<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
Callon Petroleum Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
CALLON PETROLEUM COMPANY
200 NORTH CANAL STREET
NATCHEZ, MISSISSIPPI 39120
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, MAY 9, 2000
To the Shareholders of
Callon Petroleum Company (the "Company"):
Notice is hereby given that the Annual Meeting of Shareholders (the "Annual
Meeting") of the Company will be held in Natchez, Mississippi, on Tuesday, May
9, 2000, at 9:00 a.m., in the Le Grand Pre Ballroom of the Radisson Natchez Eola
Hotel, 110 North Pearl Street, Natchez, Mississippi 39120, for the following
purposes:
1. To elect two Class III directors to hold office until the 2003 Annual
Meeting of Shareholders; and
2. To consider and vote upon the proposed amendment to the Callon
Petroleum Company 1996 Stock Incentive Plan; and
3. To ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December 31,
2000; and
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment or adjournments thereof.
Shareholders of record at the close of business on March 13, 2000 will be
entitled to notice of, and to vote at, the Annual Meeting, or any adjournment or
adjournments thereof.
Shareholders are cordially invited to attend the Annual Meeting in person.
Those individuals who will not attend and who wish their shares voted are
requested to sign, date and mail promptly the enclosed proxy for which a
postage-prepaid return envelope is provided.
By Order of the Board of Directors
Robert A. Mayfield
Secretary
Natchez, Mississippi
March 29, 2000
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU
CANNOT ATTEND, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT
PROMPTLY IN THE RETURN ENVELOPE ENCLOSED FOR YOUR USE. NO POSTAGE IS REQUIRED IF
THE ENVELOPE IS MAILED IN THE UNITED STATES.
<PAGE> 3
PROXY STATEMENT
---------------------
CALLON PETROLEUM COMPANY
200 NORTH CANAL STREET
NATCHEZ, MISSISSIPPI 39120
(601) 442-1601
-----------------
ANNUAL MEETING OF SHAREHOLDERS
TUESDAY, MAY 9, 2000
-----------------
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of Callon Petroleum Company, a
Delaware corporation (the "Company"), from holders ("Shareholders") of the
common stock, $.01 par value per share ("Common Stock"), of the Company for use
at the Annual Meeting of Shareholders of the Company to be held on Tuesday, May
9, 2000, at 9:00 a.m., in the Le Grand Pre Ballroom of the Radisson Natchez Eola
Hotel, 110 North Pearl Street, Natchez, Mississippi 39120, and at any
adjournment or adjournments thereof (such meeting or adjournment thereof is
referred to herein as the "Annual Meeting"), for the purpose of considering and
voting upon the matters set forth in the accompanying Notice of Annual Meeting
of Shareholders ("Notice").
A proxy in the form accompanying this Proxy Statement (each a "Proxy"),
when properly executed and returned, will be voted in accordance with the
directions specified on the Proxy, and otherwise in accordance with the judgment
of the persons designated therein as proxies. Any Proxy which does not withhold
authority to vote or on which no other instructions are given will be voted for
the election of the nominees named herein to the Board of Directors and in favor
of the other proposals set forth in the Notice. Any Proxy may be revoked at any
time before it is exercised by delivering, to the Secretary of the Company,
written notice of revocation or by duly executing a Proxy bearing a later date,
or by voting in person at the Annual Meeting.
This Proxy Statement and the accompanying Notice and form of Proxy are
being mailed to shareholders on or about March 29, 2000. The Annual Report for
the Company's fiscal year ended December 31, 1999 is also being mailed to
shareholders contemporaneously with this Proxy Statement, although the Annual
Report does not form a part of the material for the solicitation of Proxies.
Proxies will be solicited primarily by mail, but employees of the
Company may also solicit Proxies in person or by telephone. Arrangements may be
made with brokerage firms or other custodians, nominees, and fiduciaries to send
Proxy materials to the beneficial owners of the Common Stock of the Company. All
costs incurred in the solicitation of Proxies will be borne by the Company.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
Unless otherwise indicated, proxies in the form enclosed that are
properly executed, duly returned and not revoked will be voted in favor of:
(1) the election of the two Class III director nominees to the
Board of Directors named herein; and
(2) the amendment to the Callon Petroleum Company 1996 Stock
Incentive Plan; and
(3) the ratification of the appointment of Arthur Andersen LLP as
the Company's independent public accountants for the fiscal
year ending December 31, 2000.
The Board of Directors is not presently aware of other proposals that
may be brought before the Annual Meeting. In the event other proposals are
brought before the Annual Meeting, the persons named in the enclosed Proxy will
vote in accordance with what they consider to be in the best interests of the
Company and its shareholders.
<PAGE> 4
VOTING REQUIREMENTS
The Board of Directors has fixed the close of business on March 13,
2000 as the record date (the "Record Date") for the determination of
shareholders entitled to notice of, and to vote at, the Annual Meeting. A
complete list of all shareholders entitled to vote at the Annual Meeting will be
open for examination by any shareholder during normal business hours for a
period of ten days prior to the Annual Meeting at the offices of the Company,
200 North Canal Street, Natchez, Mississippi 39120. Such list will also be
available at the Annual Meeting and may be inspected by any shareholder who is
present. At the Record Date, the Company's outstanding voting securities
consisted of 12,264,101 shares of Common Stock. Holders of Common Stock will be
entitled to one vote per share of Common Stock held of record on the Record Date
for each proposal to be presented at the Annual Meeting.
QUORUM AND OTHER MATTERS
The holders of a majority of the total shares of Common Stock issued
and outstanding on the Record Date, whether present in person or represented by
proxy, will constitute a quorum for the transaction of business at the Annual
Meeting. For purposes of determining whether a quorum is present under Delaware
law, broker non-votes and abstentions count towards the establishment of a
quorum. The election of directors requires the favorable vote of the holders of
a plurality of shares of Common Stock present and voting, in person or by proxy,
at the Annual Meeting. Abstentions and broker non-votes have no effect on
determinations of plurality except to the extent that they affect the total
votes received by any particular candidate. A majority of the votes represented
by the shareholders present at the Annual Meeting, in person or by proxy, is
necessary for ratification of the Company's independent public accountants.
Abstaining shares will be considered present at the Annual Meeting for this
matter so that the effect of abstentions will be the equivalent of a "no" vote.
With respect to broker non-votes, the shares will not be considered present at
the Annual Meeting for this matter so that broker non-votes will have the
practical effect of reducing the number of affirmative votes required to achieve
a majority vote by reducing the total number of shares from which the majority
is calculated.
The New York Stock Exchange ("NYSE") rules require that, for purposes
of approving the amendment to the Company's 1996 Stock Incentive Plan, a
majority of the quorum must vote in favor of the amendment. Under NYSE rules,
abstentions count towards the establishment of a quorum and have the effect of a
"no" vote. Broker non-votes do not count towards the establishment of a quorum
under NYSE rules. As a result, if the number of broker non-votes plus the number
of shares not represented at the Annual Meeting is greater than a majority of
the total shares of Common Stock issued and outstanding on the Record Date, the
amendment will not be approved.
2
<PAGE> 5
BENEFICIAL OWNERSHIP OF SECURITIES
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of March 13, 2000, certain
information with respect to the ownership of shares of Common Stock and the
Company's $2.125 Convertible Exchangeable Preferred Stock ("Preferred Stock") as
to (i) all persons known by the Company to be the beneficial owners of 5% or
more of the outstanding Common Stock, (ii) each director, (iii) each nominee for
director, (iv) each of the executive officers named in the Summary Compensation
Table, and (v) 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 Preferred Stock has been obtained from filings made by the
named beneficial owners with the Securities and Exchange Commission
("Commission") as of the Record Date or, in the case of executive officers and
directors of the Company, has been provided to the Company by such individuals.
Holders of Preferred Stock are not entitled to vote at the Annual Meeting.
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------------------ ------------------------
BENEFICIAL BENEFICIAL
NAME AND ADDRESS OF OWNERSHIP PERCENT OWNERSHIP PERCENT
BENEFICIAL OWNER (a) (a)
- --------------------------------------------------- ------------ --------- ----------- -----------
<S> <C> <C> <C> <C>
Directors:
John S. Callon ............................... 291,958(b) 2.36% 0 --
Fred L. Callon ............................... 667,302(c) 5.36% 0 --
200 North Canal Street
P. O. Box 1287
Natchez, Mississippi 39120
Dennis W. Christian .......................... 223,935(d) 1.80% 0 --
Leif Dons .................................... 5,000(e) * 0 --
Robert A. Stanger ............................ 45,856(f) * 0 --
John C. Wallace .............................. 2,009,779(g) 16.33% 0 --
65 Vincent Square
London, SW1P 2RX, England
B. F. Weatherly .............................. 152,664(h) 1.24% 0 --
Richard O. Wilson ............................ 74,737(i) * 1,000 *
Named Executive Officers:
John S. Weatherly ............................ 204,910(j) 1.65% 0 --
Stephen F. Woodcock .......................... 66,611(k) * 0 --
Kathy G. Tilley .............................. 146,480(l) 1.18% 0 --
Directors and Executive Officers:
as a Group (15 persons) ...................... 3,969,862(m) 29.55% 1,000 *
Certain Beneficial Owners:
Fred. Olsen Energy ASA ....................... 1,839,386(n) 15.00% 0 --
Fred. Olsensgate 2
0152 Oslo, Norway
State Street Research & Management Company ... 827,400(o) 6.75% 0 --
One Financial Center, Thirtieth Floor
Boston, Massachusetts 02111-2690
UBS AG ....................................... 644,512(p) 5.26% 0 --
Bahnhofstrasse 45
8021, Zurich, Switzerland
NewSouth Capital Management, Inc. ............ 748,425(q) 6.10% 0 --
1000 Ridgeway Loop Rd., Suite 233
Memphis, Tennessee 38120
Scudder Kemper Investments, Inc. ............. 751,500(r) 6.13% 0 --
345 Park Avenue
New York, New York 10154
Fleet Boston Corporation ..................... 647,082(s) 5.28% 0 --
One Federal Street
Boston, Massachusetts 02110
AXA Financial, Inc. .......................... 809,497(t) 6.60% 0 --
1290 Avenue of the Americas
New York, New York 10104
</TABLE>
*less than 1%
(a) Unless otherwise indicated, each of the above persons may be deemed to
have sole voting and dispositive power with respect to such shares.
3
<PAGE> 6
(b) Of the 291,958 shares beneficially owned by John S. Callon, 96,958 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 Stock
Incentive Plan ("1994 Plan") exercisable within 60 days. Shares
indicated as owned by John S. Callon do not include 58,501 shares of
Common Stock owned by his wife over which he disclaims beneficial
ownership.
(c) Of the 667,302 shares beneficially owned by Fred L. Callon, 231,737
shares are owned directly by him; 133,948 shares are held by him as
custodian for certain minor Callon Family members; 50,430 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;
105,000 shares are subject to options under the 1996 Stock Incentive
Plan ("1996 Plan") exercisable within 60 days; and 66,187 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 24,939 shares of
Common Stock owned by his wife over which he disclaims beneficial
ownership.
(d) Of the 223,935 shares beneficially owned by Dennis W. Christian, 31,685
are owned directly by him; 60,000 shares are subject to options under
the 1994 Plan exercisable within 60 days; and 132,250 shares are
subject to options under the 1996 Plan exercisable within 60 days.
(e) The 5,000 shares beneficially owned by Leif Dons are subject to options
under the 1994 Plan exercisable in 60 days.
(f) Of the 45,856 shares beneficially owned by Robert A. Stanger, 856 are
owned directly by him; 25,000 shares are subject to options under the
1994 Plan exercisable within 60 days; and 20,000 shares are subject to
options under the 1996 Plan exercisable within 60 days.
(g) Of the 2,009,779 shares beneficially owned by John C. Wallace, 3,125
shares are owned directly by him; 25,000 shares are subject to options
under the 1994 Plan exercisable within 60 days; 20,000 shares are
subject to options under the 1996 Plan exercisable within 60 days;
107,297 shares are owned by NOCO Enterprises, L. P. ("NOCO"); 14,971
shares are owned by Fred. Olsen, Ltd.; and 1,839,386 shares are owned
by Fred. Olsen Energy ASA ("F.O. Energy"). See note (n).
(h) Of the 152,664 shares beneficially owned by B. F. Weatherly, 367 shares
are owned directly by him; 25,000 shares are subject to options under
the 1994 Plan exercisable within 60 days; 20,000 shares are subject to
options under the 1996 Plan exercisable within 60 days; and 107,297
shares are owned by NOCO. See note (n).
(i) Of the 74,737 shares beneficially owned by Richard O. Wilson, 25,000
shares are subject to options under the 1994 Plan exercisable within 60
days; 20,000 shares are subject to options under the 1996 Plan
exercisable within 60 days; 27,464 shares are held in a family limited
partnership; and 2,273 shares are issuable upon conversion of 1,000
shares of Preferred Stock held in the family partnership.
(j) Of the 204,910 shares beneficially owned by John S. Weatherly, 27,943
are owned directly by him; 217 shares are held as custodian for his
minor children; 60,000 shares are subject to options under the 1994
Plan exercisable within 60 days; and 116,750 shares are subject to
options under the 1996 Plan exercisable within 60 days.
(k) Of the 66,611 shares beneficially owned by Stephen F. Woodcock, 13,611
are owned directly by him and 53,000 shares are subject to options
under the 1996 Plan exercisable within 60 days.
(l) Of the 146,480 shares beneficially owned by Kathy G. Tilley, 24,980 are
owned directly by her; 30,000 shares are subject to options under the
1994 Plan exercisable within 60 days; and 91,500 shares are subject to
options under the 1996 Plan exercisable within 60 days.
(m) Includes 481,000 shares subject to options under the 1994 Plan
exercisable within 60 days and 686,400 shares subject to options under
the 1996 Plan exercisable within 60 days.
(n) As disclosed on a Schedule 13D dated August 20, 1997, F.O. Energy has
the sole power to vote and the sole power to dispose of 1,839,386
shares of Common Stock of the Company. Ganger Rolf ASA, a public joint
stock company organized and existing under the laws of the Kingdom of
Norway and the owner of 28.81% of the outstanding capital stock of F.O.
Energy ("Ganger Rolf") and Bonheur ASA, a public joint stock company
organized and existing under the laws of the
4
<PAGE> 7
Kingdom of Norway and the owner of 28.81% of the outstanding capital
stock of Ganger Rolf ("Bonheur"), together have the power to direct the
vote and disposition of the shares of Common Stock of the Company owned
by F.O. Energy. John C. Wallace, a director of the Company, is a
director of F.O. Energy and a director of Ganger Rolf and Bonheur, and
as a result, may by deemed to share the power to vote and dispose of,
and therefore be a beneficial owner of the shares of Common Stock owned
by F.O. Energy. The principal business address and principal executive
offices of Ganger Rolf and Bonheur are located at Fred. Olsensgate 2,
0152 Oslo, Norway.
(o) Information is based upon a Schedule 13G, filed with the Commission on
February 8, 1999, by State Street Research & Management Company ("State
Street"). In this Schedule 13G, State Street claims to have sole voting
power with respect to 700,400 shares and sole dispositive power with
respect to all of these shares.
(p) Information is based on a Schedule 13G, filed with the Commission on
February 10, 2000, by UBS AG and its indirect, wholly-owned subsidiary,
Brinson Partners, Inc. Brinson Partners, Inc.'s principal business
office is located at 209 South LaSalle, Chicago, Illinois 60604-1295.
Both UBS AG and Brinson Partners, Inc. represent that they possess sole
voting and shared dispositive power with respect to these shares in the
Schedule 13G.
(q) Information is based upon a Schedule 13G, filed with the Commission on
February 14, 2000, by NewSouth Capital Management, Inc.
(r) Information is based upon a Schedule 13G, filed with the Commission on
January 28, 2000 by Scudder Kemper Investments, Inc. ("Scudder"). In
this Schedule 13G, Scudder claims to have sole voting power with
respect to 447,100 shares, shared voting power with respect to 14,900
shares and sole dispositive power with respect to all of these shares.
(s) Information is based upon a Schedule 13G, filed with the Commission on
February 14, 2000, by Fleet Boston Corporation ("Fleet Boston"). In
this Schedule 13G, Fleet Boston claims to have sole voting power with
respect to 545,082 shares and sole dispositive power with respect to
all of these shares.
(t) Information is based upon a Schedule 13G, filed with the Commission on
February 14, 2000, by AXA Financial, Inc. ("AXA"). In this Schedule
13G, AXA claims to have sole voting power with respect to 600,697
shares, shared voting power with respect to 162,900 shares and sole
dispositive power with respect to all of these shares.
PROPOSAL I
ELECTION OF DIRECTORS
NOMINEES
The Company's Certificate of Incorporation provides for a classified
Board of Directors. The Board of Directors is divided into three classes of
nearly equal size, designated as Class I (currently with three directors), Class
II (currently with three directors) and Class III (currently with two
directors). Initially, directors in each class were elected to hold office for
terms of one year, two years and three years, respectively. Upon the date of
each annual meeting after such initial classification, directors elected to
succeed those directors whose terms expire serve for a term which expires on the
date of the third succeeding annual meeting of shareholders after their
election.
The terms of the two Class III directors, Messrs. Fred L. Callon and
Dennis W. Christian, will expire on the date of the Annual Meeting. Messrs. Fred
L. Callon and Dennis W. Christian (the "Nominees") have been nominated to serve
as Class III directors until the 2003 Annual Meeting and until their respective
successors have been duly elected and qualified. Each of the Nominees was
nominated by the Board of Directors.
It is intended that all shares of Common Stock represented by the
Proxies will be voted for the election of the Nominees, except where authority
to vote in the election of directors has been withheld. Should the Nominees
become unable or unwilling to serve as directors at the time of the Annual
Meeting, the person or persons exercising the Proxies will vote for the election
of substitute Nominees designated by the Board of Directors, or the Board of
Directors may choose to reduce the number of members of the Board of Directors
to be elected at the Annual Meeting in order to eliminate the vacancy. The
Nominees
5
<PAGE> 8
have consented to be nominated and have expressed their intention to serve if
elected. The Board of Directors has no reason to believe that the Nominees will
be unable or unwilling to serve if elected. Only the Nominees or substitute
Nominees designated by the Board of Directors will be eligible to stand for
election as directors at the Annual Meeting. See "Shareholders' Proposals for
2001 Annual Meeting."
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information with respect to the Nominees
and all current directors whose terms will continue after the Annual Meeting and
present executive officers of the Company. Each executive officer has been
elected to serve until his or her successor is duly appointed or elected by the
Board of Directors or their earlier removal or resignation from office.
<TABLE>
<CAPTION>
COMPANY POSITION
NAME AGE SINCE PRESENT COMPANY POSITION
- ----------------------------------- ---------- ------------------ ---------------------------------------
<S> <C> <C> <C>
CLASS I DIRECTORS:
(Term Expires in 2001)
Robert A. Stanger.................. 60 1995 Director
John C. Wallace.................... 61 1994 Director
Richard O. Wilson.................. 70 1995 Director
CLASS II DIRECTORS:
(Term Expires in 2002)
John S. Callon..................... 80 1994 Director; Chairman of the Board
Leif Dons.......................... 50 1999 Director
B. F. Weatherly.................... 55 1994 Director
CLASS III DIRECTORS:
(Term Expires in 2000)
Fred L. Callon..................... 50 1994 Director; President; Chief Executive
Officer, Nominee
Dennis W. Christian................ 53 1994 Director; Senior Vice President; Chief
Operating Officer, Nominee
OTHER EXECUTIVE OFFICERS:
James O. Bassi..................... 45 1997 Vice President; Controller
Robert A. Mayfield................. 49 2000 Secretary
Thomas E. Schwager................. 49 1997 Vice President
Rodger W. Smith.................... 50 1999 Treasurer
Kathy G. Tilley.................... 54 1996 Vice President
John S. Weatherly.................. 48 1994 Senior Vice President; Chief Financial
Officer
Stephen F. Woodcock................ 48 1997 Vice President
</TABLE>
The following is a brief description of the background and principal
occupation of each director (including each Nominee) and executive officer:
James O. Bassi is Vice President and Controller of the Company and
Callon Petroleum Operating Company ("Callon Petroleum Operating"). Prior to
being appointed to that position in November 1997, he was Corporate Controller
from June 1997 and prior thereto he was Manager of the Accounting Department for
the Company and Callon Petroleum Operating. Mr. Bassi has been employed by the
Company and its predecessors for a total of ten years. Prior to his employment
by the Company, he was employed by Arthur Andersen LLP. He received his B.S.
degree in accounting in 1976 from Mississippi State University. He is a member
of the American Institute of Certified Public Accountants and the Mississippi
Society of Certified Public Accountants.
Fred L. Callon is President and Chief Executive Officer of the Company
and Callon Petroleum Operating. Prior to January 2, 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
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.
6
<PAGE> 9
John S. Callon is Chairman of the Board of Directors of the Company and
Callon Petroleum Operating. Effective January 2, 1997, John S. Callon resigned
from his position as Chief Executive Officer of the Company, a position he held
since 1980. Mr. Callon founded the Company's predecessors in 1950, and has held
an executive office with the Company or its predecessors since that time. He has
served as a director of the Mid-Continent Oil and Gas Association and as the
President of the Association's Mississippi-Alabama Division. He has also served
as Vice President for Mississippi of the Independent Petroleum Association of
America. He is a member of the American Petroleum Institute. Mr. Callon is the
uncle of Fred L. Callon.
Dennis W. Christian is Senior Vice President and Chief Operating
Officer of the Company and Callon Petroleum Operating. Prior to January 1997, 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. His previous experience
includes five years with Chevron U.S.A. Inc. Mr. Christian received his B.S.
degree in petroleum engineering in 1969 from Louisiana Polytechnic Institute.
Leif Dons has since 1997 been Senior Vice President, Business
Development of Fred. Olsen Energy ASA, a publicly held Norwegian company engaged
in the offshore energy service industry. From 1992 until 1997, Mr. Dons was
employed by Kvaerner ASA in various positions, including the fields of
international operations and the commercialization of new technology, and as
resident country manager responsible for Israel and Palestine. From 1983 until
1991, he served as the managing director of Norwegian Oil Consortium A/S & Co.,
an oil company with producing properties in Norway. He negotiated the sale of
that company in 1991. From 1973 until 1983, Mr. Dons held various positions as
an analyst, staff engineer and economist at the Pulp and Paper Research
Institute, Norway and Saga Petroleum ASA. Mr. Dons received a Master of Science
degree in engineering from the Norwegian Institute of Technology in 1973.
Robert A. Mayfield is Secretary for the Company and Callon Petroleum
Operating. He was appointed to this position in February 2000, after serving as
the Manager of Tax Services and Securities and Exchange Commission Reporting
since 1981. Prior to joining Callon, he was employed by McCormick Oil and Gas
Company in Houston, Texas, where he served as an assistant to the tax manager.
Mr. Mayfield received a B.S. degree in accounting from Louisiana Tech University
in 1972 and is a member of the American Society of Corporate Secretaries.
Thomas E. Schwager is Vice President of Engineering and Operations for
the Company and Callon Petroleum Operating. Prior to being appointed to the
position in November 1997, he has held engineering positions with the Company
and its predecessors since 1981. Prior to joining the Company, Mr. Schwager held
various engineering positions with Exxon Company USA in Louisiana and Texas. He
received his B.S. degree in petroleum engineering from Louisiana State
University in 1972. He is a registered professional engineer and a member of the
Society of Petroleum Engineers.
Rodger W. Smith is Treasurer for the Company and Callon Petroleum
Operating. Prior to being appointed to that position in April 1999, he was
Manager of Budget and Analysis. Before that, Mr. Smith was Manager of
Exploration and Production Accounting and has been employed by Callon and its
predecessors since 1983. Prior to his employment with Callon, he was employed by
International Paper Company as a plant controller. He received his B.S. degree
in accounting from the University of Southern Mississippi in 1973.
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,
natural gas, and water services and Electric Lightwaves, Inc., Seattle,
Washington, a regional fiber optic telephone company. 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 and the New York Society of Security
Analysts.
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.
7
<PAGE> 10
John C. Wallace is a Chartered Accountant having qualified with Price
Waterhouse Coopers in Canada in 1963, after which he joined Baring Brothers &
Co., Limited in London, England. For over fifteen years, he has served as
Chairman of Fred. Olsen Ltd., a London-based corporation which he joined in 1968
and which specializes in the business of shipping and property development. He
is a director of Fred. Olsen Energy ASA, a publicly held Norwegian company
engaged in the offshore energy service industry; Harland & Wolff PLC, Belfast, a
shipbuilding yard for the offshore oil and gas industry; and Ganger Rolf ASA and
Bonheur ASA, Oslo, both publicly-traded shipping companies. He is an executive
officer of NOCO Management, Ltd., the general partner of NOCO and of other
companies associated with Fred. Olsen Interests.
B. F. Weatherly is a principal of Amerimark Capital Group, Houston,
Texas, an investment-banking firm, and he is a general partner of CapSource
Fund, L.P., Jackson, Mississippi, an investment fund. He is an executive officer
of NOCO Management Ltd., 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
formerly associated with Fred. Olsen Interests. 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 and Chief Financial Officer
for the Company and Callon Petroleum Operating. Prior to April 1999, Mr.
Weatherly also held the position of Treasurer. Prior to April 1996, he was Vice
President, Chief Financial Officer and Treasurer of the Company and had held
that position since 1983. Prior to joining Callon Petroleum Operating in 1980,
he was employed by Arthur Andersen LLP as audit manager in the Jackson,
Mississippi, office. He received his B.B.A. degree in accounting in 1973 and his
M.B.A. degree in 1974 from the University of Mississippi. He is a 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 is an Offshore Consultant. In his 42 years of working
in offshore drilling and construction, he spent two years with Zapata Offshore
and 21 years with Brown & Root, Inc. working in various managerial capacities in
the Gulf of Mexico, Venezuela, Trinidad, Brazil, the Netherlands, the United
Kingdom and Mexico. He was a director and senior group vice president of Brown &
Root, Inc. and senior vice president of Halliburton, Inc. For the last 18 years
he has been associated with Fred. Olsen Interests where he served as Chairman of
OGC International PLC, Dolphin A/S and Dolphin Drilling Ltd., and Belmont
Constructors, Inc. Since the sale of OGC International PLC to Halliburton, Inc.
in 1997, he has been a consultant to Brown & Root, Inc. on oil and gas projects
in Brazil, Bolivia, Mexico and Ecuador. He holds a B.S. degree in civil
engineering from Rice University. Mr. Wilson is a Fellow in the American Society
of Civil Engineers and is a member of the Institute of Petroleum, London,
England.
Stephen F. Woodcock is Vice President of Exploration for the Company
and Callon Petroleum Operating, being appointed to that position in November
1997. He has been employed by the Company and Callon Petroleum Operating since
1995. Prior thereto, he was manager of geophysics for CNG Producing Company and
division geophysicist for Amoco Production Company. Mr. Woodcock received a
masters degree in geophysics from Oregon State University in 1975.
All officers and directors (including the Nominees) of the Company are
United States citizens, except Mr. Wallace, who is a citizen of Canada, and Mr.
Dons, who is a citizen of Norway.
STOCKHOLDERS' AGREEMENT
Pursuant to a Stockholders' Agreement ("Stockholders' Agreement") among
certain members of the Callon family ("Callon Family"), NOCO and F.O. Energy
dated September 16, 1994, the Callon Family, on the one hand and NOCO and F.O.
Energy on the other hand, each elected two directors to the Company's Board of
Directors. Specifically, the Stockholders' Agreement provided that the Callon
Family, NOCO and F.O. Energy would use their best efforts, including voting the
shares of Common Stock which they owned, 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 and
F.O. Energy. Messrs. Wallace and Dons were elected to the Board as
representatives of NOCO and F.O. Energy, and Messrs. Fred and John Callon were
elected to the Board as representatives of the Callon Family. The Stockholders'
Agreement expired on September 16, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the
8
<PAGE> 11
Company's equity securities, to file with the Commission and any exchange or
other system on which such securities are traded or quoted, initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than ten percent
shareholders are required by the Commission's regulations to furnish the Company
and any exchange or other system on which such securities are traded or quoted,
with copies of all Section 16(a) forms they file with the Commission.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1999, the
Company's officers, directors and greater than ten percent shareholders had
complied with all Section 16(a) filing requirements.
INFORMATION CONCERNING THE OPERATION OF THE BOARD OF DIRECTORS
The business of the Company is managed under the direction of the Board
of Directors. The Board of Directors meets on a quarterly basis to review
significant developments affecting the Company and to act on matters requiring
Board approval. The Board of Directors may also hold special meetings when an
important matter requires Board action between regularly scheduled meetings.
Each non-employee director receives an annual fee of $10,000 for service on the
Board of Directors. Under the 1994 Plan, each non-employee director received an
annual automatic grant of an option to purchase 5,000 shares of Common Stock for
an exercise price equal to the fair market price on the date of grant and for a
ten-year term. Pursuant to the 1996 Plan, an option to purchase 5,000 shares of
Common Stock is to be granted to each non-employee director on the date he or
she is initially elected or appointed to the Board for an exercise price equal
to the fair market price on the date of grant and for a ten-year term.
Thereafter, for each subsequent year in which the non-employee director is still
serving as director, he or she shall automatically be granted an option to
purchase an additional 5,000 shares on the same terms. On August 23, 1996, the
Compensation Committee authorized a one-time grant to each non-employee director
of an option to purchase 20,000 shares of Common Stock under the 1996 Plan at a
purchase price of $12.00 per share, the fair market value of the Common Stock on
such date. One-fourth of each option vests at each succeeding annual meeting of
directors following each annual shareholders' meeting, beginning with the 1997
Annual Meeting.
During 1999, the Board of Directors of the Company met formally four
times and executed nine unanimous written consents. All directors attended at
least 75% of the total number of meetings of the Board of Directors.
In order to facilitate the various functions of the Board of Directors,
the Board of Directors has created an Audit Committee and a Compensation
Committee. The Board of Directors does not have a nominating committee. The
functions customarily performed by a nominating committee are performed by the
entire Board of Directors. Committee members are not remunerated in addition to
their annual Board retainer.
AUDIT COMMITTEE. The Committee monitors the Company's internal
accounting controls, reviews quarterly and annual financial information and
reviews the services and fees of the independent auditors. Members are Messrs.
Robert A. Stanger and Richard O. Wilson. The Audit Committee held one meeting
during 1999, and both members of the Audit Committee attended the meeting.
COMPENSATION COMMITTEE. The Compensation Committee establishes and
approves the terms of employment of senior executive officers and reviews and
approves management's recommendations concerning compensation of the other
executive officers and certain other employees. Members are Messrs. B. F.
Weatherly, Chairman, Robert A. Stanger, John C. Wallace and Richard O. Wilson.
The Compensation Committee held five meetings during 1999, and all members of
the Compensation Committee attended all meetings.
TRANSACTIONS WITH RELATED PERSONS
STOCKHOLDERS' AGREEMENT. In connection with the consolidation
consummated on September 16, 1994 whereby the Company succeeded to the assets,
liabilities, operations and management of Callon Consolidated Partners, L.P. and
certain affiliated companies ("Consolidation"), the Company, the Callon Family
(including John S. Callon and Fred L. Callon) and NOCO entered into the
Stockholders' Agreement, which was subsequently amended to include F.O. Energy
and which (a) provided that the Callon Family would vote for two directors to
the Company's Board of Directors as directed by NOCO and F.O. Energy and NOCO
and F.O. Energy would vote for two directors to the Company's Board of Directors
as directed by the Callon Family, (b) contained certain restrictions on transfer
of the Common Stock owned
9
<PAGE> 12
by the Callon Family, NOCO and F.O. Energy, and (c) provided that neither the
Callon Family on the one hand nor NOCO or F.O. Energy, on the other hand, could
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 Stockholders' Agreement expired on September 16, 1999. See
"Stockholders' Agreement."
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, which
was subsequently amended to include F.O. Energy.
10
<PAGE> 13
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the Chief
Executive Officer of the Company and the four most highly compensated executive
officers of the Company as to whom the total salary and bonus for the years
ended December 31, 1999, 1998 and 1997 exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------ ------------------------ ---------
OTHER RESTRICTED SECURITIES ALL OTHER
ANNUAL STOCK UNDERLYING LTIP COMPENSATION
SALARY BONUS COMPENSATION AWARD(S) OPTIONS PAYOUTS ($)(e)
YEAR ($) ($)(a) ($)(b) ($)(c) (#)(d) ($)
----- --------- ------- ------------ ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fred L. Callon............ 1999 264,616 174,000 -- -- -- -- 30,298
President and Chief 1998 242,727 -- -- -- 60,000 -- 27,965
Executive Officer 1997 205,769 160,000 -- -- -- -- 24,268
Dennis W. Christian....... 1999 243,446 169,000 -- -- 35,000 -- 28,420
Senior Vice President 1998 221,473 -- -- -- 55,000 -- 26,050
and Chief Operating 1997 180,048 145,000 -- -- -- -- 21,773
Officer
John S. Weatherly......... 1999 211,692 147,000 -- -- 31,000 -- 25,270
Senior Vice President 1998 195,202 -- -- -- 45,000 -- 23,427
and Chief Financial 1997 169,760 130,000 -- -- -- -- 20,688
Officer
Kathy G. Tilley........... 1999 179,939 133,000 -- -- 25,000 -- 19,534
Vice President 1998 164,850 -- -- -- 30,000 -- 17,818
1997 138,894 130,000 -- -- -- -- 15,028
Stephen F. Woodcock....... 1999 152,630 105,000 -- -- 25,000 -- 16,593
Vice President 1998 144,200 -- -- 412,500 -- -- 15,599
1997 131,261 60,000 -- -- -- -- 14,192
</TABLE>
(a) The amounts represent that portion of bonuses declared in March 2000
and 1998, respectively, and earned by service during 1999 and 1997,
respectively. Generally, earned compensation is not payable unless the
executive remains employed by the Company through the date bonus
compensation is declared, which is generally in March of the following
year. These amounts also include amounts deferred.
(b) None of the named executive officers received perquisites or other
personal benefits, securities or property, the aggregate annual amount
of which exceeded the lesser of $50,000 or 10% of the total of annual
salary and bonus reported for the named executive.
(c) On January 6, 1998, 25,000 performance shares were awarded to Stephen
F. Woodcock and 10% of the shares vested on that date. On January 1,
1999, an additional 20% of the shares vested. On February 18, 1999, the
Board of Directors approved, upon the Compensation Committee's
recommendation, the vesting of the balance of the performance shares
granted. The closing price of the Common Stock on the NYSE on January
6, 1998 was $16.50 per share.
(d) On March 5, 1999, the Compensation Committee authorized option grants
under the 1996 Plan for 35,000 shares to Dennis W. Christian, 31,000
shares to John S. Weatherly, 25,000 shares to Kathy G. Tilley and
25,000 to Stephen F. Woodcock. The exercise price, equal to the fair
market value of the stock based on the closing price of the Common
Stock on the NYSE on March 5, 1999, is $9.00 per share. All such grants
became exercisable on September 5, 1999.
(e) Amounts reflect the Company's contribution in 1999, 1998 and 1997 of
$26,462, $24,273 and $20,576 to Fred L. Callon's 401(k) savings plan
and payment of $3,836, $3,692 and $3,692 term life insurance premiums;
$24,344, $22,147 and $18,000 to Mr. Christian's 401(k) savings plan and
payment of $4,076, $3,903 and $3,773 term life insurance premiums;
$21,169, $19,520 and $16,976 to Mr. Weatherly's 401(k) savings plan and
payment of $4,101, $3,907 and $3,712 term life insurance premiums;
$17,994, $16,485 and $13,890 to Ms. Tilley's 401(k) savings plan and
payment of $1,541, $1,333 and $1,138 term life insurance premiums; and
$15,283, $14,420 and $13,126 to Mr. Woodcock's 401(k) savings plan and
payments of $1,310, $1,179 and $1,066 term life insurance premiums.
11
<PAGE> 14
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Fred L. Callon, Dennis W. Christian and John S. Weatherly have entered
into employment agreements with the Company effective September 1, 1996 and
ending January 1, 2001. The agreements provide that Mr. Callon, Mr. Christian
and Mr. Weatherly will receive an annual base salary of at least $200,000,
$175,000 and $165,000, respectively, and that they will be entitled to
participate in any incentive compensation program established by the Company for
its executive officers. Each agreement terminates upon death or disability or
for cause. If the agreement is terminated because of disability, compensation
payments continue for a period of two years from the date of termination,
reduced by the amount of disability insurance paid. If the agreement is
terminated for cause, the Company is not required to make any additional
payments. "Cause" is defined generally as any of the following, as determined by
a majority vote of the Board of Directors: intentional or continual neglect of
duties, conviction of a felony, or failure or refusal to perform duties in
accordance with the employment agreement.
The employment agreements further provide that the employee may
terminate the agreement for "good reason," which is defined generally as (a)
failure to be re-elected to office, (b) significant change in duties, (c)
reduction or failure to provide typical increases in salary following a change
in control of the Company, (d) relocation to an office outside the Natchez,
Mississippi, area, or (e) failure to maintain the level of participation in the
compensation and benefit plans of the Company following a change in control. If
the employee terminates his employment for good reason (other than following a
change in control), or if the Company breaches the agreement, compensation shall
continue for a period of three years. Pursuant to the agreements, a "change in
control" occurs if: (i) any person or group of persons acting in concert (within
the meaning of Section 13(d) of the Exchange Act) shall have become the
beneficial owner of a majority of the outstanding common stock of the Company
(other than pursuant to the Stockholders' Agreement), (ii) the shareholders 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 shareholders enter into an
agreement to dispose of all or substantially all of the assets or outstanding
capital stock of the Company. If the compensation to be paid upon a change in
control would constitute a "parachute" payment under the Internal Revenue Code,
the amount otherwise payable will be grossed up to an amount such that the
employee will receive the amount he would have received if no portion of such
compensation had been subject to the excise tax imposed by the Internal Revenue
Code, and the Company will be responsible for the amount of the excise tax.
Pursuant to the 1994 Plan and the 1996 Plan, in the case of a merger or
consolidation where the Company is not the surviving entity, or if the Company
is about to sell or otherwise dispose of substantially all of its assets while
unvested options remain outstanding, the Compensation Committee or other plan
administrator may, in its discretion and without shareholder approval, declare
some or all options exercisable in full before or simultaneously with such
merger, consolidation or sale of assets without regard for prescribed waiting
periods. Alternatively, the Compensation Committee or other plan administrator
may cancel all outstanding options provided option holders are given notice and
a period of 30 days prior to the merger, consolidation or sale to exercise the
options in full.
STOCK-BASED PLANS
The Company currently maintains two Common Stock-based incentive plans
for employees: the Callon Petroleum Company 1994 Stock Incentive Plan and the
Callon Petroleum Company 1996 Stock Incentive 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 shareholders.
1994 PLAN. The 1994 Plan was adopted on June 30, 1994. Pursuant to the
1994 Plan, 600,000 shares of Common Stock were reserved for issuance upon the
exercise of options or for grants of performance shares. The 1994 Plan is
administered by the Compensation Committee of the Board of Directors. Members of
the Compensation Committee currently are Messrs. Stanger, Wallace, B. F.
Weatherly and Wilson. No awards were granted under the 1994 Plan during 1997 and
1998 other than automatic grants to non-employee directors and the grant of
restricted shares to John S. Callon in connection with his Consulting Agreement.
See "--Employment Agreements, Termination of Employment and Change in Control
Arrangements." Automatic option grants to non-employee directors during 1999
were 25,000 shares. In addition, during 1999 the Compensation Committee approved
option grants of 38,750 shares to certain officers and employees. As of March
13, 2000, there were 370 shares of Common Stock available for grant under the
1994 Plan.
1996 PLAN. On August 23, 1996, the Board of Directors of the Company
approved and adopted the 1996 Plan and granted awards thereunder to various
employees. The 1996 Plan was approved by the shareholders of the Company at the
1997 Annual Meeting. Pursuant to the 1996 Plan, 900,000 shares of
12
<PAGE> 15
Common Stock were reserved for issuance upon the exercise of options or for
grants of performance shares. On August 20, 1998, the Board of Directors amended
the 1996 Plan, as permitted pursuant to the terms of the 1996 Plan, to increase
the number of shares of Common Stock reserved for issuance by 300,000 shares to
1,200,000 shares. During March 1999, the Compensation Committee approved option
grants of 206,750 shares to certain officers and employees. In addition, during
March 2000, the Compensation Committee approved option grants for 533,000 shares
to certain officers and employees. As of March 23, 2000, without giving effect
to the March 2000 grants, there were 23,123 shares of Common Stock available for
grant under the 1996 Plan. Pursuant to Proposal II of the Proxy Statement, the
Board of Directors is requesting shareholder approval to increase the available
number of shares of Common Stock reserved for issuance by 1,000,000 shares to
2,200,000 shares.
BONUS PLAN. In 1996, the Board of Directors authorized the
establishment of a cash bonus program (the "Bonus Plan") to be administered by
the Compensation Committee in accordance with formulas or procedures determined
by the Compensation Committee on an annual basis. Each year, the Compensation
Committee establishes target level bonuses as a percentage of base salary for
certain officers, managers and staff members. The Committee also establishes
financial and operating goals to be achieved by the Company during the year and
assigns a relative weighting percent to each goal. Cash bonus awards for the
year are then based upon the extent to which such goals were achieved during the
year. See "--Report on Executive Compensation."
1997 EMPLOYEE STOCK PURCHASE PLAN. In 1997, the Board of Directors
authorized the implementation of the Callon Petroleum Company 1997 Employee
Stock Purchase Plan (the "1997 Purchase Plan"), which was approved by the
Company's shareholders at the 1997 Annual Meeting. The Plan provides eligible
employees of the Company with the opportunity to acquire a proprietary interest
in the Company through participation in a payroll deduction-based employee stock
purchase plan. An aggregate of 250,000 shares of Common Stock have been reserved
for issuance over the ten-year term of the 1997 Purchase Plan. The purchase
price per share at which Common Stock will be purchased on the participant's
behalf on each purchase date within an offering period is equal to eighty-five
percent of the fair market value per share of Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning the
number and terms of options to purchase Common Stock granted during 1999 to the
Chief Executive Officer and the four most highly compensated executive officers
named in the Summary Compensation Table. The options described below were
granted on March 5, 1999. The exercise price is the fair market value of the
Common Stock on the date of grant. The closing price of the Common Stock on the
New York Stock Exchange on March 5, 1999 was $9.00 per share. The grants became
exercisable in full beginning September 5, 1999.
OPTION/SAR GRANTS IN 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- -------------------------------------------------------------------------------------------- ---------------------------
NUMBER OF %
SECURITIES OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE
GRANTED EMPLOYEES IN PRICE
NAME (#) FISCAL YEAR ($/SH) EXPIRATION DATE 5% ($) 10% ($)
- ------------------------------ ---------- ------------ -------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fred L. Callon................ -- -- -- -- -- --
Dennis W. Christian........... 35,000 14.26 9.00 March 5, 2009 198,102 502,029
John S. Weatherly............. 31,000 12.63 9.00 March 5, 2009 175,462 444,654
Kathy G. Tilley............... 25,000 10.18 9.00 March 5, 2009 141,501 358,592
Stephen F. Woodcock........... 25,000 10.18 9.00 March 5, 2009 141,501 358,592
</TABLE>
13
<PAGE> 16
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, 1999. No stock options were
exercised by such persons in 1999.
AGGREGATED OPTION EXERCISES IN 1999 AND OPTION
VALUES AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
UNEXERCISED OPTIONS AT DECEMBER 31, 1999
--------------------------------------------------
VALUE OF
NUMBER OF UNDERLYING IN-THE-MONEY
VALUE SECURITIES OPTIONS
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE (a) UNEXERCISABLE (b)
- ------------------------------ -------------------- ----------- ---------------------- --------------------------
<S> <C> <C> <C> <C>
Fred L. Callon................ -- -- 185,000/ 30,000 $794,219/ 122,344
Dennis W. Christian........... -- -- 192,250/ 27,750 870,118/ 112,852
John S. Weatherly............. -- -- 176,750/ 24,250 795,540/ 96,580
Kathy G. Tilley............... -- -- 121,500/ 18,500 533,672/ 71,016
Stephen F. Woodcock........... -- -- 53,000/ 7,000 224,063/ 19,688
</TABLE>
(a) Represents awards granted under the 1994 Plan and the 1996 Plan.
(b) On December 31, 1999, the closing price of the Common Stock on the New
York Stock Exchange was $14.8125.
LONG-TERM INCENTIVE PLAN AWARDS
Other than the 1994 Plan and the 1996 Plan, the Company does not have a
long-term incentive plan for its employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Messrs. Robert
A. Stanger, John C. Wallace, B. F. Weatherly and Richard O. 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 was subsequently amended to include F.O. Energy and which contained
certain voting requirements and transfer restrictions. Messrs. Wallace and
Weatherly are affiliates of NOCO and Mr. Wallace is a director of F.O. Energy.
The Stockholders' Agreement expired on September 16, 1999. See "Transactions
with Related Persons."
REGISTRATION RIGHTS. NOCO and F.O. Energy are parties to a Registration
Rights Agreement dated September 16, 1994. Messrs. Wallace and Weatherly are
affiliates of NOCO and Mr. Wallace is a director of F.O. Energy. See
"Transactions with Related Persons."
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of four non-employee directors
who make recommendations to the Board with respect to the annual base and bonus
compensation of the executive officers of the Company. The Compensation
Committee also administers the Company's employee benefit plans. During 1999,
the Committee was comprised of B. F. Weatherly, Robert A. Stanger, John C.
Wallace and Richard O. Wilson.
COMPENSATION POLICY. The Company's goal with respect to its executive
compensation policy is to attract and retain executives who have the ability to
lead Callon in achieving its business objectives in a highly competitive
industry. To this end, the Company's compensation policy is comprised of three
elements: (1) base compensation; (2) bonus compensation; and (3) stock-based
compensation. Historically, the Company has provided for conservative base
salaries with more aggressive incentive
14
<PAGE> 17
compensation in order to emphasize pay for performance. In addition, the
Committee awards stock-based compensation to encourage greater executive focus
on stockholder value.
By entering into employment agreements with certain of its executive
officers, the Committee believes that the Company has further encouraged
employee retention and, ultimately, the long-term growth of the Company. These
agreements establish an initial base salary subject to upward adjustment by the
Board of Directors or the Compensation Committee and provide that such officers
are entitled to participate in the Company's incentive compensation programs.
See "Executive Compensation--Employment Agreements, Termination of Employment
and Change-in-Control Arrangements."
Currently, the Committee does not intend to award levels of
compensation that would result in a limitation on the deductibility of a portion
of such compensation for federal income tax purposes pursuant to Section 162(m)
of the Internal Revenue Code of 1986, as amended; however, the Committee may
authorize compensation that results in such limitations in the future if it
determines that such compensation is in the best interest of the Company.
BASE COMPENSATION. The Compensation Committee reviews each executive
officer's salary annually. The Committee has applied the same principals to
establish base compensation since the Company was formed in 1994, taking into
account both competitive realities and subjective factors. The base compensation
decision has no specific relationship to Company performance. As its primary
consideration, the Committee evaluates compensation set for comparable positions
by the Company's competitors, targeting the median of such compensation. To
determine base salaries paid by such peer group companies, the Committee
analyzes published industry survey data and proxy and annual report information
among energy companies of similar size, complexity and activity. From time to
time, the Company also engages independent compensation consulting firms. With
input from management of the Company, the Committee also takes into account
certain subjective factors such as individual performance and contribution to
the Company's success, seniority, experience level, internal equities within the
Company and general economic and industry conditions. No specific weight,
however, is assigned to these factors if they are considered.
In the early part of 1999, when the Committee first began to review
base compensation, the energy industry was depressed due to historically low oil
prices. As a result, the base salaries of executives at many of the Company's
competitors were kept at 1998 levels. As the industry began to recover, the
Company's peers began raising salaries from 1998 levels. Accordingly, base
salaries of the Company's executive officers for 1999 were raised, reflecting
the Committee's commitment to maintaining competitive salary levels. The
Committee also took into account a subjective valuation of individual
contributions to the Company's performance in 1998, potential contributions
during 1999 and general inflationary considerations.
BONUS COMPENSATION. In 1996, the Board of Directors established the
Bonus Plan in order to tie compensation to certain fiscal targets affecting
short and long-term share price performance. Since that time, bonus compensation
has been awarded under the Bonus Plan as administered by the Compensation
Committee. As prescribed by the Bonus Plan, the Committee adheres to a formal
mechanism for determining annual bonus compensation. At the core of this
mechanism are pre-set financial and operating goals established by the Committee
as determinants of share price over time. For 1999, these goals were set with
respect to cash flow, net income, net reserve additions and finding costs. The
Committee assigns to each goal a relative weighting percent which is multiplied
at year-end by the percentage by which each such goal was achieved in order to
determine the "Weighted Goal Achieved." The Committee then derives the "Total
Goal Achieved" by adding together each Weighted Goal Achieved. In addition, the
Committee establishes target level bonuses as a percentage of base salary for
officers and other employees. For 1998, if the Total Goal Achieved at year end
was (i) less than 80%, no bonuses would be awarded under the Bonus Plan; (ii)
between 80% and 120%, bonuses would be awarded at 80% to 120% of the target
level; and (iii) more than 120%, additional bonuses could be awarded at the
discretion of the Committee. For the year ended December 31, 1999, the Total
Goal Achieved was 166% of the goals set for 1999. Accordingly, bonus
compensation was awarded. The Compensation Committee anticipates following a
similar formula for determining cash bonuses for 2000, subject to adjustment for
2000 performance goals.
STOCK-BASED COMPENSATION. The Company relies heavily upon stock options
to compensate executive officers. The Committee generally subjects option grants
to a vesting schedule and establishes the exercise price as the fair market
value (based on trading on the New York Stock Exchange) of the Common Stock on
the date of grant. The Committee believes that these terms align the interests
of the Company's executives with those of its stockholders.
15
<PAGE> 18
To determine the timing and amount of stock-based awards, the
Compensation Committee considers the factors set forth under "Base Compensation"
above as well as the employee's ability to influence the Company's future
performance. The Committee also takes into account the number of outstanding
unvested options held by an executive officer as well as the size of previous
option awards to such executive officer. In 1996, the Committee granted options
under the 1996 Plan to executive officers and other employees of the Company to
equalize their position vis-a-vis their counterparts in the industry. In 1999,
the Committee again granted options to certain executive officers in order to
maintain a competitive compensation package.
To further compensate executive officers in a manner that ensures that
the interests of the Company's stockholders are reflected in the compensation
program, in 1997 and 1998 the Committee authorized the grant of performance
shares to executive officers, subject to vesting over time or upon the event of
certain conditions related to performance. On February 18, 1999, the Board of
Directors approved the Compensation Committee's recommendation for the immediate
vesting of the balance of these performance shares to award such employees for
past performance as well as to enhance their commitment to strengthen the market
value of the Company's stock. There are no performance shares currently
outstanding; however, the Committee will continue to monitor the Company's
stock-based compensation program to determine if performance shares should be
granted in the future.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. Pursuant to the employment
agreement between Fred L. Callon and the Company, Mr. Callon's annual base
salary is set at a floor of $200,000, subject to increase by the Board of
Directors or the Compensation Committee. Mr. Callon's base salary was increased
by the Committee to $264,616 for 1999 as compared to $242,727 for 1998 in order
to keep Mr. Callon's salary level competitive with the chief executive officer
position at peer group companies as well as taking into account the subjective
factors described above under "Base Compensation." In particular, the Committee
considered Mr. Callon's leadership role in overseeing the Company's successes
during 1999 with respect to its drilling and acquisition program in the Gulf of
Mexico and capital market financing activities.
Under the Bonus Plan formula set by the Compensation Committee, Fred L.
Callon earned a bonus of $174,000 during 1999. Mr. Callon was not granted
additional stock options during 1999.
B. F. Weatherly, Chairman
Robert A. Stanger
John C. Wallace
Richard O. Wilson
16
<PAGE> 19
PERFORMANCE GRAPH
The following graph compares the yearly percentage change for the five
years ended December 31, 1999, in the cumulative total shareholder return on the
Company's Common Stock against the cumulative total return for the (i) NASDAQ
Market Value Index, (ii) NYSE Market Value Index and (iii) Media General
Financial Services Industry and Market Index of SIC Group 121 (the "Industry
Group Index") consisting of oil and gas companies.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
12/31/94 12/30/95 12/29/96 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C> <C> <C> <C>
Callon Petroleum Company(2) $ 100 $ 92 $ 175 $ 150 $ 107 $ 136
NASDAQ Market Value Index(2) $ 100 $ 130 $ 161 $ 197 $ 278 $ 490
NYSE Market Value Index(2) $ 100 $ 130 $ 156 $ 205 $ 245 $ 268
Industry Group Index $ 100 $ 109 $ 141 $ 131 $ 85 $ 119
</TABLE>
(1) The comparison of total return on an investment for each of the periods
assumes that $100 was invested on December 31, 1994, in each of the
Company, the NASDAQ Market Index, the NYSE Market Index and the
Industry Group Index, and that all dividends were reinvested.
(2) The Company's Common Stock was traded on the Nasdaq NMS from September
19, 1994 until April 21, 1998. On April 22, 1998, the Company's Common
Stock began trading on the New York Stock Exchange.
17
<PAGE> 20
PROPOSAL II
AMENDMENT TO 1996 STOCK INCENTIVE PLAN
GENERAL
The Company's 1996 Stock Incentive Plan was adopted in 1996 and has
been subsequently amended to increase the number of shares of Common Stock
reserved for issuance. The total number of shares currently reserved for
issuance under the 1996 Plan is 1,200,000. In February 2000, the Board approved,
subject to approval by the Company's stockholders, an amendment to further
increase the total number of shares of Common Stock authorized and reserved for
issuance under the plan by 1,000,000 shares. The 1996 Stock Incentive Plan, as
proposed to be amended by the terms hereof, is referred to herein as the "1996
Plan."
The statements herein concerning the terms and provisions of the 1996
Plan are summaries only and are qualified in their entirety by reference to the
full text of the 1996 Plan, as proposed to be amended and restated, a copy of
which is attached hereto as Appendix I.
At March 13, 2000, the Company estimates that approximately 27
officers, employees and directors were eligible to participate in the 1996 Plan.
As of March 13, 2000, options to purchase 1,176,877 shares of Common Stock had
been granted under the 1996 Plan and were outstanding at exercise prices ranging
from $9.00 to $15.3125 per share. On March 23, 2000, the Compensation Committee
granted additional stock options to the Company's executive officers and other
members of management under the 1996 Plan, subject to shareholder approval of
the increase in the number of shares available under the 1996 Plan. Pursuant to
the awards, Fred L. Callon was granted an option to purchase 110,000 shares of
Common Stock; Dennis W. Christian was granted an option to purchase 65,000
shares of Common Stock; John S. Weatherly was granted an option to purchase
58,000 shares of Common Stock; Kathy G. Tilley was granted an option to purchase
48,000 shares of Common Stock; and Stephen F. Woodcock was granted an option to
purchase 44,000 shares of Common Stock. All of such options were granted at an
exercise price of $10.50 per share, the fair market value of the Common Stock on
the date of grant, and 33% of each option vests on August 3, 2000, 34% on August
3, 2001 and 33% on August 3, 2002. Unvested options are subject to forfeiture
upon certain termination of employment events. If the amendment to increase the
number of shares available under the 1996 Plan is approved by the shareholders
at the Annual Meeting, 490,123 shares of Common Stock will remain reserved for
issuance.
Set forth below is a table showing the number of shares and dollar
value of options granted under the 1996 Plan subject to approval of the
amendment to the 1996 Plan for the persons indicated.
<TABLE>
<CAPTION>
DOLLAR VALUE ($) NUMBER OF SHARES
---------------- ----------------
<S> <C> <C>
Fred L. Callon.................................... -- (a) 110,000
Dennis W. Christian............................... -- (a) 65,000
John S. Weatherly................................. -- (a) 58,000
Kathy G. Tilley................................... -- (a) 48,000
Stephen F. Woodcock............................... -- (a) 44,000
All executive officers (10 persons)............... -- (a) 427,000
All non-executive directors (5 persons)........... -- --
All non-executive employees (12 persons).......... -- (a) 106,000
</TABLE>
(a) Options were granted at the fair market value of the Common Stock on
the date of grant, March 23, 2000.
TERMS OF THE 1996 PLAN AND AGREEMENTS
ADMINISTRATION. The 1996 Plan is administered by a plan administrator
(the "1996 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. To date, the Compensation
Committee of the Board of Directors has served as the 1996 Plan Administrator.
The 1996 Plan Administrator has sole authority to make regulations and
guidelines for and to interpret the 1996 Plan. The 1996 Plan Administrator also
has sole power to make awards under the 1996 Plan, to designate participants in
the 1996 Plan and to impose limitations upon awards under the 1996 Plan.
18
<PAGE> 21
ELIGIBILITY. All directors, executive officers, key employees and
consultants of the Company and certain of its subsidiaries who have the
capability of making a substantial contribution to the success of the Company
are eligible to participate in the 1996 Plan.
SHARES SUBJECT TO 1996 PLAN. Currently, not more than 1,200,000 shares
of the Common Stock may be distributed in accordance with the terms of the 1996
Plan. In addition, the number of shares is subject to adjustment in the event of
certain dilutive changes in the number of outstanding shares. The Company issues
authorized but unissued shares under the 1996 Plan. Any shares subject to an
award which are not used because the terms and conditions of the award are not
met may again be used for an award under the 1996 Plan.
TRANSFERABILITY. Rights under any award may not be transferred except
by will or the laws of descent and distribution.
AMENDMENT OF THE 1996 PLAN. The 1996 Plan may be amended by the Board
of Directors without the consent of the shareholders except that any amendment,
though effective when made, will be subject to shareholder 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 modification of an award can impair the rights of a
holder of an outstanding award under the 1996 Plan without such holder's
consent.
CHANGE IN CONTROL. In the event of certain changes in control of the
Company, the 1996 Plan Administrator may at its discretion do any or all of the
following (i) accelerate any time periods relating to exercise or realization of
the award; (ii) cause the awards to be assumed by the successor corporation; or
(iii) cancel all outstanding options as of the effective date of the change in
control, provided that each holder has the right to exercise such option in full
for at least 30 days prior to the change in control.
STOCK OPTIONS. A grant of a stock option entitles a participant to
purchase from the Company a specified number of shares of Common Stock at a
specified price per share. In the discretion of the 1996 Plan Administrator,
stock options may be granted as non-qualified stock options or incentive stock
options, but incentive stock options may only be granted to executive officers
and other employees of the Company or a subsidiary. In addition, incentive stock
options may not be granted to any owner of 10% or more of the total combined
voting power of the Company and its subsidiaries. Incentive stock options shall
be subject to any terms and conditions as the 1996 Plan Administrator deems
necessary or desirable in order to qualify as an incentive stock option within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). No incentive stock options shall be awarded after the tenth anniversary
of the effective date of the 1996 Plan.
The purchase price per share of shares subject to an option is 100% of
the fair market value of a share of Common Stock at the time such option is
granted or, in the case of non-qualified stock options, as otherwise fixed by
the 1996 Plan Administrator. Upon exercise, payment for shares of Common Stock
acquired on exercise of a stock option may be made in cash, in shares of the
Common Stock, or a combination thereof, as the 1996 Plan Administrator may
determine.
Stock options are subject to such vesting schedule as determined by the
1996 Plan Administrator and are not exercisable prior to six months from the
date of grant unless, in the case of non-qualified stock options, a shorter
period is provided by the 1996 Plan Administrator or other section of the 1996
Plan. No incentive stock option may be exercised later than ten years after the
date of grant. Generally, options are exercisable only while the participant is
an employee of the Company or during the remaining term of the stock option and
thirty days from the date of termination of employment, unless such termination
is for cause. In the event of a termination of employment, outstanding options
may be subject to forfeiture and/or time limitations.
AUTOMATIC GRANTS. On the date on which a director who is not an
employee of the Company is first elected or appointed to the Board of Directors,
he or she shall be granted a stock option to purchase 5,000 shares of Common
Stock at the fair market price on the date of such grant for a term of ten
years. An additional grant of 5,000 shares of Common Stock shall be awarded to
such person for each subsequent year he or she is still serving as a director
under the same terms. Upon the death of such person, the option remains
exercisable until the earlier of the expiration of the remaining term of the
option or one year. In the case of permanent disability, retirement or failure
to be re-elected, all options previously granted remain exercisable in
accordance with the terms of the award agreement.
PERFORMANCE SHARES. Performance shares entitle the participant to
receive shares of Common Stock based upon the degree of achievement of
pre-established performance goals over a
19
<PAGE> 22
pre-established performance cycle as determined by the 1996 Plan Administrator
in its discretion or as otherwise determined by the Plan Administrator.
Performance goals are fixed by the 1996 Plan Administrator in its discretion and
may relate to corporate, group, unit or individual performance using standards
established in terms of market price of common stock, cash flow or cash flow per
share, reserve value or reserve value per share, net asset value or net asset
value per share, earnings or other criteria determined by the 1996 Plan
Administrator. The 1996 Plan Administrator has sole discretion to determine the
employees eligible for performance shares, the duration of each performance
cycle and the number of shares earned on the basis of the Company's performance
relative to the established goals.
At the end of the performance cycle, the 1996 Plan Administrator
determines the number of performance shares, which have been earned on the basis
of the Company's performance in relation to the performance goals. Unless
otherwise provided by the 1996 Plan Administrator in an award agreement, if a
participant dies, retires, becomes disabled or otherwise ceases to be an
employee, all outstanding and unvested awards of performance shares to such
participant will be canceled. Shares of Common Stock awarded to any person who,
at the time of grant, is subject to Section 16(b) of the Securities Exchange Act
of 1934, as amended, cannot be resold for a period of six months from the date
of grant of such shares.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences, in general, of the 1996 Plan are
as follows:
(1) With respect to non-qualified stock options granted under the 1996 Plan: A
participant receiving a grant will not recognize income and the Company will not
be allowed a deduction at the time such an option is granted. When a participant
exercises a non-qualified stock option, the difference between the option price
and any higher market value of the stock on the date of exercise will be
ordinary income to the participant and will be allowed as a deduction for
federal income tax purposes to the Company or its subsidiary or affiliate. When
a participant disposes of shares acquired by the exercise of the option, any
amount received in excess of the fair market value of the shares on the date of
exercise will be treated as short-term or long-term capital gain, depending upon
the holding period of the shares. If the amount received is less than the fair
market value of the shares on the date of exercise, the loss will be treated as
short-term or long-term capital loss, depending upon the holding period of the
shares.
(2) With respect to incentive stock options granted under the 1996 Plan: A
participant receiving a grant will not recognize income and the Company will not
be allowed a deduction at the time such an option is granted. When a participant
exercises an incentive stock option while employed by the Company or its
subsidiary or within the three-month (one year for disability) period after
termination of employment, no ordinary income will be recognized by the
participant at that time (and no deduction will be allowed to the Company) but
the excess of the fair market value of the shares acquired by such exercise over
the option price will be taken into account in determining the participant's
alternative minimum taxable income for purposes of the federal alternative
minimum tax applicable to individuals. If the shares acquired upon exercise are
not disposed of until more than two years after the date of grant and one year
after the date of transfer of the shares to the participant (statutory holding
periods), the excess of the sale proceeds over the aggregate option price of
such shares will be long-term capital gain, and the Company will not be entitled
to any federal income tax deduction. Except in the event of death, if the shares
are disposed of prior to the expiration of the statutory holding periods (a
"Disqualifying Disposition"), the excess of the fair market value of such shares
at the time of exercise over the aggregate option price (but not more than the
gain on the disposition if the disposition is a transaction on which a loss, if
sustained, would be recognized) will be ordinary income at the time of such
Disqualifying Disposition (and the Company or its subsidiary will be entitled to
a federal tax deduction in a like amount), and the balance of the gain, if any,
will be capital gain (short-term or long-term depending on the holding period).
To the extent that the aggregate fair market value of stock (determined on the
date of grant) with respect to which incentive options become exercisable for
the first time during any calendar year exceeds 100,000, such options will be
treated as non-qualified options.
(3) Special rule if option price is paid for in shares: If a participant pays
the exercise price of a non-qualified or incentive stock option with
previously-owned shares of the Company's Common Stock and the transaction is not
a Disqualifying Disposition, the shares received equal to the number of shares
surrendered are treated as having been received in a tax-free exchange. The
shares received in excess of the number surrendered will not be taxable if an
incentive stock option is being exercised, but will be taxable as ordinary
income to the extent of their fair market value if a non-qualified stock option
is being exercised. The participant does not recognize income and the Company
receives no deduction as a result of the tax-free portion of the exchange
transaction. If the use of previous acquired incentive stock option shares to
pay the exercise price of another incentive stock option constitutes a
Disqualifying Disposition, the tax results are as described in (2) above. The
income treatment will apply to the shares disposed of but will not affect the
favorable tax treatment of the shares received.
20
<PAGE> 23
(4) With respect to performance shares granted under the 1996 Plan: Unless a
participant makes the election described below, a participant receiving a grant
will not recognize income and the Company will not be allowed a deduction at the
time such performance shares are granted. While the shares remain subject to a
substantial risk of forfeiture, a participant will recognize compensation income
equal to the amount of the dividends received and the Company will be allowed a
deduction in a like amount. When the shares cease to be subject to a substantial
risk of forfeiture, the excess of the fair market value of the shares on the
date the substantial risk of forfeiture ceases over the amount paid, if any, by
the participant for the shares will be ordinary income to the participant and
will be allowed as a deduction for federal income tax purposes to the Company.
Upon disposition of the shares, the gain or loss recognized by the participant
will be treated as capital gain or loss, and the capital gain or loss will be
short-term or long-term depending upon the period of time the shares are held by
the participant following cessation of the substantial risk of forfeiture.
However, by filing a Section 83(b) election with the Internal Revenue Service
within 30 days after the date of grant, a participant's ordinary income and
commencement of holding period and the deduction will be determined as of the
date of grant. In such a case, the amount of ordinary income recognized by such
a participant and deductible by the Company will be equal to the excess of the
fair market value of the shares as of the date of grant over the amount paid, if
any, by the participant for the shares. If such election is made and a
participant thereafter forfeits his or her stock, no refund or deduction will be
allowed for the amount previously included in such participant's income.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE
AMENDMENT TO THE CALLON PETROLEUM COMPANY 1996 STOCK INCENTIVE PLAN.
PROPOSAL III
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Arthur Andersen LLP, independent
public accountants, for the examination of the accounts and audit of the
financial statements of the Company for the year ending December 31, 2000. At
the Annual Meeting, the Board of Directors will present a proposal to the
shareholders to approve and ratify the engagement of Arthur Andersen LLP. A
representative of Arthur Andersen LLP will be present at the Annual Meeting and
will have the opportunity to make a statement, if he desires, and to respond to
appropriate questions.
Management recommends that the shareholders approve and ratify the
appointment of Arthur Andersen LLP as independent public accountants of the
Company for the fiscal year ending December 31, 2000. Unless otherwise
indicated, all properly executed Proxies received by management will be voted
for such ratification at the Annual Meeting. An adverse vote will be considered
as a direction to the Audit Committee of the Board of Directors to select other
auditors in the following year.
SHAREHOLDERS' PROPOSALS FOR 2001 ANNUAL MEETING
Shareholders who desire to present proposals at the 2001 Annual Meeting
of Shareholders and to have proposals included in the Company's proxy materials
must submit their proposals to the Company at its principal executive offices
not later than November 29, 2000. If the date of the 2001 Annual Meeting of
Shareholders is changed by more than 30 days from the date of the 2000 Annual
Meeting of Shareholders, the deadline for submitting proposals is a reasonable
time before the Company begins to print and mail its proxy materials for its
2001 Annual Meeting of Shareholders.
The persons named in the Company's form of proxy for the 2001 Annual
Meeting will have discretionary authority to vote any proxies they hold at such
meeting on any matter for which the Company does not receive notice by February
12, 2001, unless the Company changes the date of its 2001 Annual Meeting of
Shareholders by more than 30 days from the date of the 2000 Annual Meeting of
Shareholders, in which case such persons will be able to exercise discretionary
authority if notice of the matter has not been received in a reasonable time
before the Company mails its proxy materials for the 2001 Annual Meeting of
Shareholders.
If the date of the 2001 Annual Meeting of Shareholders is advanced or
delayed by more than 30 calendar days from the date of the 2000 Annual Meeting
of Shareholders, the Company shall, in a timely manner, inform shareholders of
such change, by including a notice, under Item 5, in its earliest possible
21
<PAGE> 24
quarterly report on Form 10-Q. The notice will include the new deadline for
submitting proposals to be included in the Company's proxy statement and the new
date for determining whether the Company may exercise discretionary voting
authority because it has not received timely notice of a matter.
In order to avoid controversy as to the date on which the Company
receives any such proposal, it is suggested that shareholders submit their
proposals by certified mail, return receipt requested, or other means that
permit them to prove the date of delivery.
FINANCIAL STATEMENTS
Financial statements of the Company for its most recent fiscal year are
contained in the 1999 Annual Report and the Company's Report on Form 10-K.
COPIES OF THE COMPANY'S ANNUAL REPORT AND THE COMPANY'S REPORT ON FORM 10-K ARE
AVAILABLE TO SHAREHOLDERS UPON WRITTEN REQUEST TO THE INVESTOR RELATIONS
DEPARTMENT, CALLON PETROLEUM COMPANY, 200 NORTH CANAL STREET, NATCHEZ,
MISSISSIPPI 39120.
OTHER BUSINESS
The Board of Directors does not know of any matter to be acted upon at
the Annual Meeting other than those described above. If other business comes
before the Annual Meeting, the persons named on the Proxy will vote the Proxy in
accordance with what they consider to be in the best interests of the Company
and its shareholders.
By order of the Board of Directors
Fred L. Callon
President and Chief Executive Officer
Natchez, Mississippi
March 29, 2000
22
<PAGE> 25
- ------------------------------------------------------------------------------
APPENDIX I
CALLON PETROLEUM COMPANY
1996 STOCK INCENTIVE PLAN
ADOPTED: AUGUST 23, 1996
AMENDED: AUGUST 20, 1998
[AMENDED: MAY 9, 2000]
- ------------------------------------------------------------------------------
<PAGE> 26
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. GENERAL..........................................................1
Section 1.1. Purpose...............................................1
Section 1.2. Administration........................................1
Section 1.3. Eligibility for Participation.........................2
Section 1.4. Types of Awards Under Plan............................2
Section 1.5. Aggregate Limitation on Awards........................3
Section 1.6. Effective Date and Term of Plan.......................3
ARTICLE II. STOCK OPTIONS...................................................3
Section 2.1. Award of Stock Options................................3
Section 2.2. Stock Option Agreements...............................4
Section 2.3. Stock Option Price....................................4
Section 2.4. Term and Exercise.....................................4
Section 2.5. Manner of Payment.....................................4
Section 2.6. Issuance of Certificates..............................4
Section 2.7. Death, Retirement and Termination of Employment of
Optionee............................................4
ARTICLE III. INCENTIVE STOCK OPTIONS........................................5
Section 3.1. Award of Incentive Stock Options......................5
Section 3.2. Incentive Stock Option Agreements.....................5
Section 3.3. Incentive Stock Option Price..........................5
Section 3.4. Term and Exercise.....................................5
Section 3.5. Maximum Amount of Incentive Stock Option Grant........6
Section 3.6. Death of Optionee.....................................6
Section 3.7. Retirement or Disability..............................6
Section 3.8. Termination for Other Reasons.........................6
Section 3.9. Termination for Cause.................................6
Section 3.10. Code Requirements....................................7
ARTICLE IV. PERFORMANCE SHARE AWARDS........................................7
Section 4.1. Awards Granted by Plan Administrator..................7
Section 4.2. Amount of Award.......................................7
Section 4.3. Communication of Award................................7
Section 4.4. Amount of Award Payable...............................7
Section 4.5. Payments of Awards....................................8
Section 4.6. Termination of Employment.............................8
Section 4.7. Transfer Restriction..................................8
ARTICLE V. AUTOMATIC GRANTS.................................................8
Section 5.1. Grant.................................................8
</TABLE>
-i-
<PAGE> 27
<TABLE>
<S> <C>
Section 5.2. Applicable Provisions.................................8
ARTICLE VI. MISCELLANEOUS...................................................9
Section 6.1. General Restriction...................................9
Section 6.2. Non-Assignability.....................................9
Section 6.3. Withholding Taxes.....................................9
Section 6.4. Right to Terminate Employment.........................9
Section 6.5. Non-Uniform Determinations............................9
Section 6.6. Rights as a Stockholder...............................9
Section 6.7. Definitions..........................................10
Section 6.8. Leaves of Absence....................................10
Section 6.9. Newly Eligible Employees.............................11
Section 6.10. Adjustments.........................................11
Section 6.11. Changes in the Company's Capital Structure..........11
Section 6.12. Amendment of the Plan...............................13
Section 6.13. No Loss of Rights of Grantee of an Award............13
</TABLE>
-ii-
<PAGE> 28
CALLON PETROLEUM COMPANY
1996 STOCK INCENTIVE PLAN
ARTICLE I. GENERAL
SECTION 1.1. PURPOSE. The purposes of this Stock Incentive Plan (the
"Plan") are to: (1) associate the interests of the management of CALLON
PETROLEUM COMPANY and its subsidiaries and affiliates (collectively referred to
as the "Company") closely with the stockholders to generate an increased
incentive to contribute to the Company's future success and prosperity, thus
enhancing the value of the Company for the benefit of its stockholders; (2)
provide management with a proprietary ownership interest in the Company
commensurate with Company performance, as reflected in increased stockholder
value; (3) maintain competitive compensation levels thereby attracting and
retaining highly competent and talented directors, employees and consultants;
and (4) provide an incentive to management for continuous employment with the
Company. Certain capitalized terms are defined in Section 6.7.
SECTION 1.2. ADMINISTRATION.
(a) The Plan shall be administered by (i) the Board of
Directors of the Company, (ii) any duly constituted committee of the
Board of Directors consisting of at least two members of the Board of
Directors, all of whom shall be Non-Employee Directors, or (iii) any
other duly constituted committee of the Board of Directors. Such
administrating party shall be referred to herein as the "Plan
Administrator".
(b) The Plan Administrator shall have the authority, in its
sole discretion and from time to time to:
(i) designate the officers, key employees and
consultants of the Company and its Subsidiaries eligible to
participate in the Plan;
(ii) grant Awards provided in the Plan in such form
and amount as the Plan Administrator shall determine;
(iii) impose such limitations, restrictions and
conditions, not inconsistent with this Plan, upon any such
Award as the Plan Administrator shall deem appropriate; and
(iv) interpret the Plan and any agreement,
instrument or other document executed in connection with the
Plan, adopt, amend and rescind rules and regulations relating
to the Plan, and make all other determinations and take all
other action necessary or advisable for the implementation and
administration of the Plan.
<PAGE> 29
(c) Decisions and determinations of the Plan Administrator on
all matters relating to the Plan shall be in its sole discretion and
shall be final, conclusive and binding upon all persons, including the
Company, any participant, any stockholder of the Company, any employee
and any consultant. No member of any committee acting as Plan
Administrator shall be liable for any action taken or decision made
relating to the Plan or any Award thereunder.
SECTION 1.3. ELIGIBILITY FOR PARTICIPATION. Participants in the Plan
shall be selected by the Plan Administrator from the directors, executive
officers and other key employees and consultants of the Company and executive
officers and key employees and consultants of any Subsidiary of the Company who
have the capability of making a substantial contribution to the success of the
Company. In making this selection and in determining the form and amount of
awards, the Plan Administrator shall consider any factors deemed relevant,
including the individual's functions, responsibilities, value of services to the
Company and past and potential contributions to the Company's profitability and
growth. For the purposes of this Plan, the term "Subsidiary" means any
corporation or other entity of which at least 50% of the voting securities are
owned by the Company directly or through one or more other corporations, each of
which is also a Subsidiary. With respect to non-corporate entities, Subsidiary
shall mean an entity managed or controlled by the Company or any Subsidiary and
with respect to which the Company or any Subsidiary is allocated more than half
of the profits and losses thereof.
SECTION 1.4. TYPES OF AWARDS UNDER PLAN. Awards under the Plan may be
in the form of any or more of the following:
(i) Stock Options, as described in Article II;
(ii) Incentive Stock Options, as described in Article III;
and/or
(iii) Performance Shares, as described in Article IV.
Awards under the Plan shall be evidenced by an Award Agreement between the
Company and the recipient of the Award, in form and substance satisfactory to
the Plan Administrator, and not inconsistent with this Plan. Award Agreements
may provide such vesting schedules for Stock Options, Incentive Stock Options
and Performance Shares, and such other terms, conditions and provisions as are
not inconsistent with the terms of this Plan. Subject to the express provisions
of the Plan, and within the limitations of the Plan, the Plan Administrator may
modify, extend or renew outstanding Award Agreements, or accept the surrender of
outstanding Awards and authorize the granting of new Awards in substitution
therefor. However, except as provided in Sections 6.1(i), 6.1(ii) and 6.11(d)(3)
of this Plan, no modification of an Award shall impair the rights of the holder
thereof without his consent.
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SECTION 1.5. AGGREGATE LIMITATION ON AWARDS.
(a) Shares of stock which may be issued under the Plan shall
be authorized and unissued or treasury shares of Common Stock of the
Company ("Common Stock"). The maximum number of shares of Common Stock
which may be issued pursuant to Awards issued under the Plan shall be
2,200,000, which may be increased by the Board of Directors pursuant to
Section 6.12.
(b) For purposes of calculating the maximum number of shares
of Common Stock which may be issued under the Plan at any time:
(i) all the shares issued (including the shares, if
any, withheld for tax withholding requirements) under the Plan
shall be counted when issued upon exercise of a Stock Option
or Incentive Stock Option; and
(ii) only the net shares issued as Performance Shares
shall be counted (shares reacquired by the Company because of
failure to achieve a performance target or failure to become
fully vested for any other reason shall again be available for
issuance under the Plan).
(c) Shares tendered by a participant as payment for shares
issued upon exercise of a Stock Option or Incentive Stock Option shall
be available for issuance under the Plan. Any shares of Common Stock
subject to a Stock Option or Incentive Stock Option which for any
reason is terminated unexercised or expires shall again be available
for issuance under the Plan.
SECTION 1.6. EFFECTIVE DATE AND TERM OF PLAN.
(a) The Plan shall become effective on the date adopted by the
Board of Directors, subject to approval by the holders of a majority of
the shares of Common Stock at a meeting or by written consent.
(b) The Plan and all Awards made under the Plan shall remain
in effect until such Awards have been satisfied or terminated in
accordance with the Plan and the terms of such Awards.
ARTICLE II. STOCK OPTIONS
SECTION 2.1. AWARD OF STOCK OPTIONS. The Plan Administrator may from
time to time, and subject to the provisions of the Plan and such other terms and
conditions as the Plan Administrator may prescribe, grant to any participant in
the Plan one or more options to purchase for cash or shares the number of shares
of Common Stock ("Stock Options") allotted by the Plan Administrator. The date a
Stock Option is granted shall mean the date selected by the Plan Administrator
as of which the Plan
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Administrator allots a specific number of shares to a participant pursuant to
the Plan.
SECTION 2.2. STOCK OPTION AGREEMENTS. The grant of a Stock Option shall
be evidenced by a written Award Agreement, executed by the Company and the
holder of a Stock Option (the "Optionee"), stating the number of shares of
Common Stock subject to the Stock Option evidenced thereby, and in such form as
the Plan Administrator may from time to time determine.
SECTION 2.3. STOCK OPTION PRICE. The option price per share of Common
Stock deliverable upon the exercise of a Stock Option shall be 100% of the fair
market value of a share of Common Stock on the date the Stock Option is granted
unless otherwise determined by the Plan Administrator.
SECTION 2.4. TERM AND EXERCISE. A Stock Option shall not be exercisable
prior to six months from the date of its grant, unless a shorter period is
provided by the Plan Administrator or by another Section of this Plan, and may
be subject to such vesting scheduling and term ("Option Term") as the Plan
Administrator may provide in an Award Agreement. No Stock Option shall be
exercisable after the expiration of its Option Term.
SECTION 2.5. MANNER OF PAYMENT. Each Award Agreement providing for
Stock Options shall set forth the procedure governing the exercise of the Stock
Option granted thereunder, and shall provide that, upon such exercise in respect
of any shares of Common Stock subject thereto, the Optionee shall pay to the
Company, in full, the option price for such shares with cash or, if duly
authorized by the Plan Administrator, Common Stock.
SECTION 2.6. ISSUANCE OF CERTIFICATES. As soon as practicable after
receipt of payment, the Company shall deliver to the Optionee a certificate or
certificates for such shares of Common Stock. The Optionee shall become a
stockholder of the Company with respect to Common Stock represented by share
certificates so issued and as such shall be fully entitled to receive dividends,
to vote and to exercise all other rights of a stockholder.
SECTION 2.7. DEATH, RETIREMENT AND TERMINATION OF EMPLOYMENT OF
OPTIONEE. Unless otherwise provided in an Award Agreement or otherwise agreed to
by the Plan Administrator:
(a) Upon the death of the Optionee, any rights to the extent
exercisable on the date of death may be exercised by the Optionee's
estate, or by a person who acquires the right to exercise such Stock
Option by bequest or inheritance or by reason of the death of the
Optionee, provided that such exercise occurs within both (i) the
remaining Option Term of the Stock Option and (ii) one year. The
provisions of this Section shall apply notwithstanding the fact that
the Optionee's employment may have terminated prior to death, but only
to the extent of any rights exercisable on the date of death.
(b) Upon termination of the Optionee's employment by reason of
retirement or permanent disability (as each is determined by the Plan
Administrator), the Optionee may
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exercise any Stock Options, provided such option exercise occurs within
both (i) the remaining Option Term of the Stock Option and (ii) six
months (in the case of permanent disability) or three months (in the
case of retirement).
(c) Upon termination of the Optionee's employment by reason
other than death, retirement, disability or cause (as each is
determined by the Plan Administrator), the Optionee may exercise any
Stock Options, provided such option exercise occurs within both (i) the
remaining Option Term of the Stock Option and (ii) 30 days of the date
of termination.
(d) Except as provided in Subsections (a), (b) and (c) of this
Section 2.7, all Stock Options shall terminate immediately upon the
termination of the Optionee's employment.
ARTICLE III. INCENTIVE STOCK OPTIONS
SECTION 3.1. AWARD OF INCENTIVE STOCK OPTIONS. The Plan Administrator
may, from time to time and subject to the provisions of the Plan and such other
terms and conditions as the Plan Administrator may prescribe, grant to any
officer or key employee who is a participant in the Plan one or more "incentive
stock options" (intended to qualify as such under the provisions of Section 422
of the Internal Revenue Code of 1986, as amended ("Incentive Stock Options")) to
purchase for cash or shares the number of shares of Common Stock allotted by the
Plan Administrator. No Incentive Stock Options shall be made under the Plan
after the tenth anniversary of the effective date of the Plan. The date an
Incentive Stock Option is granted shall mean the date selected by the Plan
Administrator as of which the Plan Administrator allots a specific number of
shares to a participant pursuant to the Plan. Notwithstanding the foregoing,
Incentive Stock Options shall not be granted to any owner of 10% or more of the
total combined voting power of the Company and its subsidiaries.
SECTION 3.2. INCENTIVE STOCK OPTION AGREEMENTS. The grant of an
Incentive Stock Option shall be evidenced by a written Award Agreement, executed
by the Company and the holder of an Incentive Stock Option (the "Optionee"),
stating the number of shares of Common Stock subject to the Incentive Stock
Option evidenced thereby, and in such form as the Plan Administrator may from
time to time determine.
SECTION 3.3. INCENTIVE STOCK OPTION PRICE. The option price per share
of Common Stock deliverable upon the exercise of an Incentive Stock Option shall
be 100% of the fair market value of a share of Common Stock on the date the
Incentive Stock Option is granted.
SECTION 3.4. TERM AND EXERCISE. Each Incentive Stock Option shall not
be exercisable prior to six months from the date of its grant and unless a
shorter period is provided by the Plan Administrator or another Section of this
Plan, may be exercised during a period of ten years from the date of grant
thereof (the "Option Term") and may be subject to such vesting scheduling as the
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Plan Administrator may provide in an Award Agreement. No Incentive Stock Option
shall be exercisable after the expiration of its Option Term.
SECTION 3.5. MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT. The
aggregate fair market value (determined on the date the Incentive Stock Option
is granted) of Common Stock with respect to which Incentive Stock Options first
become exercisable by an Optionee during in any calendar year (under all plans
of the Optionee's employer corporations and their parent and subsidiary
corporations) shall not exceed $100,000.
SECTION 3.6. DEATH OF OPTIONEE.
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's
estate or by a person who acquires the right to exercise such Incentive
Stock Option by bequest or inheritance or by reason of the death of the
Optionee, provided that such exercise occurs within both the remaining
Option Term of the Incentive Stock Option and one year after the
Optionee's death.
(b) The provisions of this Section shall apply notwithstanding
the fact that the Optionee's employment may have terminated prior to
death, but only to the extent of any Incentive Stock Options
exercisable on the date of death.
SECTION 3.7. RETIREMENT OR DISABILITY. Unless otherwise provided in an
Award Agreement or otherwise agreed to by the Plan Administrator, upon the
termination of the Optionee's employment by reason of permanent disability or
retirement (as each is determined by the Plan Administrator), the Optionee may
exercise any Incentive Stock Options, provided such option exercise occurs
within both (i) the remaining Option Term of the Incentive Stock Option and (ii)
one year (in the case of permanent disability) or three months (in the case of
retirement). Notwithstanding the terms of an Award Agreement, the tax treatment
available pursuant to Section 422 of the Internal Revenue Code of 1986 (the
"Code") upon the exercise of an Incentive Stock Option shall not be available to
an Optionee who exercises any Incentive Stock Options more than (i) one year
after the date of termination of employment due to permanent disability or (ii)
three months after the date of termination of employment due to retirement.
SECTION 3.8. TERMINATION FOR OTHER REASONS. Unless otherwise provided
in an Award Agreement or otherwise agreed to by the Plan Administrator, except
as provided in Sections 3.6 and 3.7, upon termination of the Optionee's
employment by reason other than cause (as determined by the Plan Administrator),
the Optionee may exercise any Incentive Stock Options, provided such option
exercise occurs within both (i) the remaining Incentive Option Term of the Stock
Option and (ii) 30 days of the date of termination.
SECTION 3.9. TERMINATION FOR CAUSE. Unless otherwise provided in an
Award Agreement or otherwise agreed to by the Plan Administrator, except as
provided in Sections 3.6, 3.7 and 3.8, all Incentive Stock Options shall
terminate immediately upon the termination of the Optionee's employment.
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SECTION 3.10. CODE REQUIREMENTS. The terms of any Incentive Stock
Option granted under the Plan shall comply in all respects with the provisions
of Code Section 422. Anything in the Plan to the contrary notwithstanding, no
term of the Plan relating to Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the Plan
be exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Code Section 422, unless the participant has first requested the change
that will result in such disqualification.
ARTICLE IV. PERFORMANCE SHARE AWARDS
SECTION 4.1. AWARDS GRANTED BY PLAN ADMINISTRATOR. Coincident with or
following designation for participation in the Plan, a participant may be
granted Performance Shares. Certificates representing Performance Shares shall
be issued to the participant effective as of the date of the Award. Holders of
Performance Shares shall have all of the voting, dividend and other rights of
stockholders of the Company, subject to the terms of any Award Agreement.
SECTION 4.2. AMOUNT OF AWARD. The Plan Administrator shall establish a
maximum amount of a participant's Award, which amount shall be denominated in
shares of Common Stock.
SECTION 4.3. COMMUNICATION OF AWARD. Written notice of the maximum
amount of a participant's Award and the Performance Cycle determined by the Plan
Administrator, if any, shall be given to a participant as soon as practicable
after approval of the Award by the Plan Administrator. The grant of Performance
Shares shall be evidenced by a written Award Agreement, executed by the Company
and the recipient of Performance Shares, in such form as the Plan Administrator
may from time to time determine, providing for the terms of such grant.
SECTION 4.4. AMOUNT OF AWARD PAYABLE. Performance Shares may be granted
based upon past performance or future performance. In addition to any other
restrictions the Plan Administrator may place on Performance Shares, the Plan
Administrator may, in its discretion, provide that Performance Shares shall vest
upon the satisfaction of performance targets to be achieved during an applicable
"Performance Cycle." Failure to satisfy the performance targets may result, in
the Plan Administrator's discretion as set forth in an Award Agreement, in the
forfeiture of the Performance Shares by the participant and the return of such
shares to the Company, or have any other consequence as determined by the Plan
Administrator. Performance targets established by the Plan Administrator may
relate to corporate, group, unit or individual performance and may be
established in terms of market price of common stock, cash flow or cash flow per
share, reserve value or reserve value per share, net asset value or net asset
value per share, earnings, or such other measures or standards determined by the
Plan Administrator. Multiple performance targets may be used and the components
of multiple performance targets may be given the same or different weight in
determining the amount of an Award earned, and may relate to absolute
performance or relative performance measured against other groups, units,
individuals or entities. The Plan Administrator may also establish that none, a
portion or all of a participant's Award will vest (subject to Section 4.5) for
performance which falls below the performance target applicable to such Award.
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Certificates representing Performance Shares shall bear a legend restricting
their transfer and requiring the forfeiture of the shares to the Company if any
performance targets or other conditions to vesting are not met. The Plan
Administrator may also require a participant to deliver certificates
representing unvested Performance Shares to the Company in escrow until the
Performance Shares vest.
SECTION 4.5. PAYMENTS OF AWARDS. Following the conclusion of each
Performance Cycle, the Plan Administrator shall determine the extent to which
performance targets have been attained, and the satisfaction of any other terms
and conditions with respect to vesting an Award relating to such Performance
Cycle. Subject to the provisions of Section 6.3, to the extent the Plan
Administrator determines Performance Shares have vested, the Company shall issue
to the participant certificates representing vested shares free of any legend
regarding performance targets or forfeiture in exchange for such participant's
legended certificates.
SECTION 4.6. TERMINATION OF EMPLOYMENT. Unless the Award Agreement
provides for vesting upon death, disability, retirement or termination of
employment, upon any such termination of employment of a participant prior to
vesting of Performance Shares, all outstanding and unvested Awards of
Performance Shares to such participant shall be canceled, shall not vest and
shall be returned to the Company.
SECTION 4.7. TRANSFER RESTRICTION. Unless otherwise provided in an
Award Agreement or otherwise agreed to by the Plan Administrator, any Award
Agreement providing for the issuance of Performance Shares to any person who, at
the time of grant, is subject to the restrictions of Section 16(b) of the
Exchange Act, shall provide that such Common Stock cannot be resold for a period
of six months following the grant of such Performance Shares.
ARTICLE V. AUTOMATIC GRANTS
SECTION 5.1. GRANT. Each director who is not an employee of the
Company, its subsidiaries, affiliates and managers 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 such grant, for an Option Term of ten years. Thereafter, on the
first business day following the Annual Meeting of Stockholders of each
subsequent year in which such person is still serving as a director (whether or
not such director's term has been continuous), he or she shall 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 for an Option Term of ten
years.
SECTION 5.2. APPLICABLE PROVISIONS. The provisions of Section 2.7(a)
relating to the death of a director shall apply to options granted under Section
5.1 and the Plan Administrator may not agree to the contrary in an Award
Agreement or otherwise. The provisions of Subsections 2.7(b), (c) and (d)
relating to disability and other termination of employment shall not apply to
options granted under Section 5.1, and the failure to be re-elected as a
director of the Company shall not effect the Stock Options granted under this
Section.
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ARTICLE VI. MISCELLANEOUS
SECTION 6.1. GENERAL RESTRICTION. Each Award under the Plan shall be
subject to the requirement that, if at any time the Plan Administrator shall
determine that (i) the listing, registration or qualification of the shares of
Common Stock which is the subject of such Award is necessary under the rules and
regulations of any securities exchange or under any state or Federal law, or
(ii) the consent or approval of any government regulatory body is necessary as a
condition of, or in connection with, the granting of such Award or the issue or
purchase of shares of Common Stock thereunder, such Award may not be consummated
in whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained.
SECTION 6.2. NON-ASSIGNABILITY. No Award under the Plan shall be
assignable or transferable by the recipient thereof, except by will or by the
laws of descent and distribution. During the life of the recipient, such Award
shall be exercisable only by such person or by such person's guardian or legal
representative.
SECTION 6.3. WITHHOLDING TAXES. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the Company
shall have the right to require the grantee to remit to the Company an amount
sufficient to satisfy any Federal, state and/or local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares. Alternatively, the Company may issue, transfer or vest only such number
of shares of the Company net of the number of shares sufficient to satisfy the
withholding tax requirements. For withholding tax purposes, the shares of Common
Stock shall be valued on the date the withholding obligation is incurred.
SECTION 6.4. RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or in
any agreement entered into pursuant to the Plan shall confer upon any
participant the right to continue in the employment of the Company or affect any
right which the Company may have to terminate the employment of such
participant.
SECTION 6.5. NON-UNIFORM DETERMINATIONS. The Plan Administrator's
determinations under the Plan (including without limitation determinations of
the persons to receive Awards, the form, amount and timing of such Awards, the
terms and provisions of such Awards and the agreements evidencing same) need not
be uniform and may be made by it selectively among persons who receive, or are
eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
SECTION 6.6. RIGHTS AS A STOCKHOLDER. The recipient of any Award under
the Plan shall have no rights as a stockholder with respect thereto unless and
until certificates for shares of Common Stock are issued to him.
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SECTION 6.7. DEFINITIONS. In this Plan the following definitions shall
apply:
(a) "Award" shall mean a grant of Stock Options, Incentive
Stock Options or Performance Shares under the Plan.
(b) "Fair market value" as of any date and in respect of any
share of Common Stock means the average of the high and low sales price
on such date or on the next business day, if such date is not a
business day, of a share of Common Stock reflected in the consolidated
trading tables of The Wall Street Journal provided that, if shares of
Common Stock shall not have been traded on the National Association of
Securities Dealers, Inc. Automated Quotation System/National Market
System or other public securities market for more than 10 days
immediately preceding such date, the fair market value of shares of
Common Stock shall be as determined by the Plan Administrator in such
other manner as it may deem appropriate. In no event shall the fair
market value of any share of Common Stock be less than its par value.
(c) "Non-Employee Director" shall mean a director who (i) is
not an officer of the Company or a parent or subsidiary of the Company,
or otherwise employed by the Company or parent or subsidiary of the
Company; (ii) does not receive compensation, either directly or
indirectly, from the Company or a parent or subsidiary of the Company,
for services rendered as a consultant or in any capacity other than as
a director, except for an amount not exceeding $60,000; (iii) does not
possess an interest in any transaction for which disclosure would be
required under Item 404(a) of Regulation S-K of the Securities Act of
1933, as amended ("Securities Act"); or (iv) is not engaged in a
business relationship for which disclosure would be required pursuant
to Item 404(b) of Regulation S-K of the Securities Act.
(d) "Option" means a Stock Option or Incentive Stock Option.
(e) "Option price" means the purchase price per share of
Common Stock deliverable upon the exercise of a Stock Option or
Incentive Stock Option.
(f) "Performance Cycle" means the period of time, if any, as
specified by the Plan Administrator over which Performance Shares are
to be vested.
SECTION 6.8. LEAVES OF ABSENCE. The Plan Administrator shall be
entitled to make such rules, regulations and determinations as it deems
appropriate under the Plan in respect of any leave of absence taken by the
recipient of any Award. Without limiting the generality of the foregoing, the
Plan Administrator shall be entitled to determine (i) whether or not any such
leave of absence shall constitute a termination of employment within the meaning
of the Plan and (ii) the impact, if any, of any such leave of absence on Awards
under the Plan theretofore made to any recipient who takes such leave of
absence.
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SECTION 6.9. NEWLY ELIGIBLE EMPLOYEES. The Plan Administrator shall be
entitled to make such rules, regulations, determinations and Awards as it deems
appropriate in respect of any employee who becomes eligible to participate in
the Plan or any portion thereof after the commencement of an Award or incentive
period.
SECTION 6.10. ADJUSTMENTS. In the event of any change in the
outstanding Common Stock by reason of a stock dividend or distribution,
recapitalization, merger, consolidation, split-up, combination, exchange of
shares or the like, the Plan Administrator may appropriately adjust the number
of shares of Common Stock which may be issued under the Plan, the number of
shares of Common Stock subject to Options or Performance Shares theretofore
granted under the Plan, and any and all other matters deemed appropriate by the
Plan Administrator.
SECTION 6.11. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
(a) The existence of outstanding Options or Performance Shares
shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's
capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale
or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or
otherwise.
(b) If, while there are outstanding Options, the Company shall
effect a subdivision or consolidation of shares or other increase or
reduction in the number of shares of the Common Stock outstanding
without receiving compensation therefor in money, services or property,
then, subject to the provisions, if any, in the Award Agreement (a) in
the event of an increase in the number of such shares outstanding, the
number of shares of Common Stock then subject to Options hereunder
shall be proportionately increased; and (b) in the event of a decrease
in the number of such shares outstanding the number of shares then
available for Option hereunder shall be proportionately decreased.
(c) After a merger of one or more corporations into the
Company, or after a consolidation of the Company and one or more
corporations in which the Company shall be the surviving corporation,
(i) each holder of an outstanding Option shall, at no additional cost,
be entitled upon exercise of such Option to receive (subject to any
required action by stockholders) in lieu of the number of shares as to
which such Option shall then be so exercisable, the number and class of
shares of stock, other securities or consideration to which such holder
would have been entitled to receive pursuant to the terms of the
agreement of merger or consolidation if, immediately prior to such
merger or consolidation, such holder had been the holder of record of a
number of shares of the Company equal to the number of shares as to
which such Option had been exercisable and (ii) unless otherwise
provided by the Plan Administrator, the number of shares of Common
Stock, other
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<PAGE> 39
securities or consideration to be received with respect to
unvested Performance Shares shall continue to be subject to the Award
Agreement, including any vesting provisions thereof.
(d) If the Company is about to be merged into or consolidated
with another corporation or other entity under circumstances where the
Company is not the surviving corporation, or if the Company is about to
sell or otherwise dispose of substantially all of its assets to another
corporation or other entity while unvested Performance Shares or
unexercised Options remain outstanding, then the Plan Administrator may
direct that any of the following shall occur:
(i) If the successor entity is willing to assume
the obligation to deliver shares of stock or other securities
after the effective date of the merger, consolidation or sale
of assets, as the case may be, each holder of an outstanding
Option shall be entitled to receive, upon the exercise of such
Option and payment of the option price, in lieu of shares of
Common Stock, such shares of stock or other securities as the
holder of such Option would have been entitled to receive had
such Option been exercised immediately prior to the
consummation of such merger, consolidation or sale, and the
terms of such Option shall apply as nearly as practicable to
the shares of stock or other securities purchasable upon
exercise of the Option following such merger, consolidation or
sale of assets;
(ii) The Plan Administrator may waive any
limitations set forth in or imposed pursuant to this Plan or
any Award Agreement with respect to such Option or Performance
Share such that (A) such Option shall become exercisable prior
to the record or effective date of such merger, consolidation
or sale of assets or (B) the vesting of such Performance Share
shall occur upon such merger, consolidation or sale of assets;
and/or
(iii) The Plan Administrator may cancel all
outstanding Options as of the effective date of any such
merger, consolidation or sale of assets provided that prior
notice of such cancellation shall be given to each holder of
an Option at least 30 days prior to the effective date of such
merger, consolidation or sale of assets, and each holder of an
Option shall have the right to exercise such Option in full
during a period of not less than 30 days prior to the
effective date of such merger, consolidation or sale of
assets.
(e) Except as herein provided, the issuance by the Company of
Common Stock or any other shares of capital stock or securities
convertible into shares of capital stock, for cash, property, labor
done or other consideration, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of
shares of Common Stock then subject to outstanding Options.
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SECTION 6.12. AMENDMENT OF THE PLAN. Subject to Section 3.11, the Board
of Directors may, without further approval by the stockholders and without
receiving further consideration from the participants, amend this Plan or
condition or modify Awards under this Plan, including increases to the number of
shares which may be covered by Awards under this Plan.
SECTION 6.13. NO LOSS OF RIGHTS OF GRANTEE OF AN AWARD. Nothing in this
Plan shall give the Plan Administrator or any other person the right, power or
authority to change, amend, alter or repeal the terms of any Award granted under
this Plan, except as otherwise expressly set forth in the grant of such Award,
without the prior written consent of the grantee of such Award.
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CALLON PETROLEUM COMPANY
200 NORTH CANAL STREET, NATCHEZ, MISSISSIPPI 39120
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING ON MAY 9, 2000
The undersigned hereby constitutes and appoints John S. Callon and Fred L.
Callon and each of them, his true and lawful agents and proxies with full power
of substitution in each, to represent and to vote, as designated on the reverse,
all of the shares of Common Stock of Callon Petroleum Company, held of record by
the undersigned on March 13, 2000, at the Annual Meeting of Shareholders to be
held in the Le Grand Pre Ballroom of the Radisson Natchez Eola Hotel, 110 North
Pearl Street, Natchez, Mississippi 39120 on May 9, 2000, and at any adjournments
thereof, on all matters coming before said meeting.
IF NO DIRECTION AS TO THE MANNER OF VOTING THIS PROXY IS MADE, THIS PROXY
WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS AND "FOR" PROPOSAL 2 AND PROPOSAL
3 AS INDICATED ON THE REVERSE SIDE HEREOF.
You are encouraged to specify your choices by marking the appropriate boxes
(SEE REVERSE SIDE) BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORSO RECOMMENDATIONS. THE PROXIES CANNOT VOTE
YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
(To be signed on reverse side)
<PAGE> 42
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
CALLON PETROLEUM COMPANY
MAY 9, 2000
o Please Detach and Mail in the Envelope Provided o
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<S> <C> <C> <C> <C> <C> <C> <C>
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR WITHHOLD THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND FOR
authority for all PROPOSALS 2 AND 3.
1. ELECTION Nominees FOR AGAINST ABSTAIN
OF
DIRECTORS [ ] [ ] NOMINEES: Fred L. Callon 2. To adopt an amendment to [ ] [ ] [ ]
Dennis W. Christian the Callon Petroleum Company
To withhold authority to vote 1996 Stock Incentive Plan.
for any specific nominee(s),
mark the OFORO box and write 3. To ratify the appointment [ ] [ ] [ ]
the name of each such nominee, of Arthur Andersen LLP as
on the line provided below. independent public accountants.
4. In their discretion, the Proxies are authorized
- ------------------------------- to vote upon such other business as may properly
come before the meeting or any adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN
THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF
DIRECTORS AND "FOR" PROPOSAL 2 AND PROPOSAL 3.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY IN THE STAMPED, PRE-ADDRESSED ENVELOPE
ENCLOSED.
SIGNATURE DATE SIGNATURE DATE
------------------------- -------- -------------------------- ---------
Note: Please sign exactly as name appears hereon. Joint owners should each
sign. when signing as attorney, executor, administrator, trustee or as
guardian, please indicate your full title as such.
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