions
and registration rights relating to the Outstanding Notes and except for certain
interest provisions relating to such registration rights. See "Description of
the Exchange Notes." The Outstanding Notes surrendered in exchange for the
Exchange Notes will be retired and
35
<PAGE>
canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes
will not result in any increase in the outstanding debt of the Company.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1997 and as adjusted to give effect to the issuance and sale of the
Notes 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. Issuance of the Exchange Notes
will not affect the Company's consolidated capitalization.
JUNE 30, 1997
----------------------
HISTORICAL AS ADJUSTED
--------- ---------
(IN THOUSANDS)
Cash and cash equivalents ......................... $ 8,940 $ 25,240(1)
========= =========
Long-term debt:
Credit Facility ................................. $ 18,600 $ 100
Existing Notes .................................. 24,150 24,150
The Notes ....................................... -- 36,000
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; 5,996,171 shares outstanding 60 60
Unearned Compensation - Restricted Stock ........ (2,181) (2,181)
Capital in excess of par value .................. 76,903 76,903
Retained earnings ............................... 7,259 7,259
--------- ---------
Total stockholders' equity ...................... 82,054 82,054
--------- ---------
Total capitalization ............................ $ 124,804 $ 142,304
========= =========
- ----------
(1) Assumes the remaining net proceeds from the issuance and sale of the
Outstanding Notes, after the repayment of amounts outstanding under the
Credit Facility, are invested in cash equivalents. See "Use of Proceeds."
36
<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 data
for each of the five years in the period ended December 31, 1996 have been
derived from the audited Consolidated Financial Statements of the Company for
such periods. The financial data for the six month periods ended June 30, 1997
and 1996 has been derived from the Company's unaudited Consolidated Financial
Statements. The data 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 data is
not necessarily indicative of future results for the Company.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(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 ...................... $ 20,844 $ 12,249 $ 25,764 $ 23,210 $ 13,948 $ 10,048 $ 10,015
Interest and other ..................... 695 278 946 627 171 230 232
-------- -------- -------- -------- -------- -------- --------
Total revenues ......................... 21,539 12,527 26,710 23,837 14,119 10,278 10,247
Costs and Expenses:
Lease operating expenses ............... 4,164 3,686 7,562 6,732 4,042 3,713 3,702
Depreciation, depletion and amortization 7,581 4,844 9,832 10,376 6,049 3,411 3,360
General and administrative ............. 2,382 1,707 3,495 3,880 3,717 2,350 1,848
Interest ............................... 210 48 313 1,794 624 196 160
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses ............... 14,337 10,285 21,202 22,782 14,432 9,670 9,070
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations ............. 7,202 2,242 5,508 1,055 (313) 608 1,177
Provision (benefit) for
income taxes .............................. 2,311 -- 50 -- (200) 113 235
-------- -------- -------- -------- -------- -------- --------
Income (loss) before cumulative
effect of change in accounting
principle ................................. 4,891 2,242 5,458 1,055 (113) 495 942
Cumulative effect of change in
accounting principle (2) .................. -- -- -- -- -- 5,262 --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) ........................... 4,891 2,242 5,458 1,055 (113) 5,757 942
Preferred stock dividends ................... 1,398 1,398 2,795 256 -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) available to common shares 3,493 844 2,663 799 (113) 5,757 942
Pro forma adjustment (unaudited):
Provision for income taxes(2) ............... -- -- -- -- -- 100 145
-------- -------- -------- -------- -------- -------- --------
Pro forma net income (loss) ................. $ 3,493 $ 844 $ 2,663 $ 799 $ (113) $ 5,657 $ 797
======== ======== ======== ======== ======== ======== ========
Income (loss) per share before
accounting principal change ................ $ 0.55 $ 0.15 $ 0.45 $ 0.14 $ (0.03) $ 0.13 $ 0.25
======== ======== ======== ======== ======== ======== ========
Cumulative effect of accounting
change ..................................... $ -- $ -- $ -- $ -- $ -- $ 1.40 $ --
======== ======== ======== ======== ======== ======== ========
Pro forma ................................... $ 0.55 $ 0.15 $ 0.45 $ 0.14 $ (0.03) $ 1.50 $ 0.21
======== ======== ======== ======== ======== ======== ========
Net income (loss) per common share:
Primary ................................ $ 0.55 $ 0.15 $ 0.45 $ 0.14 $ (0.03) $ 1.53 $ 0.25
======== ======== ======== ======== ======== ======== ========
Assuming full dilution ................. $ 0.52 $ 0.15 $ 0.43 $ 0.14 $ (0.03) $ 1.53 $ 0.25
======== ======== ======== ======== ======== ======== ========
Shares used in computing earnings
per common share:
Primary ................................ 6,307 5,755 5,952 5,755 4,346 3,769 3,769
======== ======== ======== ======== ======== ======== ========
37
<PAGE>
Assuming full dilution ................. 9,318 5,755 6,135 5,755 4,346 3,769 3,769
======== ======== ======== ======== ======== ======== ========
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------------------------ ------------------------------------------------------------------
(UNAUDITED) (IN THOUSANDS, EXCEPT RATIOS)
STATEMENT OF CASH FLOWS DATA(1):
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) ............ $ 4,891 $ 2,242 $ 5,458 $ 1,055 $ (113) $ 5,757 $ 942
Depreciation, depletion and
amortization ................ 7,791 4,982 10,131 10,600 6,328 3,657 3,577
Other non-cash items ......... 2,499 65 164 133 (112) (5,114) 270
Net change in assets and
liabilities ................. 1,981 3,462 (1,502) (2,336) (756) 435 (2,758)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Cash provided by operating
activities .................. 17,162 10,751 14,251 9,452 5,347 4,735 2,031
========== ========== ========== ========== ========== ========== ==========
Cash provided by (used in)
investing activities ........ (33,690) (8,867) (32,717) (24,237) (6,423) (2,710) (3,817)
========== ========== ========== ========== ========== ========== ==========
Cash provided by (used in)
financing activities ........ 17,799 (955) 21,870 11,765 3,916 (1,695) 233
========== ========== ========== ========== ========== ========== ==========
BALANCE SHEET DATA(1):
Working capital .............. $ 4,477 $ 1,716 $ 4,878 $ 4,712 $ 1,896 $ (687) $ (1,011)
Oil and gas properties, net .. 108,253 60,304 82,489 57,765 43,920 21,000 22,138
Total assets ................. 140,341 88,124 118,520 83,867 73,786 39,825 35,570
Total debt ................... 42,750 100 24,250 100 19,234 2,691 2,975
Total stockholders' equity ... 82,054 75,973 77,864 75,129 43,431 27,170 22,711
OTHER FINANCIAL DATA(1):
Capital expenditures, net .... $ 33,690 $ 8,867 $ 32,717 $ 24,237 $ 10,412 $ 2,710 $ 3,817
EBITDA(2) .................... $ 15,181 $ 7,337 $ 16,066 $ 13,582 $ 6,727 $ 4,496 $ 4,949
Ratio of earnings to fixed
charges(3) .................. 35.3 47.7 18.6 1.6 -- 3.6 6.6
</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) EBITA is earnings before interest, taxes, depreciation, depletion 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.
(3) 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.
38
<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 write-down of oil and gas properties is not
reversible at a later date even if oil or natural gas prices increase.
39
<PAGE>
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,
----------------------- ------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Production:
Oil (MBbls) ............................ 237 302 585 594 364
Gas (MMcf) ............................. 6,448 2,912 6,269 6,694 4,076
Total production (MMcfe) ............... 7,869 4,725 9,781 10,261 6,260
Average Sales Price:
Oil (per Bbl) .......................... $ 19.36 $ 18.12 $ 18.27 $ 16.68 $ 15.63
Gas (per Mcf) .......................... 2.52 2.33 2.40 1.96 2.00
Total production (per Mcfe) ............ 2.65 2.59 2.63 2.24 2.21
Average Costs (per Mcfe):
Lease operating expenses
(excluding severance taxes) .......... $ 0.43 $ 0.58 $ 0.57 $ 0.49 $ 0.49
Severance taxes ........................ 0.09 0.20 0.20 0.17 0.16
Depreciation, depletion and amortization 0.96 1.03 1.01 1.01 0.97
General and administrative
(net of management fees) ............. 0.30 0.36 0.36 0.38 0.59
</TABLE>
The following table sets forth selected production data for the Company for the
periods and upon the basis indicated.
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
(MMCFE) (MMCFE)
Production attributable to:
Main Pass 163 Area ......... 2,477 33 463 -- --
Chandeleur Block 40 ........ 2,251 757 1,385 144 37
Big Escambia Creek ......... 434 378 739 390 --
Black Bay Complex .......... 558 606 1,208 1,351 603
North Dauphin Island Field . 826 1,475 3,069 5,102 2,524
------ ------ ------ ------ ------
6,546 3,249 6,864 6,987 3,164
Other properties ........... 1,323 1,476 2,917 3,274 3,096
------ ------ ------ ------ ------
Total ................... 7,869 4,725 9,781 10,261 6,260
====== ====== ====== ====== ======
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30,
1996
For the six months ended June 30, 1997, total oil and gas revenues
increased by $8.6 million, or 70%, to $20.8 million when compared to $12.2
million for the same period in 1996.
For the six months ending June 30, 1997, oil production and oil revenues
decreased to 237 MBbls and $4.6 million, respectively. For the comparable period
in 1996, oil production was 302 MBbls while revenues totaled $5.5 million. Oil
prices during the first six months of 1997 averaged $19.36, compared to $18.12
for the same period in 1996. Although prices were higher, the loss of production
from properties which were sold and a production decline in other non-core
properties caused the overall decline in oil revenues.
40
<PAGE>
Natural gas production and revenue for the six-month period ending June
30, 1997 were 6.4 Bcf and $16.3 million, respectively, increasing from 2.9 Bcf
and gas revenues of $6.8 million in the first six months of 1996. The average
sales price for natural gas in the first six months in 1997 was $2.52 per Mcf, a
$0.19 per Mcf increase over the same period in 1996. The combination of
increased prices and production volumes generated the 140% increase in total gas
revenues.
Lease operating expenses, excluding severance taxes, for the first half of
1997 increased by 26% to $3.4 million from $2.7 million for the 1996 comparable
period. This increase is primarily the result of expenses associated with
producing properties acquired in the first quarter. Severance taxes decreased by
22% to $0.7 million during the first six months of 1997 from $0.9 million for
the same period in 1996 as a result of production declines attributable to the
Company's onshore properties and property sales.
Depreciation, depletion and amortization for the first six months of 1997
was $7.6 million, or $0.96 per Mcfe. For the same period in 1996, the total was
$4.8 million or $1.03 per Mcfe.
During the first six months of 1997, general and administrative expenses
increased by 40% to $2.4 million compared to $1.7 million for the six-month
period in 1996. Increased executive compensation, travel and transportation
expenses and the loss of management fees, as a result of property sales,
combined to produce this overall increase.
Interest expense during the first half of 1997 was $210,000 compared to
$48,000 for the first half of 1996 as a result of the increase in the Company's
long-term debt.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE YEAR ENDED DECEMBER 31,
1995
Oil and gas sales increased $2.6 million, or 11%, during 1996 to $25.8
million compared to $23.2 million in 1995. While oil and gas production volumes
for 1996 were lower than those reported in 1995, substantial price increases for
both oil and gas more than offset the loss in revenues. The average sales price
per barrel sold in 1996 increased to $18.27, compared to $16.68 for 1995. The
average sales price per Mcf of gas sold increased from $1.96 in 1995 to $2.40 in
1996.
Oil production for 1996 decreased slightly to 585,000 Bbls from the
594,000 Bbls produced in 1995. This reduction was primarily attributable to the
implementation of the required environmental protection program (zero discharge)
at the Black Bay Complex, the Company's largest single oil producing prospect.
During this process, several producing wells were shut-in while various new
equipment was installed. In addition, several wells were temporarily shut-in
while repairs were conducted on the service lines. Therefore, average daily
production for 1996 dropped to 1,599 Bbls/d compared to 1,629 Bbls/d in 1995.
Gas production for 1996 was 6.3 Bcf, a decrease from the 6.7 Bcf reported
in 1995. This reduction was primarily attributable to the loss of production
from the North Dauphin Island Field where problems with excess water content in
the gas sales stream were encountered early in the year requiring the
installation of a dehydrator and removal of water from the lines. Extraneous
water production from the #2A well led to the shut-in of the well and the
natural decline of the reservoir pressure. Also during the year, this field
incurred a lower production rate due to compressor inefficiencies which led to a
compressor restaging program that was completed in late September.
Lease operating expenses, including severance taxes, increased from $6.7
million in 1995 to $7.6 million in 1996. A large portion of this increase,
$600,000, is attributable to normal expenses associated
41
<PAGE>
with new property additions. Other expenses included the installation of a
dehydrator and the workover expenses at the North Dauphin Island Field.
Depreciation, depletion and amortization expense for 1996 was $9.8 million
compared to $10.4 million for 1995. When compared on a per unit-of-production
basis, the expense incurred was $1.01 per Mcfe produced for each of the two
years.
General and administrative expenses declined from $3.9 million for 1995 to
$3.5 million for 1996, as a result of the Company's continued efforts to improve
operational efficiencies.
Interest expense decreased from $1.8 million in 1995 to $313,000 in 1996.
This expense reduction corresponds with the smaller average monthly outstanding
balance on the long-term debt of the Company for 1995 when compared to 1996.
During the fourth quarter of 1995, the Company used $21.5 million of the
proceeds from the sale of preferred stock to reduce its long-term debt. During
the course of 1996, additional funds advanced under the Company's line of credit
were repaid in November when the Company issued $24.2 million of its Existing
Notes. The average outstanding balance in long-term debt during 1996 was $5.3
million.
The recorded income tax expense for 1996 was $50,000. The computed
provision for income taxes at the Company's expected statutory rate was $1.9
million, which was primarily offset by a reduction in the deferred tax asset
valuation allowance as a result of the Company's ability to utilize its net
operating losses and depletion carryovers.
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. ("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
$4.3 million increase in oil revenues.
Total gas production increased 2.6 Bcf to 6.7 Bcf in 1995 from 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 $0.04 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.
42
<PAGE>
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 carry forward and other temporary differences which the Company believes
will not be utilized.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL SOURCES
The Company's primary sources of capital are its cash flows from
operations, borrowings from financial institutions and the sale of debt and
equity securities. Cash provided from operations during 1996 totaled $15.8
million. During 1996, the Company borrowed $12.9 million from financial
institutions and repaid such borrowing with the proceeds from the sale of $24.2
million of Existing Notes during November, 1996. At December 31, 1996, the
Company had working capital in the amount of $4.9 million. Net cash provided by
operating activities for the six months ending June 30, 1997 totaled $17.2
million. During the first half of 1997, a total of $36.2 million was paid for
capital expenditures and $1.4 million was paid as dividends to the preferred
stockholders. The balance of the cash flow was retained for future operating
expenses and potential drilling and acquisition opportunities.
Effective October 31, 1996, the Company entered into a new Credit Facility
with Chase Manhattan Bank. 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 or a borrowing base ("Borrowing Base") of $30 million
which is adjusted 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. 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 December 31, 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 October 31, 2000, on which date, the Company must repay in
full all amounts then outstanding. At June 30, 1997, the unpaid balance due on
this Credit Facility was $18.6 million.
On November 27, 1996, the Company issued $24.2 million of Existing Notes.
The Company used the proceeds to pay down the Credit Facility and for other
corporate purposes. Interest on the Existing Notes is payable quarterly and
began on March 15, 1997. The Existing Notes are 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
Existing Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future indebtedness of the Company and rank
PARI PASSU with the Notes. The Credit Facility and the indentures for the
Existing
43
<PAGE>
Notes contain, and the indenture for the Notes will contain, various covenants
including restrictions on additional indebtedness and payment of cash dividends
as well as maintenance of certain financial ratios.
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 NYMEX price or other cash or
futures index price, and are reported as a component of oil and gas revenues.
Gains or losses attributable to the termination of a swap contract are deferred
and recognized in revenue when the oil and gas is sold. From October 1, 1996 to
March 31, 1997, the Company had in effect hedges of gas equivalent to
approximately 16% of its production at a floor price per MMBtu of $1.75 (NYMEX)
and a ceiling price per MMBtu of $ 2.20 (NYMEX). In addition, the Company was
party to hedges in effect from October 1, 1996 through December 31, 1996
representing approximately 81% of its oil production at a floor price per Bbl of
$17.25 (NYMEX) and a ceiling price per Bbl of $19.59 (NYMEX). During the third
quarter of 1996, the Company terminated hedges attributable to its fourth
quarter 1996 production at a profit, which had the effect of increasing fourth
quarter oil and gas revenues by $180,000. The Company is currently a party to
hedges that will be in effect for the last six months of 1997 representing
approximately 27% of its estimated oil production, at a floor price of $18.00
per Bbl (NYMEX) and a ceiling price per Bbl of $24.00 (NYMEX). In addition, from
July 1997 through March 1998, the Company has hedged 30% of its estimated
natural gas equivalent production at an average floor price of $2.00 per MMBtu
(NYMEX) and an average ceiling price of $2.66 per MMBtu (NYMEX).
CAPITAL EXPENDITURES
Capital expenditures for 1996 totaled $36.1 million which included $19.2
million of lease acquisitions, $2.7 million for the acquisition of producing
properties and equipment and $14.2 million for property development and drilling
activities on its properties. During the first half of 1997, capital
expenditures were $36.2 million. Of such amount, approximately $12.0 million was
expended on drilling and exploration activities and $22.0 million on
acquisitions of producing properties, undeveloped mineral interests and seismic
information attributable to future drilling sites.
The Company has recently shifted the focus of its reserve growth strategy
from the acquisition and exploitation of oil and gas properties to exploration
and development drilling. For the second half of 1997, the Company expects to
concentrate its exploration and development drilling in the Shallow Gas focus
area and the Breton Sound focus area. The Company has identified two gross (1.5
net) development and seven gross (3.3 net) exploratory drilling locations for
drilling in the second half of 1997, and the Company's capital budget includes
$21.2 million to drill and complete these wells. The Company's capital budget
for the remainder of 1997 will depend upon the success of its exploration and
development drilling. If the Company's exploration drilling operations are
successful, it may 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. See "Risk Factors - Substantial Capital Requirements."
ACCOUNTING POLICIES
On October 23, 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 will continue
to account for its stock-based compensation plans under APB Opinion No. 25.
44
<PAGE>
In January 1996, the Company adopted the provisions of the Financial
Accounting Standards Board Statement No. 121 ("FAS 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
FAS 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, 1997, but any future losses would be included in
depletion, depreciation, amortization and impairment in future accounting
periods.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 ("FAS 128"), "Earnings Per Share", which simplifies the
computation of earnings per share. FAS 128 is effective for financial statements
issued for periods ending after December 15, 1997 and requires restatement for
all prior period earnings per share data presented. The Company is currently
complying with FAS 128.
Also in early 1997, the Financial Accounting Standards Board issued
Statement No. 129 ("FAS 129"), "Disclosure of Information about Capital
Structure" effective for financial statements issued for periods ending after
December 15, 1997. The Company believes it is in compliance with the provisions
of this statement.
In June 1997, the Financial Accounting Standard Board issued Statement No.
130 ("FAS 130"), "Reporting Comprehensive Income". FAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. FAS 130 is effective for fiscal
years ending after December 15, 1997. The Company intends to comply with the
provisions of FAS 130.
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, 1996, the Company had estimated net
proved reserves of 73.3 Bcfe with a PV-10 Value of $160.2 million, representing
increases of 26% and 151% respectively, from December 31, 1995.
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 and one-half years, the Company has increasingly
supplemented the acquisition of producing properties with the acquisition of
acreage with development and exploratory drilling opportunities to further
increase potential recoverable reserves. Since 1995, the Company has generated
47 prospects on 217,000 gross acres. In evaluating drilling opportunities,
Callon performs extensive geological and geophysical studies using CAEX,
including, where appropriate, the acquisition of 3-D seismic or high-resolution
2-D seismic data to facilitate these efforts.
EXPLORATION AND DEVELOPMENT OPERATIONS
The Company's exploratory and development operations are concentrated in
three areas in the Gulf of Mexico: (i) the state waters of Alabama and the
federal outer continental shelf ("OCS") in the Gulf of Mexico where the Company
explores for shallow gas deposits ("Shallow Gas focus area"); (ii) the Breton
Sound area located primarily in the shallow state waters of Louisiana, where the
Company explores for hydrocarbon deposits at total well depths of between 8,000
to 14,000 feet ("Breton Sound focus area");
45
<PAGE>
and (iii) other regions of the OCS, where the Company explores for hydrocarbon
deposits at total well depths of between 9,000 and 18,000 feet ("Deep OCS focus
area"). Wells drilled in the Shallow Gas focus area are characterized by
relatively low exploration and development costs, high initial production rates
and short reserve lives. Wells drilled in the Breton Sound focus area and Deep
OCS focus area are more expensive to drill and complete and 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 its Shallow Gas focus
area and, during 1996, completed four proprietary high resolution 2-D seismic
surveys over an eight block area. Based on these surveys, in October and
November of 1996, the Company drilled two gross (1.52 net) successful
development wells and one gross (1.0 net) successful exploratory well in this
area. These wells were placed on production by the end of December 1996 and,
coupled with the replacement of compression equipment at the related production
facilities, the Company's average daily oil and gas production increased to 43.5
MMcfe/d during the first half of 1997, representing a 67% increase over 1996
average daily production rates. During the first six months of 1997, the Company
drilled one additional successful development well (1.0 net), one unsuccessful
development well for a net cost of $1.2 million, and performed one major
recompletion in its Shallow Gas focus area. Production from the new well
commenced in July 1997 and the recompletion is currently producing 6.3 MMcf/d
(3.6 MMcf/d net to the Company). The Company's capital budget for the last six
months of 1997 includes the drilling of five gross (2.7 net) exploratory wells
in its Shallow Gas focus area, for an aggregate net cost to drill and complete
of approximately $10.0 million.
In its Breton Sound focus area, the Company owns and operates several old
prolific fields. In November 1996, the Company completed a 36 square-mile 3-D
seismic survey on its Main Pass 35 Field and adjoining acreage which resulted in
the identification of one development and seven exploratory drilling prospects.
Based upon this new data, the Company acquired an additional 5,170 gross acres,
which increased its holdings in the Breton Sound focus area to almost 10,000
gross acres. In July 1997, the Company entered into a joint venture agreement
with Burlington Resources Oil & Gas Company to drill these prospects. The
Company will operate these prospects and has retained an approximate 42.4%
working interest. In addition, the Company acquired a 100% working interest in a
development prospect on an adjacent block. The Company's capital budget for the
last six months of 1997 in the Breton Sound focus area includes the drilling of
two gross (1.45 net) development and one gross (0.45 net) exploratory wells for
an aggregate net cost to Callon to drill and complete of approximately $8.2
million.
In 1996, the Company joined with Murphy Exploration and Production, Inc.
to acquire 18 federal blocks in the Deep OCS focus area and in 1997 joined with
Murphy and another oil company to acquire an additional 13 blocks, four of which
are located in the Shallow Gas focus area. The Company owns a 25% working
interest in 23 of these blocks and a 20% working interest in the remaining
eight. Murphy operates these properties. To date Callon has participated with
Murphy in the drilling of four gross (1.0 net) unsuccessful exploratory wells at
a total cost of $6.1 million, net to the Company. The Company's capital budget
for the last six months of 1997 includes the drilling of one gross (0.2 net)
Deep OCS focus area exploratory prospect at a net cost to Callon to drill and
complete of approximately $2.9 million.
In total, the Company's current capital budget includes the drilling of
two gross (1.5 net) development wells and seven gross (3.3 net) exploratory
wells during the last six months of 1997 at an estimated net cost to the Company
to drill and complete of approximately $21.2 million. These drilling operations
will be financed from cash flows from operations, the net proceeds of the
offering of the Outstanding Notes and borrowings under the Company's Credit
Facility. See "Use of Proceeds."
46
<PAGE>
PRODUCING PROPERTY ACQUISITIONS
Over the past eight 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 additional 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 December 31, 1996, Callon acquired producing properties in 21
negotiated transactions, on behalf of itself and, in certain cases, its primary
institutional investor, for an aggregate net purchase price of approximately
$206 million and, during that period, the Company had an average Reserve
Replacement Cost of $0.84 per Mcfe.
ELF ACQUISITION
In June 1997, the Company purchased from Elf Exploration, Inc. an 18.8%
working interest in the Mobile Area Block 864 Unit for approximately $11.8
million. The transaction also included Elf Exploration's 17.5% working interest
in Mobile Area Blocks 863 and 907 and a 35% working interest in Mobile Area
Block 908. The Mobile Area Block 864 Unit, operated by Chevron, is located in
the Company's Shallow Gas focus area about 12 miles south- southwest of the
Company's North Dauphin Island Field and is currently producing 26 MMcf/d
through the unit's facilities from sub-sea depths of 2,400 feet and 2,700 feet.
The Company believes exploratory drilling opportunities exist on the three
blocks. See the Company's MAB 864 Acquisition Financial Statements for further
information regarding the acquisition from Elf Exploration.
TECHNOLOGICAL EXPERTISE
Through its acquisition program, the Company has assembled an operational
and technical database in certain 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.
47
<PAGE>
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 five largest producing fields
and for all other properties combined at December 31, 1996.
ESTIMATED NET PROVED
<TABLE>
<CAPTION>
PERCENT
PV-10 TOTAL OIL GAS
PRIMARY VALUE PV-10 RESERVES RESERVES
FIELD NAME/LOCATION OPERATOR(S) ($000)(1) VALUE (MBBLS) (MMCF)
- ------------------------------ ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Main Pass 163 Area
Federal Waters ............. Callon $ 55,604 34.7% -- 20,196
Chandeleur Block 40
Federal Waters ............. Callon 48,000 30.0 -- 16,782
Big Escambia Creek
Southeast Alabama .......... Exxon 14,492 9.1 991 2,673
Black Bay Complex
Louisiana State Waters ..... Callon 11,394 7.1 1,920 684
North Dauphin Island Field
Alabama State Waters ....... Callon 6,455 4.0 -- 2,685
Other properties ............. Various 24,226 15.1 908 7,404
-------- -------- -------- --------
Total ................... -- $160,171 100.0% 3,819 50,424
======== ======== ======== ========
</TABLE>
- ----------
(1) Future net cash flows attributable to the Company's estimated proved
reserves and the present value of such cash flows were based on an average
gas price of $3.88 per Mcf and an average oil price of $23.58 per Bbl at
December 31, 1996. The average price received for production in 1996 was
$2.63 per Mcf for gas and $20.55 per Bbl for oil, without the effects of
hedging.
MAIN PASS 163 AREA
In two separate transactions during 1996, Callon acquired a 100% working
interest in Chandeleur Block 41 and Main Pass Blocks 159, 160, 161 and 163
located in its Shallow Gas focus area. The acquisition initially included five
wells producing 4 MMcf/d, as well as production facilities at Main Pass 163
capable of handling 90 MMcf/d.
Based upon interpretation of seismic data acquired and processed by
Callon, an exploratory well was drilled on Main Pass Block 163 during the fourth
quarter of 1996. For the six months ending June 30, 1997, the well produced an
average of 13.5 MMcf/d. A development well was also drilled during the fourth
quarter of 1996 on Main Pass Block 161 and produced an average of 1.2 MMcf/d
during the first half of 1997. During the second quarter of 1997, the Company
drilled a successful well on Chandeleur Block 41 and production commenced in
July 1997. Total production from the Main Pass 163 Area averaged approximately
17.7 MMcf/d for the first six months in 1997.
The Main Pass 163 Area wells produce from Shallow Miocene reservoirs at
approximate depths of 3,300 feet. Proved reserves at year-end 1996 attributable
to this area were 20.2 Bcf, representing 34.7% of the Company's total PV- 10
Value.
CHANDELEUR BLOCK 40
The Company and an institutional investor purchased a 33.3% working (27.8%
net revenue) interest in Chandeleur Block 40 in 1994 located in the Shallow Gas
focus area. 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 to an industry partner
for $3 million. The Company currently holds a combined 52.3% working (43.6% net
revenue) interest in this
48
<PAGE>
property. The field's remaining proved reserves are estimated to be 16.8 Bcf of
natural gas (net to the Company) as of December 31, 1996.
When the Company assumed operations of the field, two wells were producing
5.5 MMcf/d of natural gas from the 3,800 foot sand. In February 1996, the
Company shut-in one well and successfully reworked the other and increased
average field production to 12 MMcf/d of natural gas.
During the fourth quarter of 1996, the Company drilled a development well
in the field. For the six months ending June 30, 1997, the well was producing an
average of 21.5 MMcf/d. The well resulted in a field extension which added 6 Bcf
in estimated net proved reserves to the Company as of December 31, 1996. Total
field production averaged approximately 29.4 MMcf/d during the first half of
1997.
BIG ESCAMBIA CREEK
On June 29, 1995, the Company purchased an average working interest of
6.0% (6.6% net revenue interest), subject to a 10% reduction after payout, in
nine wells and a 2.9% average royalty interest in another six wells. The gross
average daily production for these wells during June 1997 was 3 MBbls of
condensate, 1.4 MBbls of natural gas liquids, 7.7 MMcf of residue natural gas
and 339 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.
BLACK BAY COMPLEX
The Company-operated Black Bay Complex (the "Complex") is located in
shallow waters off the Louisiana coast in the Breton Sound focus area. It
consists of eight fields, 90 producing wells and approximately 30,000 acres of
oil and gas leases, all of which are held by production. The Company owns an
average 15.4% working (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. For the six months ending June 30, 1997, the Complex was
producing an average of 4,461 Bbls/d and cumulative production had reached 242
MMBbls of oil and 217 Bcf of natural gas.
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. The Company assumed
operations of the Complex in August 1992, and since that time the Company has
successfully drilled seven development wells, including a horizontal well, and
implemented fourteen recompletions, seven of which employed a new stimulation
technology.
NORTH DAUPHIN ISLAND FIELD
The Company owns a 94.4% working (72.6% net revenue) interest in the North
Dauphin Island Field located in shallow Alabama state waters in the Company's
Shallow Gas focus area. The field was discovered in April 1990, and the wells
produce from a Shallow Miocene reservoir at approximately 1,800 feet. For the
six months ending June 30, 1997, there were three producing gas wells, two of
which were drilled horizontally, with average gross production of 6.7 MMcf per
day.
The Company also owns a production platform, including compressors and
dehydration facilities, an associated gathering system and a 12-inch, 12-mile
pipeline ("North Dauphin Island Platform"). This pipeline runs to existing
onshore connections with the pipeline systems of Koch Gateway Pipeline Company,
Transcontinental Gas Pipe Line Corporation and Florida Gas Transmission Company.
The Company gathers its production and gas production from other producers
connected to its system, and delivers the gas to the major pipeline connections.
The current throughput capacity of the gathering
49
<PAGE>
facility is in excess of 100 MMcf/d and with additional compression, the
throughput 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 natural gas gathering services 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
natural gas deliveries through the North Dauphin Island Platform for 15 years,
which commenced in April 1996, to gather up to 100 MMcf/d of the subsidiary's
natural 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.
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 three areas in the Gulf of Mexico: the Shallow Gas focus
area, the Breton Sound focus area and the Company's Deep OCS focus area.
SHALLOW GAS FOCUS AREA
The Company's Shallow Gas 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 Gas 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 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)
reservoirs.
Through a series of acquisitions in 1995, 1996 and early 1997, Callon
acquired and now owns a concentrated leasehold position of 34,200 net acres in
eight contiguous blocks within its Shallow Gas focus area on which it has 10
producing wells. These blocks include Main Pass Blocks 159, 160, 161, 163, 164
and 165, and Chandeleur Blocks 40 and 41. Callon owns a 100% working interest in
five of the blocks and an average 61% working interest in the remaining three.
Callon now owns a 100% working interest in the production facilities at Main
Pass Block 163, a 52% interest in the production facilities at Chandeleur Block
40 and an approximate 66% interest in the production facilities at Main Pass
Block 165. This acreage position and infrastructure provide the potential for
increasing production, lowering operating costs and increasing reserves through
further drilling.
During the third quarter of 1996, Callon completed the acquisition and
processing of more than 1,000 miles of seismic data over its eight blocks and
based upon interpretation of this data, identified eight potential drilling
locations.
During October and November 1996, three Shallow Gas prospects were
successfully drilled and completed. The first prospect was drilled on Main Pass
Block 163 from a surface location adjacent to the Company's production facility
and encountered 54 feet of net pay in a new natural gas reservoir at a depth of
approximately 3,300 feet. During the first six months of 1997, the well averaged
13.5 MMcf/d. Callon has a 100% working (83% net revenue) interest in the well
which has added 11.2 MMcf/d net to production levels for the first half of 1997.
50
<PAGE>
At Chandeleur Block 40, the Company's #A-3 well encountered 44 feet of net
pay at a depth of approximately 3,855 feet. New compressor equipment was
installed on the Chandeleur Block 40 platform which enabled it to achieve
maximum production levels for the new well. The #A-3 well produced at an average
rate of 21.5 MMcf/d during the first six months of 1997, giving Chandeleur Block
40 average total natural gas production of 29.4 MMcf/d during such period. This
estimated 21.5 MMcf/d increase in production added 9.4 MMcf/d net to the
Company's 52.3% working (43.6% net revenue) interest.
The third well was a sidetracked development well at Main Pass Block 161.
The well was drilled, completed and commenced production during February 1997
after compression facilities were upgraded. Callon has a 100% working (77.8% net
revenue) interest in the well which added 1.3 MMcf/d net to its existing
production.
As a result primarily of the first two wells, Callon's average daily
production increased to 43.5 MMcfe/d during the first half of 1997, a 67%
increase from average 1996 production rates.
During the first six months of 1997, the Company drilled one additional
successful development well (1.0 net), one unsuccessful development well for a
net cost of $1.2 million, and performed one major recompletion in its Shallow
Gas focus area. Production from the new well commenced in July 1997 and the
recompletion is currently producing 6.3 MMcf/d (3.6 MMcf/d net to the Company).
The Company's capital budget for the last six months of 1997 includes the
drilling of five gross (2.7 net) exploratory wells in its Shallow Gas focus
area, for an aggregate net cost to drill and complete of approximately $10.0
million. See "Risk Factors -- Substantial Capital Requirements."
BRETON SOUND FOCUS AREA
The Company's Breton Sound area is located in shallow state waters off the
Louisiana coast at the mouth of the Mississippi River. Callon owns interests in
and operates several large old prolific fields there. The fields have produced
from 165 separate reservoirs ranging in depth from 6,000 to 9,600 feet. The
Company's focus has been on the exploitation of the known producing horizons and
now is directed toward deeper potential prospects.
The Black Bay Complex was discovered in 1949 and since that time has
produced 242 MMBbls of oil and 217 Bcf of natural gas from 45 sandstone
formations and 137 reservoirs. It consists of eight fields with 90 wells
producing 4,500 barrels of oil per day and 30,000 acres of oil and gas leases
held by production. Callon holds an average 15.4% working (11.6% net revenue)
interest in the Complex and manages a 32.6% working interest for an
institutional investor. Since assuming operations of the Complex in 1992, the
Company has substantially reduced operating costs, successfully drilled six
development wells, including one horizontally, and implemented 14 recompletions.
Callon has an inventory of over 32 identified development locations and
recompletion candidates at Black Bay and is evaluating the use of 3-D seismic to
identify additional reserves.
Since its discovery in 1951, production from the Main Pass Block 35 Field,
located in Louisiana state waters, has totaled 66.5 MMBbls of oil and 76.5 Bcf
of natural gas from 28 reservoirs ranging in depth from 6,000 to 9,000 feet. In
November 1996, the Company received a new 36 square-mile 3-D seismic survey
covering its Main Pass 32/35 area. Callon identified eight prospects both under
and outside of its then existing 4,467 acre Main Pass 32 lease, based upon the
new seismic, and in December 1996, the Company acquired six contiguous tracts
covering an additional 5,170 acres at a total cost of $3.1 million. In July
1997, the Company entered into a joint venture agreement with Burlington
Resources Oil & Gas Company to drill these prospects. The Company will operate
these prospects and has retained an approximate 42.4% working interest.
Additionally, through a farmout agreement, the Company acquired a 100% working
interest in a development prospect on adjacent Main Pass Block 31. The Company's
capital budget in the last six months of 1997 in the Breton Sound focus area
includes the drilling of two
51
<PAGE>
(1.45 net) development and one gross (0.45 net) exploratory wells for an
aggregate net cost to Callon to drill and complete of approximately $8.2
million. See "Risk Factors -- Substantial Capital Requirements." The Company
anticipates drilling activities to begin in this area in the third quarter of
1997.
DEEP OCS FOCUS AREA
In addition to prospects in its Shallow Gas and Breton Sound focus areas,
the Company has developed an inventory of exploratory prospects in the Gulf of
Mexico OCS area where the Company explores for reserves at depths in excess of
10,000 feet. Wells drilled to these objectives are characterized by high risks,
higher 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 significantly
larger than in the Shallow Gas focus area and have longer reserve lives.
In April 1996, the Company entered into a joint bidding agreement with
Murphy Oil Corporation to acquire and develop oil and gas leases in federal
waters in the Gulf of Mexico where Murphy has operated successfully for many
years. The focus of the bidding agreement was participation in a diversified
group of high-quality 3-D seismic prospects with large reserve potential. At OCS
lease sale #157 in April 1996, Callon was the high bidder, with Murphy, on 13
federal offshore blocks and was awarded 12. The Company's successful bids
totaled $22.4 million encompassing 61,000 acres offshore Louisiana. The leases
are owned 25% by Callon and 75% by Murphy. The blocks include six in the West
Cameron South Addition, two in Mississippi Canyon and one block each in Eugene
Island, South Marsh Island, Vermilion and Main Pass East Addition.
In September 1996, Callon again joined with Murphy and was high bidder on
six offshore Texas tracts at OCS lease sale #161. Callon participated in high
bids totaling $7.6 million for the six blocks, encompassing 35,000 acres. The
blocks include two in the High Island East Addition South Extension, one in the
High Island South Addition, and three in Garden Banks. The Company owns a 25%
working interest.
In March 1997, Callon joined with Murphy and another oil company and were
high bidders on 14 blocks at OCS lease sale #166. All but one were awarded by
the MMS and Callon owns a 20% working interest in eight of the blocks and a 25%
working interest in five. The blocks cover 75,000 acres and are a mix of low,
moderate and high-risk prospects. Four of the blocks are in the Company's
Shallow Gas focus area and the balance are in the Deep OCS focus area. The
Company now owns a 25% interest in 23 blocks and a 20% interest in eight for a
total of 31 blocks.
The Company's first four gross (1.0 net) exploratory wells drilled with
Murphy have been unsuccessful. The test well at West Cameron 603 was drilled to
a total depth of 15,200 feet and was abandoned. The Company is evaluating future
plans for the block. In February 1997, the Company drilled the first well at
Main Pass Block 247 which was plugged and abandoned. A second test well at Main
Pass 247 is scheduled for 1998. West Cameron 578/579 and Eugene Island 29 were
both dry and abandoned and a second well on Eugene Island 29 is scheduled for
1998. The Company's capital expenditure budget for the last six months of 1997
includes the drilling of one gross (0.25 net) exploratory well for a cost to
drill and complete of approximately $2.9 million.
52
<PAGE>
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,
------------------------------
1996(1) 1995 1994
-------- -------- --------
Proved developed:
Oil (MBbls) ................... 3,385 3,890 3,309
Gas (MMcf) .................... 49,491 20,408 20,582
Proved undeveloped:
Oil (MBbls) ................... 434 876 1,115
Gas (MMcf) .................... 933 9,259 3,520
Total proved:
Oil (MBbls) ................... 3,819 4,766 4,424
Gas (MMcf) .................... 50,424 29,667 24,102
Estimated pre-tax future net cash
flows (000's) ................. $216,154 $ 95,730 $ 59,477
======== ======== ========
PV-10 Value (000's) ............. $160,171 $ 63,764 $ 41,383
======== ======== ========
- ----------
(1) Future net cash flows attributable to the Company's estimated proved
reserves and the present value of such cash flows were based on an average
gas price of $3.88 per Mcf and an average oil price of $23.58 per Bbl at
December 31, 1996. The average price received for production in 1996 was
$2.63 per Mcf for gas and $20.55 per Bbl for oil, without the effects of
hedging.
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, 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."
53
<PAGE>
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.
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
PRODUCTION DATA:
Oil (MBbls) .................. 237 302 585 594 364
Gas (MMcf) ................... 6,448 2,912 6,269 6,694 4,076
Total production (MMcfe) ..... 7,869 4,725 9,781 10,261 6,260
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 Mcfe for the
periods indicated.
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
AVERAGE SALES PRICE PER UNIT:
Oil (per Bbl) ............. $19.36 $18.12 $18.27 $16.68 $15.63
Gas (per Mcf) ............. 2.52 2.33 2.40 1.96 2.00
Total production (per Mcfe) 2.65 2.59 2.63 2.24 2.21
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.
YEARS ENDED DECEMBER 31,
---------------------------------------------
1996 1995 1994(1)
------------- ------------- -------------
GROSS NET GROSS NET GROSS NET
----- ----- ----- ----- ----- -----
Development:
Oil .......................... 1 .09 6 .65 7 .36
Gas .......................... 2 1.52 1 .13 -- --
Non-Productive ............... -- -- -- -- 6 .42
----- ----- ----- ----- ----- -----
Total ...................... 3 1.61 7 .78 13 .78
===== ===== ===== ===== ===== =====
Exploration:
Oil .......................... -- -- 1 .24 -- --
Gas .......................... 1 1.0 -- -- -- --
Non-Productive ............... -- -- -- -- 1 .24
----- ----- ----- ----- ----- -----
Total ...................... 1 1.0 1 .24 1 .24
===== ===== ===== ===== ===== =====
- ----------
(1) Drilling results prior to September 16, 1994 represent the combined
drilling results of the Company's predecessors.
The Company owned working and royalty interests in approximately 894 gross
(35.9 net) producing oil and 316 gross (21.2 net) producing gas wells as of
December 31, 1996. 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.
54
<PAGE>
The following table shows the approximate developed and undeveloped (gross and
net) leasehold acreage of the Company as of December 31, 1996.
LEASEHOLD ACREAGE
---------------------------------------------
DEVELOPED UNDEVELOPED
--------------------- ---------------------
STATE GROSS NET GROSS NET
- -------------------------------- --------- --------- --------- ---------
Alabama ........................ 13,136 12,210 944 190
California ..................... -- -- 480 480
Louisiana ...................... 46,958 5,321 8,766 6,268
Michigan ....................... 4,273 185 -- --
Mississippi .................... 3,323 1,433 564 564
Oklahoma ....................... 8,987 973 -- --
Texas .......................... 12,390 761 -- --
Utah ........................... 2,560 295 --
Federal Waters ................. 54,962 34,553 96,075 24,019
--------- --------- --------- ---------
Total ...................... 146,589 55,731 106,829 31,521
========= ========= ========= =========
As of December 31, 1996, the Company owned various royalty and overriding
royalty interests in 1,366 net developed acres and 6,953 undeveloped acres. In
addition, the Company owned 5,464 developed and 134,536 undeveloped mineral
acres.
MAJOR CUSTOMERS
For the year ended December 31, 1996, Northridge Energy Marketing Company,
Williams Energy Services, Inc. and Sonat Gas Marketing Co. L.P. purchased 21%,
27% and 14%, respectively, of the Company's crude oil and natural gas
production. Northridge purchased crude oil production from the Black Bay
Complex, Williams Energy Services, Inc. purchased natural gas from the North
Dauphin Island Field, and Sonat Gas purchased natural gas from Callon owned
interests in federal OCS leases, Chandeleur Block 40, Main Pass 163 and Main
Pass 164/165. 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 impact on the Company's ability to sell its products.
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
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<PAGE>
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.
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, which are owned or leased.
EMPLOYEES
The Company had 142 employees as of June 30, 1997, none of whom are
currently represented by a union. The Company considers itself to have good
relations with its employees. The Company employs ten 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.
56
<PAGE>
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.
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 Company's sales of natural gas are affected by
the availability, terms and cost of transportation. 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 increase
competition within the gas industry by making 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
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 and 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. 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 and the appellate court have substantially
upheld the requirements imposed by Order No. 636, although numerous court
appeals in which parties have sought review of separate FERC orders implementing
Order No. 636 on individual pipeline systems are still pending. In many
instances, the result of Order No. 636 and related initiatives has been to
substantially reduce or eliminate the interstate pipelines' traditional role as
wholesalers of natural gas in favor of providing only storage and transportation
services.
The FERC has announced several important transportation-related policy
statements and proposed rule changes, including a statement of policy and
request for comments concerning alternatives to its traditional cost-of-service
ratemaking methodology to establish the rates interstate pipelines may charge
for their services. A number of pipelines have obtained FERC authorization to
charge negotiated rates as one such alternative. While the changes being
considered would affect the Company only indirectly, they are intended to
further enhance competition in natural gas markets. The Company cannot predict
what further action the FERC will take on these matters; however, the Company
does not believe that it will be affected by any action taken materially
differently than other natural gas producers.
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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 indexing system for setting transportation rate
ceilings. In certain circumstances, the new rules permit oil pipelines to
establish rates using traditional cost of service and other methods of rate
making. The effect that these new rules may have on the cost of moving the
Company's products to market cannot yet be determined.
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, in the case of the Company's
OCS leases in federal waters, Minerals Management Service ("MMS") or other
appropriate federal or state agencies. The Company's OCS leases in federal
waters are administered by the MMS and require compliance with detailed MMS
regulations and orders. The MMS has promulgated regulations implementing
restrictions on various production-related activities, including restricting the
flaring or venting of natural gas. In addition, the MMS has proposed to amend
its regulations to prohibit the flaring of liquid hydrocarbons and oil without
prior authorization. Under certain circumstances, the MMS may require any
Company operations on federal leases to be suspended or terminated. Any such
suspension or termination could materially and adversely affect the Company's
financial condition and operations. The MMS proposes to amend its regulations
governing the calculation of royalties and the valuation of crude oil produced
from federal leases. Among other matters, this proposed rule would amend the
valuation procedure for the sale of federal royalty oil. The Company cannot
predict what action the MMS will take on this matter, nor can it predict at this
stage of the proceeding how the Company might be affected by this proposed
amendment to the MMS' royalty regulations.
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
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<PAGE>
daily production allowable from both oil and gas wells may be established on a
market demand or conservation basis or both.
The Company owns certain natural gas pipeline facilities that it believes
meet the traditional tests the FERC has used to establish a pipeline's status as
a gatherer not subject to FERC jurisdiction under the NGA. State regulation of
gathering facilities generally includes various safety, environmental, and in
some circumstances, nondiscriminatory take requirements, but does not generally
entail rate regulation. Natural gas gathering may receive greater regulatory
scrutiny at both state and federal levels in the post-Order No. 636 environment.
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. 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 also
subject to stringent environmental regulation by state and federal authorities
including the Environmental Protection Agency ("EPA"). Risks are inherent in oil
and gas exploration and production operations, and no assurance can be given
that significant costs and liabilities will not be incurred in connection with
environmental compliance issues; nevertheless, the Company believes 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
adverse effect upon the capital expenditures, earnings or the competitive
position of the Company or its operations. The Company cannot predict what
effect future 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.
SOLID AND HAZARDOUS WASTE. The Company currently owns or leases, and has
in the past owned or leased, numerous properties that for many years have been
used for the exploration and production of oil and gas. Although the Company
believes it has utilized operating and waste 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 or on or under locations where such wastes have been taken for disposal.
In addition, many of these properties have been owned or 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 and various
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<PAGE>
state agencies have limited the approved methods of disposal for certain
hazardous and nonhazardous wastes. Furthermore, it is possible that certain
wastes generated by the Company's oil and gas operations that are currently
exempt from treatment as "hazardous wastes" may in the future be designated as
"hazardous wastes" under RCRA or other applicable statutes, and therefore be
subject to more rigorous and costly operating and 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 disposal site
where a release occurred and any company that disposed or arranged for the
disposal of the hazardous substance released at the 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 its
operations, the Company 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.
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 United States waters. A "responsible party" includes the owner or
operator of an onshore facility, vessel or pipeline, 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 failure to comply with OPA
requirements may subject a responsible party to civil or even criminal
liability.
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. Certain amendments to the OPA that were enacted in 1996 require
owners and operators of offshore facilities that have a worst case oil spill
potential of more than 1,000 barrels to demonstrate financial responsibility in
amounts ranging from $10 million in specified state waters to $35 million in
federal OCS waters, with higher amounts, up to $150 million in certain limited
circumstances, where the MMS believes such a level is justified by the risks
posed by the quantity or quality of oil that is handled by the facility. On
March 25, 1997, the MMS promulgated a proposed rule implementing these OPA
financial responsibility requirements. The Company believes that it currently
has established adequate proof of financial responsibility for its offshore
facilities. However, the Company cannot predict whether the financial
responsibility requirements under the OPA amendments or the proposed rule will
result in the imposition of substantial additional annual costs to the Company
in the future or otherwise materially adversely affect the Company. The impact
of the financial responsibility requirements 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.
PROHIBITION ON DISCHARGES OF PRODUCED WATER. In connection with its
offshore exploration and production operations offshore Louisiana, the Company
is subject to a state-wide prohibition, effective July 1, 1997, against the
discharge of produced water into state coastal waters. However, the Company has
received an extension of time for complying with this prohibition until
September 30, 1998 for its facilities at Chandeleur Block 25 and Main Pass Block
35, and until October 31, 1998 for its facilities at
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Black Bay Complex. The Company believes that it will be in compliance with the
prohibition prior to expiration of the applicable deadlines.
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 may result in the payment of civil penalties
and, in extreme cases, the shutdown of air emission sources.
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 the Company to organize and/or disclose information about hazardous
materials used or produced in the Company's operations. The Company believes
that it is in substantial compliance with these applicable requirements.
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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 2000, respectively. The Charter
also provides that such classes shall be as nearly equal in number as possible.
The directors and executive officers of the Company are as follows:
NAME ................ AGE PRESENT COMPANY POSITION
- --------------------- --- ---------------------------------------------------
Fred L. Callon ...... 47 Director; President; Chief Executive
Officer (Class III)
John S. Callon ...... 77 Director; Chairman of the Board (Class II)
Dennis W. Christian . 51 Director; Senior Vice President; Chief Operating
Officer (Class III)
Robert A. Stanger ... 57 Director (Class I)
H. Michael Tatum .... 68 Vice President; Secretary
Kathy G. Tilley ..... 51 Vice President
John C. Wallace ..... 59 Director (Class I)
B.F. Weatherly ...... 53 Director (Class II)
John S. Weatherly ... 45 Senior Vice President; Chief Financial Officer;
Treasurer
Richard O. Wilson ... 67 Director (Class I)
All of the directors, other than Messrs. Stanger and Wilson, have served
as directors since the Company's inception in 1994. Messrs. Stanger and Wilson
have served as directors since March 2, 1995.
The following is a brief description of the background and principal
occupation of each director and executive officer.
Fred L. Callon is President and Chief Executive Officer of the Company and
Callon Petroleum Operating. Prior to January 1997, he was President and Chief
Operating Officer of the Company and had 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 of the Company and
Callon Petroleum Operating. Effective January 2, 1997, John S. Callon retired
from his position as Chief Executive Officer of the Company. 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.
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Dennis W. Christian is Senior Vice President and Chief Operating Officer
for the Company and Callon Petroleum Operating. Prior to January 1977, he was
Senior Vice President of Operations and Acquisitions and had 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.
Robert A. Stanger has been the managing general partner since 1978 of
Robert A. Stanger & Company, 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. He is
also 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 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
had 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
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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 ten 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 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 a 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 1997, 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 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 "Management -- 1996 Plan." On
August 23, 1996, the Compensation Committee authorized a one-time grant to each
non-employee director of an option to purchase 20,000 shares of Common Stock
under the 1996 Stock Incentive Plan, which was approved by the Company's
stockholders at the 1997 annual meeting of stockholders.
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EXECUTIVE COMPENSATION
The following table sets forth for the past three years 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, 1996 exceeded $100,000. Such amounts
include compensation from the Company's predecessors for the year ended December
31, 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------- --------------------- ------
OTHER ALL
ANNUAL RESTRICTED SECURITIES OTHER
NAME AND COMPEN- STOCK UNDERLYING LTIP COMPEN-
PRINCIPAL SALARY BONUS SATION AWARD(S) OPTIONS PAYOUTS SATION
POSITIONS(1) YEAR ($) ($)(2) $(3) ($) (#) ($) ($)(5)
- ----------------------- ---- ------- ------- ------ ------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John S. Callon ........ 1996 195,670 172,500 -- -- -- -- 12,715
Chairman of the Board 1995 190,000 161,500 -- -- -- -- 10,393
1994 168,000 95,000 -- -- 90,000 -- 9,565
Fred L. Callon ........ 1996 182,761 152,500 -- (4) 75,000 -- 12,928
President and Chief . 1995 170,000 144,500 -- -- -- -- 10,288
Executive Officer ... 1994 150,000 85,000 -- -- 80,000 -- 9,096
Dennis W. Christian ... 1996 160,808 141,000 -- (4) 70,000 -- 11,362
Senior Vice President 1995 150,000 127,500 -- -- -- -- 9,080
and Chief Operating . 1994 118,450 140,000 -- -- 60,000 -- 7,186
Officer
John S. Weatherly ..... 1996 143,469 131,000 -- (4) 65,000 -- 10,234
Senior Vice President 1995 130,000 110,500 -- -- -- -- 7,873
and Chief Financial . 1994 100,000 107,500 -- -- 60,000 -- 6,068
Officer and Treasurer
Kathy G. Tilley ....... 1996 119,032 105,500 -- (4) 55,000 -- 8,475
Vice President ...... 1995 100,008 85,000 -- -- -- -- 5,933
1994 96,626 78,000 -- -- 30,000 -- 5,739
</TABLE>
- ----------
(1) John S. Callon resigned as Chief Executive Officer of the Company on
January 2, 1997. Fred L. Callon was appointed Chief Executive Officer of
the Company and Dennis W. Christian was appointed Chief Operating Officer
of the Company (a position previously held by Fred L. Callon) on January
2, 1997.
(2) The amount for 1996 represents that portion of bonuses declared in March
1996 and earned by service during 1996. Bonuses were declared in March
1997, a portion of which were attributable to 1996 and are reflected
herein. These amounts also include amounts deferred.
(3) 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.
(4) On August 23, 1996, the Board of Directors authorized the following
performance share awards upon approval of the 1996 Plan by the Company's
Shareholders at the 1997 annual meeting: Fred L. Callon, 60,000 shares;
Dennis W. Christian, 55,000 shares; John S. Weatherly, 50,000 shares;
Kathy G. Tilley, 45,000 shares. The 1996 Plan was approved at the 1997
annual meeting, and such shares were awarded as of the date of the annual
meeting. The performance shares will vest on January 1, 2001 and are
subject to forfeiture upon certain termination of employment events. See
"-- 1996 Plan."
(5) Amounts reflect the Company's contribution in 1996, 1995 and 1994 of
$12,043, $9,500 and $8,400 to John S. Callon's 401(k) savings plan and
payment of $672, $893 and $1,165 term life insurance premiums; $11,446,
$8,500 and $7,500 to Fred L. Callon's 401(k) savings plan and payment of
$1,482, $1,788 and $1,596 term life insurance premiums; $10,060, $7,500
and $5,923 to Mr. Christian's 401(k) savings plan and payment of $1,302,
$1,580 and $1,263 term life insurance premiums; $9,077, $6,500 and $5,000
to Mr. Weatherly's 401(k) savings plan and payment of $1,157, $1,373 and
$1,068 term life insurance premiums;
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and $7,509, $5,000 and $4,831 to Ms. Tilley's 401(k) savings plan and
payment of $966, $933 and $908 term life insurance premiums.
RECENT COMPENSATION AWARDS
On August 23, 1996, the Compensation Committee granted stock options to
the Company's executive officers and senior management under the 1996 Plan.
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 events.
The Compensation Committee also awarded performance shares under the 1996
Plan to the Company's executive officers on August 23, 1996. 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
Fred L. Callon entered into an employment agreement with the Company
effective September 1, 1996 with a term ending December 31, 2000. Pursuant to
this agreement, Fred L. Callon will receive an annual base salary of not less
than $200,000 per annum, subject to increase by the Board of Directors or
Compensation Committee from time to time. The employment agreement provides that
he will be entitled to participate in any incentive compensation program
established by the Company for its executive officers. Fred L. Callon also will
receive life insurance, participate in the group medical and disability
insurance of the Company and receive a monthly automobile allowance under the
agreement as well as fuel, oil, maintenance and insurance costs for an
automobile. The agreement will be terminated prior to its term by his death or
disability or for cause. If the agreement is terminated because of death or
disability, the compensation payments continue for the term of the agreement,
reduced by the amount of disability insurance paid. If the agreement is
terminated for cause, the Company is not required to make 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 agreement further provides that he may terminate the
agreement for "good reason," which is defined generally as (a) failure to
re-elect him to his office, (b) significant change in his duties, (c) reduction
or failure to provide typical increases in his salary following a change in
control of the Company, (d) his relocation to an office outside the Natchez,
Mississippi area, (e) breach of the agreement by the Company, or (f) failure to
maintain his level of participation in the compensation and benefit plans of the
Company. If Fred L. Callon terminates his employment for good reason after a
change in control, he is entitled to a lump sum payment of three times his
targeted annual compensation for that year. The lump sum payment will be reduced
to the maximum amount permitted under the Internal Revenue Code of 1986, as
amended (the "Code"), that does not constitute a parachute payment unless he
elects to receive the full amount, in which case the Company would be liable for
the resulting federal excise tax. The Code defines a parachute payment as any
severance payment the aggregate present value
66
<PAGE>
of which is in excess of three times the employee's average annual compensation
over the past five years. If the termination for good reason occurs otherwise
than following a change in control, he is entitled to severance pay in the
amount that would have been paid under the employment agreement had it not been
terminated. Pursuant to the agreement, 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.
Dennis W. Christian and John S. Weatherly entered into employment
agreements with the Company effective September 1, 1996 and ending December 31,
2000. The agreements provide that Mr. Christian and Mr. Weatherly will receive
an annual base salary of at least $175,000 and $165,000, respectively, and that
they are 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 either agreement is terminated because
of death or disability, compensation payments continue for a period of two years
from the date of termination, reduced by the amount of disability insurance
paid. If either 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.
On June 19, 1996, the Company entered into a consulting agreement with
John S. Callon which became effective January 2, 1997, the day he retired as
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 years 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 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.
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 stockholder
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
67
<PAGE>
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 stock options plans for employees
pursuant to which options may be granted for the purchase of Common Stock: the
1994 Callon Petroleum Company Stock Incentive Plan (the "1994 Plan") and the
1996 Callon Petroleum Company Stock Incentive Plan (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 granted under the 1994 Plan. As of June 30, 1997, 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 as 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 stock options were granted under the 1994 Plan during 1995 and 1996,
other than automatic grants to non-employee directors.
1996 PLAN. On September 26, 1996, the Board of Directors of the Company
approved and adopted the 1996 Plan and the Plan was approved by the stockholders
of the Company at the 1997 annual meeting. 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 300,000. 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.
68
<PAGE>
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, thought 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.
1997 EMPLOYEE STOCK PURCHASE PLAN. The 1997 Employee Stock Purchase Plan
(the "1997 Purchase Plan") was authorized by the Board of Directors on September
26, 1996 and approved by the stockholders of the Company at the 1997 annual
meeting. The 1997 Purchase Plan is intended to provide eligible employees of the
Company and its participating affiliates with the continuing opportunity to
acquire a propriety interest in the Company through participation in a
payroll-deduction based employee stock purchase plan designed to operate in
compliance with Section 423 of the Code.
An aggregate of 250,000 shares of Common Stock have been reserved for
issuance over the ten-year term of the 1997 Purchase Plan. This share reserve is
drawn from either newly-issued shares of Common Stock or shares of Common Stock
repurchased by the Company, including shares repurchased on the open market.
The 1997 Purchase Plan is administered by the Compensation Committee of
the Company's Board of Directors or such other duly constituted committee of the
Company's Board of Directors (the "1997 Plan Administrator"). The 1997 Purchase
Plan is implemented in a series of successive offering periods, each with a
maximum duration (not to exceed twenty-four (24) months) designated by the 1997
Plan Administrator prior to the start date. The initial offering period began on
September 1, 1997 and will continues through June 30, 1999. The next offering
period will start on the first business day in July 1999 and terminate on the
last business day in June 2001. Any subsequent offering periods will begin as
designated by the 1997 Plan Administrator.
Each offering period is comprised of a series of successive semi-annual
purchase periods. Generally, purchase periods run from the first business day in
January to the last business day in June each year and from the first business
day in July each year to the last business day in December in each year. Shares
of Common Stock will be purchased on behalf of participants on the last day of
each such semi-annual period.
Any individual who is employed on a basis under which he or she is
regularly expected to work for more than 20 hours per week for more than five
months per calendar year in the employ of the Company or any participating
parent or subsidiary corporation (including any corporation which subsequently
becomes such at any time during the term of the 1997 Purchase Plan) is eligible
to participate in the 1997 Purchase Plan.
Each participant may authorize periodic payroll deductions in any multiple
of 1% (up to a maximum of 15%) of his or her base salary each offering period to
be applied to the acquisition of Common Stock on each semi-annual purchase date.
On each semi-annual purchase date (the last business day in June and December of
each year), the payroll deductions of each participant is automatically applied
to the purchase of whole shares of Common Stock at the purchase price in effect
for the participant for that purchase date.
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<PAGE>
The purchase price per share at which Common Stock is purchased on the
participant's behalf on each purchase date within the offering period is equal
to eighty-five percent (85%) of the lower of (i) the fair market value per share
of Common Stock on the participant's entry date into that offering period or
(ii) the fair market value per share of Common Stock on that purchase date. The
fair market value per share of Common Stock on any relevant date will be the
closing selling price per share on such date on the Nasdaq NMS.
The 1997 Purchase Plan imposes certain limitations upon a participant's
rights to acquire Common Stock, including the following limiations:
(i) No purchase right may be granted to any individual who owns
stock (including stock purchasable under any outstanding purchase rights)
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company of any of its affiliates.
(ii) No purchase right granted to a participant may permit such
individual to purchase Common Stock at a rate greater than $25,000 worth
of such Common Stock (valued at the time such purchase right is granted)
for each calendar year the purchase right remains outstanding at any time.
(iii) No participant may purchase more than 1,000 shares of Common
Stock on any semi-annual purchase date.
The purchase right immediately terminates upon the participant's
termination of employment or loss of eligible employee status or upon his or her
affirmative withdrawal from the offering period. The payroll deductions
collected for the purchase period in which the purchase right terminates will be
refunded.
No participant has any stockholder rights with respect to the shares of
Common Stock covered by his or her purchase right until the shares are actually
purchased on the participant's behalf.
The 1997 Purchase Plan terminates upon the earliest to occur of (i) the
last business day in June 2007, (ii) the date on which all available shares are
issued or (iii) the date on which all outstanding purchase rights are exercised
in connection with an acquisition of the Company.
The Board may at any time alter, suspend or discontinue the 1997 Purchase
Plan as of the close of any purchase period. However, the Board may not, without
stockholder approval, materially increase the number of shares issuable under
the 1997 Purchase Plan, and certain other amendments may require stockholder
approval pursuant to applicable laws or regulations.
70
<PAGE>
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, 1996 to the Chief Executive Officer of the
Company or any of the four most highly compensated executive officers of the
Company named in the Summary Compensation Table. There were grants of stock
options under the 1996 Plan during the year ended December 31, 1996 to the Chief
Executive Officer and the four most highly compensated executive officers of the
Company. The following table sets forth information concerning individual grants
of stock options under the 1996 Plan to the Chief Executive Officer of the
Company, the four most highly compensated executive officers of the Company, all
current executive officers as a group ("Executive Group"), all current directors
who are not executive officers as a group ("Director Group"), and all employees,
including all current officers who are not executive officers, as a group
("Employee Group").
OPTION GRANTS IN YEAR ENDING DECEMBER 31, 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
NUMBER OF GRANTED ANNUAL RATES OF
SECURITIES TO EXERCISE STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES OR BASE FOR OPTION TERM(C)
OPTIONS IN FISCAL PRICE EXPIRATION --------------------------
NAME GRANTED YEAR(A) ($/SH)(B) DATE 5% ($) 10% ($)
- -------------------- --------- --------- -------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
John S. Callon ..... -- -- -- -- $ -- $ --
Fred L. Callon .... 75,000 17% $ 12.00 August 23, 2006 566,005 1,434,368
Dennis W. Christian 70,000 16% $ 12.00 August 23, 2006 528,271 1,338,744
John S. Weatherly . 65,000 14% $ 12.00 August 23, 2006 490,538 1,243,119
Kathy G. Tilley ... 55,000 12% $ 12.00 August 23, 2006 415,070 1,051,870
Executive Group
(6 persons) ....... 280,000 62% $ 12.00 August 23, 2006 2,113,086 5,354,975
Director Group
(4 persons) ....... 80,000 18% $ 12.00 August 23, 2006 603,739 1,529,993
Employee Group
(8 persons) ....... 170,000 38% $ 12.00 August 23, 2006 1,282,945 3,251,235
All Stockholders(d) 5,758,667 N/A N/A N/A $ 43,459,137 $ 110,133,985
</TABLE>
- ----------------
(a) The Company granted a total of 450,000 options to employees under the 1996
Plan for the year ended December 31, 1996.
(b) The options were granted on August 23, 1996. The fair market value of the
Common Stock at the date of grant was $12.00. Options are not exercisable
prior to six months from the date of grant and, unless a shorter period is
provided by the 1996 Plan or the plan administrator, are for a term of ten
years, subject to vesting as provided by the plan administrator. Further,
options are subject to forfeiture and/or time limitations in the event of
a termination of employment. The 1996 Plan was approved by the Company's
stockholders at the 1997 annual meeting. No stock appreciation rights have
been granted by the Company since its inception.
(c) Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts represent hypothetical gains that could
be achieved for the respective options if exercised at the end of the
option term. The assumed 5% and 10% rates of stock price appreciation are
provided in accordance with rules of the Commission and do not represent
the Company's estimate or projection of the future Common Stock price.
Actual gains, if any, on stock option exercises are dependent on the
future performance of the Common Stock and overall market conditions.
There can be no assurance that the amounts reflected will be achieved.
(d) All Stockholders are shown for comparison purposes only.
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<PAGE>
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, 1996. No stock options were exercised
by such persons in 1996.
AGGREGATED OPTION EXERCISES IN 1996 AND OPTION
VALUES AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
UNEXERCISED OPTIONS AT DECEMBER 31, 1996
----------------------------------------
NUMBER OF VALUE OF
UNDERLYING IN-THE-MONEY
SECURITIES OPTIONS
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) VALUE REALIZED($) UNEXERCISABLE(A) UNEXERCISABLE(B)
- ------------------- -------- ---------- ------------- ----------------
<S> <C> <C> <C> <C>
John S. Callon .... -- -- 90,000/-- $815,625/--
Fred L. Callon..... -- -- 95,000/60,000 830,938/423,750
Dennis W. Christian -- -- 74,000/56,000 642,625/395,500
John S. Weatherly.. -- -- 73,000/52,000 635,563/367,250
Kathy G. Tilley.... -- -- 41,000/44,000 349,563/310,750
</TABLE>
- -------------
(a) Represents awards granted under the 1994 Plan and the 1996 Plan.
(b) As of December 31, 1996, the fair market value of the Common Stock was
$19.0625.
LONG-TERM INCENTIVE PLAN AWARDS
At this time, Callon does not have a 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
72
<PAGE>
Unit. Of the 1,831,591 shares beneficially owned by the Callon Family, 292,040
are beneficially owned by John S. Callon and 729,180 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.
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.
REGISTRATION RIGHTS. The Callon Family (including John S. Callon and Fred
L. Callon) is party to a Registration Rights Agreement dated September 16, 1994
(the "Registration Rights Agreement"), pursuant to which they are entitled to
require the Company to register Common Stock owned by them with the Commission
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 B.F. Weatherly. In turn, Mr. Wallace
received $13,500 of such amounts in 1993, and B.F. 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.
73
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of June 30, 1997, 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) certain executive officers, 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
Commission 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(1) OWNERSHIP CLASS OWNERSHIP CLASS
- -------------------------------- --------- ----- ------- -----
<S> <C> <C> <C> <C>
DIRECTORS:
John S. Callon ............... 292,040(2) 4.80% -- --
Fred L. Callon ............... 729,180(3) 11.97 -- --
Dennis W. Christian .......... 129,000(4) 2.13 -- --
Robert A. Stanger ............ 20,856(5) * -- --
John C. Wallace .............. 2,007,883(6) 33.37 -- --
B.F. Weatherly ............... 2,005,125(7) 33.33 -- --
Richard O. Wilson ............ 2,008,531(8) 33.37 1,000 *
NAMED EXECUTIVE OFFICERS:
John S. Weatherly ............ 123,896(9) 2.04 -- --
Kathy G. Tilley .............. 86,147(10) 1.43 -- --
DIRECTORS AND EXECUTIVE OFFICERS
AS A GROUP (10 PERSONS) ...... 3,476,142(11) 53.67 1,000 *
CERTAIN BENEFICIAL OWNERS:
NOCO Enterprises, L.P. .......
6814 Northampton Way
Houston, Texas 77055 ....... 1,984,758(12) 33.10 -- --
Wellington Management Company
75 State Street
Boston, Massachusetts 02109 . 607,704(13) 9.26 247,690 18.83
</TABLE>
- ----------------------
* less than 1%
(1) Unless otherwise indicated, each of the above persons may be deemed to
have sole voting and dispositive power with respect to such shares.
(2) Of the 292,040 shares beneficially owned by John S. Callon, 97,040 are
owned directly by him and he has sole voting and dispositive power over
such shares, 105,000 shares are held in a family limited partnership, and
90,000 shares are subject to options under the Company's 1994 Plan
exercisable within 60 days. Shares indicated as owned by John S. Callon do
not include shares of Common Stock owned by NOCO and shares of Common
Stock owned by certain other members of the Callon Family including 61,837
shares owned by John S. Callon's wife and over which he disclaims
beneficial ownership. Under the terms of the Stockholder's Agreement among
the
74
<PAGE>
Callon Family and NOCO dated September 16, 1994, 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.
(3) Of the 729,180 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 shares are subject to
options under the 1994 Plan exercisable within 60 days; 15,000 shares are
subject to options under the 1996 Plan exercisable within 60 days; 60,000
shares represent performance shares issued under the 1996 Plan which do
not vest until January 1, 2001; and 26,178 shares are held by Fred L.
Callon as Trustee of shares held by the Callon Petroleum Company Employee
Savings and Protection Plan. Shares indicated as owned by Fred L. Callon
do not include shares of Common Stock owned by NOCO and shares of Common
Stock owned by other members of the Callon Family, including 25,009 shares
owned by Fred L. Callon's wife over which he disclaims beneficial
ownership. Under the terms of the Stockholders' Agreement, Fred L. Callon
and the other members of the Callon Family have the right of first refusal
to acquire shares of Common Stock proposed to be sold by NOCO under
certain circumstances and all parties to the Stockholders' Agreement have
agreed to support two directors nominated by the Callon Family and two
directors nominated by NOCO. Fred L. Callon disclaims beneficial ownership
of these shares.
(4) 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, and 55,000 shares represent a performance
share award under the 1996 Plan which do not vest until January 1, 2001.
(5) Includes 15,000 shares subject to options under the 1994 Plan and 5,000
shares subject to options under the 1996 Plan, all of which are
exercisable within 60 days.
(6) Includes 3,125 shares owned directly by John C. Wallace, 15,000 shares
subject to options under the 1994 Plan and 5,000 shares subject to options
under the 1996 Plan, all of which are exercisable within 60 days, and
1,984,758 shares owned by NOCO. See note (l2) below.
(7) Includes 367 shares owned directly by B.F. Weatherly, 15,000 shares
subject to options under the 1994 Plan and 5,000 shares subject to options
under the 1996 Plan, all of which are exercisable within 60 days, and
1,984,758 shares owned by NOCO. See note (l2) below.
(8) Includes 1,500 shares owned directly by Richard O. Wilson, 15,000 shares
subject to options under the 1994 Plan and 5,000 shares subject to options
under the 1996 Plan, all of which are 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 (l2) below.
(9) Includes 217 shares which are held by Mr. Weatherly as custodian for his
minor children, 60,000 shares subject to options under the 1994 Plan,
13,000 shares subject to options under the 1996 Plan, all of which are
exercisable within 60 days, and 50,000 shares represent a performance
share award under the 1996 Plan which do not vest until January 1, 2001.
(10) Includes 30,000 shares subject to options under the 1994 Plan, 11,000
shares subject to options under the 1996 Plan, all of which are
exercisable within 60 days and 45,000 shares represent a performance share
award under the 1996 Plan which do not vest until January 1, 2001.
(11) Includes 405,000 shares subject to options under the 1994 Plan, 76,000
shares subject to options under the 1996 Plan, all of which are
exercisable within 60 days and 225,000 shares represent performance share
awards under the 1996 Plan which do not vest until January 1, 2001.
(12) 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
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Square, London England SWIP 2RX. Mr. Meade's address is 6814 Northampton
Way, Houston, Texas 77055. Mr. B.F. Weatherly's address is 9603 Doliver
Street, Houston, Texas 77063. Mr. Wilson's address is 674 Shartle Circle,
Houston, Texas 77024. 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 to be 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 Management, Ltd., Messrs. Wallace, Meade, 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. NOCO has informed the
Company that it intends to transfer 1,839,386 of the Common Shares owned
by it to Fred. Olsen Energy AS ("FOE"). Upon such transfer, the Common
Shares owned by FOE will continue to be subject to the Stockholders'
Agreement. See "Principal Stockholders -- Stockholders' Agreement."
(13) Includes 563,000 shares issuable upon conversion of 247,690 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 Commission 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.
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DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes are to be issued under the Indenture, dated as of July
31, 1997, between the Company and American Stock Transfer & Trust Company, as
trustee (the "Trustee"). The Exchange Notes will be issued under the same
Indenture as the Outstanding Notes and the Outstanding Notes and the Exchange
Notes will constitute a single series of debt securities under the Indenture. If
the Exchange Offer is consummated, any Outstanding Notes that remain outstanding
after consummation of the Exchange Offer and the Exchange Notes issued in the
Exchange Offer will vote together as a single class for purposes of determining
whether holders of the requisite percentage in outstanding principal of Notes
(as defined herein) have taken certain actions or exercised certain rights under
the Indenture.
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 is available upon request to
the Company at the address set forth under "Available Information." 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 the Exchange Notes," the term
"Company" refers only to Callon Petroleum Company. The Outstanding Notes and
Exchange Notes are sometimes referred to herein as the "Notes." Article and
Section references are to Articles and Sections of the Indenture.
GENERAL. The Exchange Notes will be limited to $36.0 million aggregate
principal amount. The Exchange 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 Exchange Notes will accrue from July 31, 1997 or from
the most recent interest payment date to which interest has been paid, and will
be payable quarterly on the 15th day of each March, June, September and December
in each year, commencing December 15, 1997, at 10.125%. Interest will be payable
to the person in whose name the Exchange Note is registered at the close of
business on the first day of March, June, September and December, as the case
may be, immediately preceding such interest payment date. The Exchange Notes
will mature on September 15, 2002, unless redeemed earlier at the option of the
Company as set forth below. The Company is not required to make mandatory
redemption or sinking fund payments with respect to the Exchange Notes.
Principal, premium, if any, 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 for the Exchange Notes that are not in book entry form,
interest may be paid by check mailed to the person entitled thereto. The
Exchange 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 Exchange
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 Exchange 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 Exchange Notes to benefit indirectly from such
distribution) are subject to the prior claims of creditors of the Subsidiary.
BOOK ENTRY EXCHANGE NOTES
The Outstanding Notes have been and the Exchange Notes will initially be
issued in the form of one or more Global Exchange Notes (as defined in the
Indenture) held in book-entry form. The Exchange Notes will be deposited with
the Trustee as custodian for the Depository, and the Depository or its nominee
will initially be the sole registered holder of the Exchange Notes for all
purposes under the
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Indenture. Except as set forth below, a Global Exchange Note exchanged may not
be transferred except as a whole by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository.
Upon the issuance of a Global Exchange Note, the Depository or its nominee
will credit, on its internal system, the accounts of persons holding through it
with the respective principal amounts of the individual beneficial interests
represented by such Global Exchange Note exchanged in the Exchange Offer.
Ownership of beneficial interests in a Global Exchange Note will be limited to
persons that have accounts with the Depository ("participants") or persons that
may hold interests through participants. Ownership of beneficial interests by
participants in a Global Exchange Note will be shown on, and the transfer of
that ownership interest will be effected only through, records maintained by the
Depository or its nominee for such Global Exchange Note. Ownership of beneficial
interests in such Global Exchange Note by persons that hold through participants
will be shown on, and the transfer of that ownership interest within such
participant will be effected only through, records maintained by such
participant. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Exchange Note.
Payment of principal of, premium, if any, on and interest on Exchange
Notes represented by any such Global Exchange Note will be made to the
Depository or its nominee, as the case may be, as the sole registered owner and
the sole holder of the Exchange Notes represented thereby for all purposes under
the Indenture. None of the Company, the Trustee, and agent of the Company or the
Initial Purchaser will have any responsibility or liability for any aspect of
the Depository's reports relating to or payments made on account of beneficial
ownership interests in a Global Exchange Note representing any Exchange Notes or
for maintaining, supervising or reviewing any of the Depository's records
relating to such beneficial ownership interests.
The Company has been advised by the Depository that upon receipt of any
payment of principal of, premium, if any, on or interest on, any Global Exchange
Note, the Depository will immediately credit, on its book entry registration and
transfer system, the accounts of participants with payments in amounts
proportionate to their respective beneficial interests in the principal or face
amount of such Global Exchange Note, as shown on the records of the Depository.
The Company expects that payments by participants to owners of beneficial
interests in a Global Exchange Note held through such participants will be
governed by standing instructions and customary practices as is now the case
with securities held for customer accounts registered in "street name" and will
be the sole responsibility of such participants.
So long as the Depository or its nominee, is the registered owner or
holder of such Global Exchange Note, the Depository or such nominee, as the case
may be, will be considered the sole owner or holder of the Exchange Notes
represented by such Global Exchange Note for the purposes of receiving payment
on such Exchange Notes, receiving notices and for all other purposes under the
Indenture and the Exchange Notes. Beneficial interests in the Exchange Notes
represented by such Global Exchange Note will be evidenced only by, and
transfers thereof will be effected only through, records maintained by the
Depository and its participants. Except as provided above, owners of beneficial
interests in a Global Exchange Note will not be entitled to and will not be
considered the holders of such Global Exchange Note for any purposes under the
Indenture. Accordingly, each person owning a beneficial interest in a Global
Exchange Note must rely on the procedures of the Depository and, if such person
is not a participant, on the procedures of the participant through which such
person owns its interest, to exercise any rights of a holder under the
Indenture. The Company understands that under existing industry practices, in
the event that the Company requests any action of holders or that an owner of a
beneficial interest in a Global Exchange Note desires to give or take action
that a holder is entitled to give or take under the Indenture, the Depository
would authorize the participants holding the relevant beneficial interest to
give or take such action, and such participants would authorize beneficial
owners through such
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participants to give or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
The Depository has advised the Company that it will take any action
permitted to be taken by a Holder of Exchange Notes (including the presentation
of Exchange Notes for exchange as described below) only at the direction of one
or more participants to whose account with the Depository interests in the
Global Exchange Note are credited and only in respect of such portion of the
aggregate principal amount of the Exchange Notes as to which such participant or
participants has or have given such direction.
The Depository has advised the Company that the Depository is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a "banking organization" within the meaning of New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the Exchange Act. The Depository was created to hold the
securities of its participants and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (including the
Initial Purchasers), banks, trust companies, clearing corporations and certain
other organizations some of whom (and/or their representatives) own the
Depository. Access to the Depository'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.
CERTIFICATED EXCHANGE NOTES
The Exchange Notes represented by a Global Exchange Note are exchangeable
for certificated Exchange Notes only if (i) the Depository notifies the Company
that it is unwilling or unable to continue as a depository for such Global
Exchange Note or if at any time the Depository ceases to be a clearing agency
registered under the Exchange Act, and a successor depository is not appointed
by the Company within 90 days, (ii) the Company executes and delivers to the
Trustee a notice that such Global Exchange Note shall be so transferable,
registrable and exchangeable, and such transfer shall be registrable or (iii)
there shall have occurred and be continuing an Event of Default or an event
which, with the giving of notice or lapse of time or both, would constitute an
Event of Default with respect to the Exchange Notes represented by such Global
Exchange Note. Any Global Exchange Note that is exchangeable for certificated
Exchange Notes pursuant to the preceding sentence will be transferred to, and
registered and exchanged for, certificated Exchange Notes in authorized
denominations and registered in such names as the Depository or its nominee
holding such Global Exchange Note may direct. Subject to the foregoing, a Global
Exchange Note is not exchangeable, except for a Global Exchange Note of like
denomination to be registered in the name of the Depository or its nominee. In
the event that a Global Exchange Note becomes exchangeable for certificated
Exchange Notes, (i) certificated Exchange Notes will be issued only in fully
registered form in denominations of $1,000 or integral multiples thereof, (ii)
payment of principal, any repurchase price, and interest on the certificated
Exchange Notes will be payable, and the transfer of the certificated Exchange
Notes will be registrable, at the office or agency of the Company maintained for
such purposes, and (iii) no service charge will be made for any issuance of the
certificated Exchange Notes, although the Company may require payment of a sum
sufficient to cover any tax or governmental charge imposed in connection
therewith.
SUBORDINATION OF THE EXCHANGE NOTES
The payment of the principal of, and premium, if any, and interest on the
Exchange Notes will be subordinated in right of payment, as set forth in Article
Thirteen of the Indenture, to the prior payment in
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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 premium, if any, on) 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 or a
Redemption Event). 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 premium, if
any, on) 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, 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 premium, if any, on)
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 premium, if any,
on) 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
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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 Exchange 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 Exchange Notes.
The subordination provisions described above will cease to be applicable
to the Exchange Notes upon any Legal Defeasance or Covenant Defeasance of the
Exchange 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 Exchange
Notes will also be structurally subordinated to all liabilities of the Company's
Subsidiaries.
CERTAIN COVENANTS
RESTRICTIONS ON DIVIDENDS, REDEMPTIONS AND OTHER PAYMENTS
(a) The Indenture provides 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) $5 million plus
(ii) 25% of the Company's Consolidated Net Income subsequent to March 31,
1997 (with 100% reduction for a loss).
(b) Notwithstanding paragraph (a) above, the Company may take the
following actions so long as no Event of Default shall have occurred and be
continuing:
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(1) the payment of dividends on any of the shares of the Series A
Preferred Stock of the Company outstanding on the date of this Indenture;
(2) the payment of any dividend on any other Capital Stock of the
Company or any Restricted Subsidiary within 60 days after the date of
declaration thereof, if at such declaration date such declaration complied
with the provisions of paragraph (a) above (and such payment shall be
deemed to have been paid on such date of declaration for purposes of any
calculation required by the provisions of paragraph (a) above); and
(3) the repurchase, redemption or other acquisition or retirement of
any shares of (A) the Series A Preferred Stock of the Company outstanding
on the date of this Indenture and (B) 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 (1), (2) and (3) 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 BORROWED MONEY
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, create, incur, assume, guarantee or become liable
("incur") with respect to any Indebtedness for Money Borrowed, including
Acquired Indebtedness but excluding Permitted Indebtedness, if, immediately
after giving effect to any such creation, incurrence, assumption or guarantee
(including giving effect to the retirement of any existing Indebtedness for
Money Borrowed from the proceeds of such additional Indebtedness for Money
Borrowed):
(1) The ratio of (a) the aggregate amount of the outstanding
Indebtedness for Money Borrowed of the Company and its Restricted
Subsidiaries as of the end of the immediately preceding fiscal quarter of
the Company, as determined on a consolidated basis in accordance with
GAAP, to (b) the Consolidated EBITDA for the immediately preceding four
fiscal quarters of the Company, would exceed 10.0 to 1.0; or
(2) The Interest Coverage Ratio would have been at least 2.4 to 1.0.
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 provides 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
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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 provides 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 RESTRICTED SUBSIDIARY DIVIDENDS
The Indenture provides 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 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)
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LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Indenture provides 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 Exchange 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 Exchange Notes annual audited consolidated
financial statements and quarterly unaudited consolidated summary financial
statements. (Section 704)
EVENTS OF DEFAULT AND REMEDIES
An Event of Default will include: (i) failure to pay the principal of or
premium, if any, 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 give the Company Notice as
described under "-- Repurchase at Option of Holders in Certain Circumstances,"
(iv) 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, (v) 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, (vi) 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,
(vii) certain events of insolvency, receivership or reorganization of the
Company or any Material Subsidiary and (viii) entry of a final judgment, decree
or order against the Company or any Material Subsidiary for the payment of money
in excess of $2.5 million and such judgment, decree or order continues
unsatisfied for 30 days without a stay of execution. (Section 501)
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If any Event of Default (other than as specified in clause (vii) 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, premium, if any, 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 (vii) above occurs and
is continuing, then the principal of, premium, if any, 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 (and premium, if any, on) 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 (and premium, if any, on) 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 Exchange 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 Exchange 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 premium, if any, on) or
interest on such Exchange Note on or after the respective due dates expressed in
such Exchange Note. (Section 507 and 508)
During the existence of an Event of Default, the Trustee will be required
to exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the Trustee
in case an Event of Default shall occur and be continuing, the Trustee will not
be under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of Notes unless such
Holders shall have offered to the Trustee reasonable security or indemnity.
Subject to certain provisions concerning the rights of the Trustee, the Holders
of a majority in aggregate principal amount of the outstanding Notes will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
on the Trustee under the Indenture. (Sections 512, 601 and 603)
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The Holders of not less than a majority in aggregate principal amount of
the Notes then outstanding may on behalf of the Holders of all of the Notes
waive any existing Default or Event of Default and its consequences, except in
respect of the payment of the principal of (or premium, if any, on) or interest
on any Note or in respect of a provision of the Indenture which cannot be
modified or amended without the consent of the Holder of each Note affected
thereby as described below under " -- Modification and Waiver." (Section 513)
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each Holder of Notes notice of the
Default or Event of Default within 90 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of (or
premium, if any, on) or interest on any Notes, the Trustee may withhold the
notice to the Holders of Notes if the Trustee determines in good faith that
withholding the notice is in the interest of such Holders. (Section 602)
The Company is required to deliver to the Trustee annual and quarterly
statements regarding compliance with the Indenture, and the Company will also be
required, upon becoming aware of any Default or Event of Default, to deliver to
the Trustee a statement specifying such Default or Event of Default. (Section
1011)
REPURCHASE AT OPTION OF HOLDERS IN CERTAIN CIRCUMSTANCES
If Senior Indebtedness of the Company and its Restricted Subsidiaries is
not less than the greater of (i) $50 million and (ii) 45% of Total Consolidated
Assets for at least 30 consecutive days during any consecutive 12 month period
after August 1, 1997 (a "Repurchase Event"), each Holder of Notes shall have the
right, at the Holder's option, to require the Company to repurchase all of such
Holder's Notes, or any portion of the principal amount thereof that is equal to
$1,000 or an integral multiple of $1,000 in excess thereof, on the date (the
"Repurchase Date") that is 45 days after the date of the Company Notice (as
defined), at a price equal to (i) if the Repurchase Event occurs on or prior to
July 31, 2000, 104% of the principal amount, (ii) if the Repurchase Event occurs
after July 31, 2000 and on or prior to July 31, 2001, 102% and (ii) if the
Repurchase Event occurs thereafter, 100% of the principal of the principal
amount of the Notes to be repurchased, together with interest accrued to the
Repurchase Date (the "Repurchase Price").
Within 30 days after the occurrence of a Repurchase Event, the Company is
obligated to give to all Holders of the Notes notice, as provided in the
Indenture (the "Company Notice"), of the occurrence of such Repurchase Event and
of the repurchase right arising as a result thereof, or, at the request of the
Company on or before the 15th day after such occurrence, the Trustee shall give
the Company Notice. The Company must also deliver a copy of the Company Notice
to the Trustee and to the office of each Paying Agent. To exercise the
repurchase right, a Holder of Notes must deliver written notice to the Trustee
or any Paying Agent of the Holder's exercise of such right, together with the
Notes with respect to which the right is being exercised, in accordance with the
procedures set forth in the Indenture.
Any repurchase in connection with a Repurchase Event could, depending on
the circumstances and absent a waiver from the holders of Senior Indebtedness,
be blocked by the subordination provisions of the Debentures. See "--
Subordination of the Exchange Notes." Failure by the Company to repurchase the
Notes when required may result in an Event of Default with respect to the Notes
whether or not such repurchase is permitted by the subordination provisions. See
"-- Events of Default and Remedies."
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option
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becomes available to Holders of the Notes. The Company will comply with this
rule to the extent applicable at that time.
The foregoing provisions would not necessarily afford Holders of the
Exchange Notes protection in the event of highly leveraged or other transactions
involving the Company that may adversely affect Holders.
REDEMPTION AT OPTION OF THE COMPANY
The Exchange Notes will not be redeemable at the Company's option prior to
September 15, 2000. Thereafter, the Exchange Notes will be subject to redemption
at the option of the Company, in whole or in part, upon not less than 30 or more
than 60 days' notice mailed to the registered Holders thereof, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest to the applicable redemption date, if redeemed
during the twelve-month period beginning on September 15 of the years indicated
below:
YEAR PERCENTAGE
---- ----------
2000.............................................. 102%
2001 and thereafter............................... 100%
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 Exchange Notes
or portions thereof called for redemption. (Article Eleven)
MODIFICATION AND WAIVER
With certain limited exceptions which permit modifications of the
Indenture by the Company and the Trustee only, the Indenture may be modified by
the Company with the consent of Holders of not less than a majority in aggregate
principal amount of outstanding Notes; provided however, that no such changes
shall without the consent of the Holder of each Note affected thereby (i) change
the maturity date of the principal of, or the due date of any installment of
interest on, any Note, (ii) reduce the principal of, or the rate of interest on,
any Note, (iii) change the place of payment or the currency in which any portion
of the principal of, or interest on, any Note is payable, (iv) impair the right
to institute suit for the enforcement of any such payment, (v) reduce the
above-stated percentage of Holders of the outstanding Notes necessary to modify
the Indenture, (vi) modify the foregoing requirements or reduce the percentage
of outstanding Notes necessary to waive any past default or certain covenants or
(vii) reduce the relative ranking of the Notes. (Section 902)
The Holders of a majority in aggregate principal amount of outstanding
Notes may waive compliance by the Company with certain covenants, most of which
are described above under " -- Certain Covenants." (Section 1012)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with, merge with, or transfer all or
substantially all of its assets to another entity where the Company is not the
surviving corporation unless (i) such other entity assumes the Company's
obligations under the Indenture, (ii) such other entity shall be a Person
organized and
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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 premium, if any, and
interest on such Notes when such payments are due, (ii) the Company's
obligations to replace any temporary Notes, register the transfer or exchange of
any Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an
office or agency for payments in respect of the Notes, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company released with respect to
certain covenants that are described in the Indenture, some of which are
described under " -- Certain Covenants" above, and thereafter any omission to
comply with such obligations shall not constitute a Default or an Event of
Default with respect to the Notes ("Covenant Defeasance"). In the event Covenant
Defeasance occurs, certain events (not including nonpayment, bankruptcy,
insolvency and reorganization events) described under " -- Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in United States dollars, Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of (and premium, if any,
on) and interest on the outstanding Notes to redemption or maturity; (ii) the
Company shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance or
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance or Covenant Defeasance had not occurred (in the case of
Legal Defeasance, such opinion must refer to and be based upon a published
ruling of the Internal Revenue Service or a change in applicable federal income
tax laws); (iii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as clause (vi) under the first
paragraph under " -- Events of Default and Remedies" is concerned, at any time
during the period ending on the 91st day after the date of deposit; (iv) such
Legal Defeasance or Covenant Defeasance shall not cause the Trustee to have a
conflicting interest under the Indenture or the Trust Indenture Act of 1939 with
respect to any securities of the Company; (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a default
under, any other material agreement or instrument to which the Company is a
party or by which it is bound; and (vi) the Company shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, which, taken
together, state that all conditions precedent under the Indenture to either
Legal Defeasance or Covenant Defeasance, as the case may be, have been complied
with. (Article Twelve)
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or
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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 premium, if any, on) 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)
GOVERNING LAW
The Indenture and the Exchange Notes will be governed and construed in
accordance with the laws of the State of New York. (Section 113)
THE TRUSTEE
American Stock Transfer & Trust Company is the Trustee under the
Indenture. The Trustee acts as Trustee in respect of the Company's Existing
Notes. The Trustee is the transfer agent and registrar for both the Common Stock
and the Series A Preferred Stock. The Indenture provides for the indemnification
of the Trustee by the Company under certain circumstances. (Section 607)
The Indenture (including the provisions of the Trust Indenture Act of 1939
incorporated by reference therein) will contain limitations on the rights of the
Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; PROVIDED, HOWEVER, if it acquires any
conflicting interest (as defined in the Trust Indenture Act of 1939) it must
eliminate such conflict or resign. (Sections 613 and 614)
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
(Section 101)
"Acquired Indebtedness" means Indebtedness for Money Borrowed of a Person
existing at the time such Person becomes a Restricted Subsidiary or assumed in
connection with the acquisition by the Company or a Restricted Subsidiary of
assets from such Person, and not incurred in connection with, or in anticipation
of, such Person becoming a Restricted Subsidiary or such acquisition. Acquired
Indebtedness shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person becomes a
Restricted Subsidiary.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of
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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.
"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
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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."
"Existing Indenture" means that certain Indenture dated as of November 27,
1996 between the Company and American Stock Transfer & Trust Company, as
Trustee, as the same may have been amended or supplemented from time to time
prior to the date hereof.
"Existing Notes" means the 10% Senior Subordinated Notes due December 15,
2001 issued pursuant to the Existing Indenture.
"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 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.
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"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 Exchange Notes including,
without limitation, 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:
(a) 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);
(b) 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;
(c) 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
(d) 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
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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 premium, if any,
on), and interest on and all other amounts due on or in connection with, (1) any
Indebtedness for Money Borrowed of the
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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.
"Specified Senior Indebtedness" means (a) all Senior Indebtedness of the
Company in respect of the Credit Facility and any renewals, amendments,
extensions, supplements, modifications, deferrals, refinancings, or replacements
(each, for purposes of this definition, a "refinancing") thereof by the Company,
including any successive refinancings thereof by the Company and (b) any other
Senior Indebtedness and any refinancings thereof by the Company having a
principal amount of at least $5 million as of the date of determination and
provided that the agreements, indentures or other instruments evidencing such
Senior Indebtedness or pursuant to which such Senior Indebtedness was issued
specifically designates such Senior Indebtedness as "Specified Senior
Indebtedness" for purposes of the Indenture. For purposes of this definition, a
refinancing of any Specified Senior Indebtedness shall be treated as Specified
Senior Indebtedness only if the Senior Indebtedness issued in such refinancing
ranks or would rank PARI PASSU with the Specified Senior Indebtedness refinanced
and only if the Senior Indebtedness issued in such refinancing is permitted by
the covenant described under "Certain Covenants -- Limitation of Indebtedness
for Money Borrowed."
"Stated Maturity" with respect to any Exchange 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 Exchange 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.
"Total Consolidated Assets" is defined in the indenture as the total
assets of the Company and its Restricted Subsidiaries on a consolidated basis as
of the date of the Company's most recent quarterly balance sheet prepared in
accordance with GAAP.
"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.
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"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 THE OUTSTANDING NOTES
The terms of the Outstanding Notes are identical in all material respects
to the Exchange Notes, except that the Outstanding Notes have not been
registered under the Securities Act, are subject to certain restrictions on
transfer and are entitled to certain registration rights under the Registration
Agreement (which rights terminate upon the consummation of the Exchange Offer,
except under limited circumstances). The Exchange Notes will not provide for any
increase in the interest rate thereon. In that regard, the Outstanding Notes
provide that if an (i) exchange offer registration statement or resale shelf
registration statement is not filed by October 1, 1997 or (ii) exchange offer
registration statement is not declared effective by November 15, 1997, Special
Interest will accrue and be payable quarterly until such time as an exchange
offer registration statement is filed or becomes effective, as the case may be.
In addition, (i) if an exchange offer is not consummated or a resale shelf
registration statement is not declared effective by December 31, 1997 or (ii) if
either the exchange offer registration statement or the resale shelf
registration statement has been declared effective and such registration
statement ceases to be effective or usable (subject to certain exceptions) in
connection with resale of Exchange Notes or Outstanding Notes during periods
specified in the Registration Agreement, Special Interest will accrue and be
payable quarterly until such time as an exchange offer is consummated or a
resale shelf registration statement is declared effective, as the case may be,
or until the exchange offer registration statement or resale registration
statement may again be used. Special Interest will accrue at a rate of 0.5% per
annum during the 90-day period immediately following the occurrence of any
failure to comply with the requirements set forth above and shall increase by
0.25% per annum at the end of each subsequent 90-day period, but in no event
shall such rate exceed 1.50% per annum. The Exchange Notes are not entitled to
any such Special Interest. In addition, the Outstanding Notes and the Exchange
Notes will constitute a single series of debt securities under the Indenture.
See "Description of the Exchange Notes."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States Federal income tax
consequences generally applicable to a holder that exchanges Outstanding Notes
for Exchange Notes in the Exchange Offer. This discussion is based on the
Internal Revenue Code of 1986, as amended to the date hereof (the "Code"),
existing and proposed Treasury regulations, and judicial and administrative
determinations, all of which are subject to change at any time, possibly on a
retroactive basis. It relates only to persons who hold their Outstanding Notes,
and will hold Exchange Notes exchanged therefor, as "capital assets" within the
meaning of Section 1221 of the Code. It does not discuss state, local or foreign
tax consequences, nor, except as otherwise noted, does it discuss tax
consequences to categories of holders that are subject to special rules, such as
foreign persons, tax-exempt organizations, insurance companies, banks and
dealers in stocks and securities. Tax consequences may vary depending on the
particular status of an investor. No rulings will be sought from the Internal
Revenue Service ("IRS") with respect to the Federal income tax consequences of
the Exchange Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO PARTICIPATE IN THE
EXCHANGE OFFER. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR CONCERNING
THE APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO ITS
PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE ITS OUTSTANDING
NOTES FOR EXCHANGE NOTES.
THE EXCHANGE OFFER
Under recently-issued Treasury regulations, the exchange of Outstanding
Notes for Exchange Notes pursuant to the Exchange Offer should not constitute a
significant modification of the terms of the Outstanding Notes and, accordingly,
such exchange should be treated as a "nonevent" for Federal income
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tax purposes. Therefore, such exchange should have no Federal income tax
consequences to holders of Outstanding Notes who participate in the exchange,
and each such holder would continue to be required to include interest on the
Exchange Notes in its gross income in accordance with its method of accounting
for Federal income tax purposes.
TREATMENT OF INTEREST
In general, interest on an Outstanding Note or Exchange Note will be
taxable to a beneficial owner who or which is (i) a citizen or resident of the
United States, (ii) a corporation created or organized under the laws of the
United States or any State thereof (including the District of Columbia) or (iii)
a person otherwise subject to United States Federal income taxation on its
worldwide income (a "U.S. Holder") as ordinary income at the time it is received
or accrued, depending on the U.S. Holder's method of accounting for tax
purposes.
Under the tax rules relating to original issue discount, holders of debt
instruments issued at a discount that exceeds a nominal amount may be required
to recognize taxable interest income prior to the receipt or accrual of stated
interest. The Outstanding Notes were treated by the Company as issued without
taxable original issue discount. In the case of a debt instrument issued that
provides for contingent payments, Treasury Regulations provide that such
payments will not be taken into account in computing original issue discount if
there is a remote likelihood that the payments will occur. Had the Company
failed to effect the Exchange Offer on a timely basis, special interest (the
"Special Interest") would have accrued on the Outstanding Notes. Because the
Company determined that, when the Outstanding Notes were issued, there was only
a remote possibility that events would occur which would cause the Special
Interest to accrue on the Outstanding Notes, the Company determined that the
Special Interest should not be taken into account in concluding that the
Outstanding Notes were issued without original issue discount. The IRS could
disagree with this determination. Each U.S. Holder should consult his own tax
advisor with respect to the possible accrual of original issue discount on the
Outstanding Notes.
OPTIONAL REDEMPTION OR REPURCHASE
The Outstanding Notes and the Exchange Notes are subject to (i) redemption
at the option of the Company, on or after September 15, 2000, at predetermined
redemption prices plus any accrued and unpaid interest, and (ii) repurchase at
the option of each Holder thereof upon the circumstances described under
"Description of the Exchange Notes -- Mandatory Redemption at the Option of
the Holders" at predetermined redemption prices plus any accrued and unpaid
interest. See "Description of the Exchange Notes." Upon the optional redemption
or repurchase of an Outstanding Note or an Exchange Note, it is expected that
the amount received by a Holder in excess of the Holder's adjusted tax basis in
the Outstanding Note or Exchange Note will be taxable as capital gain, if the
Outstanding Note or the Exchange Note is held as a capital asset (except to the
extent that such amount received is attributable to accrued but unpaid interest
or market discount, which will be treated as ordinary income).
PAYMENTS OF PRINCIPAL; DISPOSITIONS
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of an Outstanding Note or an Exchange Note, a U.S. Holder will
generally recognize taxable gain or loss equal to the difference between the sum
of cash plus the fair market value of all other property received on such
disposition (except to the extent such cash or property is attributable to
accrued but unpaid interest or market discount, which will be taxable as
ordinary income) and such U.S. Holder's adjusted tax basis in the Outstanding
Note or the Exchange Note. A U.S. Holder's adjusted tax basis in an Outstanding
Note or an Exchange Note generally will equal the cost of the Outstanding Note
or the Exchange Note to such U.S. Holder (increased for accrued original issue
discount, if any), less any principal payment received by such U.S. Holder. Gain
or loss realized by a U.S. Holder on the sale, redemption or other disposition
of an
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Outstanding Note or an Exchange Note generally will be long-term capital gain or
loss if, at the time of the disposition, the Outstanding Note or the Exchange
Note has been held for more than 18 months. Beginning after December 31, 2000,
special capital gain rates may apply if the Outstanding Note or Exchange Note
has been held for more than five years.
AMORTIZABLE BOND PREMIUM
If a U.S. Holder pays an amount (exclusive of accrued and unpaid interest
through the acquisition date) in excess of the Outstanding Note's or the
Exchange Note's stated redemption price at maturity at the time of its
acquisition ("Bond Premium"), the U.S. Holder will not be required to include
original issue discount, if any, in his income and may elect to amortize Bond
Premium. If Bond Premium is amortized, the amount of interest that must be
included in the U.S. Holder's income from each period ending on an interest
payment date or stated maturity, as the case may be, will be reduced by the
portion of the Bond Premium allocable to such period based on the Outstanding
Note's or the Exchange Note's yield to maturity and the U.S. Holder's adjusted
basis in the Outstanding Notes or the Exchange Notes will be reduced
accordingly. This election applies to all notes acquired by the U.S. Holder
during the year of election and thereafter.
MARKET DISCOUNT
A U.S. Holder, other than an initial holder, will be treated as holding an
Outstanding Note or an Exchange Note at a market discount (a "Market Discount
Note") if the amount for which such U.S. Holder purchased the Outstanding Note
or the Exchange Note is less than the Outstanding Note's or the Exchange Note's,
respectively, stated redemption price at maturity, or, in the case of an
Outstanding Note issued with original issue discount, the "revised issue price,"
as defined in Section 1278 of the Code, subject in both cases to a de minimis
rule. An initial holder of an Outstanding Note will be treated as holding a
Market Discount Note if the initial holder purchased such Outstanding Note for
less than its issue price.
In general, any partial payment of principal on, or gain recognized on the
maturity, optional redemption or repurchase, or disposition of, a Market
Discount Note will be treated as ordinary interest income to the extent of
accrued market discount on such Market Discount Note. Alternatively, a U.S.
Holder of a Market Discount Note may elect to include market discount in income
currently over the life of the Market Discount Note. Such an election applies to
all debt instruments with market discount acquired by the electing U.S. Holder
on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the IRS.
Market discount accrues on a straight-line basis, unless the U.S. Holder
elects to accrue such discount on a constant yield to maturity basis. Such an
election is applicable only to the Market Discount Note with respect to which it
is made and is irrevocable. A U.S. Holder of a Market Discount Note that does
not elect to include market discount in income currently generally will be
required to defer deductions for interest on borrowings allocable to such Market
Discount Note, in an amount not exceeding the accrued market discount on such
Market Discount Note, until the maturity or disposition of such Market Discount
Note. If such Market Discount Note is disposed of in a non-taxable transaction
(other than a nonrecognition transaction described in Section 1276(c) of the
Code) accrued market discount will be includable as ordinary income to the U.S.
Holder as if such U.S. Holder had sold the Market Discount Note at its then fair
market value.
BACKUP WITHHOLDING
Under the Code, a holder of an Outstanding Note or Exchange Note may be
subject, under certain circumstances, to "backup withholding" at a 31% rate with
respect to payments in respect of interest thereon or the gross proceeds from
the disposition thereof. This withholding generally applies only if the holder
(i) fails to furnish his or her social security or other taxpayer identification
number ("TIN") after request therefor, (ii) furnishes an incorrect TIN, (iii) is
notified by the IRS that he or she has failed to report properly payments of
interest and dividends and the IRS has notified the Company that he or she is
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subject to backup withholding, or (iv) fails, under certain circumstances, to
provide a certified statement, signed under penalty of perjury, that the TIN
provided is his or her correct number and that he or she is not subject to
backup withholding. Any amount withheld from a payment to a holder under the
backup withholding rules is allowable as a credit against such holder's Federal
income tax liability, provided that the required information is furnished to the
IRS. Corporations, Non-U.S. Holders and certain other entities described in the
Code and Treasury regulations are generally exempt from such withholding if
their exempt status is properly established.
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 June 30, 1997, 5,996,171 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 Company's Form
10-K for fiscal year ended December 31, 1995.
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
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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.
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.
See "-- Convertible Debentures," below.
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 Company may, at its option, exchange its Convertible Debentures for
its Series A Preferred Stock. If issued, 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 Company's Form 10-K for
fiscal year 1996. 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
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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 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 of $30
million which is adjusted periodically on the basis of a discounted present
value attributable to the Company's proven producing oil and gas reserves.
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 June 30, 1997
was 6.70%. Under the Credit Facility, a commitment fee of .25% or .375% per
annum on the unused portion of the Borrowing Base (depending upon the percentage
of the unused portion of the Borrowing Base) is payable quarterly. The Company
may borrow, pay, reborrow and repay under the Credit Facility until October 31,
2000, on which date the Company must repay in full all amounts then outstanding.
Borrowings under the Credit Facility are guaranteed by certain of the
Company's subsidiaries. The Credit Facility has certain customary covenants
including, but not limited to, covenants with respect to the following matters:
(i) limitation on restricted payments, distributions and investments; (ii)
limitations on guarantees and indebtedness; (iii) limitation on prepayments of
subordinated indebtedness; (iv) limitation on prepayments of additional
indebtedness; (v) limitation on mergers and issuances of securities; (vi)
limitation on sales of property; (vii) limitation on transactions with
affiliates; (viii) limitation on
101
<PAGE>
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.
EXISTING NOTES
On November 24, 1996, the Company sold $24,150,000 aggregate principal
amount of 10% Senior Subordinated Notes due December 15, 2001 (the "Existing
Notes"). The following description of the Existing Notes is qualified in its
entirety by reference to the indenture for the Existing Notes ("Existing
Indenture"), a form of which is available upon request of the Company.
Capitalized terms have the meanings assigned to them in the Existing Indenture.
Payments of principal, interest and premium, if any, under the Existing
Notes are subordinate to all existing and future Senior Indebtedness of the
Company and PARI PASSU with the Notes.
The Existing Notes are not entitled to the benefit of mandatory sinking
fund payments. The Existing Notes are subject to redemption at any time on or
after December 15, 1997, at the option of the Company, at par plus accrued and
unpaid interest to the date fixed for redemption.
The Existing Notes contain covenants substantially identical to the Notes.
See "Description of the Exchange Notes - Certain Covenants."
PLAN OF DISTRIBUTION
Based on interpretations of the staff of the Division of Corporation
Finance of the Commission set forth in no- action letters issued to third
parties, the Company believes that, except as described below, Exchange Notes
issued pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by respective holders thereof (other than a holder who is
a broker-dealer) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that (i) such Exchange
Notes are acquired in the ordinary course of such holder's business and (ii)
such holder is not participating, and has no arrangement or understanding with
any person to participate in a distribution of the Exchange Notes. A holder of
Outstanding Notes that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act or who intends to participate in the Exchange
Offer for the purpose of distributing Exchange Notes, or that is a broker-dealer
that purchased Outstanding Notes from the Company to resell pursuant to an
exemption from registration (a) cannot rely on such interpretations by the staff
of the Division of Corporation Finance of the Commission, (b) will not be
permitted or entitled to tender such Outstanding Notes in the Exchange Offer and
(c) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer of such Outstanding
Notes. Any holder who tenders Outstanding Notes in the Exchange Offer with the
intention or for the purpose of participating in a distribution of the Exchange
Notes cannot rely on such interpretation by the staff of the Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Unless an
exemption from registration is otherwise available, any such resale transaction
should be covered by an effective registration statement containing selling
security holders information required by Item 507 of Regulation S-K under the
Securities Act. To date, the staff of the Commission has taken the position that
a broker-dealer that has acquired securities in exchange for securities that
were acquired by such broker-dealer as a result of market making activities or
other trading activities (a "Participating Broker-Dealer") may fulfill its
prospectus delivery requirements with the prospectus contained in an exchange
offer registration statement.
102
<PAGE>
Each holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company set forth in "The Exchange Offer -- Procedures
for Tendering."
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Outstanding Notes where
such Outstanding Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that, starting on the
Expiration Date and ending on the close of business on the forty-fifth day after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit from any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus meeting the requirements of the Securities Act, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of forty-five days after the Expiration Date, the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to indemnify the holders of
the Outstanding Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon by Butler & Binion,
L.L.P., Houston, Texas.
103
<PAGE>
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996,
and for each of the three years in the period ended December 31, 1996, included
in this Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said reports.
The statement of revenues an direct operating expenses of the working
interest in Mobile Area Block 864 Unit acquired by Callon Petroleum Operating
Company for the year ended December 31, 1996 included in this Prospectus has
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of said firm as experts in accounting and
auditing.
The information appearing in this Prospectus regarding quantities of
reserves of oil and gas and that 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.
104
<PAGE>
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).
105
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
CALLON PETROLEUM COMPANY (HISTORICAL):
Report of Independent Public Accountants.......................... F-2
Consolidated Balance Sheets as of June 30, 1997 and
December 31, 1996 and 1995........................................ F-3
Consolidated Statements of Operations for the Six Months Ended
June 30, 1997 and 1996 and for the Years Ended December 31, 1996,
1995 and 1994..................................................... F-4
Consolidated Statements of Stockholders' Equity for the
Six Months Ended June 30, 1997 and for the Years Ended
December 31, 1996, 1995 and 1994.................................. F-5
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1997 and 1996 and for the Years Ended December 31, 1996,
1995 and 1994..................................................... F-6
Notes to Consolidated Financial Statements........................ F-7
CALLON PETROLEUM COMPANY (PRO FORMA):
Introduction...................................................... F-21
Pro Forma Consolidated Financial Statements....................... F-22
Notes to Pro Forma Consolidated Financial Statements.............. F-24
MAB 864 ACQUISITION
Report of Independent Public Auditors............................. F-25
Statement of Revenues and Direct Operating Expenses
for the year ended December 31, 1996.............................. F-26
Notes to Statement of Revenues and Direct Operating
Expenses.......................................................... F-27
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,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
February 19, 1997
F-2
<PAGE>
CALLON PETROLEUM COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------------
1997 1996 1995
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................ $ 8,940 $ 7,669 $ 4,265
Accounts receivable .............................................. 9,641 12,661 8,329
Other current assets ............................................. 712 516 238
--------- --------- ---------
Total current assets .......................................... 19,293 20,846 12,832
--------- --------- ---------
Oil and gas properties, full cost accounting method:
Evaluated properties ............................................. 351,633 322,970 304,737
Less accumulated depreciation, depletion and amortization ........ (274,143) (266,716) (257,143)
--------- --------- ---------
77,490 56,254 47,594
Unevaluated properties excluded from amortization ................ 30,763 26,235 10,171
--------- --------- ---------
Total oil and gas properties .................................. 108,253 82,489 57,765
--------- --------- ---------
Pipeline and other facilities, net .................................. 6,463 6,618 5,371
Other property and equipment, net ................................... 1,883 1,594 1,633
Deferred tax asset .................................................. 3,101 5,412 5,462
Long-term gas balancing receivable .................................. 496 660 619
Other assets, net ................................................... 852 901 185
--------- --------- ---------
Total assets .................................................. $ 140,341 $ 118,520 $ 83,867
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ......................... $ 8,060 $ 8,273 $ 3,131
Undistributed oil and gas revenues ............................... 2,827 2,260 2,153
Accrued net profits interest payable (Note 9) .................... 3,929 5,435 2,836
--------- --------- ---------
Total current liabilities ..................................... 14,816 15,968 8,120
--------- --------- ---------
Long-term debt ...................................................... 42,750 24,250 100
Deferred income ..................................................... 170 48 86
Long-term gas balancing payable ..................................... 551 390 432
--------- --------- ---------
Total liabilities ............................................. 58,287 40,656 8,738
--------- --------- ---------
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 13
Common Stock, $0.01 par value; 20,000,000 shares authorized;
5,996,171 at June 30, 1997 and 5,758,667 and 5,754,529
shares outstanding at December 31, 1996 and 1995,
respectively .................................................. 60 58 58
Unearned compensation - restricted stock ......................... (2,181) -- --
Capital in excess of par value ................................... 76,903 74,027 73,955
Retained earnings ................................................ 7,259 3,766 1,103
--------- --------- ---------
Total stockholders' equity .................................... 82,054 77,864 75,129
--------- --------- ---------
Total liabilities and stockholders' equity .................... $ 140,341 $ 118,520 $ 83,867
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CALLON PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- ----------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- --------
(UNAUDITED)
Revenues:
Oil and gas sales ....... $20,844 $12,249 $25,764 $23,210 $ 13,948
Interest and other ...... 695 278 946 627 171
------- ------- ------- ------- --------
Total revenues ....... 21,539 12,527 26,710 23,837 14,119
------- ------- ------- ------- --------
Costs and expenses:
Lease operating expenses 4,164 3,686 7,562 6,732 4,042
Depreciation, depletion
and amortization ...... 7,581 4,844 9,832 10,376 6,049
General and
administrative ........ 2,382 1,707 3,495 3,880 3,717
Interest ................ 210 48 313 1,794 624
------- ------- ------- ------- --------
Total costs and
expenses ........... 14,337 10,285 21,202 22,782 14,432
------- ------- ------- ------- --------
Income (loss) from
operations .............. 7,202 2,242 5,508 1,055 (313)
Income tax expense
(benefit) ............. 2,311 -- 50 -- (200)
------- ------- ------- ------- --------
Net income (loss) .......... 4,891 2,242 5,458 1,055 (113)
Preferred stock dividends .. 1,398 1,398 2,795 256 --
------- ------- ------- ------- --------
Net income (loss) available
to common shares ......... $ 3,493 $ 844 $ 2,663 $ 799 $ (113)
======= ======= ======= ======= ========
Net income (loss) per
common share:
Primary ................. $ 0.55 $ 0.15 $ 0.45 $ 0.14 $ (0.03)
======= ======= ======= ======= ========
Assuming full dilution .. $ 0.52 $ 0.15 $ 0.43 $ 0.14 $ (0.03)
======= ======= ======= ======= ========
Shares used in computing
net income (loss) per
common share:
Primary ................. 6,307 5,755 5,952 5,755 4,346
======= ======= ======= ======= ========
Assuming full dilution .. 9,318 5,755 6,135 5,755 4,346
======= ======= ======= ======= ========
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>
UNEARNED
COMPENSATION- CAPITAL IN
CAPITAL PREFERRED COMMON RESTRICTED EXCESS OF RETAINED
ACCOUNTS STOCK STOCK STOCK PAR VALUE EARNINGS
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
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 .............................................. -- -- -- -- -- 5,458
Preferred stock dividends ............................... -- -- -- -- -- (2,795)
Shares issued pursuant to
employee benefit plan ................................. -- -- -- -- 72 --
-------- -------- -------- -------- -------- --------
Balances, December 31, 1996 ............................. -- 13 58 -- 74,027 3,766
Net income (Unaudited) .................................. -- -- -- -- -- 4,891
Preferred stock dividends (Unaudited) ................... -- -- -- -- -- (1,398)
Shares issued pursuant to employee
benefit plan (Unaudited) .............................. -- -- -- -- 178 --
Restricted stock issued to officers (Unaudited) ......... -- -- 2 (2,700) 2,698 --
Unearned compensation -
restricted stock -
(Unaudited) .......................................... -- -- -- 519 -- --
-------- -------- -------- -------- -------- --------
Balances, June 30, 1997
(Unaudited) .......................................... $ -- $ 13 $ 60 $ (2,181) $ 76,903 $ 7,259
======== ======== ======== ======== ======== ========
</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,
--------------------- -----------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................. $ 4,891 $ 2,242 $ 5,458 $ 1,055 $ (113)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation, depletion and amortization ....................... 7,791 4,982 10,131 10,600 6,328
Amortization of deferred costs ................................. 188 65 114 133 88
Deferred income tax expense (benefit) .......................... 2,311 -- 50 -- (200)
-------- -------- -------- -------- --------
15,181 7,289 15,753 11,788 6,103
Changes in current assets and liabilities:
Accounts receivable .......................................... 3,020 330 (4,332) 566 565
Other current assets ......................................... (196) 123 (278) (217) (8)
Accounts payable ............................................. (1,152) 3,029 4,049 (2,570) (1,242)
Change in gas balancing receivable ............................. 164 84 (41) 115 (148)
Change in gas balancing payable ................................ 161 (37) (42) (127) 210
Change in deferred income ...................................... 122 (22) (28) (42) (43)
Change in other assets, net .................................... (138) (45) (830) (61) (90)
-------- -------- -------- -------- --------
Cash provided by operating activities .......................... 17,162 10,751 14,251 9,452 5,347
-------- -------- -------- -------- --------
Cash flows from investing
activities:
Capital expenditures ............................................ (36,214) (9,166) (34,291) (24,323) (10,420)
Equity issued to purchase CN cash (Note 4) ...................... -- -- -- -- 3,989
Cash proceeds from sale of mineral interests .................... 2,524 299 1,574 86 8
-------- -------- -------- -------- --------
Cash used in investing activities ............................... (33,690) (8,867) (32,717) (24,237) (6,423)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Increase in debt ................................................ 18,500 -- -- -- --
Unearned restricted stock compensation .......................... 519 -- -- -- --
Equity issued by conversion of stock options .................... 30 -- -- -- --
Payments on debt ................................................ -- -- (25,850) (25,134) (20,627)
Proceeds from debt issuance ..................................... -- -- 50,000 6,000 25,734
Dividends/distributions paid .................................... -- -- -- -- (1,191)
Sale of preferred stock ......................................... -- -- -- 30,899 --
Common stock issued pursuant to employee benefit plan ........... 148 -- 72 -- --
Increase in accrued preferred stock dividends payable ........... -- 443 443 256 --
Dividends on preferred stock .................................... (1,398) (1,398) (2,795) (256) --
-------- -------- -------- -------- --------
Cash provided by (used in) financing activities ................. 17,799 (955) 21,870 11,765 3,916
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents .............. 1,271 929 3,404 (3,020) 2,840
Cash and cash equivalents:
Balance, beginning of period .................................... 7,669 4,265 4,265 7,285 4,445
-------- -------- -------- -------- --------
Balance, end of period .......................................... $ 8,940 $ 5,194 $ 7,669 $ 4,265 $ 7,285
======== ======== ======== ======== ========
</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, 1997 AND 1996 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
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 partner 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 PRESENTATION
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
F-7
<PAGE>
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. and Callon Exploration Company.
All intercompany accounts and transactions have been eliminated. Certain prior
year amounts have been reclassified to conform to presentation in the current
year.
USE OF ESTIMATES
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".
FAS 121 was adopted by the Company on January 1, 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 will continue to account
for its stock-based compensation plans under APB Opinion No. 25. See Note 10.
In June 1997, the Financial Accounting Standard Board issued Statement No. 130
("FAS 130"), "Reporting Comprehensive Income". FAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. FAS 130 is effective for fiscal years
ending after December 15, 1997. The Company intends to comply with the
provisions of FAS 130.
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,
interest capitalized on unevaluated leases 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
F-8
<PAGE>
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 or discovery. Such costs are
capitalized as oil and gas properties as the actual restoration, dismantlement
and abandonment activities take place. As of June 30, 1997, December 31, 1996
and 1995, 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 twenty years. Depreciation of the
pipeline facilities is provided using the straight-line method over a 27 year
estimated life.
NATURAL GAS IMBALANCES
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 $374,000, $393,000 and $481,000 at June 30, 1997, December 31, 1996 and 1995
respectively. Net charge offs were $88,000 and $181,000 in 1996 and 1994 and net
recoveries were $2,000 in 1995. There were no provisions to expense in the three
year period ended December 31, 1996 or the six months ended June 30, 1997. Net
charge offs were $2,000 and $88,000 for the six months ended June 30, 1997 and
1996, respectively.
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,
1996. During the years ended December 31, 1996, 1995 and 1994, the Company made
cash payments of $250,807, $1,910,000 and $377,000, respectively, for interest
charged on its indebtedness, and $1,337,000 for the six months ended June 30,
1997.
F-9
<PAGE>
PER SHARE AMOUNTS
Per share amounts are calculated on a weighted average basis in accordance with
the common shares issued in the Consolidation described in Note 1, adjusted for
the effect of stock options considered common stock equivalents computed using
the treasury stock method.
Fully diluted earnings per share for the six months ended June 30, 1997 was
calculated assuming the conversion of the Company's preferred stock into common
stock. The preferred stock was not included in prior calculations due to their
antidilutive effect on fully diluted earnings per share.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128 ("FAS 128"), "Earnings Per Share", which simplifies the computation of
earnings per share. FAS 128 is effective for financial statements issued for
periods ending after December 15, 1997 and requires restatement for all prior
period earnings per share data presented. Accordingly, basic earnings per share
and diluted earnings per share calculated in accordance with FAS 128 were $0.58
and $0.52 per share, respectively, for the first six months of 1997 and $0.15
and $0.15 per share, respectively, for the first six months of 1996.
Also in early 1997, the Financial Accounting Standards Board issued Statement
No. 129 ("FAS 129"). "Disclosure of Information about Capital Structure"
effective for financial statements issued for periods ending after December 15,
1997. The Company believes it is in compliance with the provisions of this
statement.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value of cash, cash equivalents, accounts receivable, accounts payable and
long-term debt approximate book value at June 30, 1997 and December 31, 1996.
Fair value of long-term debt (specifically the 10% senior subordinated notes) is
based on quoted market value.
3. INCOME TAXES
The Company follows the asset and liability method of accounting for deferred
income taxes prescribed by 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. Accordingly, the Company has
recorded a deferred tax asset at December 31, 1996, 1995 and 1994 as follows:
DECEMBER 31,
-------------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
Federal net operating loss carryforward .... $ 3,441 $ 3,563 $ 2,072
Statutory depletion carryforward ........... 4,089 3,987 4,085
Temporary differences:
Oil and gas properties .................. (680) 874 2,817
Pipeline and other facilities ........... (2,316) (1,880) (1,953)
Non-oil and gas property ................ (20) 23 28
Other ................................... 898 655 724
------- ------- -------
Total tax asset ............................ 5,412 7,222 7,773
Valuation allowance ........................ -- (1,760) (2,311)
------- ------- -------
Net tax asset .............................. $ 5,412 $ 5,462 $ 5,462
======= ======= =======
F-10
<PAGE>
At December 31, 1996, the Company had, for tax reporting purposes, operating
loss carryforwards ("NOL") of $9.8 million which expire in 2000 through 2011.
Approximately $4.7 million of 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 $11.7 million in statutory depletion deductions which can be carried
forward for an indefinite period.
The provision for income taxes at the Company's effective tax rate differed from
the provision for income taxes at the statutory rate as follows:
DECEMBER 31,
-----------------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
Computed expense (benefit) at the expected
statutory rate ................................ $ 1,910 $ 369 $ (110)
Change in valuation allowance ................. (1,760) (551) (94)
Other ......................................... (100) 182 4
------- ------- -------
Income tax expense (benefit) .................. $ 50 $ -- $ (200)
======= ======= =======
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 and 1994 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 the CB 40 Acquisition presented as if it had occurred
at the beginning of 1995 and 1994.
PRO FORMA (UNAUDITED)
1995 1994
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Total revenues..................................... $ 25,207 $ 29,132
Net income before cumulative effect of change in
accounting principle............................. $ 804 $ 3,703
Net income per common share........................ $ 0.14 $ 0.64
Weighted average shares outstanding................ 5,755 5,755
F-11
<PAGE>
Pro forma 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 an industry partner, was the high bidder on 12
offshore tracts at the Outer Continental Shelf ("OCS") Lease Sale #157, held
April 24, 1996 in New Orleans, Louisiana, and conducted by the U. S. Department
of the Interior through its Minerals Management Service ("MMS"). The Company
holds a 25% working interest in the leases and its share of the total lease
costs was approximately $11.4 million.
On September 25, 1996, the Company and the same industry partner submitted bids
and were awarded six additional offshore leases at the OCS Lease Sale #161, held
in New Orleans, Louisiana by the MMS. The Company's share of the costs was $3.8
million.
The Company owns a 25% working interest in the leases.
On June 26, 1997 the Company purchased an 18.8% working interest in Mobile Area
Blocks 863 and 907 and a 35% working interest in Mobile Area Block 908 from Elf
Exploration, Inc. The Company's net purchase price of approximately $11.8
million was funded from the Company's credit facility.
5. LONG-TERM DEBT
Long-term Debt consisted of the following at:
DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
------- ------- -------
(UNAUDITED)
(IN THOUSANDS)
Credit Facility ......................... $18,600 $ 100 $ 100
10% Senior Subordinated Notes ........... 24,150 24,150 --
Less current portion ............... -- -- --
------- ------- -------
$42,750 $24,250 $ 100
======= ======= =======
Effective October 31, 1996, the Company entered into a new Credit Facility with
Chase Manhattan Bank. 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 or a $30 million borrowing base ("Borrowing Base") which
is adjusted 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. 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 June 30, 1997 and December 31, 1996 was 6.70% and 8.25%,
respectively. Under the Credit Facility, a commitment fee of .25% or .375% per
annum on the unused portion of the Borrowing Base (depending upon the percentage
of the unused portion of the Borrowing Base) is payable quarterly. The Company
may borrow, pay, reborrow and repay under the Credit Facility until October 31,
2000, on which date, the Company must repay in full all amounts then
outstanding.
On November 27, 1996, the Company issued $24,150,000 of 10% Senior Subordinated
Notes that will mature December 15, 2001. The Company used the proceeds to
reduce borrowings under the Credit Facility and for other corporate purposes.
Interest is payable quarterly beginning March 15, 1997. The notes are redeemable
at the option of the Company, in whole or in part, on or after December 15,
1997, at
F-12
<PAGE>
100% of the principal amount thereof, plus accrued interest to the redemption
date. The notes are general unsecured obligations of the Company, subordinated
in right of payment to all existing and future indebtedness of the Company.
On July 31, 1997 the Company issued $36,000,000 of 10.125% Senior Subordinated
Notes due 2002. Interest is payable quarterly beginning September 15, 1997. The
Senior Subordinated Notes were offered pursuant to a Rule 144A transaction or an
applicable exemption from registration requirements. The net proceeds to the
Company, after costs of the transaction, were used to repay the outstanding
balance on Callon's Credit Facility and will fund a portion of the remaining
capital expenditure budget.
The Credit Facility and the subordinated debt contain various covenants
including restrictions on additional indebtedness and payment of cash dividends
as well as maintenance of certain financial ratios. This Company is in
compliance with these covenants at June 30, 1997.
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. The Company had no
open forward sales position related to this type of contract as of December 31,
1996 and June 30, 1997.
As of June 30, 1997, the Company entered into an agreement with third parties
whereby the Company purchased a put option guaranteeing the Company $1.80 per
MMBtu for gas volumes of 500,000 MMBtu per month from May 1997 through September
1997. Also, at June 30, 1997 the Company had outstanding a call option for
250,000 Mcf per month from December 1997 through February 1998 at $3.00 per Mcf.
As of December 31, 1996, the Company has open collar contracts with third
parties whereby minimum floor prices and maximum ceiling prices are contracted
and applied to related contract volumes. These agreements in effect for 1997 are
for average oil volumes of 15,000 barrels per month at (on average) a ceiling
price of $23.33 and floor of $18.00 and for average gas volumes of 583,000 Mcf
per month in the first quarter of 1997 at (on average) a ceiling price of $3.36
and floor of $2.88. As of June 30, 1997, oil contracts averaged volumes of
10,000 barrels per month at (on average) a ceiling of $24.00 and a floor of
$18.00 through 1997. Gas contracts included gas volumes of 34,444 Mcf per month
at (on average) a ceiling price of $2.66 and a floor of $2.00 through March
1998.
During 1994, the Company recognized revenue under swap agreements of $1,227,000
and $1,724,000 on Historical and Pro forma basis respectively, and $2,466,000
for the twelve months ended December 31, 1995. The Company recognized a
reduction in revenue of $2,757,195 for the year ended December 31, 1996 under
all contracts. During the first six months of 1997, the Company recognized an
increase in revenues of $451,675 for all contracts.
The calculation of the fair market value of the outstanding contracts as of
December 31, 1996 indicates a $308,400 market value benefit to the Company based
on market prices at that date. As of June 30, 1997 the calculation of the fair
market value of the outstanding contracts indicates a $60,169 market value
benefit to the Company based on market prices at that date.
7. COMMITMENTS AND CONTINGENCIES
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, 1996, total estimated site
restoration, dismantlement and abandonment
F-13
<PAGE>
costs were approximately $23,000,000, 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.
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.
8. OIL AND GAS PROPERTIES
The following table discloses certain financial data relating to the Company's
oil and gas activities, all of which are located in the United States.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------
1997 1996 1995 1994
--------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Capitalized costs incurred:
Evaluated Properties-
Beginning of period balance . $ 322,970 $ 304,737 $ 285,976 $ 260,971
Property acquisition costs .. 13,743 2,999 14,017 23,037
Exploration costs ........... 11,598 8,732 785 798
Development costs ........... 5,846 8,076 4,045 1,178
Sale of mineral interest .... (2,524) (1,574) (86) (8)
--------- --------- --------- ---------
End of period balance ....... $ 351,633 $ 322,970 $ 304,737 $ 285,976
========= ========= ========= =========
Unevaluated Properties-
Beginning of period balance . $ 26,235 $ 10,171 $ 4,919 $ 955
Additions, net of transfers
to evaluated .............. 3,679 15,714 5,252 3,964
Capitalized interest ........ 849 350 -- --
--------- --------- --------- ---------
End of period balance ....... $ 30,763 $ 26,235 $ 10,171 $ 4,919
========= ========= ========= =========
Accumulated depreciation,
depletion and amortization-
Beginning of period balance . $ 266,716 $ 257,143 $ 246,975 $ 240,926
Provision charged to expense 7,427 9,573 10,168 6,049
--------- --------- --------- ---------
End of period balance ....... $ 274,143 $ 266,716 $ 257,143 $ 246,975
========= ========= ========= =========
</TABLE>
Depreciation, depletion and amortization per unit-of-production (equivalent
barrel of oil) amounted to $5.87, $5.95, and $5.80 for the years ended December
31, 1996, 1995 and 1994, respectively, and $5.66 and $6.02 for the six months
ended June 30, 1997 and 1996, 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)
F-14
<PAGE>
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 June 30,
1997, December 31, 1996 and 1995 the Trusts' assets (all cash and investments)
totaled $18,200,000, $18,200,000 and $16,100,000, 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.
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 were
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
owners' 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
June 30, 1997, December 31, 1996 and 1995 the amounts payable to the NPI owners
included in the accounts payable in the accompanying Consolidated Balance Sheets
were approximately $3,900,000, $5,400,000 and $2,800,000, respectively.
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:
- - 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 with cash and Company
Common Stock. The Company may also elect, at its discretion, to contribute a
non-matching amount in cash and Company Common Stock 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, including the
value of the
F-15
<PAGE>
common stock contributed, were $241,000, $176,000 and $154,000 in the years
1996, 1995 and 1994, respectively.
- - The 1994 Stock Incentive Plan (the "1994 Plan") provides for 600,000
shares of Common Stock to be reserved for issuance pursuant to such plan. Under
the 1994 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. A total of 500,000 options are outstanding and all such options could be
exercised as of December 31, 1996. These options have an expiration date 10
years from date of grant.
- - On August 23, 1996, the Board of Directors of the Company approved and
adopted the Callon Petroleum Company 1996 Stock Incentive Plan (the "1996
Plan"). The 1996 Plan provides for the same types of awards as the 1994 Plan and
is limited to a maximum of 900,000 shares of common stock that may be subject to
outstanding awards. The Company granted stock options to purchase an aggregate
530,000 shares of Common Stock under the plan, subject to stockholder approval
of the 1996 Plan. All of such options were granted at an exercise price of $12
per share, the fair market value of the Common Stock on the date of grant. Terms
of the plan for 450,000 options provide that 20% of the options become
exercisable on January 1 of each succeeding year, beginning January 1, 1997.
Non-employee director options aggregating 80,000 shares vest 25% at each
succeeding annual meeting of directors following each annual stockholders'
meeting, beginning in 1997. Unvested options are subject to forfeiture upon
certain termination of employment events and expire 10 years from date of grant.
The Company accounts for the options issued pursuant to the stock incentive
plans under APB Opinion No. 25, under which no compensation cost has been
recognized (see Note 2). Had compensation cost for these plans been determined
consistent with FAS 123, the Company's net income and earnings per common share
would have been reduced to the following pro forma amounts:
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
--------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income (loss):
As Reported........................... $ 2,663 $ 799 $ (113)
Pro Forma............................. 2,411 677 (113)
Primary per share:
As Reported........................... 0.45 0.14 (0.03)
Pro Forma............................. 0.41 0.12 (0.03)
Fully diluted per share:
As Reported........................... 0.43 0.14 (0.03)
Pro Forma............................. 0.39 0.12 (0.03)
Because the Statement 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
A summary of the status of the Company's two stock option plans at December 31,
1996, 1995 and 1994 and changes during the years then ended is presented in the
table and narrative below:
F-16
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- ------------------- ------------------
WTD AVG WTD AVG WTD AVG
SHARES EX PRICE SHARES EX PRICE SHARES EX PRICE
---------- ------ ---------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year ............... 490,000 $10.01 460,000 $10.00 -- $ --
Granted .............. 550,000 12.06 30,000 10.08 460,000 10.00
Exercised ............ -- -- -- -- -- --
Forfeited ............ (10,000) 10.00 -- -- -- --
Expired .............. -- -- -- -- -- --
---------- ------ ---------- ------ -------- ------
Outstanding, end
of year ............... 1,030,000 $11.10 490,000 $10.01 460,000 $10.00
========== ====== ========== ====== ======== ======
Exercisable, end
of year ............... 500,000 $10.16 490,000 $10.01 -- $ --
========== ====== ========== ====== ======== ======
Weighted average fair
value of options granted $ 4.96 $ 4.05 $ 4.53
========== ========== ========
</TABLE>
The options outstanding at December 31, 1996 have exercise prices ranging from
$9.75 to $13.75 with a remaining weighted average contractual life of 5.98
years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for options granted during 1996, 1995 and 1994.
WEIGHTED AVERAGE ASSUMPTIONS
DECEMBER 31,
-----------------------------------
1996 1995 1994
------ ------ ------
Risk-free interest rate .............. 6.5% 6.6% 6.0%
Expected life (years) ................ 4.9 5.0 5.0
Expected volatility .................. 34.7% 32.0% 41.3%
Expected dividends ................... -- -- --
The Company also awarded 225,000 performance shares under the 1996 Plan to the
Company's Executive officers on August 23, 1996. All of the performance shares
granted will vest in whole on January 1, 2001, and will be subject to forfeiture
upon certain termination of employment events. Approximately $208,000 of
compensation cost was charged to expense in 1996 related to the performance
shares granted.
The Company has no other formal benefit plans.
11. PREFERRED STOCK
In November 1995, the Company sold 1,315,500 shares of $2.125 Convertible
Exchangeable Preferred Stock, Series A (the "Preferred Stock"). Annual dividends
are $2.125 per share and are cumulative. The net proceeds of the $.01 par value
stock after underwriters discount and expense was $30,899,000. Each share has a
liquidation preference of $25.00, plus accrued and unpaid dividends. Dividends
on the Preferred Stock are cumulative from the date of issuance and are payable
quarterly, commencing January 15, 1996. The Preferred Stock is convertible at
any time, at the option of the holders thereof, unless previously redeemed, into
shares of Common Stock of the Company at an initial conversion price of $11 per
share of Common Stock, subject to adjustments under certain conditions.
The Preferred Stock is redeemable at any time on or after December 31, 1998, in
whole or in part at the option of the Company at a redemption price of $26.488
per share beginning at December 31, 1998 and at premiums declining to the $25.00
liquidation preference by the year 2005 and thereafter, plus accrued and
F-17
<PAGE>
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, 1996, 1995 and 1994
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.
ESTIMATED RESERVES
Changes in the estimated net quantities of crude oil and natural gas reserves,
all of which are located onshore and offshore in the continental United States,
are as follows:
RESERVE QUANTITIES
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
------- ------- -------
Proved developed and undeveloped reserves:
Crude Oil (MBbls):
Beginning of period ................ 4,766 4,424 2,842
Revisions to previous estimates .... (50) (441) (303)
Purchase of reserves in place ...... -- 1,363 2,245
Sales of reserves in place ......... (312) (2) (3)
Extensions and discoveries ......... -- 16 7
Production ......................... (585) (594) (364)
------- ------- -------
End of period ...................... 3,819 4,766 4,424
======= ======= =======
Natural Gas (MMcf):
Beginning of period ................ 29,667 24,102 14,167
Revisions to previous estimates .... (1,688) (976) (2,793)
Purchase of reserves in place ...... 7,391 12,985 16,757
Sales of reserves in place ......... (228) (22) (39)
Extensions and discoveries ......... 21,551 271 85
Production ......................... (6,269) (6,693) (4,075)
------- ------- -------
End of period ...................... 50,424 29,667 24,102
======= ======= =======
F-18
<PAGE>
Proved developed reserves:
Crude Oil (MBbls):
Beginning of period................. 3,890 3,309 2,084
======= ======= =======
End of period....................... 3,385 3,890 3,309
======= ======= =======
Natural Gas (MMcf):
Beginning of period................. 20,408 20,582 11,366
======= ======= =======
End of period....................... 49,491 20,408 20,582
======= ======= =======
STANDARDIZED MEASURE
The following tables present the Company's standardized measure of discounted
future net cash flows and changes therein relating to proved oil and gas
reserves and were 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. In 1995 and 1994, no future income taxes were provided on the future
net inflows as tax credits (including carryovers) and other permanent
differences were 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.
STANDARDIZED MEASURE
DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
Future cash inflows ..................... $ 285,727 $ 157,240 $ 115,659
Future costs -
Production ........................... (59,584) (50,236) (43,579)
Development and net abandonment ...... (9,989) (11,274) (12,603)
--------- --------- ---------
Future net inflows before income taxes .. 216,154 95,730 59,477
Future income taxes ..................... (49,438) -- --
--------- --------- ---------
Future net cash flows ................... 166,716 95,730 59,477
10% discount factor ..................... (36,547) (31,966) (18,094)
--------- --------- ---------
Standardized measure of discounted
future net cash flows ................ $ 130,169 $ 63,764 $ 41,383
========= ========= =========
F-19
<PAGE>
CHANGES IN STANDARDIZED MEASURE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Standardized measure - beginning of period...... $ 63,764 $ 41,383 $ 22,554
Sales and transfers, net of production costs .... (18,202) (12,477) (9,815)
Net change in sales and transfer prices, net of
production costs ................................ 32,268 11,519 1,368
Exchange and sale of in place of reserves ....... (877) (23) (48)
Purchases, extensions, discoveries, and improved
recovery, net of future production and
development costs .............................. 79,983 28,204 26,376
Revisions of quantity estimates ................. (3,907) (4,242) (6,297)
Accretions of discount .......................... 6,376 2,963 1,488
Net change in income taxes ...................... (30,000) -- --
Changes in production rates, timing and other ... 764 (3,563) 5,757
-------- -------- --------
Standardized measure - end of period............ $130,169 $ 63,764 $ 41,383
======== ======== ========
</TABLE>
F-20
<PAGE>
CALLON PETROLEUM COMPANY
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTION
The following unaudited pro forma financial statements present the results
of operations of Callon Petroleum Company (the "Company"). Such unaudited pro
forma information is based on the historical results of operations of Callon
Petroleum Company after giving effect to the acquisition described below.
On June 26, 1997, Callon Petroleum Operating Company, a wholly owned
subsidiary of the Company, purchased an 18.8% working interest in the Mobile
Area Block 864 Unit from Elf Exploration, Inc. The Company's net purchase price
of $11.8 million was funded from the credit facility of the Company.
See Note 1 in the Notes to Unaudited Pro Forma Consolidated Financial
Statements for the basis of presentation of the above described event.
F-21
<PAGE>
CALLON PETROLEUM COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
ADJUSTMENTS
-------------
HISTORICAL MAB 864 PRO FORMA
COMPANY ACQUISITION AS ADJUSTED
---------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Oil and gas sales.................. $ 25,764 $ 4,455 (a) $ 30,219
Interest and other................. 946 -- 946
---------- -------- ----------
Total revenues.................. 26,710 4,455 31,165
---------- -------- ----------
Costs and Expenses:
Lease operating expenses........... 7,562 245 (a) 7,807
Depreciation, depletion and
amortization.......................... 9,832 1,518 (d) 11,350
General and administrative......... 3,495 -- 3,495
Interest........................... 313 1,138 (b) 1,451
---------- -------- ----------
Total costs and expenses........ 21,202 2,901 24,103
---------- -------- ----------
Income from operations................ 5,508 1,554 7,062
Income tax expense.................... 50 544 (c) 594
---------- -------- ----------
Net income............................ 5,458 1,010 6,468
Preferred stock dividends............. 2,795 -- 2,795
---------- -------- ----------
Net income available to common shares. $ 2,663 $ 1,010 $ 3,673
========== ======== ==========
Net income per common share:
Primary............................ $ 0.45 $ 0.62
========== ==========
Assuming full dilution............. $ 0.43 $ 0.60
========== ==========
Shares used in computing net income per
common share:
Primary............................ 5,952 5,952
========== ==========
Assuming full dilution............. 6,135 6,135
========== ==========
See Notes to Pro Forma Consolidated Financial Statements
F-22
<PAGE>
CALLON PETROLEUM COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
ADJUSTMENTS
-------------
HISTORICAL MAB 864 PRO FORMA
COMPANY ACQUISITION AS ADJUSTED
---------- ------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Oil and gas sales................. $ 20,844 $ 1,813 (a) $ 22,657
Interest and other................ 695 -- 695
---------- ------- ----------
Total revenues................. 21,539 1,813 23,352
---------- ------- ----------
Costs and expenses:
Lease operating expenses.......... 4,164 (69) (a) 4,095
Depreciation, depletion and
amortization......................... 7,581 931 (d) 8,512
General and administrative........ 2,382 -- 2,382
Interest.......................... 210 487 (b) 697
---------- ------- ----------
Total costs and expenses....... 14,377 1,349 15,686
---------- ------- ----------
Income from operations............... 7,202 464 7,666
Income tax expense................... 2,311 162 (c) 2,473
---------- ------- ----------
Net income........................... 4,891 302 5,193
Preferred stock dividend............. 1,398 -- 1,398
---------- ------- ----------
Net income available to common shares $ 3,493 $ 302 $ 3,795
========== ======= ==========
Net income per common share:
Primary........................... $ 0.55 $ 0.60
========== ==========
Assuming full dilution............ $ 0.52 $ 0.56
========== ==========
Shares used in computing net income per
common share:
Primary........................... 6,307 6,307
========== ==========
Assuming full dilution............ 9,318 9,318
========== ==========
See Notes to Pro Forma Consolidated Financial Statements
F-23
<PAGE>
CALLON PETROLEUM COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On June 26, 1997, Callon Petroleum Operating Company, a wholly owned
subsidiary of Callon Petroleum Company (the "Company"), purchased an 18.8%
working interest in the Mobile Area Block 864 Unit from Elf Exploration, Inc.
(the "MAB 864 Acquisition"). The Company's net purchase price of $11.8 million
was funded from the credit facility of the Company.
The accompanying Pro Forma Consolidated Statements of Operations of the
Company for the year ended December 31, 1996 and the six months ended June 30,
1997 give effect to the purchase of the MAB 864 Acquisition as if the
transaction occurred at the beginning of each of the periods presented.
The Pro Forma Consolidated Statements of Operations are based on the
assumptions set forth in the Notes to such statements. 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 transaction 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 statements
of the Company are as follows:
(a) To reflect the purchase of the MAB 864 Acquisition and the related
results of operations as described in Note 1.
(b) Reflects an increase of interest expense related to the purchase of
the MAB 864 Acquisition as if the transaction had occurred at the
beginning of the periods for the year ended December 31, 1996 and
for the six months ended June 30, 1997. The interest rate used was
8.25%. A one-eighth change in this estimated rate would affect
interest expense by $17,200 and $3,900 for the year ended December
31, 1996 and the six months ended June 30, 1997, respectively.
(c) To record a provision for Federal income taxes at a corporate
statutory rate of 35% on pro forma income as a result of the
acquisition.
(d) To adjust depletion for the combined full cost pool based on the
purchase of the MAB 864 Acquisition as described in Note 1.
F-24
<PAGE>
Report of Independent Auditors
Stockholders and Board of Directors
Callon Petroleum Company
We have audited the accompanying statement of revenues and direct operating
expenses of the working interest in Mobile Area Block 864 Unit (the "Property")
acquired by Callon Petroleum Operating Company (the "Company"), a wholly owned
subsidiary of Callon Petroleum Company, from Elf Exploration, Inc. (see Note 1
to the accompanying statement) for the year ended December 31, 1996. This
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues and direct operating expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of revenues and
direct operating expenses. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying statement of revenues and direct operating expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and is not intended to be a complete
presentation of revenues and expenses of the Property.
In our opinion, the statement of revenues and direct operating expenses referred
to above presents fairly, in all material respects, the revenues and direct
operating expenses of the Property for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
July 24, 1997
F-25
<PAGE>
Statement of Revenues and Direct Operating Expenses of the Property
SIX MONTHS ENDED
YEAR ENDED JUNE 30, 1997
DECEMBER 31, 1996 (UNAUDITED)
---------- ----------
(IN THOUSANDS)
Oil and gas revenues ................ $ 4,455 $ 1,813
Direct operating expenses ........... 245 (69)
---------- ----------
Revenues in excess of direct
operating expenses ................ $ 4,210 $ 1,882
========== ==========
SEE ACCOMPANYING NOTES.
F-26
<PAGE>
Notes to Statement of Revenues and Direct Operating
Expenses of the Property (continued)
Notes to Statement of Revenues and Direct Operating
Expenses of the Property
December 31, 1996
1. BASIS OF PRESENTATION
Callon Petroleum Operating Company (the "Company"), a wholly owned subsidiary of
Callon Petroleum Company, acquired a working interest in Mobile Area Block 864
Unit (the "Property") from Elf Exploration, Inc. (the "Seller"). The closing
date of the acquisition was June 26, 1997, and the net purchase price was $11.8
million.
The accompanying statement of revenues and direct operating expenses, which is
prepared on the accrual basis of accounting, relates only to the working
interest in the producing oil and gas property acquired and may not be
representative of future operations. The statement includes revenues and direct
operating expenses, including production and ad valorem taxes, for the entire
period presented. The statement does not include federal and state income taxes,
interest, depletion, depreciation and amortization, or general and
administrative expenses because such amounts would not be indicative of those
expenses which would be incurred by the Company. Presentation of complete
historical financial statements for the year ended December 31, 1996 and the six
months ended June 30, 1997 is not practicable because the Property was not
accounted for as a separate entity; therefore, such statements are not
available.
Revenues in the accompanying statement of revenues and direct operating expenses
are recognized on the entitlement method.
The preparation of the statement of revenues and direct operating expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the statement
and accompanying notes. Actual results could differ from those estimates.
The unaudited statement of revenues and direct operating expenses for the
six-month period ended June 30, 1997, in the opinion of management, was prepared
on a basis consistent with the audited statement of revenues and direct
operating expenses and includes all adjustments necessary to present fairly the
results of the period.
F-27
<PAGE>
Notes to Statement of Revenues and Direct Operating
Expenses of the Property (continued)
2. SUPPLEMENTAL INFORMATION ON OIL AND GAS RESERVES (UNAUDITED)
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting the future rates of production and timing of
development expenditures. Therefore, actual production, revenues, and
development and operating expenses may not occur as estimated. The reserve data
are estimates only, are subject to many uncertainties, and are based on data
gained from production histories and on assumptions as to geologic formations
and other matters. Actual quantities may differ materially from the amounts
estimated.
The following reserve data, prepared by the Company, represents estimates of
proved natural gas reserves of the Property, which is located in the United
States. There are no oil reserves associated with the Property.
1996
--------
NATURAL GAS (MMCF)
Proved reserves:
Beginning of period ........ 11,842
Production ................. 1,795
--------
End of period .............. 10,047
========
Proved developed reserves:
Beginning of period ........ 11,842
End of period .............. 10,047
The estimated standardized measure of discounted future net cash flows relating
to proved reserves of the Property at December 31, 1996 is shown below and
should not be construed as the current market value. No deductions were made for
general overhead, depletion, depreciation and amortization, debt service, or any
indirect costs. Since the Property is not a separate tax-paying entity, the
standardized measure of discounted future net cash flows for the Property is
presented before deduction of income taxes.
F-28
<PAGE>
Notes to Statement of Revenues and Direct Operating
Expenses of the Property (continued)
2. SUPPLEMENTAL INFORMATION ON OIL AND GAS RESERVES (UNAUDITED) (CONTINUED)
1996
------------
(IN THOUSANDS)
Future cash inflows .......................................... $ 38,680
Future production costs ...................................... (3,241)
------------
Future net cash flows before income taxes .................... 35,439
10% annual discount for estimated timing of cash flows ....... (10,186)
------------
Standardized measure of discounted future net
cash flows relating to proved
reserves before income taxes ............................... $ 25,253
============
Changes in the standardized measure of discounted future net cash flows relating
to proved reserves of the Property are shown below.
1996
------------
(IN THOUSANDS)
Balance at beginning of period ............................. $ 16,643
Increase (decrease) in discounted
future net cash flows:
Sales and transfers of natural gas
produced, net of production costs ...................... (4,210)
Accretion of discount .................................... 1,419
Net change in sales price and production costs ........... 11,401
------------
Balance at end of period ................................... $ 25,253
============
The weighted average prices of natural gas at December 31, 1995 and 1996 used in
the calculation of the standardized measure of discounted future net cash flows
were $2.28 and $3.85 per Mcf, respectively.
F-29
<PAGE>
================================================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not contained in this Offering
Memorandum 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 Initial Purchaser. This Offering Memorandum
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 Offering Memorandum 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......... 6
Prospectus Summary............ 7
Risk Factors.................. 18
The Company................... 25
The Exchange Offer............ 26
Use of Proceeds............... 35
Capitalization................ 36
Selected Financial Data....... 37
Management's Discussion and
Analysis of Financial Condition
and Results of Operations.. 39
Business and Properties....... 45
Management.................... 62
Principal Stockholders........ 74
Description of the Exchange
Notes...................... 77
Description of the Outstanding
Notes...................... 96
Certain Federal Income Tax
Consequences............... 96
Description of Outstanding
Securities and Debt
Instruments................ 99
Plan of Distribution.......... 102
Legal Matters................. 103
Experts....................... 104
Glossary...................... 105
Index to Financial Statements. F-1
$36,000,000
[GRAPHIC OMITTED]
CALLON PETROLEUM
COMPANY
10.125% SENIOR SUBORDINATED
NOTES
DUE 2002
______________
--------------
PROSPECTUS
______________
--------------
September , 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Delaware Law")
permits, subject to certain conditions, a corporation to indemnify its
directors, officers, employees and agents against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such director, officer, employee or agent in connection with
threatened, pending or completed actions, suits and proceeding (other than
actions by or in the right of the corporation) in or to which any of such
persons is a party or is threatened to be made a party.
Article 12 of the Company's Amended and Restated Certificate of
Incorporation and Article VI, Section 2 of the Company's Third Amended and
Restated Bylaws provide that Callon may indemnify its directors, officers,
employees and agents to the fullest extent permitted by Delaware Law.
The Company currently maintains a policy insuring, subject to certain
exceptions, its directors and officers and the directors and officers of its
subsidiaries against liabilities that may be incurred by such persons acting in
such capacities.
Pursuant to indemnification agreements, the Company has agreed to
indemnify its directors and certain officers against all costs, charges and
expenses incurred by reason of being a director or officer of the Company,
provided that indemnification is not prohibited in whole or in part under
applicable law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT NUMBER AND DESCRIPTION
(3) (i) Articles of Incorporation (ii) 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 of 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 Indenture dated July 31, 1997 between the Company and the
Trustee*
4.2 Form of Note (included in Exhibit 4.1)
II-1
<PAGE>
(5) Opinion re legality
5.1 Opinion of Butler & Binion, L.L.P.*
(8) Opinion re tax matters
8.1 Opinion of Bulter & Binion, L.L.P. (included in the
prospectus that forms a part hereof)
(10) Material Contracts
10.1 Registration Agreement*
10.2 Exchange Agent Agreement*
10.3 Letter of Transmittal*
(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 Butler & Binion, L.L.P. (included in its
opinion filed as Exhibit 5.1)
23.2 Consent of Ernst & Young, L.L.P.*
23.3 Consent of Arthur Andersen LLP*
23.4 Consent of Huddleston & Co., Inc.*
(24) Power of attorney (included on the signature page hereof)
(25) Statement of Eligibility of Trustee*
* filed herewith
FINANCIAL STATEMENT SCHEDULES
None.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
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 registrant 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 Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form S-4, within one business day or receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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 September 25, 1997.
CALLON PETROLEUM COMPANY
By: /S/ FRED L. CALLON
Fred L. Callon
President and Chief Executive Officer
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints 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.
NAME TITLE DATE
/S/ JOHN S. CALLON Chairman of the Board, September 25,
John S. Callon Director 1997
/S/ FRED L. CALLON President, Chief September 25,
Fred L. Callon Executive Officer, 1997
Director (Principal
Executive Officer)
/S/ DENNIS W. CHRISTIAN Chief Operating Officer, September 25,
Dennis W. Christian Senior Vice President, 1997
Director Senior Vice
President, Chief Financial
/S/ JOHN S. WEATHERLY Officer and Treasurer September 25,
John S. Weatherly (Principal Financial 1997
Officer)
/S/ JAMES BASSI Controller and September 25,
James Bassi Principal Accounting 1997
Officer (Principal
Accounting Officer)
_______________________ Director September ,
Robert A. Stanger 1997
_______________________ Director September ,
John C. Wallace 1997
/S/ B. F. WEATHERLY Director September 25,
B. F. Weatherly 1997
/S/ RICHARD O. WILSON Director September 25,
Richard O. Wilson 1997
II-5
EXHIBIT 4.1
CALLON PETROLEUM COMPANY
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
Trustee
----------------
INDENTURE
Dated as of July 31, 1997
----------------
$36,000,000
10.125% Series A Senior Subordinated Notes due 2002
10.125% Series B Senior Subordinated Notes due 2002
<PAGE>
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939, AS
AMENDED AND INDENTURE DATED AS OF JULY 31, 1997
Trust Indenture Act Indenture
Section Section
Section 310 (a)(1)..............................608
(a)(2)........................608
(a)(3)........................Inapplicable
(a)(4)........................Inapplicable
(b)...........................605, 608, 609, 613
Section 311.....................................605, 614
Section 312 (a).................................701, 702
(b)...........................702
(c)...........................702
Section 313 (a).................................703
(b)(1)........................703
(b)(2)........................703
(c)...........................703
(d)...........................703
Section 314 (a).................................704, 1011
(b)...........................Inapplicable
(c)(1)........................102
(c)(2)........................102
(c)(3)........................Inapplicable
(d)...........................Inapplicable
(e)...........................102
Section 315 (a).................................601, 603
(b)...........................602
(c)...........................601
(d)...........................601, 603
(e)...........................603, 607
Section 316 (a)(1)(A)...........................512
(a)(1)(B).....................513
(a)(2)........................Inapplicable
(b)...........................508
(c)...........................104
Section 317 (a)(1)..............................503
(a)(2)........................504
(b)...........................1003
Section 318 (a).................................108
- --------
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL
APPLICATION..................................................................1
Section 101. Definitions...................................................1
Section 102. Compliance Certificates and Opinions.........................13
Section 103. Form of Documents Delivered to Trustee.......................13
Section 104. Acts of Holders..............................................14
Section 105. Notices, etc, to Trustee and Company.........................15
Section 106. Notice to Holders of Notes; Waiver...........................16
Section 107. Language of Notices..........................................16
Section 108. Conflict with Trust Indenture Act............................16
Section 109. Effect of Headings and Table of Contents.....................16
Section 110. Successors and Assigns.......................................16
Section 111. Severability Clause..........................................16
Section 112. Benefits of Indenture........................................17
Section 113. Governing Law................................................17
Section 114. Legal Holidays...............................................17
Section 115. Counterparts.................................................17
Section 116. Indenture and Notes Solely Corporate Obligations.............17
Section 117. No Adverse Interpretations of Other Agreements...............18
ARTICLE TWO FORM OF NOTES.................................................18
Section 201. Forms Generally..............................................18
ARTICLE THREE THE NOTES...................................................18
Section 301. Execution, Authentication, Delivery and Dating...............18
Section 302. Temporary Notes..............................................19
Section 303. Registration, Transfer and Exchange..........................19
Section 304. Mutilated, Destroyed, Lost and Stolen Notes..................19
Section 305. Payment of Interest, Rights to Interest Preserved............20
Section 306. Persons Deemed Owners........................................21
Section 307. Cancellation.................................................22
Section 308. Computation of Interest......................................22
ARTICLE FOUR SATISFACTION AND DISCHARGE...................................22
Section 401. Satisfaction and Discharge of Indenture......................22
Section 402. Application of Trust Money...................................23
ARTICLE FIVE REMEDIES.....................................................24
Section 501. Events of Default............................................24
Section 502. Acceleration of Maturity; Rescission and Annulment...........25
Section 503. Collection of Indebtedness and Suits for Enforcement
by Trustee..............................................27
Section 504. Trustee May File Proofs of Claim.............................27
Section 505. Trustee May Enforce Claims Without Possession of Notes.......28
Section 506. Application of Money Collected...............................28
Section 507. Limitation on Suits..........................................29
Section 508. Unconditional Right of Holders to Receive Principal
Premium and Interest....................................29
Section 509. Restoration of Rights and Remedies...........................29
Section 510. Rights and Remedies Cumulative...............................30
Section 511. Delay or Omission Not Waiver.................................30
Section 512. Control by Holders...........................................30
Section 513. Waiver of Past Defaults......................................30
Section 514. Undertaking for Costs........................................31
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<PAGE>
Section 515. Waiver of Stay, Extension or Usury Laws......................31
ARTICLE SIX THE TRUSTEE...................................................31
Section 601. Certain Duties and Responsibilities..........................31
Section 602. Notice of Defaults...........................................32
Section 603. Certain Rights of Trustee....................................32
Section 604. Not Responsible for Recitals or Issuance of Notes............33
Section 605. May Hold Notes...............................................34
Section 606. Money Held in Trust..........................................34
Section 607. Compensation and Reimbursement...............................34
Section 608. Corporate Trustee Required; Eligibility......................35
Section 609. Resignation and Removal; Appointment of Successor............35
Section 610. Acceptance of Appointment by Successor.......................36
Section 611. Merger, Conversion, Consolidation or Succession to Business..37
Section 612. Appointment of Authentication Agent..........................37
Section 613. Conflicting Interests........................................38
Section 614. Preferential Collection of Claims Against Company............38
ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE
AND COMPANY..................................................39
Section 701. Company to Furnish Trustee Names and Addresses of Holders....39
Section 702. Preservation of Information; Communications to Holders.......39
Section 703. Reports by Trustee...........................................39
Section 704. Reports by Company...........................................40
ARTICLE EIGHT CONSOLIDATION, MERGER AND SALES.............................41
Section 801. Company May Consolidate, Etc., Only on Certain Terms.........41
Section 802. Successor Person Substituted for Company.....................41
ARTICLE NINE SUPPLEMENTAL INDENTURES......................................42
Section 901. Supplemental Indentures Without Consent of Holders...........42
Section 902. Supplemental Indentures with Consent of Holders..............43
Section 903. Execution of Supplemental Indentures.........................43
Section 904. Effect of Supplemental Indentures............................43
Section 905. Reference in Notes to Supplemental Indentures................44
Section 906. Effect on Senior Indebtedness................................44
Section 907. Record Date..................................................44
ARTICLE TEN COVENANTS.....................................................44
Section 1001. Payment of Principal and Interest...........................44
Section 1002. Maintenance of Office or Agency.............................45
Section 1003. Money for Note Payments to be Held in Trust.................45
Section 1004. Corporate Existence.........................................46
Section 1005. Maintenance of Properties...................................47
Section 1006. Restrictions on Dividends, Redemption and Other Payments....47
Section 1007. Limitations on Indebtedness for Money Borrowed..............48
Section 1008. Limitation Liens............................................48
Section 1009. Insurance...................................................49
Section 1010. Payment of Taxes and Other Claims...........................49
Section 1011. Statement by Officers as to Default.........................49
Section 1012. Waiver of Certain Covenants.................................49
Section 1013. Limitation on Ranking of Future Indebtedness................50
Section 1014. Limitations on Restricting Subsidiary Dividends.............50
Section 1015. Limitation on Transactions with Affiliates..................51
Section 1016. Purchase of Notes upon Certain Events.......................51
ARTICLE ELEVEN REDEMPTION OF NOTES.........................................53
Section 1101. Right of Redemption.........................................53
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<PAGE>
Section 1102. Election to Redeem; Notice to Trustee.......................53
Section 1103. Selection by Trustee of Notes to be Redeemed................53
Section 1104. Notice of Redemption........................................54
Section 1105. Deposit of Redemption Price.................................55
Section 1106. Notes Payable on Redemption Date............................55
Section 1107. Notes Redeemed in Part......................................55
Section 1108. Purchase of Notes...........................................56
ARTICLE TWELVE DEFEASANCE AND COVENANT DEFEASANCE.........................56
Section 1201. Company's Option to Effect Defeasance or Covenant
Defeasance..............................................56
Section 1202. Defeasance and Discharge....................................56
Section 1203. Covenant Defeasance.........................................56
Section 1204. Conditions to Defeasance or Covenant Defeasance.............57
Section 1205. Deposited Money and Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions................58
Section 1206. Reinstatement...............................................59
ARTICLE THIRTEEN SUBORDINATION OF NOTES....................................59
Section 1301. Notes Subordinate to Senior Indebtedness....................59
Section 1302. Payment over of Proceeds upon Dissolution, etc..............59
Section 1303. Suspension of Payment When Senior Indebtedness in Default...60
Section 1304. Payment Permitted If No Default.............................61
Section 1305. Subrogation to Rights of Holders of Senior Indebtedness.....61
Section 1306 Provisions Solely to Define Relative Rights..................62
Section 1307. Trustee to Effectuate Subordination.........................62
Section 1308. No Waiver of Subordination Provision........................62
Section 1309. Notice to Trustee...........................................63
Section 1310. Reliance on Judicial Order or Certificate of
Liquidating Agent Bank..................................64
Section 1311. Rights of Trustee as a Holder of Senior Indebtedness:
Preservation of Trustee's Rights........................64
Section 1312. Article Applicable to Paying Agents.........................64
Section 1313. No Suspension of Remedies...................................64
Section 1314. Trust Money Not Subordinated................................64
Appendix A Provisions Relating to Initial Notes and Exchange Notes
Exhibit 1 to Appendix A Form of Initial Notes
Exhibit 2 to Appendix A Form of Exchange Notes
iii
<PAGE>
THIS INDENTURE, dated as of July 31, 1997 (the "Indenture"), is between
CALLON PETROLEUM COMPANY, a corporation duly organized and existing under the
laws of the State of Delaware (hereinafter called the "Company"), having
executive offices located at 200 North Canal Street, Natchez, Mississippi 39120
and AMERICAN STOCK TRANSFER & TRUST COMPANY, a corporation duly organized and
existing under the laws of the State of New York (hereinafter called the
"Trustee"), having its principal corporate trust office at 40 Wall Street, 46th
Floor, New York, New York 10005.
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of its 10.125% Series A Senior
Subordinated Notes due 2002 (hereinafter called the "Initial Notes") and, if and
when issued pursuant to a registered exchange for the Initial Notes, the
Company's 10.125% Series B Senior Subordinated Notes due 2002 (the "Exchange
Notes" and together with the Initial Notes, 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.
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, without preference of one series of the Notes over the
other:
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 or in Article I of Appendix A hereto
have the meanings assigned to them in this Article or in Article I of Appendix A
hereto 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;
2
<PAGE>
(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.
"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.
"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.
3
<PAGE>
"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 NOTICE" has the meaning set forth in Section 1016.
"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.
"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.
3
<PAGE>
"CONSOLIDATED NET INCOME" means, for any period, the amount of
Consolidated net income (loss) of the Company and its Restricted Subsidiaries
for such period, determined in accordance with GAAP; PROVIDED, HOWEVER, that
there shall be included in Consolidated Net Income any net extraordinary gains
or losses for such period (less all fees and expenses related thereto); and,
PROVIDED, FURTHER, that there shall not be included in Consolidated Net Income
(1) any net income (loss) of a Restricted Subsidiary for any portion of such
period during which it was not a Consolidated Subsidiary, (2) any net income
(loss) of businesses, properties or assets acquired or disposed of (by way of
merger, consolidation, purchase, sale or otherwise) by the Company or any
Restricted Subsidiary for any portion of such period prior to the acquisition
thereof or subsequent to the disposition thereof, or (3) any net income for such
period resulting from transfers of assets received by the Company or any
Restricted Subsidiary from an Unrestricted Subsidiary.
"CONSOLIDATED SUBSIDIARY" means a Restricted Subsidiary the financial
statements of which are Consolidated with the financial statements of the
Company.
"CONVERTIBLE DEBENTURES" means the Company's 8.5% Convertible Subordinated
Debentures due 2010 issuable in exchange for the Company's Series A Preferred
Stock.
"CORPORATE TRUST OFFICE" means the principal corporate trust office of the
Trustee at which at any particular time its corporate trust business shall be
administered, which office at the date of execution of this Indenture is located
at 40 Wall Street, 46th Floor, New York, New York 10005.
"CORPORATION" includes corporations, associations, companies, joint stock
companies, limited liability companies or business trusts.
"CREDIT FACILITY" means that certain Amended and Restated Credit
Agreement, dated as of October 31, 1996, among the Company, Callon Petroleum
Operating Company, a Delaware corporation and wholly owned Subsidiary of the
Company ("Operating"), Callon Offshore Production, Inc., a Mississippi
corporation and wholly owned Subsidiary of Operating, the several banks and
other financial institutions from time to time parties thereto (the "Banks"),
and The Chase Manhattan Bank, as agent for the Banks, as the same may be
amended, modified, supplemented, extended, restated, replaced, renewed or
refinanced from time to time.
"DEFAULT" means any event that is or with the passage of time or giving
notice or both would be an Event of Default.
"DEFAULTED INTEREST" has the meaning specified in Section 305.
"DEPOSITORY" means The Depository Trust Company, its nominees and their
respective successors.
"EVENT OF DEFAULT" has the meaning specified in Section 501.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor act thereto.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles board of
the American
4
<PAGE>
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board in effect on the date of this
Indenture.
"GLOBAL NOTE" has the meaning specified in Appendix A.
"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 whethr 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
5
<PAGE>
all (A) employment or consulting agreements or employee benefit plans or
arrangements and (B) futures contracts, forward contracts, swap, cap or collar
contracts, option contracts, or other similar derivative agreements.
"INDENTURE" means this instrument as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.
"INDEPENDENT PUBLIC ACCOUNTANTS" means a nationally recognized firm of
accountants that, with respect to the Company, are Independent Public
Accountants within the meaning of the Securities Act of 1933, as amended, and
the rules and regulations promulgated by the Commission thereunder, who may be
the Independent Public Accountants regularly retained by the Company or who may
be other Independent Public Accountants. Such accountants or firm shall be
entitled to rely upon any Opinion of Counsel as to the interpretation of any
legal matters relating to the Indenture or certificates required to be provided
hereunder.
"INSOLVENCY OR LIQUIDATION PROCEEDING" means, with respect to any Person,
(a) an insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or similar case or proceeding in connection
therewith, relative to such Person or its creditors, as such, or its assets or
(b) any liquidation, dissolution or other winding-up of such Person, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy
or (c) any assignment for the benefit of creditors or any other marshaling of
assets or liabilities of such Person.
"INTEREST COVERAGE RATIO" means, for any date of determination, the ratio
of (1) Consolidated EBITDA for the immediately preceding four fiscal quarters of
the Company to (2) Consolidated Interest Expense for such immediately preceding
four fiscal quarters.
"INTEREST PAYMENT DATE" when used with respect to any Note, means the
Stated Maturity of an installment of interest on such Note.
"ISSUE DATE" when used with respect to any Note, means the earliest date
on which any Note is originally issued in accordance with the terms of this
Indenture.
"LEGAL HOLIDAY" with respect to any Place of Payment or other location,
means a Saturday, a Sunday or a day on which banking institutions or trust
companies in such Place of Payment or other location are not authorized or
obligated to be open.
"LIEN" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
agreement to give or grant a Lien or any lease, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing) upon or with respect to any property of any kind. A Person shall be
deemed to own subject to a Lien any property which such Person has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
"MATERIAL SUBSIDIARY" means any Restricted Subsidiary whose assets or
revenues comprise at least five percent (5%) of the assets or revenues of the
Company and the
6
<PAGE>
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 303.
"OFFICE OR AGENCY" means an office or agency of the Company maintained or
designated in a Place of Payment for the Notes pursuant to Section 1002 or any
other office or agency of the Company maintained or designated for, the payment
or surrender of the Notes pursuant to Section 1002 or, to the extent designated
or required by Section 1002 in lieu of such office or agency, the Corporate
Trust Office of the Trustee.
"OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the Chief Executive Officer, the President
or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary
or an Assistant Secretary of the Company, and is delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be an
employee of or counsel for the Company or other counsel who shall be reasonably
acceptable to the Trustee.
"OUTSTANDING", when used with respect to any Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(1) any Note theretofore canceled by the Trustee or the Note Registrar
or delivered to the Trustee or the Note Registrar for cancellation;
(2) any Note or portion thereof for whose payment at the Maturity
thereof Money in the necessary amount has been theretofore deposited
pursuant hereto with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the
Holders of such Notes, provided that, if such Notes are to be
redeemed, notice of such redemption has been duly given pursuant to
this Indenture or provision therefor satisfactory to the Trustee has
been made;
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(3) any Note, except to the extent provided in Sections 1202 and 1203,
with respect to which the Company has effected legal defeasance or
covenant defeasance as provided in Article Twelve; and
(4) any Note which has been paid pursuant to Section 304 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 and shall include,
without limitation, the 2001 Notes.
"PAYING AGENT" means any Person authorized by the Company to pay the
principal of (or premium, if any, on) or interest on any Note on behalf of the
Company.
"PAYMENT BLOCKAGE NOTICE" has the meaning specified in Section 1303.
"PAYMENT BLOCKAGE PERIOD" has the meaning specified in Section 1303.
"PAYMENT EVENT OF DEFAULT" means any default in the payment or required
prepayment of principal of (or premium, if any) 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
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incurred and shall be treated as an incurrence for purposes of
Section 1007 at the time the Restricted Subsidiary in question
ceased to be a Restricted Subsidiary;
(iii) any guarantee of Senior Indebtedness incurred in compliance with
Section 1007 by a Restricted Subsidiary or the Company; and
(iv) any renewals, substitutions, refinancings or replacements (each, for
purposes of this clause, a "refinancing") by the Company or a
Restricted Subsidiary of any Indebtedness for Money Borrowed
incurred pursuant to clause (i) of this definition, including any
successive refinancings by the Company or such Restricted
Subsidiary, so long as (A) any such new Indebtedness for Money
Borrowed shall be in a principal amount that does not exceed the
principal amount (or, if such Indebtedness for Money Borrowed being
refinanced provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration
thereof, such lesser amount as of the date of determination) so
refinanced plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the
Indebtedness for Money Borrowed refinanced or the amount of any
premium reasonably determined by the Company or such Restricted
Subsidiary as necessary to accomplish such refinancing, plus the
amount of expenses of the Company or such Restricted Subsidiary
incurred in connection with such refinancing, and (B) in the case of
any refinancing of Indebtedness for Money Borrowed of the Company
that is not Senior Indebtedness, such new Indebtedness for Money
Borrowed is either PARI PASSU with the Notes or subordinated to the
Notes at least to the same extent as the Indebtedness being
refinanced and (C) such new Indebtedness for Money Borrowed has an
Average Life equal to or longer than the Average Life of the
Indebtedness for Money Borrowed being refinanced and a final Stated
Maturity equal to or later than the final Stated Maturity of the
Indebtedness for Money Borrowed being refinanced.
"PERMITTED JUNIOR SECURITIES" means any equity securities or subordinated
debt securities of the Company or any successor obligor with respect to the
Senior Indebtedness provided for by a plan of reorganization or readjustment
that, in the case of any such subordinated debt securities, are subordinated in
right of payment to all Senior Indebtedness that may at the time be outstanding
to substantially the same degree as, or to a greater extent than, the Notes are
so subordinated as provided in this Indenture.
"PERMITTED LIENS" means any of the following types of Liens:
(a) Liens existing as of the date the Notes are first issued (except
to the extent such Liens secure any Pari Passu Indebtedness or
Subordinated Indebtedness that is repaid or defeased with proceeds of the
offering of the Notes), and any renewal, extension or refinancing of any
such Lien provided that thereafter such Lien extends only to the
properties that were subject to such Lien prior to the renewal, extension
or refinancing thereof;
(b) Liens securing the Notes; and
(c) Liens in favor of the Company.
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"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"PLACE OF PAYMENT" has the meaning set forth in Section 1001.
"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
304 in exchange for or in lieu of a lost, destroyed, mutilated or stolen Note
shall be deemed to evidence the same debt as the lost, destroyed, mutilated or
stolen Note.
"PRODUCTION PAYMENTS AND RESERVE SALES" means the grant or transfer to any
Person of a royalty, overriding royalty, net profits interest, production
payment (whether volumetric or dollar denominated), master limited partnership
interest or other interest in oil and gas properties, reserves the right to
receive all or a portion of the production or the proceeds from the sale of
production attributable to such properties where the holder of such interest has
recourse solely to such production or proceeds of production, subject to the
obligation of the grantor or transferor to operate and maintain, or cause the
subject interests to be operated and maintained, in a reasonably prudent manner
or other customary standard or subject to the obligation of the grantor or
transferor to indemnify for environmental matters.
"PROPERTY" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, including, without limitation, capital stock in any other Person.
"PURCHASE PRICE" has the meaning set forth in Section 1016.
"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".
"REPURCHASE DATE" has the meaning set forth in Section 1016.
"REPURCHASE EVENT" has the meaning set forth in Section 1016.
"REPURCHASE EVENT DATE" has the meaning set forth in Section 1016.
"REPURCHASE OFFER" has the meaning set forth in Section 1016.
"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.
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"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 premium, if any),
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 305.
"SPECIFIED SENIOR INDEBTEDNESS" means (a) all Senior Indebtedness of the
Company in respect of the Credit Facility and any renewals, amendments,
extensions, supplements, modifications, deferrals, refinancings, or replacements
(each, for purposes of this definition, a "refinancing") thereof by the Company,
including any successive refinancings thereof by the Company and (b) any other
Senior Indebtedness and any refinancings thereof by the Company having a
principal amount of at least $5 million as of the date of determination and
provided that the agreements, indentures or other instruments evidencing such
Senior Indebtedness or pursuant to which such Senior Indebtedness was issued
specifically designates such Senior Indebtedness as "Specified Senior
Indebtedness" for purposes of this Indenture. For purposes of this definition, a
refinancing of any Specified Senior Indebtedness shall be treated as a Specified
Senior Indebtedness only if the Senior Indebtedness issued in such refinancing
ranks or would rank PARI PASSU with the Specified Senior Indebtedness refinanced
and only if the Senior Indebtedness issued in such refinancing is permitted by
Section 1007.
"STATED MATURITY" with respect to any Note or any installment of principal
thereof or interest thereon means the date established by this Indenture as the
fixed date on which the principal of such Note or such installment of principal
or interest is due and payable, and, when used with respect to any other
Indebtedness for Money Borrowed or any installment of interest thereon, means
the date specified in the instrument evidencing or governing such Indebtedness
for Money Borrowed as the fixed date on which the principal of such Indebtedness
for Money Borrowed or such installment of interest is due and payable.
"SUBORDINATED INDEBTEDNESS" means Indebtedness for Money Borrowed of the
Company which is expressly subordinated in right of payment to the Notes,
including, without limitation, the Convertible Debentures.
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"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.
"TOTAL CONSOLIDATED ASSETS" means the total assets of the Company and its
Restricted Subsidiaries on a consolidated basis as of the date of the Company's
most recent quarterly balance sheet prepared in accordance with GAAP.
"TRANSACTION" has the meaning specified in Section 1015.
"TRUST INDENTURE ACT" means the United States Trust Indenture Act of 1939,
as in force at the date as of which this instrument was executed, except as
provided in Sections 901 and 902; PROVIDED, HOWEVER, that in the 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.
"2001 INDENTURE" means that certain Indenture dated as of November 27,
1996 between the Company and American Stock Transfer & Trust Company, as
Trustee, as the same may have been amended or supplemented from time to time
prior to the date hereof.
"2001 NOTES" means the Company's 10% Senior Subordinated Notes due 2001,
issued pursuant to the 2001 Indenture.
"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".
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"VOTING STOCK" means stock, interests, participations, rights in or other
equivalents in the equity interests (however designated) with respect to a
Corporation having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of such
Corporation; provided that, for the purposes hereof, stock which carries only
the right to vote conditionally on the happening of an event shall not be
considered Voting Stock whether or not such event shall have happened.
SECTION 102.COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents or any of them is specifically required by any provision of
this Indenture relating to such particular application or request, no additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or opinion
has read such condition or covenant and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, such
individual has made such examination or investigation as is necessary to enable
such individual to express an informed opinion as to whether or not such
condition or covenant has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
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
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factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Company stating that the information with respect to
such factual matters is in the possession of the Company unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture or any Note, they may, but need not, be
consolidated and form one instrument.
SECTION 104.ACTS OF HOLDERS
(1) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly appointed in writing.
Except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent, or of the holding by any Person of a Note, shall be
sufficient for any purpose of this Indenture and (subject to Section 315 of the
Trust Indenture Act) conclusive in favor of the Trustee and the Company and any
agent of the Trustee or the Company, if made in the manner provided in this
Section.
Without limiting the generality of this Section, unless otherwise provided
in or pursuant to this Indenture, a Holder, including a Depository that is a
Holder of a Global Note, may make, give or take, by a proxy, or proxies, duly
appointed in writing, any request, demand, authorization, direction, notice,
consent, waiver or other action provided in or pursuant to this Indenture to be
made, given or taken by Holders, and a Depository that is a Holder of a Global
Note may provide its proxy or proxies to the beneficial owners of interests in
any such Global Note through such Depository's standing instructions and
customary practices.
The Trustee shall fix a record date for the purpose of determining the
Persons who are beneficial owners of interests in any permanent Global Note held
by a Depository entitled under the procedures of such Depository to make, give
or take, by a proxy or proxies duly appointed in writing, any request, demand,
authorization, direction, notice, consent, waiver or other action provided in or
pursuant to this Indenture to be made, given or taken by Holders. If such a
record date is fixed, the Holders on such record date or their duly appointed
proxy or proxies, and only such Persons, shall be entitled to make, give or take
such request, demand, authorization, direction, notice, consent, waiver or other
action, whether or not such Holders remain Holders after such record date. No
such request, demand, authorization, direction, notice, consent, waiver or other
action shall be valid or effective if made, given or taken more than 90 days
after such record date.
(2) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his
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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
action, the Company may at its option (but is not obligated to), by Board
Resolution, fix in advance a record date for the determination of Holders of
Notes entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other action. If such a record date is fixed, such request,
demand, authorization, direction, notice, consent, waiver or other action may be
given before or after such record date, but only the Holders of Notes of record
at the close of business on such record date shall be deemed to be Holders for
the purpose of determining whether Holders of the requisite proportion of
Outstanding Notes have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other action, and
for that purpose the Outstanding Notes shall be computed as of such record date;
provided that no such authorization, agreement or consent by the Holders of
Notes on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than six months
after the record date.
(5) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Note shall bind every future Holder of the
same Note and the Holder of every Note issued upon the registration of transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done
or suffered to be done by the Trustee, any Note Registrar, any Paying Agent or
the Company in reliance thereon, whether or not notation of such action is made
upon such Note.
SECTION 105.NOTICES, ETC, TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with:
(1) the Trustee by any Holder or the Company shall be sufficient for every
purpose hereunder if made, given, furnished or filed in writing and delivered in
person or mailed by certified or registered mail (return receipt requested) to
or with the Trustee at its Corporate Trust Office, or
(2) the Company by the Trustee or any Holder shall be sufficient for 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.
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SECTION 106.NOTICE TO HOLDERS OF NOTES; WAIVER.
Except as otherwise expressly provided in this Indenture, where this
Indenture provides for notice to Holders of Notes of any event, such notice
shall be sufficiently given to Holders of Notes if in writing and mailed,
first-class postage prepaid, to each Holder of a Note affected by such event, at
such Holder's address as it appears in the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice.
In any case where notice to Holders of Notes is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder of a Note shall affect the sufficiency of such notice with
respect to other Holders of Notes. Any notice which is mailed in the manner
herein provided shall be conclusively presumed to have been duly given or
provided. In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders of Notes shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
SECTION 107.LANGUAGE OF NOTICES.
Any request, demand, authorization, direction, notice, consent or waiver
required or permitted under this Indenture shall be in the English language.
SECTION 108.CONFLICT WITH TRUST INDENTURE ACT.
If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with any duties under any required provision of the Trust
Indenture Act imposed hereon by Section 318(c) thereof, such required provision
shall control.
SECTION 109.EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings herein, the Reconciliation and Tie Chart
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
SECTION 110.SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 111.SEVERABILITY CLAUSE.
In case any provision in this Indenture or in the Notes shall be invalid,
illegal or unenforceable, either wholly or partially, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and such provisions shall be given effect to the fullest
extent permitted by law.
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SECTION 112.BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes, express or implied, shall give
to any Person, other than the parties hereto, any Note Registrar, any Paying
Agent, any Authenticating Agent and their respective successors hereunder, the
Holders of Notes and the holders of Senior Indebtedness, any benefit or any
legal or equitable right, remedy or claim under this Indenture.
SECTION 113.GOVERNING LAW.
This Indenture and the Notes shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
or instruments entered into and, in each case, performed in said state.
SECTION 114.LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date, Repurchase
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,
Repurchase 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, Repurchase Date, or Stated Maturity, as
the case may be.
SECTION 115.COUNTERPARTS.
This Indenture may be executed in any number of counterparts, each of
which shall be an original; but such counterparts shall together constitute but
one and the same instrument.
SECTION 116.INDENTURE AND NOTES SOLELY CORPORATE OBLIGATIONS.
No recourse under or upon any obligation, covenant or agreement of this
Indenture, any supplemental indenture, or of any Note, or for any claim based
thereon or otherwise in respect thereof, shall be had against any incorporation,
shareholder, officer, employee, director or Affiliate, as such, past, present or
future, of the Company or of any successor corporation or Person, either
directly or through the Company, whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or penalty or otherwise;
it being expressly understood that this Indenture and the obligations issued
hereunder are solely corporate obligations, and that no such personal liability
whatever shall attach to, or is or shall be incurred by, the incorporators,
shareholders, officers, employees, directors or Affiliates, as such, of the
Company or of any successor corporation or Person, or any of them, because of
the creation of the indebtedness hereby authorized, or under or by reason of the
obligations, covenants or agreements contained in this Indenture or any of the
Notes or implied therefrom; and that any and all such personal liability, either
at common law or in equity or by constitution or statute, of, and any and all
such rights and claims against, every such incorporator, shareholder, officer,
employee, director or Affiliate, as such, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in
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this Indenture or in any of the Notes or
implied therefrom, are hereby expressly waived and released as a condition of,
and as a consideration for, the execution of this Indenture and the issue of
such Notes.
SECTION 117.NO ADVERSE INTERPRETATIONS OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
ARTICLE TWO
FORM OF NOTES
SECTION 201.FORMS GENERALLY.
The Initial Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit 1 to Appendix A which is hereby
incorporated in and expressly made a part of this Indenture. The Exchange Notes
and the Trustee's certificate of authentication shall be substantially in the
form of Exhibit 2 to Appendix A, which is hereby incorporated in and expressly
made a part of this Indenture. The Notes may have notations, legends or
endorsements required by law, stock exchange rule, agreements to which the
Company is subject, if any, or usage (provided that any such notation, legend or
endorsement is in a form acceptable to the Company). Each Note shall be dated
the date of its authentication. The terms of the Notes set forth in Exhibit 1 to
Appendix A and Exhibit 2 to Appendix A are part of the terms of this Indenture.
The Initial Notes and the Exchange Notes will be treated as a single class of
Notes under this Indenture.
ARTICLE THREE
THE NOTES
SECTION 301. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
Notes shall be executed on behalf of the Company by its Chairman of the
Board, one of its Vice Chairmen of the Board, its Chief Executive Officer, its
President, its Treasurer or one of its Vice Presidents under its corporate seal
impressed, imprinted or reproduced thereon and attested by its Secretary or one
of its Assistant Secretaries. The signature of any of these officers on the
Notes may be manual or facsimile.
Notes bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
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.
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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 Appendix A or
Section 612 executed by or on behalf of the Trustee by the manual signature of
one of its authorized signatories or by an Authenticating Agent. Such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder.
SECTION 302.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 303.REGISTRATION.
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.
SECTION 304.MUTILATED, DESTROYED, LOST AND STOLEN NOTES.
If any mutilated Note is surrendered to the Trustee, subject to the
provisions of this Section, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Note containing identical
terms and of like principal amount and bearing a number not contemporaneously
outstanding.
If there be delivered to the Company and to the Trustee (1) evidence to
their satisfaction of the destruction, loss or theft of any Note, and (2) such
indemnity as may be
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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 of the same series 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 305.PAYMENT OF INTEREST, RIGHTS TO INTEREST PRESERVED.
Any interest on any Note which shall be payable and is punctually paid or
duly provided for on any Interest Payment Date shall be paid to the Person in
whose name such Note (or one or more Predecessor Notes) is registered as of the
close of business on the Regular Record Date for such interest.
Any interest on any Note which shall be payable, but shall not be
punctually paid or duly provided for, on any Interest Payment Date for such Note
(herein called "Defaulted Interest") shall forthwith cease to be payable to the
Holder thereof on the relevant Regular Record Date by virtue of having been a
Holder on such date; and such Defaulted Interest may be paid by the Company, at
its election in each case, as provided in Clause (1) or (2) below.
(1) The Company may elect to make payment of any Defaulted Interest
to the Person in whose name such Note (or a Predecessor Note thereof) shall be
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on such Note 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
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Trustee for such deposit on or prior to the date of the proposed payment, such
Money when so deposited to be held in trust for the benefit of the Person
entitled to such Defaulted Interest as in this Clause provided. Thereupon, the
Trustee shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days prior to
the date of the proposed payment and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee shall promptly
notify the Company of such Special Record Date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to the Holder of such Note (or a Predecessor Note
thereof) at such Holder's address as it appears in the Note Register not less
than 10 days prior to such Special Record Date. The Trustee may, in its
discretion, in the name and at the expense of the Company cause a similar notice
to be published at least once in an Authorized Newspaper of general circulation
in each Place of Payment, but such publication shall not be a condition
precedent to the establishment of such Special Record Date and the failure of a
Holder to observe such published notice shall not entitle such Holder to
additional benefits or interest with respect to such Holder's Notes. Notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor having been mailed as aforesaid, such Defaulted Interest shall be paid
to the Person in whose name such Note (or a Predecessor Note thereof) shall be
registered at the close of business on such Special Record Date and shall no
longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Notes may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this Clause, such payment shall be deemed
practicable by the Trustee.
At the option of the Company, Defaulted Interest may be paid (i) by
mailing a check to the address of the Person entitled thereto as such address
shall appear in the Note Register, in the case of any certificated Note, or (ii)
by wire transfer to an account maintained by the Person entitled thereto as
specified in the Note Register.
Subject to the foregoing provisions of this Section, Section 303 and
Appendix A, 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 306.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 premium, if any) and (subject to Sections
303 and 305) 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
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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 307.CANCELLATION.
All Notes surrendered for payment, redemption, repurchase, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee, and any such Notes, as well as Notes surrendered
directly to the Trustee for any such purpose, shall be canceled promptly by the
Trustee. The Company may at any time deliver to the Trustee for cancellation any
Notes previously authenticated and delivered hereunder which the Company may
have acquired in any manner whatsoever, and all Notes so delivered shall be
canceled promptly by the Trustee. No Notes shall be authenticated in lieu of or
in exchange for any Notes canceled as provided in this Section, except as
expressly permitted by this Indenture. All canceled Notes held by the Trustee
shall be disposed of as directed by a Company Order or in accordance with the
Trustee's usual practice; provided, however, that the Trustee shall not be
required to destroy canceled Notes.
SECTION 308.COMPUTATION OF INTEREST.
Interest on the Notes shall be computed on the basis of a 360-day year of
twelve 30-day months.
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 304 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
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(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving
of notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company, in the case of clause (2)(i), (2)(ii) or (2)(iii)
above, has irrevocably deposited or caused to be deposited with the
Trustee Money in an amount sufficient to pay and discharge the
entire indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of Notes which
have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be, together with instructions from the
Company irrevocably directing the Trustee to apply such Money to the
payment thereof at maturity or redemption, as the case may be;
(b) the Company has paid or caused to be paid all other sums then
due and payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, which, taken together, state
that all conditions precedent herein relating to the satisfaction
and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 612 and, if Money and/or
Government Obligations shall have been deposited with the Trustee pursuant to
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402.APPLICATION OF TRUST MONEY.
Subject to the provisions of the last paragraph of Section 1003, all Money
and Government Obligations deposited with the Trustee pursuant to Section 401
and all Money received by the Trustee in respect of Government Obligations
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) 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 or premium, if any,
on any Note when it becomes due and payable at its Maturity, whether or not such
payment is prohibited by the provisions of Article Thirteen; or
(3) default in the performance, or breach, of any covenant or
agreement of the Company in this Indenture or the Notes (other than a covenant
or warranty a default in the performance or the breach of which is elsewhere in
this Section specifically dealt with), and continuance of such default or breach
for a period of 30 days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in aggregate principal amount of the Outstanding Notes a
written notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder; or
(4) default in the payment at Stated Maturity of any Indebtedness
for Money Borrowed of the Company or any Restricted Subsidiary in principal
amount due at Stated Maturity in excess of $2,500,000, and such default shall
continue, without being cured or waived to and without such Indebtedness for
Money Borrowed being discharged, for a period of 30 days beyond any applicable
period of grace; or
(5) the occurrence of an event of default as defined in any
mortgage, indenture or instrument under which there may be issued, or by which
there may be secured or evidenced, any Indebtedness for Money Borrowed of the
Company or any Restricted Subsidiary (or the payment of which is guaranteed by
the Company), whether such Indebtedness for Money Borrowed now exists or shall
hereafter be created, PROVIDED, HOWEVER, that no such event of default shall
constitute an Event of Default hereunder unless the effect of such event of
default is to cause the acceleration of such Indebtedness for Money Borrowed
prior to its Stated Maturity, which together with the principal amount of any
such other Indebtedness for Money Borrowed so caused to be accelerated,
aggregates $2,500,000 or more at any one point in time and such default shall
not have been cured or waived and such acceleration shall not have been
rescinded or annulled within a period of 30 days from the occurrence of such
acceleration; or
(6) the entry by a court or agency or supervisory authority having
competent jurisdiction of:
(a) a decree or order for relief in respect of the Company or
any Material Subsidiary in an involuntary proceeding under any applicable
bankruptcy,
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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, 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; or
(9) failure by the Company to give the Company Notice in accordance
with Section 1016.
SECTION 502.ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If any Event of Default (other than an Event of Default specified in
Section 501(6) or 501(7)) occurs and is continuing, the Trustee or the Holders
of not less than 25% in aggregate principal amount of the Notes then
Outstanding, by written notice to the Company (and to the Trustee if such notice
is given by the Holders), may, and the Trustee upon the request of the Holders
of not less than 25% in aggregate principal amount of the Outstanding Notes
shall, by a notice in writing to the Company, declare all unpaid principal of,
premium, if any, and accrued and unpaid interest on all the Notes to be due and
payable immediately, upon which declaration all amounts payable in respect of
the Notes shall be immediately due and payable. If an Event of Default specified
in Section 501(6) or 501(7) occurs and is continuing, the amounts described
above shall become and be immediately due and payable without any declaration,
notice or other act on the part of the Trustee or any Holder.
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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 (and premium, if any, on) any Outstanding
Notes which have become due otherwise than by such declaration of
acceleration, including any Notes required to have been purchased on
a Repurchase Date pursuant to a Repurchase Offer, 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 premium, if any) or interest on Notes which have become due
solely by such declaration of acceleration, have been cured or waived as
provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the foregoing, if an Event of Default specified in Section
50l(4) or 501(5) shall have occurred and be continuing, such Event of Default
and any consequential acceleration shall be automatically rescinded if the
Indebtedness for Money Borrowed that is the subject of such Event of Default has
been repaid, or if the default relating to such Indebtedness is waived or cured
and if such Indebtedness has been accelerated, then the holders thereof have
rescinded their declaration of acceleration in respect of such Indebtedness
(provided, in each case, that such repayment, waiver, cure or rescission is
effected within a period of 30 days from the continuation of such default beyond
the applicable grace period or the occurrence of such acceleration), and written
notice of such repayment, or cure or waiver and rescission, as the case may be,
shall have been given to the Trustee by the Company and countersigned by the
holders of such Indebtedness for Money Borrowed or a trustee, fiduciary or agent
for such holders or other evidence satisfactory to the Trustee of such events is
provided to the Trustee, within 30 days after any such acceleration in respect
of the Notes, and so long as such rescission of any such acceleration of the
Notes does not conflict with any judgment or decree as certified to the Trustee
by the Company.
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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 (or premium, if
any, on) any Note at the Maturity thereof or with respect to any Note required
to have been repurchased by the Company on the Repurchase Date pursuant to a
Repurchase Offer, 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 premium, if any) and interest, and,
to the extent that payment of such interest shall be legally enforceable, upon
any overdue installment of interest and overdue principal (and premium, if any),
at the rate borne by the Notes (without duplication of any amount paid pursuant
to the preceding clauses of this Section 503(b)), and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Notes and collect the money
adjudged or decreed to be payable in the manner provided by law out of the
Property of the Company or any other obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504.TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes,
their creditors or the Property of the Company or of such other obligor, the
Trustee (irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company or such other
obligor for the payment of overdue principal, premium, if any, 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
premium, if any) 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
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of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and of the
Holders allowed in such judicial proceeding, and
(b) subject to Article Thirteen, to collect and receive any money or other
Property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
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
premium, if any) 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 (and premium, if any) 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
premium, if any) and interest, respectively; and
THIRD: subject to Article Thirteen, the balance, if any, to the
Company.
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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 premium, if any) and (subject to Section 305)
interest on, such Note on the respective Stated Maturities expressed in such
Note (or, in the case of redemption or repurchase, on the Redemption Date or
Repurchase Date, as the case may be) 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.
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.
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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 304,
no right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511.DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512.CONTROL BY HOLDERS.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Notes shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided that
(a) such direction shall not be in conflict with any rule of law or with
this Indenture,
(b) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might involve it in
personal liability or be unduly prejudicial to the Holders not joining therein.
SECTION 513.WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal amount of
the Outstanding Notes, by Act of such Holders, may on behalf of the Holders of
all the Notes waive any existing Default or Event of Default hereunder and its
consequences, except a Default or Event of Default on any Note,
(a) in respect of the payment of the principal of (or premium, if any) 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
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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 discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 25% in aggregate
principal amount of the Outstanding Notes, or to any suit instituted by any
Holder for the enforcement of the payment of the principal of (or premium, if
any) or interest on any Note on or after the respective Stated Maturities
expressed in such Note (or, in the case of redemption or repurchase, on or after
the Redemption Date or the Repurchase Date, as the case may be).
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
premium, if any) 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
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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.
(4) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 602.NOTICE OF DEFAULTS.
Within 90 days after the occurrence of any Event of Default hereunder, the
Trustee shall transmit to the Holders of Notes, in the manner and to the extent
provided in Section 313(c) of the Trust Indenture Act, notice of such Event of
Default hereunder known to the Trustee, unless such Event of Default shall have
been cured or waived; PROVIDED, HOWEVER, that, except in the case of an Event of
Default in the payment of the principal of (or premium, if any) or interest on
any Note, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Trustee in good faith determines
that the withholding of such notice is in the interest of the Holders of Notes.
SECTION 603.CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 601 hereof:
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(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, coupon or other paper or document reasonably believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or a Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
shall be herein specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders of Notes pursuant to this Indenture, unless such Holders
shall have offered to the Trustee reasonable security or indemnity against the
costs, fees, expenses and liabilities which might be incurred by it, including
reasonable fees of counsel, in complying with such request or direction;
(6) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, coupon or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts or
matters as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine, during
business hours and upon reasonable notice, the books, records and premises of
the Company, personally or by agent or attorney; and
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 604.NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES.
The recitals contained herein and in the Notes, except the Trustee's
certificate of authentication, shall be taken as the statements of the Company
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Notes, except that the Trustee
represents that it is duly authorized to execute and deliver this Indenture,
authenticate the Notes and perform its obligations hereunder and that the
statements made by it in a Statement of Eligibility and Qualification on Form
T-1
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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 Money
and other property held or collected by the Trustee as such, except Money and
other property held in trust for the payment of principal of (and premium, if
any) and interest on the 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
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reasonable compensation, expenses and disbursements of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The obligations of the Company under this Section to compensate and
indemnify the Trustee and each predecessor Trustee and to pay or reimburse the
Trustee and each predecessor Trustee for expenses, disbursements and advances
shall constitute an additional obligation hereunder and shall survive the
satisfaction and discharge of this Indenture and the resignation or removal of
the Trustee and each predecessor Trustee.
SECTION 608.CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder that is a Corporation
organized and doing business under the laws of the United States, authorized
under such laws to exercise corporate trust powers, or any other Person
permitted by the Trust Indenture Act to act as trustee under an indenture
qualified under the Trust Indenture Act and that has a combined capital and
surplus (computed in accordance with Section 310(a)(2) of the Trust Indenture
Act) of at least $10,000,000. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 609.RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(1) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee pursuant to Section 610.
(2) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 610 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(3) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in aggregate principal amount of the Outstanding Notes
delivered to the Trustee and the Company.
(4) If at any time:
(a) the Trustee shall fail to comply with the obligations
imposed upon it under Section 310(b) of the Trust Indenture Act after written
request therefor by the Company or any Holder of a Note who has been a bona fide
Holder of a Note for at least six months, or
(b) the Trustee shall cease to be eligible under Section 608
and shall fail to resign after written request therefor by the Company or by any
Holder of the Notes who has been a bona fide Holder of a Note for at least six
months, or
(c) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
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then, in any such case, (i) the Company, by or pursuant to a Board Resolution,
may remove the Trustee, or (ii) subject to Section 315(e) of the Trust Indenture
Act, any Holder of a Note who has been a bona fide Holder of a Note for at least
six months may, on behalf of such Holder and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
(5) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by or pursuant to a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Notes delivered to the Company and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment in accordance with the applicable requirements of
Section 610, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders of Notes and accepted appointment in the manner
required by Section 610, any Holder of a Note who has been a bona fide Holder of
a Note for at least six months may, on behalf of such Holder and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(6) The Company shall give notice of (i) each resignation and each
removal of the Trustee and each appointment of a successor Trustee pursuant to
this Section and (ii) each succession pursuant to Section 611 hereof, in each
case by mailing written notice of such event by first-class mail, postage
prepaid, to the Holders of Notes as their names and addresses appear in the Note
Register. Each notice shall include the name of the successor Trustee and the
address of its Corporate Trust Office.
SECTION 610.ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Upon the appointment hereunder of any successor Trustee, such successor
Trustee so appointed shall execute, acknowledge and deliver to the Company and
the retiring Trustee an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become effective and such
successor Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties hereunder of the retiring
Trustee; but, on the request of the Company or such successor Trustee, such
retiring Trustee, upon payment of all amounts due it under Section 607, shall
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all Money and other property held
by such retiring Trustee hereunder.
Upon request of any Person appointed hereunder as a successor Trustee, the
Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts referred to in this Section.
No Person shall accept its appointment hereunder as a successor Trustee
unless at the time of such acceptance such successor Person shall be qualified
and eligible under this Article.
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SECTION 611.MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any Corporation into which the Trustee may be merged or converted or with
which it may be Consolidated, or any Corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
Corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such Corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto; PROVIDED, HOWEVER, such Corporation shall
notify the Company of its succession as Trustee pursuant to this Section as soon
as practicable. In case any Notes shall have been authenticated but not
delivered by the Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such authentication and
deliver the Notes so authenticated with the same effect as if such successor
Trustee had itself authenticated such Notes.
SECTION 612.APPOINTMENT OF AUTHENTICATION AGENT.
The Trustee, with the prior written consent of the Company and after
giving notice of the appointment described in this Section 612 in the manner
provided in Section 106 to all Holders of Notes, may appoint one or more
Authenticating Agents with respect to the Notes which shall be authorized to act
on behalf of the Trustee to authenticate Notes issued upon original issue,
exchange, registration of transfer, partial redemption or pursuant to Section
304, and Notes so authenticated shall be entitled to the benefits of this
Indenture and shall be valid and obligatory for all purposes as if authenticated
by the Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Notes by the Trustee or the Trustee's certificate
of authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at
all times be a Corporation (organized and doing business under the laws of the
United States, authorized under such laws to act as Authenticating Agent) that
would be permitted by the Trust Indenture Act to act as trustee under an
indenture qualified under the Trust Indenture Act, is authorized under
applicable law and by its charter to act as an Authenticating Agent and has a
combined capital and surplus (computed in accordance with Section 310(a)(2) of
the Trust Indenture Act) of at least $10,000,000. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect specified in this Section.
Any Corporation into which an Authenticating Agent may be merged or
converted or with which it may be Consolidated, or any Corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any Corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall be the successor of
such Authenticating Agent hereunder, provided such Corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and
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the Company. Upon receiving such a notice of resignation or upon such a
termination, or in case at any time such Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section, the Trustee may
appoint a successor Authenticating Agent which shall be acceptable to the
Company and shall give notice of such appointment in the manner provided in
Section 106 to all Holders of Notes, if any, as their names and addresses appear
in the Note Register. Any successor Authenticating Agent, upon acceptance of its
appointment hereunder, shall become vested with all the rights, powers and
duties of its predecessor hereunder, with like effect as if originally named as
an Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provisions of this Section.
The Company agrees to pay each Authenticating Agent from time to time
reasonable compensation for its services under this Section. If the Trustee
makes such payments, it shall be entitled to be reimbursed for such payments,
subject to the provisions of Section 607.
The provisions of Sections 306, 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 (including,
without limitation, the 2001 Indenture) 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).
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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 June 15 and December 15 of each
year, a list, in each case in such form as the Trustee may reasonably require,
of the names and addresses of Holders as of the preceding June 1 or December 1,
as the case may be, and
(2) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the time
such list is furnished,
PROVIDED, HOWEVER, that so long as the Trustee is the Note Registrar no such
list shall be required to be furnished for Notes for which the Trustee acts as
Note Registrar.
SECTION 702.PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS.
The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders of Notes contained in the most
recent list furnished to the Trustee as provided in Section 701 and the names
and address of Holders of Notes received by the Trustee in its capacity as Note
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
The rights of Holders of Notes to communicate with other Holders of Notes
with respect to their rights under this Indenture or under the Notes and the
corresponding rights and privileges of the Trustee, shall be as provided by the
Trust Indenture Act.
Every Holder of Notes, by receiving and holding the same, agrees with the
Company and the Trustee that neither the Company, the Trustee, any Paying Agent
or any Note Registrar or any agent of any of them shall be held accountable by
reason of the disclosure of information as to the names and addresses of the
Holders of Notes made pursuant to the Trust Indenture Act, regardless of the
source from which such information was derived, and that the Trustee shall not
be held accountable by reason of mailing any material pursuant to a request made
under Section 312(b) of the Trust Indenture Act.
SECTION 703.REPORTS BY TRUSTEE.
(1) Within 60 days after May 15 of each year, if required by Section
313(a) of the Trust Indenture Act, the Trustee shall transmit, pursuant to
Section 313(c) of the Trust Indenture Act, a brief report dated as of such May
15 with respect to any of the events specified in said Section 313(a) which may
have occurred since the later of the immediately preceding May 15 and the date
of this Indenture.
(2) The Trustee shall transmit the reports required by Section
313(b) of the Trust Indenture Act at the times specified therein.
(3) Reports pursuant to this Section shall be transmitted in the
manner and to the Persons required by Sections 313(c) and 313(d) of the Trust
Indenture Act.
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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 Section as may be required by rules and regulations prescribed from
time to time by the Commission; provided that notwithstanding the requirements
of such rules and regulations, so long as any Note is Outstanding the Company
shall transmit to the Holders of Notes, within 30 days after the filing thereof
with the Trustee, in the manner and to the extent provided in Section 313(c) of
the Trust Indenture Act, the information, documents and other reports required
to be filed by the Company pursuant to paragraph (1) of this Section; provided
further that in lieu of any Annual Report on Form 10-K or Quarterly Report on
Form 10-Q, the Company may transmit an annual or quarterly report, respectively,
containing financial statements and an undertaking to transmit such Form 10-K or
Form 10-Q, as the case may be, to any Holder upon request; and
(4) furnish to the Trustee the Officers' Certificates required by
Section 1011 hereof.
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ARTICLE EIGHT
CONSOLIDATION, MERGER AND SALES
SECTION 801.COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
Nothing contained in this Indenture shall prevent any consolidation or
merger of the Company with or into any other Person or Persons (whether or not
affiliated with the Company), or successive consolidations or mergers in which
the Company or its successor or successors shall be a party or parties, or shall
prevent any conveyance, transfer or lease of the property of the Company as an
entirety or substantially as an entirety, to any other Person (whether or not
affiliated with the Company); PROVIDED, HOWEVER, that:
(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease all or substantially all its properties and
assets to any Person, the entity formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or transfer, or
which leases, all or substantially all the properties and assets of the Company
shall be a Person organized and existing under the laws of the United States and
shall expressly assume, by an indenture supplemental hereto, executed by the
successor Person and delivered to the Trustee, in form satisfactory to the
Trustee, the due and punctual payment of the principal of (and premium, if any)
and interest on all the Notes and the performance of every other covenant of
this Indenture on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, no event
which, after notice or lapse of time, or both, would become an Event of Default
shall have occurred and be continuing; and
(3) either the Company or the successor Person shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, stating that
such consolidation, merger, conveyance, transfer or lease and such supplemental
indenture comply with this Article and that all conditions precedent herein
provided for relating to such transaction have been complied with.
SECTION 802.SUCCESSOR PERSON SUBSTITUTED FOR COMPANY.
Upon any consolidation or merger or any conveyance, transfer or lease of
all or substantially all the properties and assets of the Company to any Person
in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein;
and thereafter, except in the case of a lease to another Person, the predecessor
Person shall be released from all obligations and covenants under this Indenture
and the Notes.
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ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901.SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holder of Notes, the Company (when authorized
by or pursuant to a Board Resolution) and the Trustee, at any time and from time
to time, may enter into one or more indentures supplemental hereto, which shall
conform with the requirements of the Trust Indenture Act as then in effect and
be in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company, and
the assumption by any such successor of the covenants of the Company herein and
in the Notes; or
(2) to add to or change any of the provisions of this Indenture to
change or eliminate any restrictions on the payment of principal of (or premium,
if any) or interest on Notes or to permit or facilitate the issuance of Notes in
uncertificated form, provided any such action shall not adversely affect the
interests of the Holders of Notes in any material respect; or
(3) to cure any ambiguity or to correct or supplement any provision
herein which may be defective or inconsistent with any other provision herein,
or to make any other provisions with respect to matters or questions arising
under this Indenture which shall not adversely affect the interests of the
Holders of Notes in any material respect; or
(4) to supplement any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the discharge or defeasance
of any Notes pursuant to Article Four or Twelve; provided that any such action
shall not adversely affect the interests of any Holder of a Note in any material
respect; or
(5) to add to the covenants of the Company for the benefit of the
Holders of the Notes (as shall be specified in such supplemental indenture or
indentures) or to surrender any right or power herein conferred upon the
Company; or
(6) to evidence and provide acceptance of the appointment of a
successor Trustee hereunder; or
(7) to add any additional Events of Default; or
(8) to comply with the requirements of the Commission in connection
with the qualification of this Indenture under the Trust Indenture Act; or
(9) to make provision with respect to the repurchase obligations of
the Company pursuant to the requirements of Section 1016; or
(10) to make any change that does not adversely affect the interests
of any Holder of Notes.
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SECTION 902.SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Notes, by Act of said Holders delivered to
the Company and the Trustee, the Company (when authorized by or pursuant to a
Board Resolution), and the Trustee may enter into one or more indentures
supplemental hereto (which shall conform with the requirements of the Trust
Indenture Act as then in effect) for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders of Notes under this
Indenture; PROVIDED, HOWEVER, that no such supplemental indenture, without the
consent of the Holder of each Outstanding Note, shall
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount payable
upon the redemption or repurchase thereof or otherwise, or reduce the rate of
interest thereon, or change the Place of Payment, currency in which the
principal of (or premium, if any) 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 or repurchase, on or
after the Redemption Date or Repurchase Date, as the case may be), or
(2) reduce the percentage in aggregate principal amount of the
Outstanding Notes, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is required for
any waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section, or Section 513 or
Section 1012, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Note affected thereby; or
(4) modify any provisions of this Indenture relating to the relative
ranking of the Notes in a manner adverse to the Holders thereof.
It shall not be necessary for any Act of Holders of Notes under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903.EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trust created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904.EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a
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part of this Indenture for all purposes; and every Holder of a Note theretofore
or thereafter authenticated and delivered hereunder shall be bound thereby.
SECTION 905.REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new Notes so
modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding Notes.
SECTION 906.EFFECT ON SENIOR INDEBTEDNESS.
No supplemental indenture shall adversely affect the rights of the holders
of Senior Indebtedness under Article Thirteen unless expressly consented to in
writing by or on behalf of such holders or by any specified percentage of
holders of a class of Senior Indebtedness required to consent thereto pursuant
to the terms of the agreement or instrument creating, evidencing or governing
such Senior Indebtedness, in which event such supplemental indenture shall be
binding on all successors and assigns of such holders and on all persons who
become holders of such Senior Indebtedness issued after the date of such
amendment or modification.
SECTION 907.RECORD DATE.
If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other action, the Company
may, but shall not be obligated to, fix a record date for the purpose of
determining the Holders entitled to consent to any supplemental indenture,
agreement or instrument or any waiver, and shall promptly notify the Trustee of
any such record date. If a record date is fixed those Persons who were Holders
at such record date (or their duly designated proxies), and only those Persons,
shall be entitled to consent to such supplemental indenture, agreement or
instrument or waiver or to revoke any consent previously given, whether or not
such Persons continue to be Holders after such record date. The record date
shall be a date no more than 30 days prior to the first solicitation of Holders
generally in connection therewith and no later than the date such solicitation
is completed. No such consent shall be valid or effective for more than six
months after such record date. Subject to applicable law, until any supplemental
indenture, agreement, instrument or waiver becomes effective, or a consent to it
by a Holder of a Note shall cease to be valid and effective as set forth in the
preceding sentence, such consent is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note.
ARTICLE TEN
COVENANTS
SECTION 1001. PAYMENT OF PRINCIPAL AND INTEREST.
The principal of (and premium, if any) and interest on the Notes shall be
payable at the Office or Agency of the Company in New York, New York ("Place of
Payment")
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maintained for such purposes pursuant to Section 1002; PROVIDED, HOWEVER, that,
at the option of the Company, payment of interest on certificated Notes on any
Interest Payment Date other than at Maturity may be made (subject to collection)
by check mailed to the address of the Person entitled thereto as such address
shall appear on the Note Register. Payments of principal, premium, if any, and
interest at Maturity shall be made against presentation of Notes at such Office
or Agency. The Company will duly and punctually pay the principal of (and
premium, if any) and interest on the Notes in accordance with the terms thereof
and this Indenture. Principal, premium, if any, and interest shall be considered
paid on the date due if by 11:00 a.m., Eastern time, on such date the Trustee or
Paying Agent (other than the Company or its Affiliates) holds in accordance with
this Indenture Money sufficient to pay all principal, premium, if any, 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 (and premium, if any) 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 (and premium, if any) 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 (and premium, if any) or interest on
the Notes, deposit with any Paying Agent a sum of Money sufficient to pay the
principal (and premium, if any) 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.
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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
(and premium, if any) 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
(and premium, if any) or interest on the Notes; and
(3) at any time during the continuance of any such Event of Default,
upon the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent for payment in respect of the Notes.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same terms as those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such sums.
The Trustee and each Paying Agent shall promptly pay to the Company upon Company
Request any Money held by them (other than pursuant to Article Twelve) at any
time in excess of amounts required to pay principal of, premium, if any, 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 (and premium, if any)
or interest on any Note and remaining unclaimed for one year after such
principal (and premium, if any) or interest shall have become due and payable
shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust Money, and all liability of the Company as trustee
thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such
Paying Agent, before being required to make any such repayment, shall at the
expense of the Company cause to be published once, in an Authorized Newspaper
published in The City of New York, notice that such Money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such Money then remaining
will be repaid to the Company.
SECTION 1004. CORPORATE EXISTENCE.
Subject to Article Eight, the Company shall do or cause to be done all
things reasonably necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and its Material Subsidiaries; PROVIDED, HOWEVER, that the foregoing
shall not obligate the Company to preserve any such right or franchise if the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and its Material Subsidiaries,
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taken as a whole, and that the loss thereof is not disadvantageous in any
material respect to the Holders of the Notes.
SECTION 1005. MAINTENANCE OF PROPERTIES.
The Company will cause its properties and the properties of its Material
Subsidiaries (other than properties obtained by the Company or any Material
Subsidiary through foreclosure or other resolution of any loan) used or held for
use in the conduct of the business of the Company and its Material Subsidiaries
to be maintained and kept in good condition, repair and working order (ordinary
wear and tear excepted), all as in the judgment of the Company may be necessary
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times; PROVIDED, HOWEVER, that the foregoing
shall not prevent the Company or a Material Subsidiary from discontinuing the
operation and maintenance of any of its properties if such discontinuance is, in
the judgment of the Company, desirable in the conduct of its business or the
business of any Material Subsidiary and not disadvantageous in any material
respect to the Holders of the Notes.
SECTION 1006. RESTRICTIONS ON DIVIDENDS, REDEMPTIONS AND OTHER PAYMENTS.
(a) The Company shall not, either directly or indirectly through any
Restricted Subsidiary, (i) declare or pay any dividend, either in cash or
property, on any shares of its capital stock (except dividends or other
distributions payable solely in shares of capital stock of the Company), (ii)
purchase, redeem or retire any shares of its capital stock or any warrants,
rights or options to purchase or acquire any shares of its capital stock or
(iii) make any other payment or distribution, in respect of the Company's
capital stock (such dividends, purchases, redemptions, retirements, payments and
distributions being herein collectively called "Restricted Payments") if, after
giving effect thereto,
(1) an Event of Default would have occurred; or
(2) (A) the sum of (i) such Restricted Payments plus (ii) the
aggregate amount of all Restricted Payments made during the period after the
date of this Indenture would exceed (B) the sum of (i) $5 million plus (ii) 25%
of the Company's Consolidated Net Income subsequent to March 31, 1997 (with 100%
reduction for a loss).
(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 Series A
Preferred Stock of the Company outstanding on the date of this Indenture;
(ii) the payment of any dividend on any other Capital Stock of the
Company or any Restricted Subsidiary within 60 days after the date of
declaration thereof, if at such declaration date such declaration complied with
the provisions of paragraph (a) above (and such payment shall be deemed to have
been paid on such date of declaration for purposes of any calculation required
by the provisions of paragraph (a) above); and
(iii) the repurchase, redemption or other acquisition or retirement
of (A) the Series A Preferred Stock of the Company outstanding on the date of
this Indenture and (B) 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
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issue and sale (other than to a Restricted Subsidiary) of shares of common stock
of the Company.
The actions described in clauses (i), (ii) and (iii) of this paragraph (b) shall
be Restricted Payments that shall be permitted to be taken in accordance with
this Section and shall not reduce the amount that would otherwise be available
for Restricted Payments under clause (2) of paragraph (a). For purposes of this
Section 1006, the amount of any Restricted Payment payable in property shall be
deemed to be the fair market value of such property as determined by the Board
of Directors of the Company.
SECTION 1007. LIMITATIONS ON INDEBTEDNESS FOR MONEY BORROWED.
(a) The Company will not, and will not permit any Restricted Subsidiary
to, create, incur, assume, guarantee or become liable (collectively "incur")
with respect to any Indebtedness for Money Borrowed (including Acquired
Indebtedness but excluding Permitted Indebtedness) if, immediately after giving
effect to any such creation, incurrence, assumption or guarantee (including
giving effect to the retirement of any existing Indebtedness for Money Borrowed
from the proceeds of such additional Indebtedness for Money Borrowed):
(i) The ratio of (a) the aggregate amount of the outstanding
Indebtedness for Money Borrowed of the Company and its Restricted
Subsidiaries at the end of the immediately preceding fiscal quarter of the
Company, as determined on a Consolidated basis in accordance with GAAP, to
(b) the Consolidated EBITDA for the immediately preceding four fiscal
quarter of the Company, would exceed 10.0 to 1.0; or
(ii) The Interest Coverage Ratio would have been at least 2.4 to
1.0.
(b) The Company will not permit any Restricted Subsidiary to incur any
Indebtedness for Money Borrowed (except Indebtedness for Money Borrowed to the
Company or another Restricted Subsidiary) that is expressly subordinate in right
of payment to any other Indebtedness for Money Borrowed of such Restricted
Subsidiary.
SECTION 1008. LIMITATION LIENS.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind, except for Permitted Liens, upon any of their respective assets or
properties, whether now owned or acquired after the date of this Indenture, or
any income or profits therefrom to secure any Pari Passu Indebtedness or
Subordinated Indebtedness, unless prior to or contemporaneously therewith the
Notes are directly secured equally and ratably, provided that (1) if such
secured indebtedness is Pari Passu Indebtedness, the Lien securing such Pari
Passu Indebtedness shall be subordinate and junior to, or PARI PASSU with, the
Lien securing the Notes and (2) if such secured indebtedness is Subordinated
Indebtedness, the Lien securing such Subordinated Indebtedness shall be
subordinate and junior to the Lien securing the Notes at least to the same
extent as such Subordinated Indebtedness is subordinated to the Notes. The
foregoing covenant will not apply to any Lien securing Acquired Indebtedness,
provided that any such Lien extends only to the properties or assets that were
subject to such Lien prior to the related acquisition by the Company or such
Restricted Subsidiary and was not created, incurred or assumed in contemplation
of such transaction.
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SECTION 1009. INSURANCE.
The Company shall carry and maintain, and cause each of its Restricted
Subsidiaries to carry and maintain, insurance with financially sound and
reputable insurance companies or associations in such amounts and covering such
risks as is usually carried by similarly-situated companies engaged in similar
operations and owning similar properties in similar geographic areas in which
the Company or such Restricted Subsidiary operates, provided that such insurance
is generally available at commercially reasonable rates, and provided further
that the Company or any Restricted Subsidiary may self-insure, or insure through
captive insurers or insurance cooperatives to the extent consistent with prudent
business practices.
SECTION 1010. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or property of the Company or any
Restricted Subsidiary and (2) all material lawful claims for labor, materials
and supplies which, if unpaid, might by law become a Lien upon the property of
the Company or any Restricted Subsidiary; PROVIDED, HOWEVER, that the Company
and its Restricted Subsidiaries shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which appropriate provision has been made in
accordance with GAAP.
SECTION 1011. STATEMENT BY OFFICERS AS TO DEFAULT.
The Company will deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company and within 45 days after the end of each of the
first, second and third quarters of each fiscal year of the Company, an
Officers' Certificate, stating whether or not to the best knowledge of the
signers thereof (one of whom shall be the principal executive officer, the
principal financial officer or the principal accounting officer of the Company)
the Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder), and, if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge. In addition, the Company shall deliver to the
Trustee, forthwith upon any of its officers becoming aware of any Default or
Event of Default, an Officers' Certificate specifying such Default or Event of
Default and what action the Company is taking or proposes to take with respect
thereto.
SECTION 1012. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Sections 1005 through 1011 and 1013 through
1015 if, before or after the time for such compliance the Holders of at least a
majority in aggregate principal amount of the Outstanding Notes, by Act of such
Holders, either shall waive such compliance in such instance or generally shall
have waived compliance with such term, provision or condition, but no such
waiver shall extend to or affect such term, provision or condition except to the
extent so expressly waived, and, until such waiver
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shall become effective, the obligations of the Company and the duties of the
Trustee in respect of any such term, provision or condition shall remain in full
force and effect.
SECTION 1013. LIMITATION ON RANKING OF FUTURE INDEBTEDNESS.
The Company will not incur (as such term is defined in Section 1007(a)) or
permit to remain outstanding any Indebtedness for Money Borrowed (including
Acquired Indebtedness and Permitted Indebtedness) which is expressly subordinate
in right of payment to any Senior Indebtedness, other than Subordinated
Indebtedness or Pari Passu Indebtedness. For purposes of this Section 1013, the
incurrence of Senior Indebtedness which is unsecured shall not, because of its
unsecured status, be deemed to be subordinate in right of payment to any Senior
Indebtedness which is secured.
SECTION 1014. LIMITATIONS ON RESTRICTING SUBSIDIARY DIVIDENDS.
The Company shall not and shall not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause to become effective any
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (a) pay dividends in cash or make any other distribution on its
capital stock to the Company or any other Restricted Subsidiary, (b) pay any
indebtedness owed to the Company or any other Restricted Subsidiary, (c) make
loans, advances, or capital contributions to the Company or any other Restricted
Subsidiary, or (d) transfer any of its properties or assets to the Company or
another Restricted Subsidiary, except in each instance (i) as set forth in the
instrument evidencing or the agreement governing Acquired Indebtedness of any
acquired Person which becomes a Restricted Subsidiary, provided, that any
restriction or encumbrance under such instrument or agreement existed at the
time of acquisition, was not put in place in anticipation of such acquisition,
and is not applicable to any Person, other than the Person or property or assets
of the Person so acquired; (ii) customary provisions of any lease or license of
the Company or any Restricted Subsidiary relating to the property covered
thereby and entered into in the ordinary course of business; (iii) any
encumbrance or restriction arising under applicable law; (iv) any encumbrance or
restriction arising under this Indenture, the Credit Facility, or other
indebtedness or other agreements existing on the Issue Date; (v) any
restrictions with respect to a Restricted Subsidiary imposed pursuant to an
agreement that has been entered into for the sale or disposition of the stock,
business, assets or properties of such Restricted Subsidiary; (vi) any
encumbrance or restriction arising under the terms of purchase money
obligations, but only to the extent such purchase money obligations restrict or
prohibit the transfer of the property so acquired; (vii) any encumbrance or
restriction arising under customary non-assignment provisions in installment
purchase contracts; (viii) any encumbrance or restriction on the ability of any
Restricted Subsidiary to transfer any of its property acquired after the date of
this Indenture to the Company or any other Restricted Subsidiary that is
required by a lender to, or purchaser of any indebtedness of, such Restricted
Subsidiary in connection with a financing of the acquisition of such property
(including with respect to the purchase of asset portfolios and pursuant to the
underwriting or origination of mortgage loans) by such Restricted Subsidiary;
and (ix) any encumbrance or restriction pursuant to any agreement that extends,
refinances, renews or replaces any agreement described in the foregoing clauses
(i) through (viii); and except with respect to clause (d) only, restrictions in
the form of Liens which are not prohibited under Section 1008 and which contain
customary limitations on the transfer of collateral.
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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.
SECTION 1016.PURCHASE OF NOTES UPON CERTAIN EVENTS
(a) In the event that Senior Indebtedness of the Company and its
Restricted Subsidiaries is not less than the greater of $50 million and 45% of
Total Consolidated Assets for at least 30 consecutive days during any
consecutive 12-month period after August 1, 1997 (such event is referred to as a
"Repurchase Event" and the last day of such 12-month period is referred to as
the "Repurchase Event Date"), each Holder of Notes shall have the right to
require the Company to purchase such Holder's Notes, in whole or in part, in a
principal amount that is an integral multiple of $1,000, pursuant to the offer
described in Section 1016(b) hereof (the "Repurchase Offer") at a purchase price
(the "Purchase Price") in cash equal to (i) if the Repurchase Event Date is on
or before July 31, 2000, 104% of the aggregate principal amount thereof, (ii) if
the Repurchase Event Date is after July 31, 2000 and on or before July 31, 2001,
102% of the aggregate principal amount thereof or (iii) if the Repurchase Event
Date is after July 31, 2001, 100% of the aggregate principal amount thereof, in
each case plus accrued and unpaid interest, if any, thereon to the date of
purchase (the "Repurchase Date").
Solely for purposes of this Section 1016 only, "SENIOR INDEBTEDNESS" means
the principal amount of (and premium, if any), and interest on and all other
amounts due on or in connection with, (1) any Indebtedness for Money Borrowed of
the Company and its Restricted Subsidiaries, 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 or its Restricted
Subsidiaries, as applicable, and (2) all renewals, extensions and refundings of
any such indebtedness.
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(b) Within 30 calendar days after any Repurchase Event Date, the Company,
or within 15 days after such occurrence, the Trustee at the request and expense
of the Company, shall send to each Holder, in the manner provided in Section 106
a notice (the "Company Notice") prepared by the Company stating:
(1) that a Repurchase Event has occurred and a Repurchase Offer is
being made pursuant to this Section 1016, and that all Notes that are timely
tendered will be accepted for payment;
(2) the Purchase Price and the Repurchase Date, which date shall be
a Business Day 45 days subsequent to the date such notice is mailed;
(3) that any Notes or portions thereof not tendered or accepted for
payment will continue to accrue interest;
(4) that, unless the Company defaults in the payment of the Purchase
Price with respect thereto, all Notes or portions thereof accepted for payment
pursuant to the Repurchase Offer shall cease to accrue interest from and after
the Repurchase Date;
(5) that any Holder electing to have any Notes or portions thereof
purchased pursuant to a Repurchase Offer will be required to surrender such
Notes, with the form to elect purchase by the Company pursuant to this Section
1016 completed, to the Paying Agent at the address specified in the notice,
prior to the close of business on the third Business Day preceding the
Repurchase Date;
(6) that any Holder shall be entitled to withdraw such election if
the Paying Agent receives, not later than the close of business on the second
Business Day preceding the Repurchase Date, a facsimile transmission or letter,
setting forth the name of the Holder, the principal amount of Notes delivered
for purchase and a statement that such Holder is withdrawing such Holder's
election to have such Notes or portions thereof purchased pursuant to the
Repurchase Offer;
(7) that any Holder electing to have Notes purchased pursuant to the
Repurchase Offer must specify the principal amount that is being tendered for
purchase, which principal amount must be $1,000 or an integral multiple thereof;
(8) if certificated Notes have been issued pursuant to this
Indenture, that any Holder of certificated Notes whose certificated Notes are
being purchased only in part will be issued new certificated Notes equal in
principal amount to the unpurchased portion of the certificated Notes
surrendered, which unpurchased portion will be equal in principal amount to
$1,000 or an integral multiple thereof; and
(9) any other information necessary to enable any Holder to tender
Notes and to have such Notes purchased pursuant to this Section 1016.
(c) On the Repurchase Date, the Company shall, to the extent lawful, (i)
accept for payment all Notes or portions thereof properly tendered pursuant to
the Repurchase Offer, (ii) irrevocably deposit with the Paying Agent, by 11:00
a.m., Eastern time, on such date, in immediately available funds, an amount
equal to the Repurchase Price in respect of all Notes or portions thereof so
accepted and (iii) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the aggregate
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principal amount of Notes or portions thereof being purchased by the Company.
The Paying Agent shall promptly send, in the manner provided in Section 106, to
each Holder of Notes or portions thereof so accepted for payment the Purchase
Price for such Notes or portions thereof. The Company shall publicly announce
the results of the Repurchase Offer on or as soon as practicable after the
Repurchase Date. For purposes of this Section 1016, the Trustee shall act as the
Paying Agent.
(d) Upon surrender and cancellation of a certificated Note that is
purchased in part pursuant to the Repurchase Offer, the Company shall promptly
issue and the Trustee shall authenticate and deliver to the surrendering Holder
of such certificated Note a new certificated Note equal in principal amount to
the unpurchased portion of such surrendered certificated Note; provided that
each such new certificated Note shall be in a principal amount of $1,000 or an
integral multiple thereof.
(e) The Company shall comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that a Repurchase Offer occurs and the
Company is required to purchase Notes as described in this Section 1016. To the
extent that the provisions of any securities laws or regulations conflict with
the provisions relating to the Repurchase Offer, the Company will comply with
the applicable securities laws and regulations and will not be deemed to have
breached its obligations under this Section 1016 by virtue thereof.
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. RIGHT OF REDEMPTION.
The Notes shall not be redeemable at the option of the Company prior to
September 15, 2000. The Company may, at its option, redeem all or any part of
the Notes at any time on or after September 15, 2000, at the Redemption Prices
(expressed as percentages of principal amount) specified in the form of the
Initial Note and the form of the Exchange Note, 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
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prior to the Redemption Date by the Trustee from the Outstanding Notes, by lot
or such other method as the Trustee shall deem fair and appropriate and which
may provide for the selection for redemption of portions of the principal amount
of Notes; PROVIDED, HOWEVER, that no such partial redemption shall reduce the
portion of the principal amount of a Note not redeemed to less than the minimum
denomination for a Note established herein.
The Trustee shall promptly notify the Company and the Note Registrar (if
other than itself) in writing of the Notes selected for redemption and, in the
case of any Notes selected for partial redemption, the principal amount thereof
to be redeemed.
The provisions of the two preceding paragraphs shall not apply with
respect to any redemption affecting only a single Note, whether such Note is to
be redeemed in whole or in part. In the case of any such redemption in part, the
unredeemed portion of the principal amount of the Note shall be in an authorized
denomination (which shall not be less than the minimum authorized denomination)
for such Note.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Notes shall relate, in the case of
any Notes redeemed or to be redeemed only in part, to the portion of the
principal of such Notes which has been or is to be redeemed.
SECTION 1104. NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided in Section 106,
not less than 30 nor more than 60 days prior to the Redemption Date, to the
Holders of Notes to be redeemed. Failure to give notice by mailing in the manner
herein provided to the Holder of any Notes designated for redemption as a whole
or in part, or any defect in the notice to any such Holder, shall not affect the
validity of the proceedings for the redemption of any other Notes or portion
thereof.
Any notice that is mailed to the Holder of any Notes in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
such Holder receives the notice.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if fewer than all Outstanding Notes consisting of more than a
single Note are to be redeemed, the identification (and, in the case of partial
redemption of any such Notes, the principal amounts) of the particular Notes to
be redeemed and, if less than all the Outstanding Notes consisting of a single
Note are to be redeemed, the principal amount of the particular Note to be
redeemed,
(4) that, on the Redemption Date, the Redemption Price shall become
due and payable upon each such Note or portion thereof to be redeemed and that
interest thereon shall cease to accrue on and after said date,
(5) the place or places where such Notes are to be surrendered for
payment of the Redemption Price, and
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(6) the CUSIP number of such Notes, if any (or any other numbers
used by a Depository to identify such Notes).
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1105. DEPOSIT OF REDEMPTION PRICE.
On or before 11:00 a.m., Eastern time, on any Redemption Date, the Company
shall deposit with the Trustee or with a Paying Agent (or, if the Company is
acting as its own Paying Agent, segregate and hold in trust as provided in
Section 1003) Money in an amount sufficient to pay the Redemption Price of, and
(except if the Redemption Date shall be an Interest Payment Date) any accrued
interest on, all the Notes or portions thereof which are to be redeemed on that
date. Upon Company Order, the Paying Agent shall promptly return to the Company
any Money so deposited which is not required for such purpose.
SECTION 1106. NOTES PAYABLE ON REDEMPTION DATE.
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 305.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any), until paid, shall
bear interest from the Redemption Date at the rate prescribed therefor in the
Note.
SECTION 1107. NOTES REDEEMED IN PART.
Any Note which is to be redeemed only in part shall be surrendered at the
Office or Agency for such Note indicated in the notice of redemption (with, if
the Company or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Trustee duly
executed by, the Holder thereof or such Holder's attorney duly authorized in
writing), and the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of such Note, without service charge, a new Note or Notes,
of any authorized denomination as requested by such Holder in aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal of the Note so surrendered.
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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 premium, if any) 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 301, 302, 303, 304, 607, 609, 610,
1002, and 1003, (C) the rights, powers, trusts, duties and immunities of the
Trustee hereunder, and (D) the obligations of the Company under this Article
Twelve. Subject to compliance with this Article Twelve, the Company may exercise
its option under this Section 1202 notwithstanding the prior exercise of its
option under Section 1203 with respect to the Notes.
SECTION 1203. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 1201 of the option applicable to
this Section 1203, (i) the Company shall be released from its obligations under
any covenant contained in Article Eight, in Sections 1005 through 1015 and any
covenant added to this Indenture pursuant to Section 901(2), and (ii) the
occurrence of any event specified in Section 501(3) (with respect to any of
Article Eight, Sections 1005 through 1015, and any covenant added to this
Indenture pursuant to Section 901(2)), 501(4), 501(5), or 501(8)) shall be
deemed not to be or result in an Event of Default, in each case with respect to
the Outstanding Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"), and the Notes shall thereafter
be deemed not to be "Outstanding" for the purposes of any direction, waiver,
consent, declaration or other
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action of any Holders (and the consequences of any thereof) in connection with
such covenants, but shall continue to be deemed "Outstanding" for all other
purposes hereunder. For this purpose, such covenant defeasance means that, with
respect to the Outstanding Notes, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such Section (to the extent so specified in the case of Section 50l(3)
hereof) whether directly or indirectly, by reason of any reference elsewhere
herein to any such Section or by reason of any reference in any such Section to
any other provision herein or in any other document, but, except as specified
above, the remainder of this Indenture and such Notes shall be unaffected
thereby.
SECTION 1204. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE.
The following shall be the conditions to application of either Section
1202 or Section 1203 hereof to the Outstanding Notes:
(a) The Company shall irrevocably have deposited or caused to be deposited
with the Trustee (or another trustee satisfying the requirements of Section 608
hereof who shall agree to comply with the provisions of this Article Twelve
applicable to it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of such Notes, (A) Money in an amount, or (B)
Government Obligations which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment, Money in an amount, or
(C) a combination thereof, sufficient, in the opinion of a firm of Independent
Public Accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, and which shall be applied by the Trustee (or
other qualifying trustee) to pay and discharge, the principal of (and premium,
if any) and interest on the Outstanding Notes on the Stated Maturity thereof (or
Redemption Date, if applicable), provided that the Trustee shall have been
irrevocably instructed in writing by the Company to apply such Money or the
proceeds of such Government Obligations to said payments with respect to the
Notes. Before such a deposit, the Company may give to the Trustee, in accordance
with Section 1102, a notice of its election to redeem all of the Outstanding
Notes at a future date in accordance with Article Eleven, which notice shall be
irrevocable. Such irrevocable redemption notice, if given, shall be given effect
in applying the foregoing.
(b) No Default or Event of Default shall have occurred and be continuing
on the date of such deposit or, insofar as Section 501(6) or 501(7) is
concerned, at any time during the period ending on the 91st day after the date
of such deposit.
(c) Such legal defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest under this Indenture or the Trust
Indenture Act with respect to any securities of the Company.
(d) Such legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any other material
agreement or instrument to which the Company is a party or by which it is bound,
as evidenced to the Trustee in an Officers' Certificate delivered to the Trustee
concurrently with such deposit.
(e) In the case of an election under Section 1202 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has
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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).
(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 premium, if
any) and interest, but such Money need not be segregated from other funds except
to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the Government Obligations deposited
pursuant to Section 1204 hereof or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Notes.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any Money or Government Obligations held by it as provided in Section
1204 which, in the opinion of a firm of Independent Public Accountants expressed
in a written certification thereof delivered to the Trustee, are in excess of
the amount thereof which would then be required to be deposited to effect an
equivalent legal defeasance or covenant defeasance as applicable, in accordance
with this Article.
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SECTION 1206. REINSTATEMENT.
If the Trustee or any Paying Agent is unable to apply any Money in
accordance with Section 1205 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 1204 until such time as the Trustee or Paying Agent is permitted to
apply all such Money in accordance with Section 1205; PROVIDED, HOWEVER, that if
the Company makes any payment of principal of (or premium, if any) 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 premium, if any) 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 premium, if any) 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.
This Article Thirteen shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Indebtedness, and such provisions are made for the benefit of the holders
of Senior Indebtedness, and such holders are made obligees hereunder and any one
or more of them may enforce such provisions.
SECTION 1302. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
Upon any distribution of Properties of the Company or payment on behalf of
the Company with respect to the Notes in the event of any Insolvency or
Liquidation Proceeding with respect to the Company:
(a) the holders of Senior Indebtedness shall be entitled to receive
payment in full of such Senior Indebtedness, or provision must be made for such
payment, before the Holders of the Notes are entitled to receive any direct or
indirect payment or distribution of any kind or character, whether in cash,
property or securities (other than Permitted Junior Securities) on account of
principal of (or premium, if any, on) or interest on the Notes or on account of
the purchase or redemption or other acquisition of Notes; and
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(b) any direct or indirect payment or distribution of Properties of the
Company of any kind or character, whether in cash, property or securities (other
than a payment or distribution in the form of Permitted Junior Securities), by
set-off or otherwise, to which the Holders or the Trustee, on behalf of the
Holders, would be entitled but for the provisions of this Article shall be paid
by the Company or by any liquidating trustee or agent or other Person making
such payment or distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior Indebtedness
or their representative or representatives or to the trustee or trustees under
any indenture under which any instruments evidencing any of such Senior
Indebtedness may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the Senior Indebtedness held or represented by
each, to the extent necessary to make payment in full of all Senior Indebtedness
after giving effect to any concurrent payment or distribution to the holders of
such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Note shall have received any payment
or distribution of Properties of the Company of any kind or character, whether
in cash, property or securities, by set-off or otherwise, in respect of
principal of (and premium, if any) or interest on the Notes before all Senior
Indebtedness is paid or provided for in full, then and in such event such
payment or distribution (other than a payment or distribution in the form of
Permitted Junior Securities) shall be received and held in trust for and shall
be paid over or delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other Person making payment
or distribution of assets of the Company, to the extent necessary to pay all
Senior Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company into,
another Person or the liquidation or dissolution of the Company following the
sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all its Properties to another Person or group of Affiliated
Persons pursuant to, and in compliance with, the terms and conditions set forth
in Article Eight hereof shall not be deemed an Insolvency or Liquidation
Proceeding (requiring the repayment of all Senior Indebtedness in full as a
prerequisite to any payments being made to the Holders) for the purposes of this
Section.
SECTION 1303. SUSPENSION OF PAYMENT WHEN SENIOR INDEBTEDNESS IN DEFAULT.
(a) Upon (1) the occurrence of a Payment Event of Default and (2) receipt
by the Trustee of written notice of such occurrence, then no payment or
distribution of any Properties of the Company of any kind or character (other
than Permitted Junior Securities) shall be made by the Company on account of
principal of (or premium, if any) or interest on the Notes or on account of the
purchase or redemption or other acquisition of Notes unless and until such
Payment Event of Default shall have been cured or waived in writing or shall
have ceased to exist or such Specified Senior Indebtedness shall have been paid
in full or otherwise discharged, after which (unless otherwise prohibited by
Section 1302) the Company shall resume making any and all required payments in
respect of the Notes, including any missed payments.
(b) Upon (1) the occurrence of a Non-payment Event of Default with respect
to any Specified Senior Indebtedness and (2) receipt by the Trustee and the
Company of written notice of such occurrence from one or more of the holders of
such Specified Senior Indebtedness (or their representative), then no payment or
distribution of any
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Properties of the Company of any kind or character (other than Permitted Junior
Securities) shall be made by the Company on account of any principal of (or
premium, if any) 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 by the Trustee or the Company of such notice
(the "Payment Blockage Notice") from one or more of the holders of such
Specified Senior Indebtedness (or their representative) and shall end on the
earliest of (i) 179 days thereafter, (ii) the date, as set forth in a written
notice from the holders of the Specified Senior Indebtedness (or their
representative) to the Company or the Trustee, on which such Non-payment Event
of Default is cured, waived in writing or ceases to exist or such Specified
Senior Indebtedness is discharged or (iii) the date on which such Payment
Blockage Period shall have been terminated by written notice to the Company or
the Trustee from one or more of the holders (or their representative) initiating
such Payment Blockage Period, after which the Company will resume (unless
otherwise prohibited pursuant to the immediately preceding paragraph or Section
1302) making any and all required payments in respect of the Notes, including
any missed payments. In any event, not more than one Payment Blockage Period may
be commenced during any period of 360 consecutive days. No Non-payment Event of
Default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee will be, or can be, made the basis for the
commencement of a subsequent Payment Blockage Period.
(c) In the event that the Trustee or any Holder receives any payment with
respect to the Notes at a time when the Trustee or such Holder, as applicable,
has actual knowledge that such payment is prohibited by the foregoing provisions
of this Section 1303, then and in such event such payment shall be paid over and
delivered forthwith to the Company.
SECTION 1304.PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article or elsewhere in this Indenture or in any
of the Notes shall prevent the Company, at any time except during the pendency
of any Insolvency or Liquidation Proceeding referred to in Section 1302 or under
the conditions described in Section 1303, from making payments at any time of
principal of (and premium, if any) or interest on the Notes.
SECTION 1305. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.
After the payment in full of all Senior Indebtedness, the Holders of the
Notes shall be subrogated (equally and ratably with the holders of all
indebtedness of the Company which by its express terms is subordinated to Senior
Indebtedness to substantially the same extent as the Notes are so subordinated
and which is entitled to like rights of subrogation as a result of the payments
made to the holders of Senior Indebtedness) to the rights of the holders of
Senior Indebtedness to receive payments and distributions of cash, property and
securities applicable to Senior Indebtedness until all amounts owing on the
Notes shall be paid in full. For purposes of such subrogation, no payments or
distributions to the holders of Senior Indebtedness by or on behalf of the
Company or by or on behalf of the Holders by virtue of this Article which
otherwise would have been made to the Holders shall, as between the Company, its
creditors other than holders of Senior Indebtedness, and the Holders of the
Notes, be deemed to be a payment or distribution by the Company to or on account
of the Senior Indebtedness.
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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 premium, if any) and interest on the
Notes as and when the same shall become due and payable in accordance with their
terms; or (b) affect the relative rights against the Company of the Holders of
the Notes and creditors of the Company other than the holders of Senior
Indebtedness; or (c) prevent the Trustee or the Holder of any Note from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article of the holders
of Senior Indebtedness.
SECTION 1307. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder of a Note by his acceptance thereof authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination provided in this Article and appoints the Trustee
as his attorney-in-fact for any and all such purposes, including, in the event
of any Insolvency or Liquidation Proceeding with respect to the Company, the
immediate filing of a claim for the unpaid balance of his Notes pursuant to this
Indenture in the form required in said proceedings and the causing of said claim
to be approved.
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.
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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 (and premium, if
any) 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.
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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 premium, if any) 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
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amount to the Company or any holder of Senior Indebtedness or any other creditor
of the Company.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the day and year first above written.
CALLON PETROLEUM COMPANY
By /s/ H. MICHAEL TATUM
Name: H. Michael Tatum
Title: Vice President and Secretary
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By: /s/ HERBERT J. LEMMER
Name: Herbert J. Lemmer
Title: Vice President
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APPENDIX A
PROVISIONS RELATING TO INITIAL NOTES AND EXCHANGE NOTES
ARTICLE I. DEFINITIONS
SECTION 1.1 DEFINITIONS. For the purposes of this Appendix A the following
terms shall have the meanings indicated below:
"DEFINITIVE NOTE" means a certificated Initial Note bearing the restricted
securities legend set forth in Section 2.3 (d) and which is held by an IAI or
QIB in accordance with Section 2.1(c).
"DEPOSITORY" means The Depository Trust Company, its nominees and their
respective successors.
"EXCHANGE NOTES" means the 10.125% Series B Senior Subordinated Notes due
2002 to be issued pursuant to this Indenture in connection with a Registered
Exchange Offer pursuant to the Registration Agreement.
"IAI" means an institutional "accredited investor" as described in Rule
501(a)(1), (2), (3) or (7) under the Securities Act.
"INITIAL PURCHASER" means Morgan Keegan & Company, Inc.
"INITIAL NOTES" means the 10.125% Series A Senior Subordinated Notes due
2002, issued under this Indenture on or about the date hereof.
"NOTES" means the Initial Notes and the Exchange Notes, treated as a
single class.
"PURCHASE AGREEMENT" means the Purchase Agreement dated as of July 31,
1997, among the Company and the Initial Purchaser, as such may be amended from
time to time.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"REGISTERED EXCHANGE OFFER" means the offer by the Company, pursuant to
the Registration Agreement, to certain Holders of Initial Notes, to issue and
deliver to such Holders, in exchange for the Initial Notes, a like aggregate
principal amount of Exchange Notes registered under the Securities Act.
"REGISTRATION AGREEMENT" means the Registration Agreement dated as of July
31, 1997, between the Company and the Initial Purchaser, as such may be amended
from time to time.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SECURITIES CUSTODIAN" means the custodian with respect to a Global Note
(as appointed by the Depository), or any successor person thereto and shall
initially be the Trustee.
"SHELF REGISTRATION STATEMENT" means the registration statement issued by
the Company in connection with the offer and sale of Initial Notes pursuant to
the Registration Agreement.
"TRANSFER RESTRICTED NOTES" means Definitive Notes and Notes that bear or
are required to bear the legend set forth in Section 2.3(d) hereto.
SECTION 1.2 OTHER DEFINITIONS. Certain other capitalized terms are defined
in the Indenture.
ARTICLE II. THE NOTES
SECTION 2.1 FORM AND DATING. The Initial Notes are being offered and sold
by the Company pursuant to the Purchase Agreement.
(A) GLOBAL NOTES. Initial Notes offered and sold to a QIB in reliance on
Rule 144A under the Securities Act ("Rule 144A") as provided in the Purchase
Agreement, shall be issued initially in the form of one or more permanent Global
Notes in definitive, fully registered form without interest coupons with the
Global Notes legend and restricted securities legend set forth in Exhibit 1
hereto (each, a "Global Note"), which shall be deposited on behalf of the
purchasers of the Initial Notes represented thereby with the Trustee, as
custodian for the Depository (or with such other custodian as the Depository may
direct), and registered in the name of the Depository or a nominee of the
Depository, duly executed by the Company and authenticated by the Trustee as
provided in the Indenture. Exchange Notes shall be issued initially in the form
of one or more permanent Global Notes, substantially in the form set forth in
Exhibit 2 hereto, deposited with the Trustee, as custodian for the Depository
(or with such other custodian as the Depository may direct), and registered in
the name of the Depository or a nominee of the Depository, duly executed by the
Company and authenticated by the Trustee as provided in the Indenture and shall
bear the Global Notes legend set forth in Exhibit 2 hereto. The aggregate
principal amount of the Global Notes may from time to time be increased or
decreased by adjustments made on the records of the Trustee and the Depository
or its nominee as hereinafter provided.
(B) BOOK-ENTRY PROVISIONS. This Section 2.1(b) shall apply only to a
Global Note deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with this
Section 2.1(b) and pursuant to an order of the Company, authenticate and deliver
initially one or more Global Notes that (i) shall be registered in the name of
the Depository for such Global Note or Global Notes or the nominee of such
Depository and (ii) shall be delivered by the Trustee to such Depository or
pursuant to such Depository's instructions or held by the Trustee as custodian
for the 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 by the Trustee as the custodian of the
Depository, or under any Global
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Note, and the Depository or its nominee, as the case may be, 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, the Trustee or any
agent of the Company or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depository or shall
impair, as between the Depository and its Agent Members, the operation of
customary practices of such Depository governing the exercise of the rights of a
holder of a beneficial interest in any Global Note.
Ownership of beneficial interests in any Global Note will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depository or its nominee (with respect to interests of Agent Members) and the
records of Agent Members (with respect to interests of Persons other than Agent
Members).
(C) DEFINITIVE NOTES. Except as provided in this Section 2.1 or Sections
2.3 or 2.4, owners of beneficial interests in Global Notes will not be entitled
to receive physical delivery of certificated Notes. Purchasers of Initial Notes
who are IAIs and are not QIBs or QIBs who request to receive Definitive Notes
will receive Definitive Notes; provided, however, that upon transfer of such
Definitive Notes to a QIB, such Definitive Notes will, unless the Global Note
has previously been exchanged, be exchanged for an interest in a Global Note
pursuant to the provisions of Section 2.3.
SECTION 202.AUTHENTICATION. The Trustee shall authenticate and deliver:
(1) Initial Notes for original issue in an aggregate principal amount of
$36,000,000 and (2) Exchange Notes for issue only in a Registered Exchange Offer
pursuant to the Registration Agreement, for a like principal amount of Initial
Notes, upon a Company Order. Such Company Order shall specify the amount of the
Notes to be authenticated and the date on which the original issue of Notes is
to be authenticated and whether the Notes are to be Initial Notes or Exchange
Notes. Subject to the provisions of Section 304, the aggregate principal amount
of Notes Outstanding at any time may not exceed $36,000,000.
SECTION 2.3 TRANSFER AND EXCHANGE.
(A) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES. When Definitive Notes are
presented to the Note Registrar or a co-registrar with a request:
(x) to register the transfer of such Definitive Notes; or
(y) to exchange such Definitive Notes for an equal principal amount of
Definitive Notes of other authorized denominations, the Note Registrar or
co-registrar shall register the transfer or make the exchange as requested if
its reasonable requirements for such transaction are met; provided, however,
that the Definitive Notes surrendered for transfer or exchange:
(i) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Note
Registrar or co-registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing; and
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(ii) are being transferred or exchanged pursuant to an effective
registration statement under the Securities Act, pursuant to Section
2.3(b) or pursuant to clause (A), (B) or (C) below, and are accompanied by
the following additional information and documents, as applicable:
(A) if such Definitive Notes are being delivered to the Note
Registrar by a Holder for registration in the name of such Holder,
without transfer, a certification from such Holder to that effect;
or
(B) if such Definitive Notes are being transferred to the
Company, a certification to that effect; or
(C) if such Definitive Notes are being transferred pursuant to
an exemption from registration in accordance with Rule 144, (i) a
certification to that effect (in the form set forth on the reverse
of the Note) and (ii) if the Company or Registrar so requests, an
opinion of counsel or other evidence reasonably satisfactory to them
as to the compliance with the restrictions set forth in the legend
set forth in Section 2.3(d)(i).
(B) RESTRICTIONS ON TRANSFER OF DEFINITIVE NOTES FOR A BENEFICIAL INTEREST
IN A GLOBAL NOTE. A Definitive Note may not be exchanged for a beneficial
interest in a Global Note except upon satisfaction of the requirements set forth
below. Upon receipt by the Trustee of a Definitive Note, duly endorsed or
accompanied by appropriate instruments of transfer, in form satisfactory to the
Trustee, together with:
(i) certification, in the form set forth on the reverse of the Note,
that such Definitive Note is being transferred (A) to a QIB in accordance
with Rule 144A, or (B) outside the United States in an offshore
transaction within the meaning of Regulation S and in compliance with Rule
904 under the Securities Act; and
(ii) written instructions directing the Trustee to make, or to
direct the Securities Custodian to make, an adjustment on its books and
records with respect to such Global Note to reflect an increase in the
aggregate principal amount of the securities represented by the Global
Note, such instructions to contain information regarding the Depository
account to be credited with such increase,
then the Trustee shall cancel such Definitive Note and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian, the
aggregate principal amount of securities represented by the Global Note to be
increased by the aggregate principal amount of the Definitive Note to be
exchanged and shall credit or cause to be credited to the account of the Person
specified in such instructions a beneficial interest in the Global Note equal to
the principal amount of the Definitive Note so canceled. If no Global Notes are
then outstanding and the Global Note has not been previously exchanged pursuant
to Section 2.4, the Company shall issue and the Trustee shall authenticate, upon
written order of the Company in the form of a Company Order, a new Global Note
in the appropriate principal amount.
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(C) TRANSFER AND EXCHANGE OF GLOBAL NOTES.
(i) The transfer and exchange of Global Notes or beneficial
interests therein shall be effected through the Depository, in accordance
with this Indenture (including applicable restrictions on transfer set
forth herein, if any) and the procedures of the Depository therefor. A
transferor of a beneficial interest in a Global Note shall deliver to the
Note Registrar a written order given in accordance with the Depository's
procedures containing information regarding the participant account of the
Depository to be credited with a beneficial interest in the Global Note.
The Note Registrar shall, in accordance with such instructions, instruct
the Depository to credit to the account of the Person specified in such
instructions a beneficial interest in the Global Note and to debit the
account of the Person making the transfer the beneficial interest in the
Global Note being transferred.
(ii) Notwithstanding any other provisions of this Appendix A (other
than the provisions set forth in Section 2.4), a Global Note may not be
transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(iii) In the event that a Global Note is exchanged for Notes in
definitive registered form pursuant to Section 2.4 prior to the
consummation of a Registered Exchange Offer or the effectiveness of a
Shelf Registration Statement with respect to such Notes, such Notes may be
exchanged only in accordance with such procedures as are substantially
consistent with the provisions of this Section 2.3 (including the
certification requirements set forth on the reverse of the Initial Notes
intended to ensure that such transfers comply with Rule 144A or Regulation
S, as the case may be) and such other procedures as may from time to time
be adopted by the Company.
(D) LEGEND.
(i) Except as permitted by the following paragraphs (ii), (iii) and
(iv), each Note certificate evidencing the Global Notes and the Definitive
Notes (and all Notes issued in exchange therefor or in substitution
thereof) shall bear a legend in substantially the following form:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
NOTE, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS NOTE MAY NOT BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO LATER OF THE SECOND
ANNIVERSARY OF THE ISSUANCE HEREOF (OR A PREDECESSOR NOTE HERETO) AND THE
LAST DATE THE COMPANY OR ANY AFFILIATE SOLD THIS NOTE (OR A PREDECESSOR
NOTE HERETO) OR (Y) BY ANY HOLDER THAT WAS AN AFFILIATE OF THE COMPANY AT
ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN
EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS NOTE IS
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A") TO A PERSON WHOM
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THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN
THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE
RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A
(AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF
TRANSFER ON THE REVERSE OF THIS NOTE), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE
BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE ON THE REVERSE OF THIS
NOTE), (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED
IN RULE 501 (A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED
BY THE BOX CHECKED BY THE TRANSFEROR ON THE REVERSE OF THIS NOTE) THAT IS
ACQUIRING THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND
A CERTIFICATE, WHICH MAY BE OBTAINED FROM THE TRUSTEE, IS DELIVERED BY THE
TRANSFEREE TO THE COMPANY AND THE TRUSTEE, (5) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF
APPLICABLE) UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE SUBJECT TO
ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF THEHOLDER'S PROPERTY BE AT
ALL TIMES WITHIN ITS CONTROL AND IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. AN INSTITUTIONAL
ACCREDITED INVESTOR HOLDING THIS NOTE AGREES IT WILL FURNISH TO THE
COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THEY
MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS NOTE
COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING
THIS NOTE, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS
(1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2)
AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING
THIS NOTE FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A
NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN
ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF RULE 902 UNDER)
REGULATION S UNDER THE SECURITIES ACT."
Each Definitive Note will also bear the following additional legend:
"IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR
AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER
AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE
FOREGOING RESTRICTIONS."
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<PAGE>
(ii) Upon any sale or transfer of a Transfer Restricted Note
(including any Transfer Restricted Note represented by a Global Note)
pursuant to Rule 144 under the Securities Act:
(A) in the case of any Transfer Restricted Note that is a
Definitive Note, the Note Registrar shall permit the Holder thereof
to exchange such Transfer Restricted Note for a Definitive Note that
does not bear the legend set forth above and rescind any restriction
on the transfer of such Transfer Restricted Note; and
(B) in the case of any Transfer Restricted Note that is
represented by a Global Note, the Note Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Note for a
Definitive Note that does not bear the legend set forth above and
rescind any restriction on the transfer of such Transfer Restricted
Note,
in either case, if the Holder certifies in writing to the Note Registrar
that its request for such exchange was made in reliance on Rule 144 (such
certification to be in the form set forth on the reverse of the Initial
Note).
(iii) After a transfer of any Initial Notes during the period of the
effectiveness of a Shelf Registration Statement with respect to such
Initial Notes, all requirements pertaining to legends on such Initial Note
will cease to apply, the requirements requiring any such Initial Note
issued to certain Holders be issued in global form will cease to apply,
and an Initial Note in certificated or global form without legends will be
available to the transferee of the Holder of such Initial Notes upon
exchange of such transferring Holder's certificated Initial Note. Upon the
occurrence of any of the circumstances described in this paragraph, the
Company will deliver a Company Order to the Trustee instructing the
Trustee to issue Notes without legends.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Notes pursuant to which certain Holders of such
Initial Notes are offered Exchange Notes in exchange for their Initial
Notes, all requirements pertaining to such Initial Notes that Initial
Notes issued to certain Holders be issued in global form will cease to
apply and certificated Initial Notes with the restricted securities legend
set forth in Exhibit 1 hereto will be available to Holders of such Initial
Notes that do not exchange their Initial Notes, and Exchange Notes in
certificated or global form will be available to Holders that exchange
such Initial Notes in such Registered Exchange Offer. Upon the occurrence
of any of the circumstances described in this paragraph, the Company will
deliver a Company Order to the Trustee instructing the Trustee to issue
Notes without legends.
(E) CANCELLATION OR ADJUSTMENT OF GLOBAL NOTE. At such time as all
beneficial interests in a Global Note have either been exchanged for
certificated or Definitive Notes, redeemed, repurchased or canceled, such Global
Note shall be returned to the Depository for cancellation or retained and
canceled by the Trustee. At any time prior to such cancellation, if any
beneficial interest in a Global Note is exchanged for certificated or Definitive
Notes, repurchased or canceled, the principal amount of Notes represented by
such Global Note shall be reduced and an adjustment shall be made on the books
and records of the Trustee (if it is then the Securities Custodian for such
Global Note) with
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<PAGE>
respect to such Global Note, by the Trustee or the Securities Custodian, to
reflect such reduction.
(F) OBLIGATIONS WITH RESPECT TO TRANSFERS AND EXCHANGES OF NOTES.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate certificated Notes,
Definitive Notes and Global Notes at the Note Registrar's or
co-registrar's request.
(ii) No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar governmental
charge payable in connection therewith other than exchanges pursuant to
Section 302, 905 or 1107 of this Indenture not involving any transfer.
(iii) The Note Registrar or co-registrar shall not be required (1)
to register the transfer of or exchange of any Note for a period beginning
15 days before the mailing of a notice of an offer to repurchase Notes or
15 days before an interest payment date, or (2) to register the transfer
of or exchange any Note so selected for redemption in whole or in part,
except in the case of any Note to be redeemed in part, the portion thereof
not to be redeemed.
(iv) Prior to the due presentation for registration of transfer of
any Note, the Company, the Trustee, the Paying Agent, the Notes Registrar
or any co-registrar may deem and treat the person in whose name a Note is
registered as the absolute owner of such Note for the purpose of receiving
payment of principal of (and premium, if any) and interest on such Note
and for all other purposes whatsoever, whether or not such Note is
overdue, and none of the Company, the Trustee, the Paying Agent, the Notes
Registrar or any co-registrar shall be affected by notice to the contrary.
(v) All Notes issued upon any transfer or exchange pursuant to the
terms of this Indenture shall evidence the same debt and shall be entitled
to the same benefits under this Indenture as the Notes surrendered upon
such transfer or exchange.
(vi) 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.
(vii) 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.
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<PAGE>
(viii) 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.
(G) NO OBLIGATION OF THE TRUSTEE.
(i) The Trustee shall have no responsibility or obligation to any
beneficial owner of a Global Note, a member of, or a participant in, the
Depository or other Person with respect to the accuracy of the records of
the Depository or its nominee or of any participant or member thereof,
with respect to any ownership interest in the Notes or with respect to the
delivery to any participant, member, beneficial owner or other Person
(other than the Depository) of any notice (including any notice of
redemption) or the payment of any amount, under or with respect to such
Notes. All notices and communications to be given to the Holders and all
payments to be made to Holders under the Notes shall be given or made only
to or upon the order of the registered Holders (which shall be the
Depository or its nominee in the case of a Global Note). The rights of
beneficial owners in any Global Note shall be exercised only through the
Depository subject to the applicable rules and procedures of the
Depository. The Trustee may rely and shall be fully protected in relying
upon information furnished by the Depository with respect to its members,
participants and any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Notes (including any transfers between or
among Depository participants, members or beneficial owners in any Global
Note) other than to require delivery of such certificates and other
documentation or evidence as are expressly required by, and to do so if
and when expressly required by, the terms of this Indenture, and to
examine the same to determine substantial compliance as to form with the
express requirements hereof.
2.4. CERTIFICATED NOTES.
(a) A Global Note deposited with the Depository or with the Trustee as
custodian for the Depository pursuant to Section 2.1 shall be transferred to the
beneficial owners thereof in the form of certificated Notes in an aggregate
principal amount equal to the principal amount of such Global Note, in exchange
for such Global Note, only if such transfer complies with Section 2.3 and (i)
the Depository notifies the Company that it is unwilling or unable to continue
as a depository for such Global Note or if at any time the Depository ceases to
be a clearing agency registered under the Exchange Act, and a successor
depository is not appointed by the Company within 90 days, (ii) the
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<PAGE>
Company executes and delivers to the Trustee a notice that such Global Note
shall be so transferable, registrable and exchangeable, and such transfer shall
be registrable or (iii) there shall have occurred and be continuing an Event of
Default or an event which, with the giving of notice or lapse of time or both,
would constitute an Event of Default with respect to the securities represented
by such Global Note.
(b) Any Global Note that is exchangeable for certificated Notes pursuant
to Section 2.4 will be transferred to, and registered and exchanged for,
certificated Notes in authorized denominations and registered in such names as
the Depository or its nominee holding such Global Note may direct. Subject to
the foregoing, a Global Note is not exchangeable, except for a Global Note of
like denomination to be registered in the name of the Depository or its nominee.
In the event that a Global Note becomes exchangeable for certificated Notes, (i)
certificated Notes will be issued only in fully registered form in denominations
of $1,000 or integral multiples thereof, (ii) payment of principal, premium, any
repurchase price, and interest on the certificated Notes will be payable, and
the transfer of the certificated Notes will be registrable, at the office or
agency of the Company maintained for such purposes and (iii) no service charge
will be made for any issuance of the certificated Notes, but the Company may
require payment of a sum sufficient to cover any transfer tax, assessment or
similar governmental charge payable in connection therewith. In addition, such
certificates will bear the legend set forth in Section 2.3(d) (unless the
Company determines otherwise in accordance with applicable law) subject, with
respect to such Notes, to the provisions of such legend. Holders of certificated
Notes may only transfer their Notes (i) to the Company or (ii) to a QIB;
provided, however, that the agreement of such holder is subject to any
requirement of law that the disposition of such holder's property shall at all
times be and remain within its control.
(c) Subject to the provisions of Section 2.4(b), the registered Holder of
a 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.
(d) In the event of the occurrence of either of the events specified in
Section 2.4(a)(i), (ii) or (iii), the Company will promptly make available to
the Trustee a reasonable supply of certificated Notes in definitive, fully
registered form without interest coupons.
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<PAGE>
Exhibit 1
to Appendix A
[FORM OF FACE OF INITIAL NOTE]
CALLON PETROLEUM COMPANY
No._____ CUSIP No.__________
[Global Notes Legend]:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
THIS GLOBAL NOTE IS EXCHANGEABLE FOR NOTES IN DEFINITIVE, FULLY REGISTERED
FORM, WITHOUT INTEREST COUPONS, IF (A) DTC NOTIFIES THE COMPANY THAT IT IS
UNWILLING OR UNABLE TO CONTINUE AS DEPOSITORY FOR THIS GLOBAL NOTE OR IF AT ANY
TIME DTC CEASES TO BE A "CLEARING AGENCY" REGISTERED UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND A SUCCESSOR DEPOSITORY IS NOT APPOINTED BY
THE COMPANY WITHIN 90 DAYS OF SUCH NOTICE, (B) THE COMPANY EXECUTES AND DELIVERS
TO THE TRUSTEE A NOTICE THAT THIS GLOBAL NOTE SHALL BE TRANSFERABLE, REGISTRABLE
AND EXCHANGEABLE, AND SUCH TRANSFER SHALL BE REGISTRABLE, OR (C) AN EVENT OF
DEFAULT (AS HEREINAFTER DEFINED) HAS OCCURRED AND IS CONTINUING WITH RESPECT TO
THE NOTES.
[Restricted Notes Legend]:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS NOTE,
AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS NOTE MAY NOT BE RESOLD, PLEDGED
OR OTHERWISE TRANSFERRED
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<PAGE>
(X) PRIOR TO THE LATER OF THE SECOND ANNIVERSARY OF THE ISSUANCE HEREOF
(OR A PREDECESSOR NOTE HERETO) AND THE LAST DATE THE COMPANY OR ANY AFFILIATE
SOLD THIS NOTE (OR A PREDECESSOR NOTE HERETO) OR (Y) BY ANY HOLDER THAT WAS AN
AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE
OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS
THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT
("RULE 144A") TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE
OF TRANSFER ON THE REVERSE OF THIS NOTE), (3) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE ON THE REVERSE OF THIS NOTE), (4)
TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501
(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE REVERSE OF THIS NOTE) THAT IS ACQUIRING THIS
NOTE FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND A CERTIFICATE, WHICH
MAY BE OBTAINED FROM THE TRUSTEE, IS DELIVERED BY THE TRANSFEREE TO THE COMPANY
AND THE TRUSTEE, (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITEIS ACT, OR
(6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN
EACH CASE SUBJECT TO THE REQUIREMENT OF LAW THAT THE DISPOSITION OF THE HOLDER'S
PROPERTY BE AT ALL TIMES WITHIN ITS CONTROL AND IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. AN INSTITUTIONAL
ACCREDITED INVESTOR HOLDING THIS NOTE AGREES IT WILL FURNISH TO THE COMPANY AND
THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY
REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS NOTE COMPLIES WITH THE
FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, REPRESENTS
AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN INSTITUTION THAT
IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER
THE SECURITIES ACT AND THAT IT IS HOLDING THIS NOTE FOR INVESTMENT PURPOSES AND
NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN
THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF
RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT.
[IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR
AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER
AGENT MAY REASONABLY REQUIRE TO
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CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.](1)
GLOBAL NOTE Representing 10.125% Series A Senior Subordinated Notes due
2002.
CALLON PETROLEUM COMPANY, a Delaware corporation, hereby promises to pay
to CEDE & CO., or registered assigns, the principal sum indicated on Schedule A
hereof, on September 15, 2002.
Interest Payment Dates: December 15, March 15, June 15 and September 15,
commencing September 15, 1997.
Record Dates: December 1, March 1, June 1 and September 1.
Additional provisions of this Note are set forth on the other side of this
Note.
IN WITNESS WHEREOF, CALLON PETROLEUM COMPANY has caused this instrument to
be duly executed under its corporate seal.
Dated:
CALLON PETROLEUM COMPANY [CORPORATE SEAL]
By: _______________________
Name:
Title:
Attest:
___________________________
Secretary
By: _______________________
Name:
Title:
- ----------
(1) Include on a Definitve Note to be held by an institutional "accredited
investor" (as defined in Rule 501(a)(1)(2),(3) or (7) under the Securities
Act) who is not a Qualified Institutional Buyer.
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TRUSTEE'S CERTIFICATE OF AUTHENTICATION
AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee, certifies that this
is one of the Notes referred to in the Indenture.
By: ___________________________
Authorized Signatory
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[FORM OF REVERSE SIDE OF INITIAL NOTE]
10.125% Series A Senior Subordinated Note due 2002
1. Interest
(a) General. Callon Petroleum Company, a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Note at the rate per annum shown above. The Company
will pay interest quarterly on March 15, June 15, September 15, and December 15
of each year. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the Issue
Date. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
(b) Special Interest. The holder of this Note is entitled to the benefits
of a Registration Agreement, dated as of July 31, 1997, among the Company and
the Initial Purchaser named therein (as such may be amended from time to time,
the "Registration Agreement"). Capitalized terms used in this subsection (b) but
not defined herein have the meanings assigned to them in the Registration
Agreement.
In the event that (i) neither the Exchange Offer Registration Statement
nor the Shelf Registration Statement has been filed with the Commission on or
prior to October 1, 1997, (ii) the Exchange Offer Registration Statement has not
been declared effective on or prior to November 15, 1997 (iii) neither the
Registered Exchange Offer has been consummated nor the Shelf Registration
Statement has been declared effective on or prior to December 31, 1997, or (iv)
after either the Exchange Offer Registration Statement or the Shelf Registration
Statement has been declared effective, such Registration Statement thereafter
ceases to be effective or usable in connection with resales of the Notes at any
time that the Company is obligated to maintain the effectiveness thereof
pursuant to the Registration Agreement (each such event referred to in clauses
(i) through (iv) above being referred to herein as a "Registration Default"),
additional interest ("Special Interest") will accrue on this Note (in addition
to the interest described in subsection (a) above) from and including the date
on which any such Registration Default shall occur to but excluding the date on
which all Registration Defaults have been cured. Special Interest shall accrue
at a rate of 0.50% per annum during the 90-day period immediately following the
occurrence of any Registration Default and shall increase by 0.25% per annum at
the end of each subsequent 90-day period, but in no event shall Special Interest
accrue at a rate in excess of 1.50% per annum. Special Interest will be payable
to the holder hereof in the same manner as interest under subsection (a) above.
2. Method of Payment. The Company will pay interest on the Notes (except
defaulted interest) to the Persons who are registered Holders of Notes at the
close of business on March 1, June 1, September 1 or December 1 immediately
preceding the interest payment date even if Notes are canceled after the record
date and on or before the interest payment date. Holders must surrender Notes to
a Paying Agent to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. Payments in respect of the Notes
represented by a Global Note (including principal,
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<PAGE>
premium and interest) will be made by wire transfer of immediately available
funds to the accounts specified by The Depository Trust Company, but, at the
option of the Company, interest may be paid by check mailed to the registered
Holders at their registered addresses. The Company will make all payments in
respect of a certificated Note (including principal, premium and interest), by
mailing a check to the registered address of each Holder thereof; provided,
however, that payments on the Notes may also be made, in the case of a Holder of
at least $1,000,000 aggregate principal amount of Notes, by wire transfer to a
U.S. dollar account maintained by the payee with a bank in the United States if
such Holder elects payment by wire transfer by giving written notice to the
Trustee or the Paying Agent to such effect designating such account no later
than 30 days immediately preceding the relevant due date for payment (or such
other date as the Trustee may accept in its discretion).
3. Paying Agent and Registrar. Initially, American Stock Transfer & Trust
Company ("Trustee"), a New York corporation, will act as Paying Agent and Note
Registrar. The Company may appoint and change any Paying Agent, Note Registrar
or co-registrar without notice. The Company or any of its domestically
incorporated Wholly Owned Restricted Subsidiaries may act as Paying Agent, Note
Registrar or co-registrar.
4. Indenture. The Company issued the Notes under an Indenture dated as of
July 31, 1997 (as such may be amended from time to time, the "Indenture"),
between the Company and the Trustee. The terms of the Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date
of the Indenture (the "Act"). Terms defined in the Indenture and not defined
herein have the meanings ascribed thereto in the Indenture. The Notes are
subject to all such terms, and Holders are referred to the Indenture and the Act
for a statement of those terms.
The Notes are unsecured senior subordinated obligations of the Company
limited to $36,000,000 aggregate principal amount at any one time Outstanding.
This Note is one of the Initial Notes referred to in the Indenture. The Notes
include the Initial Note and any Exchange Notes issued in exchange for the
Initial Notes pursuant to the Indenture. The Initial Notes and the Exchange
Notes are treated as a single class of Notes under the Indenture.
5. Denominations; Transfer; Exchange. The Notes are in registered form
without coupons in denominations of $1,000 (or in the case of Definitive Notes
sold to institutional accredited investors as described in Rule 501(a)(1), (2),
(3) or (7) under the Securities Act, minimum denominations of $250,000, unless
the Company otherwise consents) and whole multiples of $1,000. A Holder may
transfer or exchange Notes in accordance with the Indenture. Upon any transfer
or exchange, the Note Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements or transfer documents and to
pay any taxes required by law or permitted by the Indenture. The Note Registrar
need not register the transfer of or exchange any Notes selected for redemption
(except, in the case of a Note to be redeemed in part, the portion of the Note
not to be redeemed) or to transfer or exchange any Notes for a period of 15 days
prior to a selection of Notes to be redeemed or 15 days before an interest
payment date.
6. Subordination. The indebtedness of the Company evidenced by the Notes,
including the principal thereof and interest thereon (including post-default
interest), is expressly subordinated, to the extent and to the manner set forth
in the Indenture, in right
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of payment to the prior payment in full of all of the Company's obligations to
holders of Senior Indebtedness. Each Holder of Notes, by acceptance thereof, (a)
agrees to and shall be bound by such provisions of the Indenture and all other
provisions of the Indenture; (b) authorizes and directs the Trustee to take such
action on such Holder's behalf as may be necessary or appropriate to effectuate
the subordination of the Notes as provided in the Indenture; and (c) appoints
the Trustee as such Holder's attorney-in-fact for any and all such purposes.
7. Optional Redemption. The Notes may not be redeemed by the Company prior
to September 15, 2000. The Notes are subject to redemption, at the option of the
Company, in whole or in part, at any time on or after September 15, 2000, upon
not less than 30 or more than 60 days' notice at the following Redemption Prices
(expressed as percentages of principal amount) set forth below if redeemed
during the 12-month period beginning September 15 of the years indicated below:
Redemption
Year Price
---- -----
2000............................................ 102%
2001 and thereafter............................. 100%
together in the case of any such redemption with accrued and unpaid interest, if
any, to the Redemption Date, all as provided in the Indenture.
In the case of any redemption of Notes, interest installments whose Stated
Maturity is on or prior to the Redemption Date will be payable to Holders of
such Notes, or one or more Predecessor Notes. Notes (or portions thereof) for
whose redemption and payment provision is made in accordance with the Indenture
shall cease to bear interest from and after the Redemption Date. In the event of
redemption or purchase of this Note in part only, a new Note or Notes for the
unredeemed or unpurchased portion hereof shall be issued in the name of the
Holder hereof upon the cancellation hereof. If fewer than all Notes are
redeemed, the Trustee will select the Notes to be redeemed by lot or such other
method as the Trustee may deem fair and appropriate.
8. Notice of Redemption. 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.
17
<PAGE>
9. Defaults and Remedies. Except as may be provided in the Indenture, if
an Event of Default with respect to the Notes shall occur and be continuing, the
Trustee or the Holders of not less than 25% in aggregate principal amount of the
Outstanding Notes may declare the principal of all the Notes due and payable in
the manner and with the effect provided in the Indenture. The Indenture provides
that such declaration and its consequences may, in certain events, be annulled
by the Holders of a majority in aggregate principal amount of the Outstanding
Notes.
10. Discharge and Defeasance. 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.
11. Amendment and Waiver. The Indenture permits, with certain exceptions
as therein provided, the amendment thereof and the modification of the rights
and obligations of the Company and the rights of the Holders of the Notes under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of a majority in aggregate principal amount of the Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Notes at the time
Outstanding, on behalf of the Holders of all Notes, to waive compliance by the
Company with certain provisions of the Indenture and certain past defaults under
the Indenture and their consequences. Any such consent or waiver by the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
future Holders of this Note and of any Note issued 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.
12. Obligations Absolute. 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.
13. No Recourse Against Others. A director, officer, employee,
incorporator, shareholder or Affiliate of the Company, as such, past, present or
future shall not have any personal liability under this Note or the Indenture by
reason of his or its status as such director, officer, employee, incorporator,
shareholder or Affiliate, or any liability for any obligations of the Company
under the Notes or the Indenture or for any claim based on, in respect of, or by
reason of such obligations or their creation. Each Holder, by accepting this
Note, waives and releases all such liability. Such waiver and release are part
of the consideration for the issuance of this Note.
14. Persons Deemed Owners. 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.
18
<PAGE>
15. Definitions. All terms used in this Note which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
16. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Note Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders
thereof. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identifying
information printed hereon.
17. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York.
18. Holder's Compliance with Registration Agreement. Each Holder of a
Note, by acceptance hereof, acknowledges and agrees to the provisions of the
Registration Agreement, including, without limitation, the obligations of the
Holders with respect to a registration and the indemnification of the Company to
the extent provided therein.
Each Holder of a Note covenants and agrees by such Holder's acceptance
thereof to comply with and be bound by the foregoing provisions.
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.
19
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
______________________________________________________
(Print or type assignee's name, address and zip code)
______________________________________________________
(Insert assignee's social security or tax I.D. No.)
and irrevocably appoint _______________________________ agent to transfer this
Note on the books of the Company. The agent may substitute another to act for
him.
Dated: ______________________________
Your Signature: ____________________________________
Sign exactly as your name appears
on the other side of this Note.
In connection with any transfer of any of the Notes evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original issuance
of such Notes and the last date, if any, on which such Notes were owned by the
Company or any Affiliate of the Company, the undersigned confirms that such
Notes are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) [ ] to the Company; or
(2) [ ] pursuant to an effective registration statement under the
Securities Act of 1933; or
(3) [ ] inside the United States to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) that purchases for
its own account or for the account of a qualified institutional
buyer to whom notice is given that such transfer is being made in
reliance on Rule 144A, in each case pursuant to and in compliance
with Rule 144A under the Securities Act; or
(4) [ ] outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act; or
20
<PAGE>
(5) [ ] to an institutional "accredited investor" (as defined in
Schedule 501(a)(1), (2), (3) or (7) under the Securities Act) that
has furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can be
obtained from the Trustee); or
(6) [ ] pursuant to another available exemption from registration provided
by Rule 144 under the Securities Act.
Unless one of the boxes is checked, the Trustee will refuse to register
any of the Notes evidenced by this certificate in the name of any person other
than the registered holder thereof; provided, however, that if box (4), (5) or
(6) is checked, the Trustee may require, prior to registering any such transfer
of the Notes, such legal opinions, certifications and other information as the
Company has reasonably requested to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act, such as the exemption provided
by Rule 144 under such Act.
__________________________
Signature
Signature Guarantee:
__________________________
Signature must be guaranteed Signature
Notice: Signature(s) must be guaranteed by an institution which is a
participant in the Notes Transfer Agent Medallion Program ("STAMP") or similar
program.
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act,
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
__________________________
(signature of executive officer)
Dated:____________________
21
<PAGE>
[TO BE ATTACHED TO GLOBAL NOTES]
SCHEDULE A
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The initial principal amount at maturity of this Global Note shall be
$__________. The following increases or decreases in this Global Note have been
made:
<TABLE>
<CAPTION>
Principal Amount of
Amount of decrease Amount of increase this Global Note Signature of authorized
Date of in principal amount in principal amount following such signatory of Trustee a
Exchange of this Global Note of this Global Note increase or decrease Securities Custodian
- -------- ------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
</TABLE>
22
<PAGE>
EXHIBIT 2
TO APPENDIX A
[FORM OF FACE OF EXCHANGE NOTE]
CALLON PETROLEUM COMPANY
No._____ CUSIP No.__________
[Global Notes Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S
NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE
REFERRED TO ON THE REVERSE HEREOF.
THIS GLOBAL NOTE IS EXCHANGEABLE FOR NOTES IN DEFINITIVE, FULLY REGISTERED
FORM, WITHOUT INTEREST COUPONS, IF (A) DTC NOTIFIES THE COMPANY THAT IT IS
UNWILLING OR UNABLE TO CONTINUE AS DEPOSITORY FOR THIS GLOBAL NOTE OR IF AT ANY
TIME DTC CEASES TO BE A "CLEARING AGENCY" REGISTERED UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND A SUCCESSOR DEPOSITORY IS NOT APPOINTED BY
THE COMPANY WITHIN 90 DAYS OF SUCH NOTICE, (B) THE COMPANY EXECUTES AND DELIVERS
TO THE TRUSTEE A NOTICE THAT THIS GLOBAL NOTE SHALL BE TRANSFERABLE, REGISTRABLE
AND EXCHANGEABLE, AND SUCH TRANSFER SHALL BE REGISTRABLE, OR (C) AN EVENT OF
DEFAULT (AS HEREINAFTER DEFINED) HAS OCCURRED AND IS CONTINUING WITH RESPECT TO
THE NOTES.
GLOBAL NOTE Representing 10.125% Series B Senior Subordinated Notes due 2002
CALLON PETROLEUM COMPANY, a Delaware corporation, hereby promises to pay
to CEDE & CO., or registered assigns, the principal sum indicated on Schedule A
hereof, on September 15, 2002.
23
<PAGE>
Interest Payment Dates: December 15, March 15, June 15 and September 15,
commencing September 15, 1997.
Record Dates: December 1, March 1, June 1 and September 1.
Additional provisions of this Note are set forth on the other side of this
Note.
IN WITNESS WHEREOF, CALLON PETROLEUM COMPANY has caused this instrument to
be duly executed under its corporate seal.
Dated:
CALLON PETROLEUM COMPANY [CORPORATE SEAL]
By: _________________________
Name: ____________________
Title: ___________________
Attest: _____________________
Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
AMERICAN STOCK TRANSFER & TRUST COMPANY, as Trustee, certifies that this
is one of the Notes referred to in the Indenture.
By: _________________________
Authorized Signatory
24
<PAGE>
[FORM OF REVERSE SIDE OF EXCHANGE NOTE]
10.125% Series B Senior Subordinated Note due 2002
1. Interest. Callon Petroleum Company, a Delaware corporation (such
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Note at the rate per annum shown above. The Company
will pay interest quarterly on March 15, June 15, September 15, and December 15
of each year. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the Issue
Date. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. Method of Payment. The Company will pay interest on the Notes (except
defaulted interest) to the Persons who are registered holders of Notes at the
close of business on March 1, June 1, September 1 or December 1 immediately
preceding the interest payment date even if Notes are canceled after the record
date and on or before the interest payment date. Holders must surrender Notes to
a Paying Agent to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. Payments in respect of the Notes
represented by a Global Note (including principal, premium and interest) will be
made by wire transfer of immediately available funds to the accounts specified
by The Depository Trust Company, but, at the option of the Company, interest may
be paid by check mailed to the registered Holders at their registered addresses.
The Company will make all payments in respect of a certificated Note (including
principal, premium and interest), by mailing a check to the registered address
of each Holder thereof; provided, however, that payments on the Notes may also
be made, in the case of a Holder of at least $1,000,000 aggregate principal
amount of Notes, by wire transfer to a U.S. dollar account maintained by the
payee with a bank in the United States if such Holder elects payment by wire
transfer by giving written notice to the Trustee or the Paying Agent to such
effect designating such account no later than 30 days immediately preceding the
relevant due date for payment (or such other date as the Trustee may accept in
its discretion).
3. Paying Agent and Registrar. Initially, American Stock Transfer & Trust
Company, a New York corporation ("Trustee"), will act as Paying Agent and Note
Registrar. The Company may appoint and change any Paying Agent, Note Registrar
or co-registrar without notice. The Company or any of its domestically
incorporated Wholly Owned Restricted Subsidiaries may act as Paying Agent, Note
Registrar or co-registrar.
4. Indenture. The Company issued the Notes under an Indenture dated as of
July 31, 1997 (as such may be amended from time to time, the "Indenture"),
between the Company and the Trustee. The terms of the Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date
of the Indenture (the "Act"). Terms defined in the Indenture and not defined
herein have the meanings ascribed thereto in the Indenture. The Notes are
subject to all such terms, and Holders are referred to the Indenture and the Act
for a statement of those terms.
25
<PAGE>
The Notes are unsecured senior subordinated obligations of the Company
limited to $36,000,000 aggregate principal amount at any one time Outstanding .
This Note is one of the Exchange Notes referred to in the Indenture. The Notes
include the Initial Notes and any Exchange Notes issued in exchange for the
Initial Notes pursuant to the Indenture. The Initial Notes and the Exchange
Notes are treated as a single class of Notes under the Indenture.
5. Denominations; Transfer; Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and whole multiples of $1,000. A
Holder may transfer or exchange Notes in accordance with the Indenture. Upon any
transfer or exchange, the Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements or transfer documents and to
pay any taxes required by law or permitted by the Indenture. The Registrar need
not register the transfer of or exchange any Notes selected for redemption
(except, in the case of a Note to be redeemed in part, the portion of the Note
not to be redeemed) or to transfer or exchange any Notes for a period of 15 days
prior to a selection of Notes to be redeemed or 15 days before an interest
payment date.
6. Subordination. The indebtedness of the Company evidenced by the Notes,
including the principal thereof and interest thereon (including post-default
interest), is expressly subordinated, to the extent and to the manner set forth
in the Indenture, in right of payment to the prior payment in full of all of the
Company's obligations to holders of Senior Indebtedness. Each Holder of Notes,
by acceptance thereof, (a) agrees to and shall be bound by such provisions of
the Indenture and all other provisions of the Indenture; (b) authorizes and
directs the Trustee to take such action on such Holder's behalf as may be
necessary or appropriate to effectuate the subordination of the Notes as
provided in the Indenture; and (c) appoints the Trustee as such Holder's
attorney-in-fact for any and all such purposes.
7. Optimal Redemption. The Notes may not be redeemed by the Company prior
to September 15, 2000. The Notes are subject to redemption, at the option of the
Company, in whole or in part, at any time on or after September 15, 2000, upon
not less than 30 or more than 60 days' notice at the following Redemption Prices
(expressed as percentages of principal amount) set forth below if redeemed
during the 12-month period beginning September 15 of the years indicated below:
Redemption
Year Price
---- -----
2000............................................ 102%
2001 and thereafter............................. 100%
together in the case of any such redemption with accrued and unpaid interest, if
any, to the Redemption Date, all as provided in the Indenture.
In the case of any redemption of Notes, interest installments whose Stated
Maturity is on or prior to the Redemption Date will be payable to Holders of
such Notes, or one or more Predecessor Notes. Notes (or portions thereof) for
whose redemption and payment provision is made in accordance with the Indenture
shall cease to bear interest from and after the Redemption Date. In the event of
redemption or purchase of this Note in part only, a new Note or Notes for the
unredeemed or unpurchased portion hereof shall be
26
<PAGE>
issued in the name of the Holder hereof upon the cancellation hereof. If fewer
than all Notes are redeemed, the Trustee will select the Notes to be redeemed by
lot or such other method as the Trustee may deem fair and appropriate.
8. Notice of Redemption. 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.
9. Defaults and Remedies. Except as may be provided in the Indenture, if
an Event of Default with respect to the Notes shall occur and be continuing, the
Trustee or the Holders of not less than 25% in aggregate principal amount of the
Outstanding Notes may declare the principal of all the Notes due and payable in
the manner and with the effect provided in the Indenture. The Indenture provides
that such declaration and its consequences may, in certain events, be annulled
by the Holders of a majority in aggregate principal amount of the Outstanding
Notes.
10. Discharge and Defeasance. 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.
11. Amendment and Waiver. The Indenture permits, with certain exceptions
as therein provided, the amendment thereof and the modification of the rights
and obligations of the Company and the rights of the Holders of the Notes under
the Indenture at any time by the Company and the Trustee with the consent of the
Holders of a majority in aggregate principal amount of the Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Notes at the time
Outstanding, on behalf of the Holders of all Notes, to waive compliance by the
Company with certain provisions of the Indenture and certain past defaults under
the Indenture and their consequences. Any such consent or waiver by the Holder
of this Note shall be conclusive and binding upon such Holder and upon all
future Holders of this Note and of any Note issued 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.
27
<PAGE>
12. Obligations Absolute. 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.
13. No Recourse Against Others. A director, officer, employee,
incorporator, shareholder or Affiliate of the Company, as such, past, present or
future shall not have any personal liability under this Note or the Indenture by
reason of his or its status as such director, officer, employee, incorporator,
shareholder or Affiliate, or any liability for any obligations of the Company
under the Notes or the Indenture or for any claim based on, in respect of, or by
reason of such obligations or their creation. Each Holder, by accepting this
Note, waives and releases all such liability. Such waiver and release are part
of the consideration for the issuance of this Note.
14. Persons Deemed Owners. 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.
15. Definitions. All terms used in this Note which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
16. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Note Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders
thereof. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identifying
information printed hereon.
17. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York.
18. Holder's Compliance with Registration Agreement. Each Holder of a
Note, by acceptance hereof, acknowledges and agrees to the provisions of the
Registration Agreement, including, without limitation, the obligations of the
Holders with respect to a registration and the indemnification of the Company to
the extent provided therein.
Each Holder of a Note covenants and agrees by such Holder's acceptance
thereof to comply with and be bound by the foregoing provisions.
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.
28
<PAGE>
Assignment Form
To assign this Note, fill in the form below:
I or we assign and transfer this Note to
___________________________________________________________
(Print or type assignee's name, address and zip code)
___________________________________________________________
(Insert assignee's social security or tax I.D. No.)
and irrevocably appoint _______________________ agent to transfer this Note on
the books of the Company. The agent may substitute another to act for him.
Signature: __________________________
Date: _______________________________
Sign exactly as your name appears on the other side of this Note.
Signature Guarantee: __________________________________
(Signature must be guaranteed)
Notice: Signature(s) must be guaranteed by an institution which is a participant
in the Securities Transfer Agent Medallion Program ("STAMP") or similar program.
29
<PAGE>
[TO BE ATTACHED TO GLOBAL NOTES]
Schedule A
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE
The initial principal amount at maturity of this Global Note shall be
$__________. The following increases or decreases in this Global Note have been
made:
<TABLE>
<CAPTION>
Principal Amount of
Amount of decrease Amount of increase this Global Note Signature of authorized
Date of in principal amount in principal amount following such signatory of Trustee a
Exchange of this Global Note of this Global Note increase or decrease Securities Custodian
- -------- ------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
</TABLE>
30
EXHIBIT 5.1
September 25, 1997
Callon Petroleum Company
200 North Canal Street
Natchez, Mississippi 39120
Re: Registration of $36,000,000 of 10.125% Series B Senior
Subordinated Notes due 2002 of Callon Petroleum Company
Gentlemen:
We have acted as counsel for Callon Petroleum Company, a Delaware
corporation (the "Company"), in connection with the registration and sale of
$36,000,000 in 10.125% Series B Senior Subordinated Notes due 2002 ("Notes") of
the Company.
We have made such inquiries and examined such documents as we have
considered necessary or appropriate for the purposes of giving the opinion
hereinafter set forth, including the examination of executed or conformed
counterparts, or copies certified or otherwise proved to our satisfaction of
the following:
(i) the Certificate of Incorporation of the Company, as amended, and the
Certificate of Merger of Callon Consolidated Partners, L.P. with and
into the Company dated September 16, 1994;
(ii) the Certificate of Designations for the Company's $2.125 Convertible
Exchangeable Preferred Stock, Series A, filed with the Delaware
Secretary of State on November 22, 1995 and corrected by that
certain Certificate of Correction filed with the Delaware Secretary
of State on November 27, 1995;
(iii) the Bylaws of the Company as of the date of this opinion;
(iv) the Registration Statement on Form S-4 of the Company, including the
related prospectus, filed with the Securities and Exchange
Commission on September 25, 1997 (the "Registration Statement");
(v) the Indenture ("Indenture") dated July 31, 1997 between the Company
and American Stock Transfer & Trust Company, as Trustee ("Trustee"),
pursuant to which the Notes will be issued; and
(vi) such other documents, corporate records, certificates and other
instruments as we have deemed necessary or appropriate for the
purpose of this opinion.
We have assumed the genuineness and authenticity of all signatures on all
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies and the due authorization, execution, delivery or recordation of all
documents where due authorization, execution, delivery or recordation are
<PAGE>
prerequisites to the effectiveness thereof. Capitalized terms used herein
and not otherwise defined are used as defined in the Registration Statement.
Based upon the foregoing, and having regard for such legal considerations
as we deem relevant, we are of the opinion that:
(i) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware pursuant to
the Delaware General Corporation Law;
(ii) The Notes to be sold by the Company pursuant to the Registration
Statement have been duly authorized for issuance, and when executed
by the Company, authenticated by the Trustee and delivered and sold
in accordance with the provisions of the Registration Statement,
will be legally issued and binding obligations of the Company
enforceable in accordance with their terms and entitled to the
benefits of the Indenture (except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws
now or hereafter in effect affecting the rights of creditors
generally).
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the references to us under the caption "Legal
Matters" in the prospectus forming a part of the Registration Statement.
Very truly yours,
BUTLER & BINION, L.L.P.
EXHIBIT 10.1
Callon Petroleum Company
10.125% Senior Subordinated Notes Due 2002
Registration Agreement
July 31, 1997
Morgan Keegan & Company, Inc.
50 N. Front Street, 20th Floor
Memphis, Tennessee 38103
Dear Sirs:
Callon Petroleum Company, a Delaware corporation (the "Company"), proposes
to issue and sell to Morgan Keegan & Co., Inc. (the "Initial Purchaser") upon
the terms set forth in a purchase agreement of even date herewith (the "Purchase
Agreement"), $36,000,000 principal amount of its 10.125% Series A Senior
Subordinated Notes due 2002 (the "Notes") (the "Initial Placement"). As an
inducement to the Initial Purchaser to enter into the Purchase Agreement and in
satisfaction of a condition to your obligations thereunder, the Company agrees
with you, (i) for your benefit and (ii) for the benefit of the holders from time
to time of the Notes (including you) (each of the foregoing a "Holder" and
together the "Holders"), as follows:
1. DEFINITIONS. Capitalized terms used herein without definition shall
have their respective meanings set forth in the Purchase Agreement. As used in
this Agreement, the following capitalized defined terms shall have the following
meanings:
"Act" means the Securities Act of 1933, as amended, and the rules and
regulations of the Commission promulgated thereunder.
"Affiliate" of any specified person means any other person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such specified person. For purposes of this definition, control of a
person means the power, direct or indirect, to direct or cause the direction of
the management and policies of such person whether by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Closing Date" has the meaning set forth in the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
<PAGE>
"Exchange Offer Registration Period" means the 45 day period following the
consummation of the Registered Exchange Offer, exclusive of any period during
which any stop order shall be in effect suspending the effectiveness of the
Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means a registration statement of
the Company on an appropriate form under the Act with respect to the Registered
Exchange Offer, all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Exchanging Dealer" means any Holder (which may include the Initial
Purchaser) which is a broker-dealer, electing to exchange Notes acquired for its
own account as a result of market-making activities or other trading activities,
for New Notes.
"Final Memorandum" has the meaning set forth in the Purchase Agreement.
"Holder" has the meaning set forth in the preamble hereto.
"Indenture" means the Indenture relating to the Notes and the New Notes,
dated as of July 31, 1997, between the Company and American Stock Transfer and
Trust Company, as trustee, as the same may be amended from time to time in
accordance with the terms thereof.
"Initial Placement" has the meaning set forth in the preamble hereto.
"Majority Holders" means the Holders of a majority of the aggregate
principal amount of securities registered under a Registration Statement.
"Managing Underwriters" means the investment banker or investment bankers
and manager or managers that shall administer an underwritten offering.
"New Notes" means the 10.125% Series B Senior Subordinated Notes due 2002
of the Company identical in all material respects to the Notes (except that the
cash interest and interest rate step-up provisions and the transfer restrictions
will be modified or eliminated, as appropriate), to be issued under the
Indenture.
"Prospectus" means the prospectus include in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A under the Act), as amended or supplemented
by any prospectus supplement, with respect to the terms of the offering of any
portion of the Notes or the New Notes, covered by such Registration Statement,
and all amendments and supplements to the Prospectus, including post-effective
amendments.
"Registered Exchange Offer" means the proposed offer to the Holders to
issue and deliver to such Holders, in exchange for the Notes, a like principal
amount of the New Notes.
"Registration Statement" means any Exchange Offer Registration Statement
or Shelf Registration Statement that covers any of the Notes or the New Notes
pursuant to
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the provisions of this Agreement, amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Shelf Registration" means a registration effected pursuant to Section 3
hereof.
"Shelf Registration Period" has the meaning set forth in Section 3(b)
hereof.
"Shelf Registration Statement" means a "shelf" registration statement of
the Company pursuant to the provisions of Section 3 hereof which covers some or
all of the Notes or New Notes, as applicable, on an appropriate form under Rule
415 under the Act, or any similar rule that may be adopted by the Commission,
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Trustee" means the trustee with respect to the Notes under the Indenture.
"Underwriter" means any underwriter of the Notes and the New Notes in
connection with an offering thereof under a Shelf Registration Statement.
2. REGISTERED EXCHANGE OFFER; RESALES OF NEW NOTES BY EXCHANGING DEALERS;
PRIVATE EXCHANGE.
(a) The Company shall prepare and, not later than October 1, 1997,
shall file with the Commission the Exchange Offer Registration Statement
with respect to the Registered Exchange Offer. The Company shall use its
best efforts to cause the Exchange Offer Registration Statement to become
effective under the Act no later than November 15, 1997.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Registered Exchange
Offer, it being the objective of such Registered Exchange Offer to enable
each Holder electing to exchange Notes for New Notes (assuming that such
Holder is not an Affiliate of the Company, acquires the New Notes in the
ordinary course of such Holder's business and has no arrangements with any
person to participate in the distribution of the New Notes) to trade such
New Notes from and after their receipt without any limitations or
restrictions under the Act and without material restrictions under the
securities laws of a substantial proportion of the several states of the
United States.
(c) In connection with the Registered Exchange Offer, the Company
shall:
(i) mail to each Holder a copy of the Prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
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(ii) keep the Registered Exchange Offer open for not less than
30 days and not more than 45 days after the date notice thereof is
mailed to the Holders (or longer if required by applicable law);
(iii) utilize the services of a depository for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City
of New York; and
(iv) permit Holders to withdraw tendered Notes at any time
prior to the close of business, New York City time, on the last
business day on which the Exchange Offer shall remain open, by
sending to the institution specified in the notice, a telegram,
telex, facsimile transmission or letter setting forth the name of
such Holder, the principal amount of Notes delivered for exchange
and a statement that such Holder is withdrawing his election to have
such Notes exchanged; and
(v) comply in all material respects with all applicable laws.
(d) As soon as practicable after the close of the Registered
Exchange Offer, the Company shall:
(i) accept for exchange all Notes tendered and not validly
withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver to the Trustee for cancellation all Notes so
accepted for exchange; and
(iii) cause the Trustee, promptly to authenticate and deliver
to each Holder of Notes, New Notes equal in principal amount to the
Notes of such Holder so accepted for exchange.
(e) The Initial Purchaser and the Company acknowledge that, pursuant
to interpretations by the Commission's staff of Section 5 of the Act, and
in the absence of an applicable exemption therefrom, each Exchanging
Dealer is required to deliver a Prospectus in connection with a sale of
any New Notes received by such Exchanging Dealer pursuant to the
Registered Exchange Offer in exchange for Notes acquired for its own
account as a result of market-making activities or other trading
activities. Accordingly, the Company shall:
(i) include the information set forth in Annex A hereto on the
cover of the Exchange Offer Registration Statement, in Annex B
hereto in the forepart of the Exchange Offer Registration Statement
in a section setting forth details of the Exchange Offer, and in
Annex C hereto in the underwriting or plan of distribution section
of the Prospectus forming a part of the Exchange Offer Registration
Statement, and include the information set forth in Annex D hereto
in the Letter of Transmittal delivered pursuant to the Registered
Exchange Offer; and
(ii) to the extent that it is notified by an Exchanging Dealer
that such Exchanging Dealer intends to rely upon the procedures set
forth in this Section 2(e), use its best efforts to keep the
Exchange Offer
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Registration Statement continuously effective under the Act during
the Exchange Offer Registration Period for delivery by Exchanging
Dealers in connection with sales of New Notes received pursuant to
the Registered Exchange Offer, as contemplated by Section 4(h)below.
(f) If the Company has consummated the Registered Exchange Offer,
then, subject to Section 3 (iv), (v) and (vi), the Company will have no
obligation to file or to maintain the effectiveness of a Shelf
Registration Statement with respect to any Notes that are not tendered in
the Registered Exchange Offer.
(g) The Exchange Offer shall not be subject to any conditions, other
than (1) that the Exchange Offer, or the making of any exchange by a
Holder, does not violate applicable law or any applicable interpretation
of the staff of the Commission, (2) that no action or proceeding shall
have been instituted or threatened in any court or by or before any
governmental agency or body with respect to the Exchange Offer, (3) that
there shall not have been adopted or enacted any law, statute, rule or
regulation prohibiting or limiting the Exchange Offer, (4) that there
shall not have been declared by United States federal, New York or Texas
state authorities a banking moratorium, (5) that trading on the New York
Stock Exchange or generally in the United States over-the-counter market
shall not have been suspended by order of the SEC or any other
governmental authority and (6) such other conditions as may be reasonably
acceptable to the Initial Purchaser which, in the Company's judgment,
would reasonably be expected to impair the ability of the Company to
proceed with the Exchange Offer.
3. SHELF REGISTRATION. If (i) because of any change in law or applicable
interpretations thereof by the Commission's staff, the Company determines upon
advice of its outside counsel that it is not permitted to effect the Registered
Exchange Offer as contemplated by Section 2 hereof, or (ii) if for any other
reason the Registered Exchange Offer is not consummated by December 31, 1997, or
(iii) if the Initial Purchaser so requests with respect to Notes not eligible to
be exchanged for Exchange Notes in the Registered Exchange Offer and held by it
following consummation of the Registered Exchange offer, or (iv) if any Holder
(other than the Initial Purchaser) is not eligible to participate in the
Registered Exchange Offer or (v) if the Initial Purchaser participates in the
Registered Exchange Offer and acquires New Notes pursuant to Section 2(f)
hereof, but such Initial Purchaser does not receive freely tradeable New Notes
in exchange for Notes constituting any portion of an unsold allotment (it being
understood that, for purposes of this Section 3, (x) the requirement that the
Initial Purchaser deliver a Prospectus containing the information required by
Items 507 and/or 508 of Regulation S-K under the Act in connection with sales of
New Notes acquired in exchange for such Notes shall result in such New Notes
being not "freely tradeable" but (y) the requirement that an Exchanging Dealer
deliver a Prospectus in connection with sales of New Notes acquired in the
Registered Exchange Offer in exchange for Notes acquired as a result of
market-making activities or other trading activities shall not result in such
New Notes being not "freely tradeable"), the following provisions shall apply:
(a) The Company shall as promptly as practicable (but in no event
more than 30 days after so required or requested pursuant to this Section
3), file with the Commission and thereafter shall use its best efforts to
cause to be declared
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<PAGE>
effective under the Act a Shelf Registration Statement relating to the
offer and sale of the Notes or the New Notes, as applicable, by the
Holders from time to time in accordance with the methods of distribution
elected by such Holders and set forth in such Shelf Registration
Statement; provided, that with respect to New Notes received by the
Initial Purchaser in exchange for Securities constituting any portion of
an unsold allotment, the Company may, if permitted by current
interpretations by the Commission's staff, file a post-effective amendment
to the Exchange Offer Registration Statement containing the information
required by Regulation S-K Items 507 and/or 508, as applicable, in
satisfaction of its obligations under this paragraph (a) with respect
thereto, and any such Exchange Offer Registration Statement, as so
amended, shall be referred to herein as, and governed by the provisions
herein applicable to, a Shelf Registration Statement.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
Prospectus forming part thereof to be usable by Holders for a period of
two years after the Closing Date (or until one year after such Closing
Date if such Shelf Registration Statement is filed at the request of the
Initial Purchaser) or such shorter period that will terminate when all the
Notes or New Notes, as applicable, covered by the Shelf Registration
Statement have been sold pursuant to the Shelf Registration Statement (in
any such case, such period being called the "Shelf Registration Period ").
The Company shall be deemed not to have used its best efforts to keep the
Shelf Registration Statement effective during the requisite period if it
voluntarily takes any action that would result in Holders of Securities
covered thereby not being able to offer and sell such securities during
that period, unless (i) such action is required by applicable law, or (ii)
such action is taken by the Company in good faith and for valid business
reasons (not including avoidance of the Company's obligations hereunder),
including, but not limited to, the acquisition or divestiture of assets,
so long as the Company promptly thereafter complies with the requirements
of Section 4(k) hereof, if applicable.
(c) No Holder of Notes or New Notes may included any of its Notes or
New Notes in any Shelf Registration Statement pursuant to this Agreement
unless and until such Holder furnishes to the Company in writing, within
10 business days after receipt of a written request therefor, such
information specified in Item 507 and Item 508, as applicable, of
Regulation S-K under the Act or any other information required by the Act
or applicable state securities laws for use in connection with any Shelf
Registration Statement or Prospectus or preliminary Prospectus included
therein. Each Holder as to which any Shelf Registration Statement is being
effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading. No
Holder of Notes or New Notes shall be entitled to Special Interest (as
defined in the Final Memorandum) unless and until such Holder shall have
used its best efforts to provide all such reasonably requested
information.
4. REGISTRATION PROCEDURES. In connection with any Shelf Registration
Statement and, to the extent applicable, any Exchange Offer Registration
Statement, the following provisions shall apply:
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<PAGE>
(a) The Company shall furnish to you, prior to the filing thereof
with the Commission, a copy of any Shelf Registration Statement and any
Exchange Offer Registration Statement, and each amendment thereof and each
amendment or supplement, if any, to the Prospectus included therein and
shall use its best efforts to reflect in each such document, when so filed
with the Commission, such comments as you reasonably may propose.
(b) The Company shall ensure that (i) any Registration Statement and
any amendment thereto and any Prospectus forming part thereof and any
amendment or supplement thereto complies in all material respects with the
Act and the rules and regulations thereunder, (ii) any Registration
Statement and any amendment thereto does not, when it becomes effective,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading and (iii) any Prospectus forming part of any
Registration Statement, and any amendment or supplement to such
Prospectus, does not include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements,
in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company has no obligation with
respect to written information furnished to the Company by or on behalf of
the Initial Purchaser or any Holder specifically for inclusion therein.
(c) (i) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of securities covered thereby, and, if
requested by you or any such Holder, confirm such advice in writing:
A. when a Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement
or any post-effective amendment thereto has become effective; and
B. of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus included
therein or for additional information.
(ii) The Company shall advise you and, in the case of a Shelf
Registration Statement, the Holders of securities covered thereby, and, in
the case of an Exchange Offer Registration Statement, any Exchanging
Dealer which has provided in writing to the Company a telephone or
facsimile number and address for notices, and, if requested by you or any
such Holder or Exchanging Dealer, confirm such advice in writing:
A. of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
B. of the receipt by the Company of any notification with
respect to the suspension of the qualification of the securities
included therein for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
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C. of the happening of any event that requires the making of
any changes in the Registration Statement or the Prospectus so that,
as of such date, the statements therein are not misleading and do
not omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were
made) not misleading (which advice shall be accompanied by an
instruction to suspend the use of the Prospectus until the requisite
changes have been made).
(d) The Company shall use its best efforts to obtain the withdrawal
of any order suspending the effectiveness of any Registration Statement at
the earliest possible time.
(e) The Company shall furnish to each Holder of securities included
within the coverage of any Shelf Registration Statement, without charge,
at least one copy of such Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules included therein, and, if the Holder so requests in writing, all
exhibits (including those incorporated by reference).
(f) The Company shall, during the Shelf Registration Period, deliver
to each Holder of securities included within the coverage of any Shelf
Registration Statement, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such
Holder may reasonably request during such periods as the Holder continues
to hold the securities covered by the Shelf Registration Statement; and
the Company consents to the use of the Prospectus or any amendment or
supplement thereto by each of the selling Holders of securities in
connection with the offering and sale of the securities covered by the
Prospectus or any amendment or supplement thereto, except during such
periods in which the Company has provided notice in accordance with
paragraph (c)(ii) above and has not filed a post-effective amendment
pursuant to Section 4(k) hereof or given the Holders notice of the lifting
of any stop order or suspension.
(g) The Company shall furnish to each Exchanging Dealer which so
requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules included therein, any documents
incorporated by reference therein, and, if the Exchanging Dealer so
requests in writing, all exhibits (including those incorporated by
reference).
(h) The Company shall, during the Exchange Offer Registration
Period, promptly deliver to each Exchanging Dealer, without charge, as
many copies of the Prospectus included in such Exchange Offer Registration
Statement and any amendment or supplement thereto as such Exchanging
Dealer may reasonably request for delivery by such Exchanging Dealer in
connection with a sale of New Notes received by it pursuant to the
Registered Exchange Offer; and the Company consents to the use of the
Prospectus or any amendment or supplement thereto by any such Exchanging
Dealer, as aforesaid, except during such periods in which the Company has
provided notice in accordance with paragraph (c)(ii) above and has
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not filed a post-effective amendment pursuant to Section 4(k) hereof or
given the Holders notice of the lifting of any stop order or suspension.
(i) Prior to the Registered Exchange Offer or any other offering of
securities pursuant to any Registration Statement, the Company shall
register or qualify or cooperate with the Holders of securities included
therein and their respective counsel in connection with the registration
or qualification of such securities for offer and sale under the
securities or blue sky laws of such jurisdictions as any such Holders
reasonably request in writing, cooperate with the Holders in connection
with any filings required to be made with the National Association of
Securities Dealers, Inc. and do any and all other acts or things necessary
or advisable to enable the offer and sale in such jurisdictions of the
securities covered by such Registration Statement; provided, however, that
the Company will not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action
which would subject it to general service of process or to taxation in any
such jurisdiction where it is not then so subject.
(j) Unless the applicable securities shall be in book-entry only
form, the Company shall cooperate with the Holders of securities to
facilitate the timely preparation and delivery of certificates
representing securities to be sold pursuant to any Registration Statement
free of any restrictive legends and in such denominations and registered
in such names as Holders may request prior to sales of securities pursuant
to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(ii)(C) above, the Company shall promptly prepare a post-effective
amendment to any Registration Statement or an amendment or supplement to
the related Prospectus or file any other required document so that, as
thereafter delivered to purchasers of the securities included therein, the
Prospectus will not include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the
Notes or New Notes, as the case may be, registered under such Registration
Statement, and provide the applicable trustee with printed certificates
for such Notes or New Notes, in a form eligible for deposit with The
Depository Trust Company.
(m) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make
generally available to its security holders as soon as practicable after
the effective date of the applicable Registration Statement an earnings
statement satisfying the provisions of Section 11(a) of the Act.
(n) The Company shall cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended, in a timely manner.
(o) The Company may require each Holder of securities to be sold
pursuant to any Shelf Registration Statement to furnish to the Company
such
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information regarding the Holder and the distribution of such securities
as the Company may from time to time reasonably require for inclusion in
such Registration Statement.
(p) The Company shall, if requested, promptly incorporate in a
Prospectus supplement or post-effective amendment to a Shelf Registration
Statement, such information as the Managing Underwriters and Majority
Holders reasonably request and shall make all required filings of such
Prospectus supplement or post-effective amendment as soon as notified of
the matters to be incorporated in such Prospectus supplement or
post-effective amendment.
(q) In the case of any Shelf Registration Statement, the Company
shall enter into such agreements (including underwriting agreements) and
take all other appropriate actions in order to expedite or facilitate the
registration or the disposition of the Notes or New Notes, and in
connection therewith, if an underwriting agreement is entered into, cause
the same to contain indemnification provisions and procedures no less
favorable than those set forth in Section 6 (or such other provisions and
procedures acceptable to the Majority Holders and the Managing
Underwriters, if any, with respect to all parties to be indemnified
pursuant to Section 6) from Holders of Notes or New Notes to the Company.
(r) In the case of any Shelf Registration Statement, the Company
shall (i) make reasonably available for inspection by the Holders of
securities to be registered thereunder, any underwriter participating in
any disposition pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by the Holders or any such underwriter
all relevant financial and other records, pertinent corporate documents
and properties of the Company and its subsidiaries; (ii) cause the
Company's officers, directors and employees to supply all relevant
information reasonably requested by the Holders or any such underwriter,
attorney, accountant or agent in connection with any such Registration
Statement as is customary for similar due diligence examinations;
provided, however, that any information that is designated in writing by
the Company, in good faith, as confidential at the time of delivery of
such information shall be kept confidential by the Holders or any such
underwriter, attorney, accountant or agent, unless such disclosure is made
in connection with a court proceeding or required by law, or such
information becomes available to the public generally or through a third
party without an accompanying obligation of confidentiality; (iii) make
such representations and warranties to the Holders of securities
registered thereunder and the underwriters, if any, in form, substance and
scope as are customarily made by issuers to underwriters in primary
underwritten offerings and covering matters including, but not limited to,
those set forth in the Purchase Agreement; (iv) obtain opinions of counsel
to the Company and updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the Managing
Underwriters, if any) addressed to each selling Holder and the
underwriters, if any, covering such matters as are customarily covered in
opinions requested in underwritten offerings and such other matters as may
be reasonably requested by such Holders and underwriters; (v) obtain "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent
certified public accountants of any subsidiary of the Company or of any
business acquired by the Company for which separate financial statements
and financial data are, or are required to be, included
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in the Registration Statement), addressed to each selling Holder of
securities registered thereunder and the underwriters, if any, in
customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with primary underwritten offerings;
and (vi) deliver such documents and certificates as may be reasonably
requested by the Majority Holders and the Managing Underwriters, if any,
including those to evidence compliance with Section 4(k) and with any
customary conditions contained in the underwriting agreement or other
agreement entered into by the Company. The foregoing actions set forth in
clauses (iii), (iv), (v) and (vi) of this Section 4(r) shall be performed
at (A) the effectiveness of such Registration Statement and each
post-effective amendment thereto and (B) each closing under any
underwriting or similar agreement as and to the extent required
thereunder.
(s) In the case of any Exchange Offer Registration Statement, the
Company shall (i) make reasonably available for inspection by the Initial
Purchaser, and any attorney, accountant or other agent retained by the
Initial Purchaser, all relevant financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries;
(ii) cause the Company's officers, directors and employees to supply all
relevant information reasonably requested by the Initial Purchaser or any
such attorney, accountant or agent in connection with any such
Registration Statement as is customary for similar due diligence
examinations; provided, however, that any information that is designated
in writing by the Company, in good faith, as confidential at the time of
delivery of such information shall be kept confidential by the Initial
Purchaser or any such attorney, accountant or agent, unless such
disclosure is made in connection with a court proceeding or required by
law, or such information becomes available to the public generally or
through a third party without an accompanying obligation of
confidentiality; (iii) make such representations and warranties to the
Initial Purchaser, in form, substance and scope as are customarily made by
issuers to underwriters in primary underwritten offerings and covering
matters including, but not limited to, those set forth in the Purchase
Agreement; (iv) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall
be reasonably satisfactory to the Initial Purchaser and its counsel,
addressed to the Initial Purchaser, covering such matters as are
customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by the Initial Purchaser
or its counsel); (v) obtain "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for
which separate financial statements and financial data are, or are
required to be, included in the Registration Statement), addressed to the
Initial Purchaser, in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with primary
underwritten offerings; and (vi) deliver such documents and certificates
as may be reasonably requested by the Initial Purchaser or its counsel,
including those to evidence compliance with Section 4(k) and with
conditions customarily contained in underwriting agreements. The foregoing
actions set forth in clauses (iii), (iv), (v), and (vi) of this Section
4(s) shall be performed at the close of the Registered Exchange Offer and
the effective date of any post-effective amendment to the Exchange Offer
Registration Statement.
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5. REGISTRATION EXPENSES. The Company shall bear all expenses incurred in
connection with the performance of its obligations under Sections 2, 3 and 4
hereof.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) In connection with any Registration Statement, the Company
agrees to indemnify and hold harmless each Holder of securities covered
thereby (including the Initial Purchaser and, with respect to any
Prospectus delivery as contemplated in Section 4(h) hereof, each
Exchanging Dealer), the directors, officers, employees and agents of each
such Holder and each person who controls any such Holder within the
meaning of either the Act or the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of
them may become subject under the Act, the Exchange Act or other federal
or state statutory law or regulation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement as originally filed or in any amendment thereof, or in any
preliminary Prospectus or Prospectus, or in any amendment thereof 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, and
agrees to reimburse each such indemnified party, as incurred, for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any case
to the extent that any such loss, claim, damage or liability arises out of
or is based upon any such untrue statement or alleged untrue statement or
omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of the Initial Purchaser or any such Holder specifically for
inclusion therein. This indemnity agreement will be in addition to any
liability which any such Holder may otherwise have.
The Company also agrees to indemnify or contribute to Losses of, as
provided in Section 6(d), any underwriters of securities registered under
a Shelf Registration Statement, their officers and directors and each
person who controls such underwriters on substantially the same basis as
that of the indemnification of the Initial Purchaser and the selling
Holders provided in this Section 6(a) and shall, if requested by any
Holder, enter into an underwriting agreement reflecting such agreement, as
provided in Section 4(q) hereof.
(b) Each Holder of securities covered by a Registration Statement
(including the Initial Purchaser and, with respect to any Prospectus
delivery as contemplated in Section 4(h) hereof, each Exchanging Dealer)
severally agrees to indemnify and hold harmless (i) the Company, (ii) each
of its directors, (iii) each of its officers who signs such Registration
Statement and (iv) each person who controls the Company within the meaning
of either the Act or the Exchange Act to the same extent as the foregoing
indemnity from the Company to each such Holder, but only with reference to
written information relating to such Holder furnished to the Company by or
on behalf of such Holder specifically for inclusion in the documents
referred to in the foregoing indemnity. This indemnity
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agreement will be in addition to any liability which any such Holder may
otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 6, notify the indemnifying party in
writing of the commencement thereof; but the failure so to notify the
indemnifying party (i) will not relieve it from liability under paragraph
(a) or (b) above unless and to the extent it did not otherwise timely
learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not,
in any event, relieve the indemnifying party from any obligations to any
indemnified party other than the indemnification obligation provided in
paragraph (a) or (b) above. The indemnifying party shall be entitled to
appoint counsel of the indemnifying party's choice at the indemnifying
party's expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate
counsel retained by the indemnified party or parties except as set forth
below); provided, however, that such counsel shall be reasonably
satisfactory to the indemnified party. Notwithstanding the indemnifying
party's election to appoint counsel to represent the indemnified party in
an action, the indemnified party shall have the right to employ separate
counsel (including local counsel), and the indemnifying party shall bear
the reasonable fees, costs and expenses of such separate counsel (and
local counsel) if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a
conflict of interest, (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall
not have employed counsel reasonably satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice
of the institution of such action or (iv) the indemnifying party shall
authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim or
action) unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising
out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party,
in lieu of indemnifying such indemnified party, shall have a joint and
several obligation to contribute to the aggregate losses, claims, damages
and liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending same) (collectively "Losses")
to which such indemnified party may be subject in such proportion as is
appropriate to reflect the relative benefits received
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<PAGE>
by such indemnifying party, on the one hand, and such indemnified party,
on the other hand, from the Initial Placement and the Registration
Statement which resulted in such Losses; provided, however, that in no
case shall the Initial Purchaser or any subsequent Holder of any Note or
New Note be responsible, in the aggregate, for any amount in excess of the
purchase discount or commission applicable to such Note, or in the case of
a New Note, applicable to the Note which was exchangeable into such New
Note, as set forth on the cover page of the Final Memorandum, nor shall
any underwriter be responsible for any amount in excess of the
underwriting discount or commission applicable to the securities purchased
by such underwriter under the Registration Statement which resulted in
such Losses. If the allocation provided by the immediately preceding
sentence is unavailable for any reason, the indemnifying party and the
indemnified party shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of
such indemnifying party, on the one hand, and such indemnified party, on
the other hand, in connection with the statements or omissions which
resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company shall be deemed to be
equal to the total net proceeds from the Initial Placement (before
deducting expenses) as set forth on the cover page of the Final
Memorandum. Benefits received by the Initial Purchaser shall be deemed to
be equal to the total purchase discounts and commissions as set forth on
the cover page of the Final Memorandum, and benefits received by any other
Holders shall be deemed to be equal to the value of receiving Notes or New
Notes, as applicable, registered under the Act. Benefits received by any
underwriter shall be deemed to be equal to the total underwriting
discounts and commissions, as set forth on the cover page of the
Prospectus forming a part of the Registration Statement which resulted in
such Losses. Relative fault shall be determined by reference to whether
any alleged untrue statement or omission relates to information provided
by the indemnifying party, on the one hand, or by the indemnified party,
on the other hand. The parties agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any
other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), 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.
For purposes of this Section 6, each person who controls a Holder within
the meaning of either the Act or the Exchange Act and each director,
officer, employee and agent of such Holder shall have the same rights to
contribution as such Holder, and each person who controls the Company
within the meaning of either the Act or the Exchange Act, each officer,
employee and agent of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the applicable terms
and conditions of this paragraph (d).
(e) The provisions of this Section 6 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder
or the Company or any of the officers, directors or controlling persons
referred to in Section 6 hereof, and will survive the sale by a Holder of
securities covered by a Registration Statement.
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7. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not, as of the date
hereof, entered into, nor shall it, on or after the date hereof, enter
into, any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders herein or otherwise conflicts with
the provisions hereof.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the
written consent of the Holders of at least a majority of the then
outstanding aggregate principal amount of Notes (or, after the
consummation of any Exchange Offer in accordance with Section 2 hereof, of
New Notes); provided that, with respect to any matter that directly or
indirectly affects the rights of the Initial Purchaser hereunder, the
Company shall obtain the written consent of the Initial Purchaser against
which such amendment, qualification, supplement, waiver or consent is to
be effective. Notwithstanding the foregoing (except the foregoing
proviso), a waiver or consent to departure from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders
whose securities are being sold pursuant to a Registration Statement and
that does not directly or indirectly affect the rights of other Holders
may be given by the Majority Holders, determined on the basis of
securities being sold rather than registered under such Registration
Statement.
(c) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(i) if to a Holder, at the most current address given by such
holder to the Company in accordance with the provisions of this
Section 7(c), which address initially is, with respect to each
Holder, the address of such Holder maintained by the Registrar under
the Indenture, with a copy in like manner to Morgan Keegan &
Company, Inc.;
(ii) if to you, initially at the address set forth in the
Purchase Agreement; and
(iii) if to the Company, initially at its address set forth in
the Purchase Agreement.
All such notices and communications shall be deemed to have been
duly given when received.
The Initial Purchaser or the Company by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties,
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<PAGE>
including, without the need for an express assignment or any consent by
the Company thereto, subsequent Holders of Notes and/or New Notes. The
Company hereby agrees to extend the benefits of this Agreement to any
Holder of Notes and/or New Notes and any such Holder may specifically
enforce the provisions of this Agreement as if an original party hereto.
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(f) HEADINGS. The headings in this agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(g) GOVERNING LAW. This agreement shall be governed by and construed
in accordance with the internal laws of the State of New York applicable
to agreements made and to be performed in said State.
(h) SEVERABILITY. In the event that any one of more of the
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect
for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions hereof
shall not be in any way impaired or affected thereby, it being intended
that all of the rights and privileges of the parties shall be enforceable
to the fullest extent permitted by law.
(i) SECURITIES HELD BY THE COMPANY, ETC. Whenever the consent or
approval of Holders of a specified percentage of principal amount of Notes
or New Notes is required hereunder, Notes or New Notes, as applicable,
held by the Company or its Affiliates (other than subsequent Holders of
Notes or New Notes if such subsequent Holders are deemed to be Affiliates
solely by reason of their holdings of such Notes or New Notes) shall not
be counted in determining whether such consent or approval was given by
the Holders of such required percentage.
Please confirm that the foregoing correctly sets forth the agreement
between the Company and you.
Very truly yours,
CALLON PETROLEUM COMPANY
By:
Accepted and Agreed to:
MORGAN KEEGAN & COMPANY, INC.
By:
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ANNEX A
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Notes where such New Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date (as
defined herein) and ending on the close of business on the 45th day after the
Expiration Date, it will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
ANNEX B
Each broker-dealer that receives New Notes for its own account in exchange
for Notes, where such Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution."
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such New
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New Notes received
in exchange for Notes where such Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business on the
45th day after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may
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<PAGE>
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit of any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus meeting the requirements of the
Securities Act, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 45 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to indemnify the holders of
the Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
[If applicable, add information required by Regulation S-K items 507 and/or
508.]
ANNEX D
Rider A
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES
OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ______________________________________
Address: ______________________________________
______________________________________
______________________________________
Rider B
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Notes, it represents that the Notes to be exchanged
for New Notes were acquired by it as a result of market-making activities or
other trading activities and acknowledges that it will deliver a prospectus in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
18
EXHIBIT 10.2
EXCHANGE AGENT AGREEMENT
____________, 1997
American Stock Transfer & Trust Company, New York
40 Wall Street
New York, New York
Ladies and Gentlemen:
Callon Petroleum Company (the "Issuer") proposes to make an offer (the
"Exchange Offer") to exchange its outstanding 10.125% Series A Senior
Subordinated Notes due 2002 (the "Old Notes"), of which an aggregate of
$36,000,000 in principal amount is outstanding as of the date hereof, for an
equal principal amount of newly issued 10.125% Series B Senior Subordinated
Notes due 2002 (the "New Notes") which have been registered under the Securities
Act of 1933, as amended (the "Securities Act"). The Old Notes and New Notes are
collectively referred to herein as the "Notes." The terms and conditions of the
Exchange Offer as currently contemplated are set forth in a prospectus, dated
_____, 1997 (the "Prospectus"), proposed to be distributed to all record holders
of the Old Notes and beneficial interests therein. Terms used and not defined
herein have the meanings set forth in the Prospectus or the Letter of
Transmittal (except that the term "Old Notes" shall include beneficial interests
therein, held by or through participants in The Depository Trust Company (the
"Book-Entry Transfer Facility") (Book-Entry Interests") and Old Notes held in
definitive registered form ("Definitive Registered Notes")).
The Issuer hereby appoints American Stock Transfer & Trust Company, New
York to act as exchange agent (the "Exchange Agent") in connection with the
Exchange Offer. References hereinafter to "you" shall refer to American Stock
Transfer & Trust Company, New York.
The Exchange Offer is expected to be commenced by the Issuer on or about
_______, 1997. The Letter of Transmittal accompanying the Prospectus is to be
used by the holders of the Old Notes to accept the Exchange Offer, and contains
certain instructions with respect to the delivery of Book-Entry Interests and
Definitive Registered Notes.
The Exchange Offer shall expire at 5:00 p.m., New York City time,
____________, 1997 or on such later date or time to which the Issuer may extend
the Exchange Offer (the "Expiration Date"). Subject to the terms and conditions
set forth in the Prospectus, the Issuer expressly reserves the right to extend
the Exchange Offer from time to time and may extend the Exchange Offer by giving
oral (confirmed in writing) or written notice to you before 9:00 a.m., New York
City time, on the business day following the previously scheduled Expiration
Date.
The Issuer expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified in the Prospectus under the section "The Exchange Offer -- Conditions
to the Exchange Offer." The Issuer will give oral (confirmed in writing) or
written notice of any amendment, termination or nonacceptance to you as promptly
as practicable.
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
<PAGE>
1. You will perform such duties and only such duties as are specifically
set forth in the section of the Prospectus captioned "The Exchange Offer," as
specifically set forth in the Letter of Transmittal, and as specifically set
forth herein and such duties which are necessarily incidental thereto; PROVIDED,
HOWEVER, that in no way will your general duty to act in good faith be
discharged by the foregoing.
2. You will establish an account with respect to the Old Notes at the
Book-Entry Transfer Facility for purposes of the Exchange Offer within two
business days after the date of the Prospectus or, if you already have
established an account with the Book-Entry Transfer Facility suitable for the
Exchange Offer, you will identify such preexisting account to be used in the
Exchange Offer, and any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of the Old
Notes by causing the Book-Entry Transfer Facility to transfer such Old Notes
into your account in accordance with the Book-Entry Transfer Facility's
procedure for such transfer.
3. You are to examine each of the Letters of Transmittal, each of the
certificates for Old Notes in the case of Definitive Registered Notes, or, in
the case of Book-Entry Interests, confirmation of book-entry transfer into your
account at the Book-Entry Transfer Facility via the Book-Entry Transfer
Facility's Automated Tender Offer Program and any accompanying Agent's Message
and any other documents delivered or mailed to you by or for holders of the Old
Notes to ascertain whether: (i) the Letters of Transmittal and any such other
documents are duly executed and properly completed in accordance with
instructions set forth therein and (ii) the Old Notes have otherwise been
properly tendered. In each case where the Letter of Transmittal or any other
document has been improperly completed or executed, any of the certificates for
Old Notes are not in proper form for transfer or some other irregularity in
connection with the acceptance of the Exchange Offer exists, you will endeavor
to inform the presenters of the need for fulfillment of all requirements and to
take any other action as may be necessary or advisable to cause such
irregularity to be corrected.
4. With the approval of the Chief Financial Officer of the Company or the
Company Secretary (such approval, if given orally, to be confirmed in writing)
or any other party designated by such an officer in writing, you are authorized
to waive any irregularities in connection with any tender of Old Notes pursuant
to the Exchange Offer.
5. Tenders of Old Notes may be made only as set forth in the section of
the Prospectus captioned "The Exchange Offer -- Procedures for Tendering
Outstanding Notes" or in the Letter of Transmittal, and Old Notes shall be
considered properly tendered to you only when tendered in accordance with the
procedures set forth therein.
Notwithstanding the provisions of this Paragraph 5, Old Notes which the
Chief Financial Officer of the Company or the Company Secretary or any other
party designated by such an officer in writing shall approve as having been
properly tendered shall be considered to be properly tendered (such approval, if
given orally, shall be confirmed in writing).
6. You shall advise the Company with respect to any Old Notes delivered
subsequent to the Expiration Date and accept its instructions with respect to
disposition of such Old Notes.
7. You shall accept tenders:
a. in cases where the Old Notes are registered in two or
more names only if signed by all named holders;
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<PAGE>
b. in cases where the signing person (as indicated on the
Letter of Transmittal) is acting in a fiduciary or a representative
capacity only when proper evidence of his or her authority to so act
is submitted; and
c. from persons other than the registered holder of Old Notes
provided that customary transfer requirements, including any
applicable transfer taxes, are fulfilled.
8. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Issuer will notify you (such notice if given orally, to be confirmed
in writing) of its acceptance, promptly after the Expiration Date, of all Old
Notes properly tendered; and you, on behalf of the Issuer, will exchange such
Old Notes for New Notes and cause such Old Notes to be canceled. Delivery of New
Notes will be made on behalf of the Issuer by you at the rate of $1,000
principal amount of New Notes for each $1,000 principal amount of the Old Notes
tendered promptly after notice (such notice if given orally, to be confirmed in
writing) of acceptance of said Old Notes by the Issuer; PROVIDED, HOWEVER, that
in all cases, Old Notes tendered pursuant to the Exchange Offer will be
exchanged only after timely receipt by you of properly endorsed Definitive
Registered Notes or confirmation of book-entry transfer into your account at the
Book-Entry Transfer Facility, or a properly completed and duly executed Letter
of Transmittal (or facsimile thereof) with any required signature guarantees (or
in lieu thereof an Agent's Message, where applicable) and any other required
document. You shall issue New Notes only in denominations of $1,000 or any
integral multiple thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus and the
Letter of Transmittal, Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
10. The Issuer shall not be required to exchange any Old Notes tendered if
any of the conditions set forth in the Exchange Offer are not met. Notice of any
decision by the Issuer not to exchange any Old Notes tendered shall be given
(such notice, if given orally, shall be confirmed in writing) by the Issuer to
you.
11. If, pursuant to the Exchange Offer, the Issuer does not accept for
exchange all or part of the Old Notes tendered because of an invalid tender, the
occurrence of certain other events set forth in the Prospectus under the caption
"The Exchange Offer -- Conditions to the Exchange Offers" or otherwise, you
shall as soon as practicable after the expiration or termination of the Exchange
Offer effect the appropriate book-entry transfer of the unaccepted Old Notes,
and return any related required documents and the Letters of Transmittal
relating thereto that are in your possession, to the persons who deposited them.
12. You are not authorized to pay or offer to pay any concessions,
commission or solicitation fees to any broker, dealer, bank or other persons or
to engage or utilize any person to solicit tenders.
13. As Exchange Agent hereunder you:
a. will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of Old
Notes, and will not be required to and will make no representations as to the
validity, value or genuineness of the Exchange Offer; PROVIDED, HOWEVER, that in
no way will your general duty to act in good faith be discharged by the
foregoing;
b. shall not be obligated to take any legal action hereunder which might
in your reasonable judgment involve any expense or liability, unless you shall
have been furnished with reasonable indemnity;
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<PAGE>
c. shall not be liable to the Issuer for any action taken or omitted by
you, or any action suffered by you to be taken or omitted, without negligence,
misconduct or bad faith on your part, by reason of or as a result of the
administration of your duties hereunder in accordance with the terms and
conditions of this Agreement or by reason of your compliance with the
instructions set forth herein or with any written or oral instructions delivered
to you pursuant hereto, and may reasonably rely on and shall be protected in
acting in good faith in reliance upon any certificate, instrument, opinion,
notice, letter, facsimile or other document or security delivered to you and
reasonably believed by you to be genuine and to have been signed by the proper
party or parties;
d. may reasonably act upon any tender, statement, request, comment,
agreement or other instrument whatsoever not only as to its due execution and
validity and the effectiveness of its provisions, but also as to the truth and
accuracy of any information contained therein, which you shall in good faith
reasonably believe to be genuine or to have been signed or represented by a
proper person or persons;
e. may rely on and shall be protected in acting upon written or oral
instructions from any officer of the Issuer with respect to the Exchange
Offer;
f. shall not advise any person tendering Old Notes pursuant to the
Exchange Offer as to the wisdom of making such tender or as to the market value
or decline or appreciation in market value of any Old Notes; and
g. may consult with your counsel and the written opinion of such counsel
shall be full and complete authorization and protection in respect of any action
taken, suffered or omitted by you hereunder in good faith and in accordance with
such written opinion of such counsel.
14. You shall take such action as may from time to time be requested by
the Issuer or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Prospectus, Letter of Transmittal and the
Notice of Guaranteed Delivery or such other forms as may be approved from time
to time by the Issuer to all persons requesting such documents and to accept and
comply with telephone requests for information relating to the Exchange Offer,
provided that such information shall relate only to the procedures for accepting
(or withdrawing from) the Exchange Offer. The Issuer will furnish you with
copies of such documents at your request. All other requests for information
relating to the Exchange Offer shall be directed to:
Callon Petroleum Company
200 North Canal Street
Natchez, Mississippi 39120
Attn: Corporate Secretary
15. You shall advise by facsimile transmission or telephone, and promptly
thereafter, confirm in writing to:
John S. Weatherly
Callon Petroleum Company
200 North Canal Street
Natchez, Mississippi 39120
Telephone: (601) 442-1601
Facsimile: (601) 446-1410
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and such other person or persons as the Company may request, daily, and more
frequently if reasonably requested, up to and including the Expiration Date, as
to the principal amount of the Old Notes which have been tendered pursuant to
the Exchange Offer and the items received by you pursuant to this Agreement,
separately reporting and giving cumulative totals as to items properly received
and items improperly received. In addition, you will also inform, and cooperate
in making available to, the Issuer or any such other person or persons as the
Issuer requests from time to time prior to the Expiration Date of such other
information as they, it or he reasonably requests. Such cooperation shall
include, without limitation, the granting by you to the Issuer and such persons
as the Issuer may request of access to those persons on your staff who are
responsible for receiving tenders in order to ensure that immediately prior to
the Expiration Date, the Issuer shall have received information in sufficient
detail to enable it to decide whether to extend the Exchange Offer. You shall
prepare a list of persons who failed to tender or whose tenders were not
accepted and the aggregate principal amount of Old Notes not tendered or Old
Notes not accepted and deliver said list to the Issuer at least seven days prior
to the Expiration Date. You shall also prepare a final list of all persons whose
tenders were accepted, the aggregate principal amount of Old Notes tendered and
the aggregate principal amount of Old Notes accepted and deliver said list to
the Issuer.
16. Letters of Transmittal and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Issuer.
17. For services rendered as Exchange Agent hereunder you shall be
entitled to a fee of [ ] and you shall be entitled to reimbursement of your
expenses (including fees and expenses of your counsel, which fees are expected
under normal circumstances to be not in excess [ ]) incurred in the connection
with the Exchange Offer.
18. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal attached hereto and further acknowledge that you have examined each
of them to the extent that they relate to your duties hereunder. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you as Exchange Agent
which shall be controlled by this Agreement.
19. The Issuer agrees to indemnify and hold you harmless in your capacity
as Exchange Agent hereunder against any liability, cost or expense, including
reasonable attorneys' fees, arising out or in connection with the acceptance or
administration of your duties hereunder, including, without limitation, in
connection with any act, omission, delay or refusal made by you in reasonable
reliance upon any signature, endorsement, assignment, certificate, order,
request, notice, instruction or other instrument or document reasonably believed
by you to be valid, genuine and sufficient and in accepting any tender or
effecting any transfer of Old Notes reasonably believed by you in good faith to
be authorized, and in delaying or refusing in good faith to accept any tenders
or effect any transfer of Old Notes; PROVIDED, HOWEVER, that the Issuer shall
not be liable for indemnification or otherwise for any loss, liability, cost or
expense to the extent arising out of your negligence, willful breach of this
Agreement, willful misconduct or bad faith. In no case shall the Issuer be
liable under this indemnity with respect to any claim against you unless the
Issuer shall be notified by you, by letter or cable or by facsimile confirmed by
letter, of the written assertion of a claim against you or of any other action
commenced against you, promptly after you shall have received any such written
assertion or commencement of action. The Issuer shall be entitled to participate
at its own expense in the defense of any such claim or other action, and, if the
Issuer so elects, the Issuer shall assume the defense of any suit brought to
enforce any such claim. In the event that the Issuer shall assume the defense of
any such suit, the Issuer shall not be liable for the fees and expenses of any
additional counsel thereafter retained by you so long as the Issuer shall retain
counsel
5
<PAGE>
reasonably satisfactory to you to defend such suit. You shall not compromise or
settle any such action or claim without the consent of the Issuer.
20. This Agreement and your appointment as Exchange Agent hereunder shall
be construed and enforced in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within such state,
and without regard to conflicts of law principles, and shall inure to the
benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
21. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which taken together
constitute one and the same agreement.
22. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
23. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by a written
instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
24. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile)
and shall be given to such party, addressed to it, at its address or telecopy
number set forth below:
If to the Issuer:
Callon Petroleum Company
200 North Canal Street
Natchez, Mississippi 39120
Telephone: (601) 442-1601
Facsimile: (601) 446-1410
Attn: John S. Weatherly, Chief Financial Officer
with a copy to:
Butler & Binion, L.L.P.
1000 Louisiana, Suite 1600
Houston, TX 77002
Telephone: (713) 237-3111
Facsimile: (713) 237-3202
Attn: George G. Young
If to the Exchange Agent:
American Stock Transfer & Trust
Company, New York
40 Wall Street
New York, New York
Telephone: 718-921-8206
Facsimile: 718-921-8336
6
<PAGE>
25. Unless terminated earlier by the parties hereto, this Agreement shall
terminate 90 days following the Expiration Date. Notwithstanding the foregoing,
Paragraphs 17 and 19 shall survive the termination of this Agreement. Upon any
termination of this Agreement, you shall promptly deliver to the Issuer any
funds or property (including, without limitation, Letters of Transmittal and any
other documents relating to the Exchange Offer) then held by you as Exchange
Agent under this Agreement except as provided in Section 16.
26. This Agreement shall be binding and effective as of the date hereof.
Please acknowledge receipt of this Agreement and confirm the arrangements
herein provided by signing and returning the enclosed copy.
CALLON PETROLEUM COMPANY
By:_____________________________________________
Name:
Title:
Accepted as the date first above written:
AMERICAN STOCK TRANSFER & TRUST
COMPANY, NEW YORK
By:_______________________________________
Name:
Title:
7
EXHIBIT 10.3
LETTER OF TRANSMITTAL
CALLON PETROLEUM COMPANY
OFFER TO EXCHANGE
ALL OUTSTANDING
10.125% SERIES A SENIOR SUBORDINATED NOTES DUE 2002
FOR
10.125% Series B Senior Subordinated Notes due 2002
Which Have Been Registered Under The Securities Act of 1933, As Amended
Pursuant To The Prospectus Dated ________, 1997
The Exchange Offer Will Expire At 5:00 P.M., New York City Time, On
_______________, 1997 Unless Extended ("The Expiration Date")
AMERICAN STOCK TRANSFER & TRUST COMPANY, NEW YORK, Exchange Agent
By Mail, Hand or Overnight Delivery:
American Stock Transfer and Trust Company, New York
40 Wall Street
New York, New York
By Facsimile: 718-921-8336
Confirm by Telephone: 718-921-8206
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE,
OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER OTHER
THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated , 1997 (the "Prospectus"), of Callon Petroleum Company, a
Delaware corporation (the "Company"), and this Letter of Transmittal (the
"Letter"), which together constitute the Company's offer (the "Exchange Offer")
to exchange, from the registered holders (the "Holders") thereof an aggregate
principal amount of up to $36,000,000 of the Company's 10.125% Series B Senior
Subordinated Notes due 2002 (the "New Notes"), which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which the Prospectus is part, for a like principal
amount of the issued and outstanding 10.125% Series A Senior Subordinated Notes
due 2002 (the "Old Notes") of the Company.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Accordingly, registered Holders of New Notes on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive interest accruing from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid, from
July 31, 1997. Old Notes accepted for exchange will cease to accrue interest
from and after the date of consummation of the Exchange Offer. Holders whose Old
Notes are accepted for exchange will not receive any payment in respect of
accrued interest on such Old Notes otherwise payable on
<PAGE>
any interest payment date the record date for which occurs on or after
consummation of the Exchange Offer.
This Letter is to be completed by a Holder of Old Notes either if
certificates for such Old Notes are to be forwarded herewith or if a tender is
to be made by book-entry transfer to the account maintained by the Exchange
Agent at The Depository Trust Company (the "Book-Entry Transfer Facility")
pursuant to the procedures set forth in "The Exchange Offer -- Procedures for
Tendering Outstanding Notes -- Book-Entry Transfer" section of the Prospectus
and an Agent's Message is not delivered. Tenders by book-entry transfer may also
be made by delivering an Agent's Message in lieu of this Letter of Transmittal.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to and received by the Exchange Agent and forming a part of a
Book-Entry Confirmation (as defined below), which states that the Book-Entry
Transfer Facility has received an express acknowledgment from the tendering
Participant, which acknowledgment states that such Participant has received and
agrees to be bound by the Letter of Transmittal and that the Company may enforce
the Letter of Transmittal against such Participant. Holders of Old Notes whose
certificates are not immediately available, or who are unable to deliver their
certificates or confirmation of the book-entry tender of their Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Old Notes according
to the guaranteed delivery procedures set forth in "The Exchange Offer --
Procedures for Tendering Outstanding Notes -- Guaranteed Delivery" section of
the Prospectus. See Instruction 1. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
The undersigned, by completing the box entitled "Description of 10.125%
Series A Senior Subordinated Notes due 2002" below and signing this Letter, will
be deemed to have tendered the Old Notes as set forth in such box below.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Old Notes should be listed on a separate signed schedule affixed hereto.
-2-
<PAGE>
DESCRIPTION OF 10.125% SERIES A SENIOR
SUBORDINATED NOTES DUE 2002
PRINCIPAL
AMOUNT
AGGREGATE TENDERED
PRINCIPAL (MUST
NAME AND ADDRESS OF AMOUNT BE IN
REGISTERED HOLDERS REPRESENTED INTEGRAL
(PLEASE FILL IN IF CERTIFICATE BY MULTIPLES OF
BLANK) NUMBERS(*) CERTIFICATE(S) $1,000)**
------ ---------- -------------- - ---------
TOTAL
* Need not be completed by book-entry holders.
** Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of 10.125% Series A Senior Subordinated Notes due 2002 will
be deemed to have tendered the entire aggregate principal amount represented
by the column labeled "Aggregate Principal Amount Represented by
Certificates(s)." If the space provided above is inadequate, list the
certificate numbers and principal amounts on a separate signed schedule and
affix the list to this Letter of Transmittal. The minimum permitted tender is
$1,000 in principal amount of 10.125% Series A Senior Subordinated Notes due
2002 and all tenders must be in integral multiples of $1,000 in principal
amount.
|_| Check here if tendered Old Notes are enclosed herewith.
|_| Check here if tendered Old Notes are being delivered by book entry
transfer made to the account maintained by the Exchange Agent with DTC and
complete the following (for use by eligible institutions (as hereinafter
defined) only):
Name of Tendering Institution
Account Number
Transaction Code Number
|_| Check here and enclose a photocopy of the notice of guaranteed delivery if
tendered Old Notes are being delivered pursuant to a notice of guaranteed
delivery previously sent to the Exchange Agent and complete the following
(for use by eligible institutions only):
Name(s)of Registered Holder(s)
Date of Execution of Notice of Guaranteed Delivery
Window Ticket Number (if available)
Name of Institution which Guaranteed Delivery
Account Number (if delivered by book entry transfer)
Transaction Code Number (if delivered by book-entry transfer)
Tendering Institution (if delivered by book/entry transfer)
-3-
<PAGE>
SPECIAL ISSUANCE INSTRUCTION
(See Instructions 3, 4 and 5)
To be completed ONLY (i) if certificates for Old Notes not tendered, or New
Notes issued in exchange for Old Notes accepted for exchange, are to be issued
in the name of someone for exchange, are to be issued in the name of someone
other than the undersigned, or (ii) if Old Notes tendered by book-entry transfer
which are not exchanged are to be returned by credit to an account maintained at
The Depository Trust Company ("DTC") other than the DTC Account Number set forth
above.
Issued certificate(s) to:
Name_______________________________________
(Please Print)
Address____________________________________
___________________________________________
(Include Zip Code)
___________________________________________
(Tax Identification or Social Security No.)
Credit Old Notes not exchanged and delivered by book-entry transfer to the DTC
account set forth below:
___________________________________________
DTC Account Number
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Old Notes not tendered, or New Notes
issued in exchange for Old Notes accepted for exchange, are to be delivered to
someone other than the undersigned, or to the undersigned at an address other
than that shown above.
Mail to:
Name_______________________________________
(Please Print)
Address____________________________________
___________________________________________
(Include Zip Code)
___________________________________________
(Tax Identification or Social Security No.)
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated below. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent its agent and
attorney-in-fact (with full knowledge that the Exchange Agent also acts as the
agent of the Company) with respect to the tendered Old Notes with full power of
substitution to (i) deliver certificates for such Old Notes, or transfer
ownership of such Old Notes on the account books maintained by DTC, to the
Company and deliver all accompanying evidences of transfer and authenticity to,
or upon the order of, the Company and (ii) present such Old Notes for transfer
on the books of the Company and receive all benefits and otherwise exercise all
rights of beneficial ownership of such Old Notes, all in accordance with the
terms of the Exchange Offer. The power of attorney granted in this paragraph
shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the undersigned, that neither the Holder of such Old Notes nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the Holder of such Old Notes nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Company.
The undersigned also acknowledges that the Exchange Offer are being made
in reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred by
Holders thereof (other than any such Holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such Holders' business and such Holders have no arrangement with any person
to participate in a distribution of such New Notes. However, the SEC has not
considered the Exchange Offer in the context of a no-action letter and there can
be no assurance that the staff of the SEC would make a similar determination
with respect to the Exchange Offer as in other circumstances. If the undersigned
is not a broker-dealer, the undersigned represents that it is not engaged in,
and does not intend to engage in, a distribution of New Notes and has no
arrangement or understanding to participate in a distribution of New Notes. If
any Holder is an affiliate of the Company, is engaged in or intends to engage
in, or has any arrangement or understanding with any person to participate in, a
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) could not rely on the applicable interpretations of the staff of
the SEC and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. If
the undersigned is a broker-dealer that will receive New Notes for its own
account pursuant to the Exchange Offer, it represents that the Old Notes to be
exchanged for the New Notes were acquired by it as a result of market-making
activities or other trading activities and acknowledges that it will deliver a
prospectus in connection with any resale of such New Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
-5-
<PAGE>
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer --Withdrawal Rights"
section of the Prospectus. Unless otherwise indicated herein in the box entitled
"Special Issuance Instructions" below, please issue the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Old Notes, please credit the account indicated above maintained at
the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
the box entitled "Special Delivery Instructions" below, please send the New
Notes (and, if applicable, substitute certificates representing Old Notes for
any Old Notes not exchanged) to the undersigned at the address(es) shown above
in the box entitled "Description of 10.125% Series A Senior Subordinated Notes
due 2002."
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO
Name: ________________________________
Address: ________________________________
________________________________
________________________________
-6-
<PAGE>
PLEASE SIGN HERE
TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete accompanying Substitute W-9 on reverse side)
________________________________________ ___________________________, 1997
Date
________________________________________ ___________________________, 1997
Signature(s) of Holder(s) Date
Area Code and Telephone Number: ______________________________________________
This letter must be signed by the registered holder(s) as the name(s)
appear(s) on the certificate(s) for the Old Notes hereby tendered or on a
security position listing, or by any person(s) authorized to become registered
holder(s) by endorsements and documents transmitted herewith. If signature is by
a trustee, executor, administrator, guardian, officer or other person acting in
a fiduciary or representative capacity, please set forth full title. See
Instruction 3.
Name(s):____________________________________________________________________
(Please Type or Print)
Capacity (Full Title):______________________________________________________
Address:____________________________________________________________________
(Including Zip Code)
SIGNATURE GUARANTEE (if required by Instruction 3)
Signature(s) Guaranteed by an Eligible Institution:
________________________________________________________________________________
(Authorized Signature)
________________________________________________________________________________
(Title)
________________________________________________________________________________
(Name of Firm)
________________________________________________________________________________
(Address)
________________________________________________________________________________
(Area Code and Telephone Number)
Date:_________________________, 1997
-7-
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND OLD NOTES, GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by holders of Old Notes either if certificates
for such Old Notes are to be forwarded herewith or if tenders are to be made
pursuant to the procedures for delivery by book-entry transfer set forth in "The
Exchange Offer -- Procedures for Tendering Outstanding Notes -- Book Entry
Transfer" section of the Prospectus and an Agent's Message is not delivered.
Tenders by book-entry transfer may also be made by delivering an Agent's Message
in lieu of this Letter of Transmittal. The term "Agent's Message" means a
message, transmitted by the Book-Entry Transfer Facility to and received by the
Exchange Agent and forming a part of a Book-Entry Confirmation, which states
that the Book-Entry Transfer Facility has received an express acknowledgment
from the tendering Participant, which acknowledgment states that such
Participant has received and agrees to be bound by the Letter of Transmittal and
that the Company may enforce the Letter of Transmittal against such Participant.
Certificates for all physically tendered Old Notes, or Book-Entry Confirmation,
as the case may be, as well as a properly completed and duly executed Letter (or
facsimile hereof or Agent's Message in lieu thereof) and any other documents
required by this Letter, must be received by the Exchange Agent at the address
set forth herein on or prior to the Expiration Date, or the tendering holder
must comply with the guaranteed delivery procedures set forth below. Old Notes
tendered hereby must be in denominations of principal amount of $1,000 and any
integral multiple thereof.
Holders whose certificates for Old Notes are not immediately available or
who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer
- -- Procedures for Tendering Outstanding Notes -- Guaranteed Delivery" section of
the Prospectus. Pursuant to such procedures, (i) such tender must be made
through an Eligible Institution; (ii) on or prior to 5:00 p.m., New York City
time, on the Expiration Date, the Exchange Agent must receive from such Eligible
Institution a properly completed and duly Notice of Guaranteed Delivery,
substantially in the form provided by the Company (by telegram, telex, facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Old Notes and the amount of Old Notes tendered stating that the tender
is being made thereby and guaranteeing that within five New York Stock Exchange
("NYSE") trading days after the date of execution of the Notice of Guaranteed
Delivery, the certificates for all physically tendered Old Notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, together with a
properly completed and duly executed Letter (or facsimile thereof or Agent's
Message in lieu thereof) with any required signature guarantees and any other
documents required by this Letter will be deposited by the Eligible Institution
with the Exchange Agent; and (iii) the certificates for all physically tendered
Old Notes, in proper form for transfer, or Book-Entry Confirmation, as the case
may be, together with a properly completed and duly executed Letter (or
facsimile thereof or Agent's Message in lieu thereof) with any required
signature guarantees and all other documents required by this Letter, are
deposited by the Eligible Institution within five NYSE trading days after the
date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other
required documents is at the election and risk of the tendering Holders, but the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. If Old Notes are sent by mail, it is suggested that the mailing
be registered mail, properly insured, with return receipt requested, and made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
-8-
<PAGE>
Only a Holder (as defined in the Prospectus) of Old Notes may tender such
Old Notes in the Exchange Offer. Any beneficial holder of Old Notes who is not
the registered holder and who wishes to tender should arrange with the
registered holder to execute and deliver this Letter of Transmittal on his
behalf or must, prior to completing and executing this Letter of Transmittal and
delivering his Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such holder's name or obtain a properly completed
bond power from the registered holder.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to particular Old Notes. The Company's interpretation of
the terms and conditions of the Exchange Offer (including the instructions in
this Letter of Transmittal) shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
must be cured within such time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Old Notes,
nor shall any of them incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders of Old Notes, unless otherwise provided in this
Letter of Transmittal, as soon as practicable following the Expiration Date. See
"The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTE HOLDERS WHO TENDER BY
BOOK-ENTRY TRANSFER). If less than all of the Old Notes evidenced by a submitted
certificate are to be tendered, the tendering Holder(s) should fill in the
aggregate principal amount of Old Notes to be tendered in the box above entitled
"Description of 10.125% Series A Senior Subordinated Notes due 2002 -- Principal
Amount Tendered." A reissued certificate representing the balance of nontendered
Old Notes will be sent to such tendering holder, unless otherwise provided in
the appropriate box of this Letter, promptly after the Expiration Date. All of
the Old Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
3. SIGNATURES ON THIS LETTER, BOND POWERS AND ENDORSEMENTS, GUARANTEE OF
SIGNATURES. If this Letter is signed by the Holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates or on a DTC security position listing without any
change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
-9-
<PAGE>
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed accompanied by appropriate bond powers, in either case signed exactly
as the name or names of the registered holder or holders appear(s) on the
certificate(s) and signatures on such certificate(s) must be guaranteed by an
Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by a financial institution
(including most banks, savings and loan associations and brokerage houses) that
is a participant in the [Securities Transfer Agents Medallion Program, the New
York Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion
Program] (each, an "Eligible Institution").
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Old Notes are tendered: (i) by a registered holder of
Old Notes who has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on this Letter, or (ii) for the account of an
Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Old
Notes should indicate in the applicable box the name and address to which New
Notes issued pursuant to the Exchange Offer and/or substitute certificates
evidencing Old Notes not exchanged are to be issued or sent, if different from
the name or address of the person signing this Letter. In the case of issuance
in a different name, the employer identification or social security number of
the person named must also be indicated. Note holders tendering Old Notes by
book-entry transfer may request that Old Notes not exchanged be credited to such
account maintained at the Book-Entry Transfer Facility as such noteholder may
designate hereon. If no such instructions are given, such Old Notes not
exchanged will be returned to the name and address of the person signing this
Letter.
5. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer of Old Notes to it or its order pursuant to the
Exchange Offer. If, however, New Notes and/or substitute Old Notes not exchanged
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Old Notes tendered hereby, or if
tendered Old Notes are registered in the name of any person other than the
person signing this Letter, or if a transfer tax is imposed for any reason other
than the transfer of Old Notes to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed to such
tendering holder and the Exchange Agent will retain possession of an amount of
New Notes with a face amount equal to the amount of such transfer taxes due by
such tendering holder pending receipt by the Exchange Agent of the amount of
such taxes.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
6. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
-10-
<PAGE>
7. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Old Notes, by
execution of this Letter or on Agent's Message in lieu thereof, shall waive any
right to receive notice of the acceptance of their Old Notes for exchange.
Although the Company intends to notify holders of defects or
irregularities with respect to tenders of Old Notes, neither the Company, the
Exchange Agent nor any other person shall incur any liability for failure to
give any such notice.
8. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
9. WITHDRAWAL OF TENDERS. Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. For a
withdrawal of a tender of Old Notes to be effective, a written, telegraphic,
telex or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth above prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers (where certificates for Old Notes have been
transmitted) and principal amount of such Old Notes), (iii) be signed by the
holder in the same manner as the original signature on this Letter (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the trustee under the Indenture register the transfer of such
Old Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Old Notes are registered, if different from that of
the Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes that have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following the procedures described
above at any time on or prior to 5:00 p.m., New York City time, on the
Expiration Date.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus, this Letter and other related documents may be directed to the
Exchange Agent, at the address and telephone number indicated above.
11. IMPORTANT TAX INFORMATION. Under current federal income tax law, a
holder of New Notes is required to provide the Company (as payor) with such
holder's correct taxpayer identification number ("TIN") on Substitute Form W-9
or otherwise establish a basis for exemption from backup withholding to prevent
backup withholding on any New Notes delivered pursuant to the Exchange Offer and
any payments received in respect of the New Notes. If a holder of New Notes is
an individual, the TIN is such holder's social security number. If the Company
is not provided with the correct taxpayer identification number, a holder of New
Notes may be subject to a $50 penalty imposed by the Internal Revenue Service.
Accordingly, each prospective holder of New Notes to be issued pursuant to
Special Issuance Instructions should complete the attached Substitute Form W-9.
The Substitute Form W-9 need not be completed if the box entitled Special
Issuance Instructions has not been completed.
-11-
<PAGE>
Certain holders of New Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt prospective holders of New Notes should indicate
their exempt status on Substitute Form W-9. A foreign individual may qualify as
an exempt recipient by submitting to the Company, through the Exchange Agent, a
properly completed Internal Revenue Service Form W-8 (which the Exchange Agent
will provide upon request) signed under penalty of perjury, attesting to the
holder's exempt status. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the holder of New Notes or other payee. Backup withholding
is not an additional federal income tax. Rather, the federal income tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund may
be obtained from the Internal Revenue Service. To prevent backup withholding on
any New Notes delivered pursuant to the Exchange Offer and any payments received
in respect of the New Notes, each prospective holder of New Notes to be issued
pursuant to Special Issuance Instructions should provide the Company, through
the Exchange Agent, with either: (i) such prospective holder's correct TIN by
completing the form below, certifying that the TIN provided on Substitute Form
W-9 is correct (or that such prospective holder is awaiting a TIN) and that (A)
such prospective holder has not been notified by the Internal Revenue Service
that he or she is subject to backup withholding as a result of a failure to
report all interest or dividends or (B) the Internal Revenue Service has
notified such prospective holder that he or she is no longer subject to backup
withholding; or (ii) an adequate basis for exemption.
The prospective holder of New Notes to be issued pursuant to Special
Issuance Instructions is required to give the Exchange Agent the TIN (e.g.,
social security number or employer identification number) of the prospective
record owner of the New Notes. If the New Notes will be held in more than one
name or are not held in the name of the actual owner, consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional guidance regarding which number to report.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, or (ii) the
holder has not been notified by the Internal Revenue Service that such holder is
subject to backup withholding as a result of a failure to report all interest or
dividends or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must give the Company a completed Form W-8, Certificate
of Foreign Status. These forms may be obtained from the Exchange Agent. If the
Old Notes are in more than one name or are not in the name of the actual owner,
such holder should consult the W-9 Guidelines for information on which TIN to
report. If such holder does not have a TIN, such holder should consult the W-9
Guidelines for instructions on applying for a TIN, check the box in Part 2 of
the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note:
Checking this box and writing "applied for" on the form means that such holder
has already applied for a TIN or that such holder intends to apply for one in
the near future. If such holder does not provide its TIN to the Company within
60 days, backup withholding will begin and continue until such holder furnishes
its TIN to the Company.
-12-
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: CALLON PETROLEUM COMPANY
SUBSTITUTE
Form W-9
PART I -- PLEASE PROVIDE YOUR TIN IN THE TIN:
BOX AT RIGHT AND CERTIFY BY SIGNING AND (Social Security Number or
DATING BELOW. Employer Identification
Number)
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PART II -- TIN Applied for / /
CERTIFICATION
UNDER PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me);
(2) I am not subject to backup withholding either because: (a) I am exempt
from backup withholding, or (b) I have not been notified by the Internal Revenue
Service (the 'IRS') that I am subject to backup withholding as a result of
failure to report all interest or dividends, or (c) the IRS has notified me that
I am no longer subject to backup withholding; and
(3) any other information provided on this form is true and correct.
Signature:__________________________
Date:_______________________________, 1997
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not been
notified by the IRS that you are no longer subject to backup withholding.
-13-
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART II
OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of the
exchange, 31 percent of all reportable payments made to me thereafter will be
withheld until I provide a number.
Signature:________________________________
Date:_______________________________, 1997
NOTICE OF GUARANTEED DELIVERY FOR CALLON PETROLEUM COMPANY
This form or one substantially equivalent hereto must be used to accept
the Exchange Offer of Callon Petroleum Company (the "Company") made pursuant to
the Prospectus, dated __________, 1997 (the "Prospectus"), if certificates for
the outstanding 10.125% Series A Senior Subordinated Notes due 2002 (the "Old
Notes") of the Company are not immediately available or if the procedure for
book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach the Exchange Agent prior to 5:00 p.m.,
New York City time, on the Expiration Date of the Exchange Offer. Such form may
be delivered or transmitted by telegram, telex, facsimile transmission, mail or
hand delivery to American Stock Transfer & Trust Company, New York ("Exchange
Agent") as set forth below. Capitalized terms not defined herein are defined in
the Prospectus.
AMERICAN STOCK TRANSFER & TRUST COMPANY, NEW YORK, Exchange Agent
By Mail, Hand or
Overnight Delivery:
American Stock Transfer & Trust Company, New York
40 Wall Street
New York, New York
By Facsimile: 718-921-8336
Confirm by Telephone: 718-921-8206
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE,
OR TRANSMISSION OF THIS INSTRUMENT VIA FACSIMILE TO A NUMBER OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
-14-
<PAGE>
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions thereto, the signature guarantee must appear in the
applicable space provided in the signature box in the Letter of Transmittal.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus, the undersigned
hereby tenders to the Company the principal amount of Old Notes set forth below,
pursuant to the guaranteed delivery procedure described in "The Exchange Offer
- -- Procedures for Tendering Outstanding Notes -- Guaranteed Delivery" section of
the Prospectus.
Principal Amount of Old Notes Tendered:
$_____________________________________________
Certificate Nos. (if available):
_______________________________________________
Total Principal Amount Represented
by Certificate(s):
$______________________________________________
If Old Notes will be delivered to Depository Trust Company, provide
account number.
Account Number: ______________________________
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
PLEASE SIGN HERE
_______________________________________________ _________________________, 1997
Date
_______________________________________________ _________________________, 1997
Signatures of Holder(s) or Authorized Signatory Date
Must be signed by the holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below. If Old Notes will be delivered by book-entry
transfer to The Depository Trust Company, provide account number.
Please print name(s) and address(es)
Name(s):_______________________________________________________________________
Capacity:______________________________________________________________________
Address(es):___________________________________________________________________
-15-
<PAGE>
Area Code and Telephone Number:________________________________________________
Account Number:________________________________________________________________
GUARANTEE
(Not to be used for signature guarantees)
The undersigned, a financial institution (including most banks, savings
and loan associations and brokerage houses) that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program, hereby
guarantees that the undersigned will deliver to the Exchange Agent the
certificates representing the Old Notes being tendered hereby in proper form for
transfer or confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at The Depository Trust Company pursuant to the
procedures for book-entry transfer set forth in the Prospectus, in either case,
together with one or more properly completed and duly executed letters of
transmittal/or facsimile thereof or Agent's Message in lieu thereof and any
other documents required by the Letter of Transmittal within five NYSE trading
days after the date of execution of this Notice of Guaranteed Delivery.
Name of Firm:__________________________________________________________________
Address:_______________________________________________________________________
Area Code & Telephone No.:_____________________________________________________
_____________________________________
Authorized Signature
_____________________________________
Name (Please Type or Print)
_____________________________________
Title
_______________________________, 1997
Date
NOTE: DO NOT SEND CERTIFICATES OF OLD NOTES WITH THIS FORM. CERTIFICATES OF
OLD NOTES SHOULD BE SENT ONLY WITH A COPY OF THE PREVIOUSLY EXECUTED LETTER
OF TRANSMITTAL.
-16-
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated July 24, 1997, with respect to the Statement of Revenues
and Direct Operating Expenses of the Working Interest in Mobile Area Block 864
Unit acquired by Callon Petroleum Operating Company for the year ended December
31, 1996 included in the Registration Statement on Form S-4 and related
Prospectus of Callon Petroleum Company dated September 25, 1997 to exchange up
to $36,000,000 aggregate principal amount of its 10.125% Series B Senior
Subordinated Notes due 2002 for a like principal amount of its outstanding
10.125% Series A Senior Subordinated Notes Due 2002.
/S/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, Texas
September 24, 1997
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 19, 1997 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-4 of Callon Petroleum Company.
/S/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
September 24, 1997
EXHIBIT 23.4
[HUDDLESTON & CO., INC. LETTERHEAD]
CONSENT OF INDEPENDANT PETROLEUM AND GEOLOGICAL ENGINEERS
The undersigned hereby consents to the use in the Prospectus constituting part
of this Registration Statement on Form S-4 of our reserve reports relating to
the oil and gas reserves of Callon Petroleum Company at December 31, 1996. We
also consent to the references to us under the headings "Risk Factors--Estimates
of Oil and Gas Reserves," "Experts," and "Business Properties" and elsewhere in
such Prospectus.
HUDDLESTON & CO., INC.
By: /s/ PETER D. HUDDLESTON
Peter D. Huddleston
President
September 23, 1997
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
AMERICAN STOCK TRANSFER & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-3439945
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
40 Wall Street 10005
New York, New York (Zip Code)
(Address of trustee's
principal executive offices)
CALLON PETROLEUM COMPANY
(Exact name of obligor as specified in its charter)
DELAWARE 64-0844345
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
200 NORTH CANAL STREET
NATCHEZ, MISSISSIPPI 39120
(Address of principal executive (Zip Code)
offices)
10.125% SENIOR SUBORDINATED NOTES DUE 2002
(Title of the Indenture Securities)
<PAGE>
-2-
GENERAL
1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS.
If the obligor or any underwriter for the obligor is an affiliate of the
trustee, describe each such affiliation.
None.
3. VOTING SECURITIES OF THE TRUSTEE.
Furnish the following information as to each class of voting securities of
the trustee:
As of SEPTEMBER 23, 1997
COL. A COL. B
Title of Class Amount Outstanding
Common Shares - par value $600 per share. 1,000 shares
4. TRUSTEESHIPS UNDER OTHER INDENTURES.
American Stock Transfer & Trust Company is Trustee under an Indenture
dated as of November 27, 1996 in terms of which $36,000,000.00 principal
amount of 10% Senior Subordinated Notes due 2001, which rank PARI PASSU
with the 10.125% Senior Subordinated Notes due 2002, were issued.
5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR
UNDERWRITERS.
None.
<PAGE>
-3-
6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.
None.
7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR OFFICIALS.
None.
8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
None.
9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
None.
10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
None.
11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON OWNING
50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.
None.
12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
None.
13. DEFAULTS BY THE OBLIGOR.
None.
14. AFFILIATIONS WITH THE UNDERWRITERS.
None.
15. FOREIGN TRUSTEE.
Not applicable.
<PAGE>
-4-
16. LIST OF EXHIBITS.
T-1.1- A copy of the Organization Certificate of American Stock
Transfer & Trust Company, as amended to date including
authority to commence business and exercise trust powers was
filed in connection with the Registration Statement of Live
Entertainment, Inc., File No. 33-54654, and is incorporated
herein by reference.
T-1.4- A copy of the By-Laws of American Stock Transfer & Trust
Company, as amended to date was filed in connection with the
Registration Statement of Live Entertainment, Inc., File No.
33-54654, and is incorporated herein by reference.
T-1.6- The consent of the Trustee required by Section 312(b) of the
Trust Indenture Act of 1939. Exhibit A.
T-1.7- A copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its
supervising or examining authority. - Exhibit B.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
American Stock Transfer & Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 23rd day of September 1997.
AMERICAN STOCK TRANSFER
& TRUST COMPANY
Trustee
By:/s/ H. LEMMEK
Vice President
<PAGE>
EXHIBIT A
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321 (b) of the Trust Indenture Act of
1939, and subject to the limitations therein contained, American Stock Transfer
& Trust Company hereby consents that reports of examinations of said corporation
by Federal, State, Territorial or District authorities may be furnished by such
authorities to you upon request therefor.
Very truly yours,
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By /s/ H. LEMMEK
Vice President
<PAGE>
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 WALL ST.
NEW YORK, NY 10005
EXHIBIT B
CONSOLIDATED REPORT OF CONDITION AND INCOME FOR A BANK WITH DOMESTIC OFFICES
ONLY AND TOTAL ASSETS OF LESS THAN $100 MILLION REPORT AT CLOSE OF BUSINESS ON
JUNE 30, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
DOLLAR AMOUTS IN THOUSANDS
- ------------------------------------------------------------------------------
ASSETS
1. Cash and balances due from depository institutions:
a. Noninterest-bearing balances and currency and coin
b. Interest-bearing balances......................................... 433
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)
b. Available-for-sale securities (from Schedule RC-B, column D)...... 3,537
3. Federal funds sold and securities purchased under agreements to resell
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C)
b. LESS: Allowance for loan and lease losses
c. LESS: Allocated transfer risk reserve
d. Loans and leases, net of unearned income, allowance, and reserve (item
4.a minus 4.b and 4.c
5. Trading assets
6. Premises and fixed assets (including capitalized leases).............. 3,641
7. Other real estate owned (from Schedule RC-M)
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M)
9. Customers' liability to this bank on acceptances outstanding
10. Intangible assets (from Schedule RC-M)
11. Other asssets (from Schedule RC-F)................................... 6,678
12. a. Total assets (sum of items 1 through 11).......................... 14,289
b. Losses deferred pursuant to 12 U.S.C. 1823 (j)
c.Total assets and losses deferred pursuant to 12 U.S.C. 1823 (j)
(sum of items 12.a and 12.b)....................................... 14,289
<PAGE>
SCHEDULE RC - CONTINUED
- ------------------------------------------------------------------------------
DOLLAR AMOUNTS IN THOUSANDS
LIABILITIES
13. Deposits:
a.In domestic offices (sum of totals of columns A and C from
Schedule RC-E)
(1) Noninterest-bearing
(2) Interest-bearing
b.In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing
(2) Interest-bearing
14. Federal funds purchased and securities sold under agreements
to repurchase
15. a. Demand notes issued to the U.S. Treasury
b. Trading liabilities
16. Other borrowed money (includes mortgage indebtedness and obligations
under capitalized leases):
a. With a remaining maturity of one year or less
b. With a remaining maturity of more than one year through three years
c. With a remaining maturity of more than three years
17. Not applicable
18. Bank's liability on acceptances executed and outstanding
19. Subordinated notes and debentures
20. Other liabilities (from Schedule RC-G).............................. 1,851
21. Total liabilities (sum of items 13 through 20)...................... 1,851
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus
24. Common stock........................................................ 600
25. Surplus (exclude all surplus related to preferred stock)............ 9,289
26. a. Undivided profits and capital reserves........................... 2,523
b. Net unrealized holding gains (losses) on available-for-sale
securities
27. Cumulative foreign currency translation adjustments
28. a. Total equity capital (sum of items 23 through 27)................ 12,438
b. Losses deferred pursuant to 12 U.S.C. 1823(j)
c. Total equity capital and losses deferred pursuant to 12
U.S.C. 1823(j) (sum of items 28.a and 28.b)..................... 12,438
29. Total liabilities, equity capital, and losses deferred pursuant to 12
U.S.C.. 1823 (j) (sum of items 21 and 28.c)......................... 14,289
