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EXHIBIT 1.1
CALLON PETROLEUM COMPANY
$32,000,000
11% SENIOR SUBORDINATED NOTES DUE 2005
UNDERWRITING AGREEMENT
October 23, 2000
Morgan Keegan & Company, Inc.
A.G. Edwards & Sons, Inc.
c/o Morgan Keegan & Company, Inc.
50 N. Front Street
Memphis, TN 38103
The undersigned, Callon Petroleum Company, a Delaware corporation (the
"Company"), hereby confirms its agreement with Morgan Keegan & Company, Inc. and
A.G. Edwards & Sons, Inc. (the "Underwriters") as follows:
1. DESCRIPTION OF SECURITIES. The Company proposes to issue and sell to
the Underwriters $32,000,000 in aggregate principal amount of the Company's 11%
Senior Subordinated Notes due 2005 (the "Firm Notes"). Solely for the purpose of
covering over-allotments in the sale of the Firm Notes, the Company further
proposes to grant to the Underwriters the right to purchase up to an additional
$4,800,000 in aggregate principal amount of 11% Senior Subordinated Notes due
2005 (the "Option Notes") as described in Section 3 of this Agreement. The Firm
Notes and the Option Notes are sometimes referred to collectively herein as the
"Securities" and are more fully described in the Prospectus (as hereinafter
defined). The Securities are to be issued pursuant to a supplemental indenture
dated as of October 26, 2000 (the "Indenture") between the Company and American
Stock Transfer & Trust Company, as trustee (the "Trustee").
2. PURCHASE, SALE AND DELIVERY OF FIRM NOTES.
(a) On the basis of the representations, warranties and agreements
herein contained, and subject to the terms and conditions herein set forth, the
Company agrees to sell to each Underwriter, and each Underwriter agrees,
severally and not jointly, (a) to purchase from the Company, at a purchase price
equal to 96.5% of the principal amount thereof, plus accrued interest, if any,
from the Closing Date (as hereinafter defined), the respective principal amounts
of Firm Notes set forth opposite the name of such Underwriter in Schedule I
hereto and (b) to purchase from the Company any additional principal amount of
Option Notes which such Underwriter may become obligated to purchase pursuant to
Section 3 hereof.
(b) Delivery of the Securities to the Underwriters against payment of
the purchase price therefor in immediately available funds by wire transfer
shall be made prior to 1:00 p.m., New York time, on October 26, 2000, in
book-entry form through the facilities of The Depository Trust Company, New
York, New York ("DTC"), or at such other time and date as may be agreed upon in
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writing by the Company and the Underwriters. Delivery of the documents required
by Section 6 hereof with respect to the Securities shall be made at such time
and date at the offices of Haynes & Boone, L.L.P., 1000 Louisiana, Suite 4300,
Houston, Texas 77002, or at such other location as may be agreed upon in writing
by the Company and the Underwriters. For purposes of this Agreement, "Closing
Date" shall mean the hour and date of such delivery and payment.
The Securities shall be issued in the form of a global certificate
registered in the name of "Cede & Co.," as nominee of DTC. For the purpose of
expediting the checking of the Securities by the Underwriters, the Company
agrees to make the Securities available to the Underwriters for such purpose at
the offices of DTC (or a custodian thereof) in New York, New York, not later
than 1:00 p.m., New York time, on the business day preceding the Closing Date or
at such other time and place as may be agreed upon by the Company and the
Underwriters.
3. PURCHASE, SALE AND DELIVERY OF OPTION NOTES. The Company hereby
grants an option to the Underwriters to purchase from it up to $4,800,000 in
aggregate principal amount of Option Notes, on the same terms and conditions as
the Firm Notes; provided, however, that such option may be exercised only for
the purpose of covering any over-allotments which may be made by them in the
sale of the Firm Notes. No Option Notes shall be sold or delivered unless the
Firm Notes previously have been, or simultaneously are, sold and delivered.
The option is exercisable on behalf of the Underwriters by Morgan
Keegan & Company, Inc. at any time, and from time to time, before the expiration
of 30 days from the date of the Prospectus Supplement (or, if such 30th day
shall be a Saturday or Sunday or a holiday, on the next day thereafter when the
New York Stock Exchange is open for trading), for the purchase of all or part of
the Option Notes covered thereby, by notice given by Morgan Keegan & Company,
Inc. to the Company in the manner provided in Section 11 hereof, setting forth
the principal amount of Option Notes as to which the Underwriters are exercising
the option, and the date of delivery of said Option Notes, which date shall not
be more than five business days after such notice unless otherwise agreed to by
the parties. Morgan Keegan & Company, Inc., on behalf of the Underwriters, may
terminate the option at any time, as to any unexercised portion thereof, by
giving written notice to the Company to such effect.
Delivery of the Option Notes with respect to which the option shall
have been exercised shall be made in book-entry form through the facilities of
DTC (or at such other place as the Underwriters and the Company may mutually
agree upon), against payment by the Underwriters of the purchase price to the
Company by wire transfer of immediately available funds. Such payment and
delivery shall be made at 10:00 a.m., New York time, on the date designated in
the notice given by the Underwriters as above provided for (which may be the
same as the Closing Date), unless some other date and time are agreed upon,
which date and time of payment and delivery are called the "Option Closing
Date." On the Option Closing Date, the Company shall provide the Underwriters
such representations, warranties, agreements, opinions, letters, certificates
and covenants with respect to the Option Notes as are required to be delivered
on the Closing Date with respect to the Firm Notes.
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4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
(a) The Company represents and warrants to and agrees with each
Underwriter that:
(i) A registration statement (Registration No. 333-87945) on
Form S-3, including the related prospectus dated October 6, 1999 (the
"Basic Prospectus"), relating to the registration under the Securities
Act of 1933, as amended (the "1933 Act"), of certain debt securities of
the Company, including the Securities, and certain other securities to
be sold from time to time by the Company in accordance with Rule 415 of
the rules and regulations under the 1933 Act (the "1933 Act Rules and
Regulations"), has been filed with the Securities and Exchange
Commission (the "SEC") and declared effective by the SEC. The Company
meets the requirements for use of Form S-3 under the 1933 Act. Copies
of such registration statement, including any amendments thereto, the
Basic Prospectus and the preliminary prospectus supplement, dated
September 27, 2000 (the "Preliminary Prospectus Supplement"), and the
exhibits, financial statements and schedules thereto have heretofore
been delivered by the Company to the Underwriters. A final prospectus
supplement relating to the Securities, the terms of the offering
thereof and the other matters set forth therein will be prepared and
filed pursuant to Rule 424(b) of the 1933 Act Rules and Regulations.
Such final prospectus supplement, in the form first filed after the
date hereof pursuant to Rule 424(b), is herein referred to as the
"Prospectus Supplement." The registration statement, as amended at the
date hereof, including the exhibits thereto, is herein called the
"Registration Statement," and the Basic Prospectus included therein, as
supplemented by the Prospectus Supplement, is herein called the
"Prospectus;" provided, however, that if such Prospectus is amended or
supplemented on or after the date hereof but prior to the date on which
the Prospectus Supplement is first filed pursuant to Rule 424(b), the
term "Prospectus" shall refer to such Prospectus as so amended or
supplemented and as supplemented by the Prospectus Supplement; and
provided, further, that all references to the "Registration Statement"
and the "Prospectus" shall be deemed to include all documents
incorporated therein by reference pursuant to the Securities Exchange
Act of 1934, as amended (the "1934 Act"). If an abbreviated
registration statement is prepared and filed with the SEC in accordance
with Rule 462(b) under the 1933 Act (an "Abbreviated Registration
Statement"), the term "Registration Statement" as used in this
Agreement includes the Abbreviated Registration Statement. For purposes
of this Agreement, the words "amend," "amendment," "amended,"
"supplement" or "supplemented" with respect to the Registration
Statement or the Prospectus shall mean amendments or supplements to the
Registration Statement or the Prospectus, as the case may be, as well
as documents filed after the date of this Agreement and prior to the
completion of the distribution of the Securities and incorporated by
reference therein as described above.
(ii) Neither the SEC nor any state or other jurisdiction or
other regulatory body has issued, and neither is, to the knowledge of
the Company, threatening to issue, any stop order under the 1933 Act or
other order suspending the effectiveness of the Registration Statement
(as amended or supplemented) or preventing or suspending the use of the
Prospectus or suspending the qualification or registration of the
Securities for offering or sale in any jurisdiction nor instituted or,
to the knowledge of the Company, threatened to institute proceedings
for any such purpose. At the respective times the Registration
Statement and
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any post-effective amendments thereto became or become effective, the
Registration Statement and any amendments or supplements thereto
complied or will comply in all material respects with the requirements
of, the 1933 Act and the 1933 Act Rules and Regulations and did not and
will not contain, as the case may be, any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and
neither the Preliminary Prospectus Supplement, the Prospectus nor any
supplement thereto contained or will contain, as the case may be, any
untrue statement of a material fact or omitted or will omit to state
any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representation or warranty
as to (i) information contained in or omitted from the Registration
Statement, the Preliminary Prospectus Supplement or the Prospectus, or
any such amendment or supplement, in reliance upon, and in conformity
with, written information furnished to the Company relating to the
Underwriters by or on behalf of the Underwriters expressly for use in
the preparation thereof (as provided in Section 12 hereof) and (ii) the
Statement of Eligibility and Qualification (the "Form T-1") under the
Trust Indenture Act of 1939, as amended (the "1939 Act"), which is
included as an exhibit to the Registration Statement. There is no
contract or document required to be described in the Registration
Statement, the Preliminary Prospectus Supplement or Prospectus or to be
filed as an exhibit to the Registration Statement which is not
described or filed as required. The documents incorporated by reference
in the Prospectus pursuant to Item 12 of Form S-3 under the 1933 Act,
at the time they were filed with the SEC, complied in all material
respects with the requirements of the 1934 Act and the rules and
regulations adopted by the SEC thereunder (the "1934 Act Rules and
Regulations"). Any future documents incorporated by reference so filed,
when they are filed, will comply in all material respects with the
requirements of the 1934 Act and the 1934 Act Rules and Regulations; at
the time of filing, no such incorporated document contained or will
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and, when read together and with the
other information in the Prospectus, at the time the Registration
Statement became effective and at the Closing Date, each such
incorporated document did not or will not, as the case may be, contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(iii) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and legally binding
obligation of the Company enforceable against the Company in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally and
by general principles of equity (the "Exceptions").
(iv) The Company and its subsidiaries have been duly organized
and are validly existing as corporations in good standing under the
laws of the states or other jurisdictions in which they are
incorporated. CN Resources ("CN") is the only partnership of which the
Company or any of its subsidiaries is a general partner or owns fifty
percent or more of the partnership interests. CN is a general
partnership duly organized under the laws of the State
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of Texas, and the Company owns all of the partnership interests in CN.
Each of the Company, its subsidiaries and CN has full power and
authority (corporate and other) to own, lease and operate their
properties and conduct their businesses as described in the Prospectus
and, with respect to the Company, to execute and deliver, and perform
the Company's obligations under, this Agreement and the Indenture; each
of the Company, its subsidiaries and CN is duly qualified to do
business as a foreign corporation or partnership in good standing in
each state or other jurisdiction in which their ownership or leasing of
property or conduct of business legally requires such qualification,
except where the failure to be so qualified, individually or in the
aggregate, would not have a Material Adverse Effect. The term "Material
Adverse Effect" as used herein means any material adverse effect on the
condition (financial or other), business, properties, net worth or
results of operations of the Company, its subsidiaries and CN that is
or would be, singly or in the aggregate, material to the Company, its
subsidiaries and CN, taken as a whole, whether or not occurring in the
ordinary course of business.
(v) Otherwise than as set forth in the Prospectus, none of the
Company, its subsidiaries or CN has sustained since the date of the
latest audited financial statements included or incorporated by
reference in the Prospectus any material loss or interference with its
business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or
governmental action, order or decree. Otherwise than as set forth in
the Prospectus and, since the respective dates as of which information
is given in the Prospectus, there has not been any change in the
capitalization, except for any change that is the result of the
purchase of the Company's 10% Senior Subordinated Notes due 2001
pursuant to the tender offer for such notes, or material increase in
the short-term or long-term debt of the Company, any of its
subsidiaries or CN or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, debt, stockholders'
equity or results of operations of the Company, its subsidiaries and
CN, taken as a whole.
(vi) The issuance and sale of the Securities and the
execution, delivery and performance by the Company of this Agreement
and the Indenture, and the consummation of the transactions
contemplated herein and therein, will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute
a default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the Company, any
of its subsidiaries or CN under any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company,
any of its subsidiaries or CN is a party or by which the Company, any
of its subsidiaries or CN is bound or to which any of the properties or
assets of the Company, any of its subsidiaries or CN is subject, except
to such extent as, individually or in the aggregate, does not have a
Material Adverse Effect, nor will such action result in any violation
of the provisions of the certificate of incorporation or bylaws or
other organizational documents of the Company, any of its subsidiaries
or CN or any statute, rule, regulation or other law, or any order or
judgment, of any court or governmental
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agency or body having jurisdiction over the Company, any of its
subsidiaries or CN or any of their properties; and no consent,
approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the
execution, delivery and performance of this Agreement and the
Indenture, the issuance and sale of the Securities or the consummation
of the transactions contemplated hereby, except such as have been, or
will be prior to the Closing Date, obtained under the 1933 Act, the
1939 Act or as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or blue sky laws in connection with the purchase
and distribution of the Securities by the Underwriters.
(vii) The Company has duly and validly authorized capital
stock as set forth in the Prospectus; all outstanding shares of Common
Stock and $2.125 Convertible Exchangeable Preferred Stock, Series A
(the "Series A Preferred Stock") of the Company conform to the
descriptions thereof in the Prospectus in all material respects and
have been duly authorized and validly issued, and are fully paid and
non-assessable. Except as disclosed in the Prospectus, there are no
outstanding subscriptions, rights, warrants, options, calls,
convertible securities, commitments of sale or rights related to or
entitling any person to purchase or otherwise to acquire any shares of,
or any security convertible into or exchangeable or exercisable for,
the capital stock of, or other ownership interest in, the Company. The
outstanding shares of capital stock of the Company's subsidiaries and
interests in CN have been duly authorized and validly issued, are fully
paid and non-assessable and are owned by the Company free and clear of
any mortgage, pledge, lien, encumbrance, charge or adverse claim and
are not the subject of any agreement or understanding with any person
and were not issued in violation of any preemptive or similar rights;
and there are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or instruments
related to or entitling any person to purchase or otherwise acquire any
shares of, or any security convertible into or exchangeable or
exercisable for, the capital stock of, or other ownership interest in
any of the Company's subsidiaries or CN.
(viii) The Securities have been duly authorized and, when
issued, authenticated by the Trustee and delivered in accordance with
this Agreement and the Indenture, will constitute valid and binding
obligations of the Company, enforceable against the Company in
accordance with their terms and entitled to the benefits provided by
the Indenture, except as may be limited by the Exceptions. The
Indenture has been duly qualified under the 1939 Act, has been
authorized and, when duly executed and delivered by the Company and the
Trustee, will constitute a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as
may be limited by the Exceptions. The Securities and the Indenture will
conform to the descriptions thereof contained in the Prospectus.
(ix) The statements set forth in the Prospectus describing the
Securities, the Indenture and this Agreement, insofar as they purport
to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair.
(x) Each of the Company, its subsidiaries and CN is in
possession of and is operating in compliance with all franchises,
grants, authorizations, licenses, certificates,
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permits, easements, consents, orders and approvals ("Permits") from all
state, federal, foreign and other regulatory authorities, and has
satisfied the requirements imposed by regulatory bodies, administrative
agencies or other governmental bodies, agencies or officials, that are
required for the Company, its subsidiaries and CN lawfully to own,
lease and operate their properties and conduct their businesses as
described in the Prospectus, and, each of the Company, its subsidiaries
and CN is conducting its business in compliance with all of the laws,
rules and regulations of each jurisdiction in which it conducts its
business, in each case with such exceptions, individually or in the
aggregate, as would not have a Material Adverse Effect; each of the
Company, its subsidiaries and CN has filed all notices, reports,
documents or other information ("Notices") required to be filed under
applicable laws, rules and regulations, in each case, with such
exceptions, individually or in the aggregate, as would not have a
Material Adverse Effect; and, except as otherwise specifically
described in the Prospectus, none of the Company, its subsidiaries or
CN has received any notification from any court or governmental body,
authority or agency, relating to the revocation or modification of any
such Permit or, to the effect that any additional authorization,
approval, order, consent, license, certificate, permit, registration or
qualification ("Approvals") from such regulatory authority is needed to
be obtained by any of them, in any case where it could be reasonably
expected that such revocation or modification or the failure to obtain
such Approvals, individually or in the aggregate, would have a Material
Adverse Effect.
(xi) The Company, its subsidiaries and CN have filed all
necessary federal, state and foreign income and franchise tax returns
and paid all taxes shown as due thereon; all such tax returns are
complete and correct in all material respects; all tax liabilities are
adequately provided for on the books of the Company, its subsidiaries
and CN except to such extent as would not have a Material Adverse
Effect; the Company, its subsidiaries and CN have timely made all
necessary payroll tax payments; and the Company, its subsidiaries and
CN have no knowledge of any tax proceeding or action pending or
threatened against the Company, its subsidiaries or CN which,
individually or in the aggregate, might have a Material Adverse Effect.
(xii) Except as described in the Prospectus, the Company, its
subsidiaries and CN own or possess, or can acquire on reasonable terms,
or are licensed or otherwise have the full exclusive right to use,
adequate patents, patent licenses, trademarks, service marks and trade
names necessary to conduct the business now operated by them, and none
of the Company, its subsidiaries or CN has received any notice of
infringement of or conflict with asserted rights of others with respect
to any patents, patent licenses, trademarks, service marks or trade
names which, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse
Effect.
(xiii) The Company, its subsidiaries and CN have good and
marketable title to all items of real property and good title to all
personal property owned by them, in each case free and clear of all
liens, encumbrances, restrictions and defects except such as are
described in the Prospectus or do not materially affect the value of
such property and do not interfere with the use made and proposed to be
made of such property; and any property held under lease or sublease by
the Company, any of its subsidiaries or CN is held under valid,
subsisting and enforceable leases or subleases with such exceptions as
are not material and
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do not interfere with the use made and proposed to be made of such
property by the Company, its subsidiaries and CN.
(xiv) Except as described in the Prospectus, there is no
factual basis for any action, suit or other proceeding involving the
Company, any of its subsidiaries or CN or any of their material assets
for any failure of the Company, any of its subsidiaries or CN, or any
predecessor thereof, to comply with any requirements of federal, state
or local regulation relating to air, water, solid waste management,
hazardous or toxic substances, or the protection of health or the
environment, which might, individually or in the aggregate, result in a
Material Adverse Effect. Except as described in the Prospectus, none of
the property owned or leased by the Company, any of its subsidiaries or
CN is, to the best knowledge of the Company, contaminated with any
waste or hazardous substances, which might, individually or in the
aggregate, result in a Material Adverse Effect, and none of the
Company, its subsidiaries or CN may be deemed an "owner or operator" of
a "facility" or "vessel" which owns, possesses, transports, generates
or disposes of a "hazardous substance" as those terms are defined in
ss.9601 of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. ss.9601 et seq.
(xv) No labor disturbance exists with the employees of the
Company, any of its subsidiaries or CN or is imminent which,
individually or in the aggregate, would have a Material Adverse Effect.
None of the employees of the Company, any of its subsidiaries or CN is
represented by a union and, to the best knowledge of the Company, its
subsidiaries and CN, no union organizing activities are taking place.
None of the Company, its subsidiaries or CN has violated any federal,
state or local law or foreign law relating to discrimination in hiring,
promotion or pay of employees, nor any applicable wage or hour laws, or
the rules and regulations thereunder, or analogous foreign laws and
regulations, which might, individually or in the aggregate, result in a
Material Adverse Effect.
(xvi) The Company, its subsidiaries and CN are in compliance
in all material respects with all presently applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations thereunder
("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the
Company, its subsidiaries or CN would have any liability; none of the
Company, its subsidiaries or CN has incurred and none expects to incur
liability under (a) Title IV of ERISA with respect to termination of,
or withdrawal from, any "pension plan" or (b) Sections 412 or 4971 of
the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"); and
each "pension plan" for which the Company, any of its subsidiaries or
CN would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects,
and nothing has occurred, whether by action or by failure to act, which
would cause the loss of such qualification.
(xvii) The Company, its subsidiaries and CN maintain insurance
of the types and in the amounts generally deemed adequate for their
businesses. None of the Company, its subsidiaries or CN has been
refused any insurance coverage sought or applied for, and the Company
has no reason to believe that it, its subsidiaries and CN will not be
able to renew
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their existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse
Effect.
(xviii) None of the Company, its subsidiaries or CN is, or
with the giving of notice or lapse of time or both would be, in default
or violation with respect to its certificate of incorporation or bylaws
or other governing documents. None of the Company, its subsidiaries or
CN is, or with the giving of notice or lapse of time or both would be,
in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or instrument
to which the Company, any of its subsidiaries or CN is a party or by
which the Company, any of its subsidiaries or CN is bound or to which
any of the properties or assets of the Company, any of its subsidiaries
or CN is subject, or in violation of any statutes, laws, ordinances or
governmental rules or regulations or any orders or decrees to which it
is subject, including, without limitation, Section 13 of the 1934 Act,
which default or violation, individually or in the aggregate, would
have a Material Adverse Effect.
(xix) Other than as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company, any of
its subsidiaries or CN is a party or of which any property of the
Company, any of its subsidiaries or CN is the subject that, if
determined adversely to the Company, any of its subsidiaries or CN,
would individually or in the aggregate have a Material Adverse Effect
or which would materially and adversely affect the consummation of the
transactions contemplated hereby or which are required to be disclosed
in the Prospectus; and, to the best of the Company's knowledge, no such
proceedings are threatened or contemplated.
(xx) The Company is not and, after giving effect to the
offering and sale of the Securities, will not be a "holding company,"
or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company," as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended
(the "1935 Act").
(xxi) The Company is not and, after giving effect to the
offering and sale of the Securities, will not be an "investment
company" or an entity "controlled" by an "investment company," as such
terms are defined in the Investment Company Act of 1940, as amended
(the "1940 Act").
(xxii) Arthur Andersen LLP, the accounting firm which has
certified the financial statements filed with or incorporated by
reference in and as a part of the Registration Statement, is an
independent public accounting firm within the meaning of the 1933 Act
and the 1933 Act Rules and Regulations. The Company, each of its
subsidiaries and CN maintain a system of internal accounting controls
sufficient to provide reasonable assurance that: (a) transactions are
executed in accordance with management's general or specific
authorizations; (b) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain
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accountability for assets; (c) access to assets is permitted only in
accordance with management's general or specific authorization; and (d)
the recorded accounts for assets are compared with the existing assets
at reasonable intervals and appropriate action is taken with respect
thereto. The consolidated financial statements and schedules of the
Company, including the notes thereto, filed with (or incorporated by
reference) and as a part of the Registration Statement or Prospectus,
present fairly the financial condition of the Company, its subsidiaries
and CN as of the respective dates thereof and the consolidated results
of operations and changes in financial position and consolidated
statements of cash flow for the respective periods covered thereby, all
in conformity with generally accepted accounting principles applied on
a consistent basis throughout the periods involved except as otherwise
disclosed therein. All adjustments necessary for a fair presentation of
results for such periods have been made. The selected financial data
included or incorporated by reference in the Registration Statement and
Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited financial
statements. Any operating or other statistical data included or
incorporated by reference in the Registration Statement and Prospectus
comply in all material respects with the 1933 Act and the 1933 Act
Rules and Regulations and present fairly the information shown therein.
(xxiii) Except as disclosed in the Prospectus, no holder of
any security of the Company has rights to require registration of any
securities of the Company because of the filing of the Registration
Statement that have not been waived. No person has the right,
contractual or otherwise, to cause the Company to permit such person to
underwrite the sale of any of the Securities. Except for this
Agreement, there are no contracts, agreements or understandings between
the Company, any of its subsidiaries or CN and any person that would
give rise to a valid claim against the Company, its subsidiaries, CN or
any Underwriter for a brokerage commission, finder's fee or like
payment in connection with the issuance, purchase and sale of the
Securities.
(xxiv) The Company has not distributed and, prior to the later
to occur of (a) the Closing Date and (b) completion of the distribution
of the Securities, will not distribute any offering material in
connection with the offering and sale of the Securities other than the
Registration Statement, the Preliminary Prospectus Supplement or the
Prospectus.
(xxv) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be
expected to cause or result in stabilization or manipulation of the
price of the Company's Common Stock, and the Company is not aware of
any such action taken or to be taken by affiliates of the Company.
(xxvi) Subsequent to the date as of which information is given
in the Prospectus, except as set forth in the Prospectus (a) none of
the Company, its subsidiaries or CN has incurred nor will it incur any
material liabilities or obligations, direct or contingent, nor has it
entered into nor will it enter into any material transactions other
than, in any case, pursuant to this Agreement and the transactions
referred to herein or in the ordinary course of business and (b) the
Company has not and will not have paid or declared any dividends or
other distributions of any kind on any class of its capital stock
(except for dividends at an annual rate of $2.125 per share with
respect to the Series A Preferred Stock).
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(xxvii) All contracts described in the Prospectus and to which
the Company, any subsidiaries or CN is a party have been duly
authorized, executed and delivered by the Company, such subsidiaries or
CN, constitute valid and binding agreements of the Company, such
subsidiaries or CN and are enforceable against the Company, such
subsidiaries or CN in accordance with the terms thereof, except as may
be limited by the Exceptions.
(xxviii) The outstanding Common Stock and the Series A
Preferred Stock of the Company are duly authorized for trading on the
New York Stock Exchange.
(xxix) The historical information underlying the estimates of
the reserves of the Company supplied by the Company to Huddleston &
Co., Inc., an independent petroleum and geological engineering firm
(the "Petroleum Engineers"), for the purposes of preparing the reserve
reports of the Company referenced in the Prospectus (the "Reserve
Reports"), including, without limitation, production volumes, sales
prices for production, contractual pricing provisions under oil or gas
sales or marketing contracts or under hedging arrangements, costs of
operations and development, and working interest and net revenue
information relating to the Company's ownership interests in
properties, was true and correct in all material respects on the date
of such Reserve Reports; the estimates of future capital expenditures
and other future exploration and development costs supplied to the
Petroleum Engineers were prepared in good faith and with a reasonable
basis; the information provided by the Petroleum Engineers for purposes
of preparing the Reserve Reports was prepared in accordance with
customary industry practices; to the best of the Company's knowledge,
the Petroleum Engineers were, as of the date of the Reserve Reports
prepared by them, and are, as of the date hereof, independent petroleum
and geological engineers with respect to the Company; other than normal
production of reserves and intervening spot market product price
fluctuations, and except as disclosed in the Registration Statement and
the Prospectus, the Company is not aware of any facts or circumstances
that would result in a materially adverse change in the reserves in the
aggregate, or the aggregate present value of future net cash flows
therefrom, as described in the Prospectus and as reflected in the
Reserve Reports; and estimates of such reserves and the present value
of the future net cash flows therefrom as described in the Prospectus
and reflected in the Reserve Reports comply in all material respects to
the applicable requirements of the 1933 Act Rules and Regulations.
(xxx) Except as described in the Prospectus, as of the date
hereof, (a) all royalties, rentals, deposits and other amounts due on
the oil and gas properties of the Company have been properly and timely
paid, and no proceeds from the sale or production attributable to the
oil and gas properties of the Company are currently being held in
suspense by any purchaser thereof, except where such amounts due could
not, singly or in the aggregate, have a Material Adverse Effect on the
Company, its subsidiaries and CN taken as a whole, and (b) there are no
claims under take-or-pay contracts pursuant to which natural gas
purchasers have any make-up rights affecting the interests of the
Company in its oil and gas properties, except where such claims could
not, singly or in the aggregate, have a Material Adverse Effect on the
Company, its subsidiaries and CN taken as a whole.
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<PAGE> 12
(b) Any certificate signed by any officer of the Company and delivered
to the Underwriters or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to each Underwriter as to the matters
covered thereby.
5. COVENANTS. The Company covenants and agrees with the Underwriters
that:
(a) The Company will timely transmit copies of the Prospectus, and any
amendments or supplements thereto, as applicable, to the SEC for filing pursuant
to Rule 424(b) of the 1933 Act Rules and Regulations.
(b) The Company will deliver to each of the Underwriters, and to
counsel for the Underwriters (i) one signed and two conformed copies of the
Registration Statement as originally filed, including copies of exhibits thereto
(other than any exhibits incorporated by reference therein), and any amendments
and supplements to the Registration Statement (including all documents
incorporated by reference therein) and (ii) a signed copy of each consent and
certificate included or incorporated by reference in, or filed as an exhibit to,
the Registration Statement as so amended or supplemented; the Company will
deliver to the Underwriters as soon as practicable after the date of this
Agreement as many copies of the Prospectus (including all documents incorporated
by reference therein) as the Underwriters may reasonably request for the
purposes contemplated by the 1933 Act; the Company will promptly advise the
Underwriters of any request of the SEC for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional information,
and of the issuance by the SEC or any state or other jurisdiction or other
regulatory body of any stop order under the 1933 Act or other order suspending
the effectiveness of the Registration Statement (as amended or supplemented) or
preventing or suspending the use of any Preliminary Prospectus Supplement or the
Prospectus or suspending the qualification or registration of the Securities for
offering or sale in any jurisdiction, and of the institution or threat of any
proceedings therefor, of which the Company shall have received notice or
otherwise have knowledge prior to the completion of the distribution of the
Securities; and the Company will use its best efforts to prevent the issuance of
any such stop order or other order and, if issued, to secure the prompt removal
thereof.
(c) The Company will not file any amendment or supplement to the
Registration Statement or the Prospectus and will not file any document under
the 1934 Act before the termination of the offering of the Securities by the
Underwriters if the document would be deemed to be incorporated by reference
into the Registration Statement or the Prospectus, of which the Underwriters
shall not previously have been advised and furnished with a copy or to which the
Underwriters shall have reasonably objected or which is not in compliance with
the 1933 Act Rules and Regulations; and the Company will promptly notify the
Underwriters after it shall have received notice thereof of the time when any
amendment to the Registration Statement becomes effective or when any supplement
to the Prospectus has been filed.
(d) During the period when a prospectus relating to any of the
Securities is required to be delivered under the 1933 Act by any Underwriter or
dealer, the Company will comply, at its own expense, with all requirements
imposed by the 1933 Act and the 1933 Act Rules and Regulations, as now and
hereafter amended, and by the rules and regulations of the SEC thereunder, as
from time to time in force, so far as necessary to permit the continuance of
sales of or dealing in the Securities during such period in accordance with the
provisions hereof and as contemplated by the Prospectus.
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<PAGE> 13
(e) If, during the period when a prospectus relating to any of the
Securities is required to be delivered under the 1933 Act by any Underwriter or
dealer, (i) any event relating to or affecting the Company or of which the
Company shall be advised in writing by the Underwriters shall occur as a result
of which, in the opinion of the Company or the Underwriters, the Prospectus as
then amended or supplemented would include any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading or (ii) it shall be necessary to amend or supplement the Registration
Statement or the Prospectus to comply with the 1933 Act, the 1933 Act Rules and
Regulations, the 1934 Act or the 1934 Act Rules and Regulations, the Company
will forthwith at its expense prepare and file with the SEC, and furnish to the
Underwriters a reasonable number of copies of, such amendment or supplement or
other filing that will correct such statement or omission or effect such
compliance.
(f) During the period when a prospectus relating to any of the
Securities is required to be delivered under the 1933 Act by any Underwriter or
dealer, the Company will furnish such proper information as may be lawfully
required and otherwise cooperate in qualifying the Securities for offer and sale
under the securities or blue sky laws of such jurisdictions as the Underwriters
may reasonably designate and will file and make in each year such statements or
reports as are or may be reasonably required by the laws of such jurisdictions;
provided, however, that the Company shall not be required to qualify as a
foreign corporation or to qualify as a dealer in securities or to file a general
consent to service of process under the laws of any jurisdiction.
(g) As soon as practicable, but not later than 16 months, after the
date of this Agreement, the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12 months
beginning after the latest of (i) the effective date of the Registration
Statement, (ii) the effective date of the most recent post-effective amendment
to the Registration Statement to become effective prior to the date of this
Agreement and (iii) the date of the Company's most recent Annual Report on Form
10-K filed with the Commission prior to the date of this Agreement, which will
satisfy the provisions of Section 11(a) of the Act (including, at the option of
the Company, in accordance with Rule 158).
(h) During the period when a prospectus relating to any of the
Securities is required to be delivered under the 1933 Act by any Underwriter or
dealer, the Company will file promptly all documents required to be filed with
the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act. The
Company will furnish to its security holders annual reports containing financial
statements audited by independent public accountants and quarterly reports
containing financial statements and financial information which may be
unaudited. The Company will, so long as any Securities are outstanding, deliver
to the Underwriters at their principal executive offices a reasonable number of
copies of annual reports, quarterly reports, current reports and copies of all
other documents, reports and information furnished by the Company to its
shareholders or filed with any securities exchange or market pursuant to the
requirements of such exchange or market or with the SEC pursuant to the 1933 Act
or the 1934 Act. The Company will deliver to the Underwriters similar reports
with respect to any significant subsidiaries, as that term is defined in the
1933 Act Rules and Regulations, which are not consolidated in the Company's
financial statements. Any
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<PAGE> 14
report, document or other information required to be furnished under this
paragraph (h) shall be furnished as soon as practicable after such report,
document or information becomes available.
(i) During the period beginning from the date of this Agreement and
continuing to 30 days after the Closing Date, the Company will not, without the
prior written consent of the Underwriters, offer for sale, sell or enter into
any agreement to sell, or otherwise dispose of, any debt securities of the
Company, other than the Securities.
(j) The Company will apply the proceeds from the sale of the Securities
as set forth in the description under "Use of Proceeds" in the Prospectus.
(k) The Company will promptly provide the Underwriters with copies of
all correspondence to and from, and all documents issued to and by, the SEC in
connection with the registration of the Securities under the 1933 Act or
relating to any documents incorporated by reference into the Registration
Statement or the Prospectus.
(l) Prior to the Closing Date (and, if applicable, the Option Closing
Date), the Company will furnish to the Underwriters, as soon as they have been
prepared, copies of any unaudited interim consolidated financial statements of
the Company and its subsidiaries for any periods subsequent to the periods
covered by the financial statements appearing in the Registration Statement and
the Prospectus.
(m) Prior to the Closing Date (and, if applicable, the Option Closing
Date), the Company will not issue any press releases or other communications
directly or indirectly and will hold no press conferences with respect to the
Company, any of its subsidiaries or CN, the financial condition, results of
operations, business, properties, assets or liabilities of the Company, any of
its subsidiaries or CN, or the offering of the Securities, without the prior
written consent of the Underwriters.
(n) The Company will use its best efforts to obtain approval for, and
maintain the listing of, the Securities on the New York Stock Exchange.
(o) The Company, its subsidiaries and CN will maintain and keep
accurate books and records reflecting their assets and maintain internal
accounting controls which provide reasonable assurance that (i) transactions are
executed in accordance with management's authorization, (ii) transactions are
recorded as necessary to permit the preparation of the Company's consolidated
financial statements and to maintain accountability for the assets of the
Company, its subsidiaries and CN, (iii) access to the assets of the Company, its
subsidiaries and CN is permitted only in accordance with management's
authorization, and (iv) the recorded accounts of the assets of the Company, its
subsidiaries and CN are compared with existing assets at reasonable intervals.
(p) If the Company elects to rely on Rule 462(b) under the 1933 Act,
the Company shall both file an Abbreviated Registration Statement with the SEC
in compliance with Rule 462(b) and pay the applicable fees in accordance with
Rule 111 of the 1933 Act by the earlier of (i) 10:00 p.m., New York time, on the
date of this Agreement, and (ii) the time that confirmations are given or sent,
as specified by Rule 462(b)(2).
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<PAGE> 15
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of
the Underwriters to purchase and pay for the Securities, as provided herein,
shall be subject to the accuracy, as of the date hereof and as of the Closing
Date (and, if applicable, the Option Closing Date), of the representations and
warranties of the Company contained herein, to the performance by the Company of
its covenants and obligations hereunder, and to the following additional
conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement, as amended from time to time, shall have been issued and no
proceeding for that purpose shall have been initiated or, to the knowledge of
the Company or any Underwriter, threatened or contemplated by the SEC, and any
request of the SEC for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the reasonable satisfaction of the Underwriters.
(b) No Underwriter shall have advised the Company on or prior to the
Closing Date (and, if applicable, the Option Closing Date) that the Registration
Statement or Prospectus or any amendment or supplement thereto contains an
untrue statement of fact which, in the opinion of counsel to the Underwriters,
is material, or omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(c) On the Closing Date (and, if applicable, the Option Closing Date),
the Underwriters shall have received the opinion of Haynes and Boone, LLP,
counsel for the Company, addressed to the Underwriters and dated the Closing
Date, to the effect that:
(i) The Registration Statement and all post-effective
amendments thereto and the Abbreviated Registration Statement, if any,
have become effective under the 1933 Act; any required filing of the
Prospectus or any supplement thereto pursuant to Rule 424(b) or
otherwise has been made in the manner and within the time period
required thereby; and, to the knowledge of such counsel after due
inquiry, no stop or other order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the
1933 Act or under the securities laws of any jurisdiction.
(ii) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (including any document incorporated by
reference into the Prospectus), as of their respective effective or
issue date, comply as to form and appear on their face to be
appropriately responsive in all material respects to the requirements
of Form S-3 under the 1933 Act and the applicable 1933 Act Rules and
Regulations (except that such counsel need express no opinion as to the
Form T-1, the financial statements, the schedules, reserve information
and other financial and statistical data included in the Registration
Statement or in the Prospectus or in any document incorporated by
reference therein) the conditions for use of Form S-3 have been
satisfied; and, as of the date they were filed with the SEC, the
documents incorporated by reference in the Registration Statement
appear on their face to comply as to form and be appropriately
responsive in all material respects with the requirements of the 1934
Act and the applicable 1934 Act Rules and Regulations (except that
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<PAGE> 16
such counsel need express no opinion as to the Form T-1, financial
statements, the schedules, reserve information and other financial and
statistical data included in such documents).
(iii) To the extent summarized therein, all contracts and
agreements summarized in the Registration Statement and the Prospectus
are fairly summarized therein, conform in all material respects to the
descriptions thereof contained therein, and, to the extent such
contracts or agreements or any other material agreements are required
under the 1933 Act, or the 1933 Act Rules and Regulations, to be filed,
as exhibits to the Registration Statement, they are so filed; and such
counsel does not know of any contracts or other documents required to
be summarized or disclosed in the Prospectus or to be so filed as
exhibits to the Registration Statement that have not been so
summarized, disclosed or so filed.
(iv) This Agreement has been duly authorized, executed and
delivered by the Company.
(v) The Company and its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of the states or other jurisdictions in which they are
incorporated. CN is the only partnership of which the Company or any of
its subsidiaries is a general partner or owns fifty percent or more of
the partnership interests. CN is a general partnership duly organized
under the laws of the State of Texas, and the Company owns all of the
partnership interests in CN. Each of the Company, its subsidiaries and
CN has full corporate power and authority to own, lease and operate
their properties and conduct their businesses as described in the
Prospectus and, with respect to the Company, to execute and deliver,
and perform the Company's obligations under, this Agreement and the
Indenture; each of the Company, its subsidiaries and CN is duly
qualified to do business as a foreign corporation or partnership in
good standing in each state or other jurisdiction in which their
ownership or leasing of property or conduct of business legally
requires such qualification, except where the failure to be so
qualified, individually or in the aggregate, would not have a Material
Adverse Effect.
(vi) The Company is the sole record owner, directly or
indirectly, of all of the outstanding capital stock of each of its
subsidiaries.
(vii) The issuance and sale of the Securities and the
execution, delivery and performance by the Company of this Agreement
and the Indenture, and the consummation of the transactions
contemplated herein and therein, will not conflict with or constitute a
breach or violation of any of the terms or provisions of, or constitute
a default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the Company, any
of its subsidiaries or CN under any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument known to such counsel
after due inquiry to which the Company, any of its subsidiaries or CN
is a party or by which the Company, any of its subsidiaries or CN is
bound or to which any of the properties or assets of the Company, any
of its subsidiaries or CN is subject, except to such extent as,
individually or in the aggregate, would not have a Material Adverse
Effect, nor will such action result in any violation of the provisions
of the certificate of incorporation or bylaws or other organizational
documents of the Company, any of its subsidiaries or CN or any
16
<PAGE> 17
statute, rule, regulation or other law, or any order or judgment known
to such counsel after due inquiry, of any court or governmental agency
or body having jurisdiction over the Company, any of its subsidiaries
or CN or any of their properties.
(viii) No consent, approval, authorization, order,
registration or qualification of or with any court or governmental
agency or body is required in connection with the execution, delivery
and performance of this Agreement, and the issuance and sale of the
Securities or the consummation of the transactions contemplated hereby,
except such as may be required under the 1933 Act, the 1933 Act Rules
and Regulations or the 1939 Act and have been obtained, or as may be
required by the NASD or under state securities or blue sky laws in
connection with the purchase and distribution of the Securities by the
Underwriters.
(ix) To the knowledge of such counsel after due inquiry and
other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company, any of its
subsidiaries or CN is a party or of which any property of the Company,
any of its subsidiaries or CN is the subject that, if determined
adversely to the Company, any of its subsidiaries or CN, would
individually or in the aggregate have a material adverse effect on the
current or future consolidated financial position, stockholders' equity
or results of operations of the Company, its subsidiaries and CN taken
as a whole; and, to the knowledge of such counsel after due inquiry, no
such proceedings are threatened or contemplated by governmental
authorities or threatened by others.
(x) The Company has duly and validly authorized capital stock
as set forth under the caption "Capitalization" in the Prospectus; all
outstanding shares of Common Stock and Series A Preferred Stock of the
Company conform as to legal matters to the description thereof in the
Prospectus and have been duly authorized and validly issued, and are
fully paid and non-assessable. The Securities have been duly authorized
and, when issued, authenticated by the Trustee and delivered and paid
for in accordance with this Agreement and the Indenture, will
constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms and entitled to the
benefits of the Indenture, except as may be limited by the Exceptions.
The Securities are duly authorized for trading, subject to official
notice of issuance, on the New York Stock Exchange. The form of global
certificate representing the Securities filed as an exhibit to the
Registration Statement is in valid and sufficient form.
(xi) The Indenture has been duly authorized, executed and
delivered by the Company and constitutes a valid and legally binding
instrument of the Company enforceable against the Company in accordance
with its terms, except as may be limited by the Exceptions; the
Indenture and the Securities conform to the descriptions thereof in the
Prospectus; and the Indenture has been duly qualified under the 1939
Act.
(xii) The statements made in the Prospectus under the captions
"Risk Factors," "Business and Properties," "Description of the Notes,"
"Description of Bank Credit Facility and Other Indebtedness,"
"Description of Capital Stock" and Item 15 of Part II of the
Registration Statement, and in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999 under Item 11, "Executive
Compensation" and Item 13, "Certain
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<PAGE> 18
Relationships and Related Transactions," to the extent that they
constitute summaries of documents referred to therein or matters of law
or legal conclusions, have been reviewed by such counsel and are
accurate summaries and fairly present the information disclosed
therein.
(xiii) The Company is not and, after giving effect to the
offering and sale of the Securities, will not be a "holding company,"
or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company," as such terms are
defined in the 1935 Act.
(xiv) The Company is not and, after giving effect to the
offering and sale of the Securities, will not be an "investment
company" or an entity "controlled" by an "investment company," as such
terms are defined in the 1940 Act.
(xv) To the knowledge of such counsel after due inquiry and
except as disclosed in the Prospectus, no holder of any security of the
Company has any right to require registration of shares of Common Stock
or any other security of the Company because of the filing of the
Registration Statement or the consummation of the transactions
contemplated hereby that have not been waived and, except as disclosed
in the Prospectus or incorporated by reference therein, no person has
the right to require registration under the 1933 Act of any shares of
Common Stock or other securities of the Company.
Such counsel shall confirm that during the preparation of the
Registration Statement and Prospectus, such counsel participated in conferences
with the Underwriters and their counsel and with officers and representatives of
the Company and its independent accountants, at which conferences the contents
of the Registration Statement and the Prospectus (including all documents filed
under the 1934 Act and deemed incorporated by reference therein) were discussed,
reviewed and revised. On the basis of the information which was developed in the
course thereof, considered in light of such counsel's understanding of
applicable law and the experience gained by such counsel through their practice
thereunder, without such counsel assuming responsibility for the accuracy and
completeness of such statements except to the extent expressly provided above,
such counsel shall confirm that nothing came to their attention that would lead
them to believe that either the Registration Statement (including any document
filed under the 1934 Act and deemed incorporated by reference therein), as of
its effective date and as of the date of filing of the Annual Report on Form
10-K, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or the Prospectus or any amendment or supplement thereto
(including any document filed under the 1934 Act and deemed incorporated by
reference therein) as of its respective issue date and as of the Closing Date,
contained or contains any untrue statement of a material fact or omitted or
omits to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading. Such
counsel may state that they are not giving advice as to the Form T-1, the
financial statements, the schedules, reserve information and other financial and
statistical data included in the Registration Statement or in the Prospectus or
in any document incorporated by reference therein.
In rendering the foregoing opinion, such counsel may rely, (1) as to
matters involving laws of any jurisdiction other than Texas, Delaware, New York
or the United States, upon opinions
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<PAGE> 19
addressed to the Underwriters or other counsel satisfactory to them and Vinson &
Elkins L.L.P., and (2) as to all matters of fact, upon certificates and written
statements of the executive officers of, and accountants for, the Company,
provided, in either case, that such counsel shall state in their opinion that
they and the Underwriters are justified in relying thereon.
(d) The Underwriters shall have received on the Closing Date (and, if
applicable, the Option Closing Date) from Vinson & Elkins L.L.P., counsel to the
Underwriters, an opinion, dated the Closing Date, with respect to such matters
as the Underwriters may reasonably require; and the Company shall have furnished
to such counsel such documents as they reasonably request for the purposes of
enabling them to review or pass on the matters referred to in this Section 6 and
in order to evidence the accuracy, completeness and satisfaction of the
representations, warranties and conditions herein contained.
(e) On the date of this Agreement and on the Closing Date (and, if
applicable, the Option Closing Date), the Underwriters shall have received from
Arthur Andersen LLP, a letter or letters, dated the date of this Agreement and
the Closing Date (and, if applicable, the Option Closing Date), respectively, in
form and substance satisfactory to the Underwriters, confirming that they are
independent public accountants with respect to the Company within the meaning of
the 1933 Act and the published Rules and Regulations, to the effect set forth in
Schedule II hereto.
(f) Except as contemplated in the Prospectus, (i) none of the Company,
its subsidiaries or CN shall have sustained since the date of the latest audited
financial statements included or incorporated by reference in the Prospectus any
loss or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree; and (ii) subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, none of the Company, its subsidiaries or CN shall have
incurred any liability or obligation, direct or contingent, or entered into any
transactions, and there shall not have been any change in the capitalization or
material increase in the short-term or long-term debt of the Company, its
subsidiaries or CN or any change, or any development involving or which might
reasonably be expected to involve a prospective change in the condition
(financial or other), net worth, business, affairs, management, prospects,
results of operations or cash flow of the Company, its subsidiaries or CN, the
effect of which, in any such case described in clause (i) or (ii), is in the
Underwriters' judgment so material or adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Securities being delivered on such Closing Date (and, if applicable, the Option
Closing Date) on the terms and in the manner contemplated in the Prospectus.
(g) No "nationally recognized statistical rating organization," as that
term is defined by the SEC for purposes of Rule 436(g)(2) under the 1933 Act,
has informed the Company that it is contemplating rating any of the Company's
debt securities, including the Securities.
(h) There shall not have occurred any of the following: (i) a
suspension or material limitation in trading in securities generally on the New
York Stock Exchange or the American Stock Exchange or The Nasdaq National Market
or the establishing on such exchanges or market by the SEC or by such exchanges
or markets of minimum or maximum prices which are not in force and effect on the
date hereof; (ii) a suspension or material limitation in trading in the
Company's
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<PAGE> 20
securities on the New York Stock Exchange or the establishing on such exchange
by the SEC or by such exchange of minimum or maximum prices which are not in
force and effect on the date hereof; (iii) a general moratorium on commercial
banking activities declared by either federal or any state authorities; (iv) the
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, which in the
Underwriters' judgment makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Securities in the manner contemplated in
the Prospectus; or (v) any calamity or crisis, change in national, international
or world affairs, act of God, change in the international or domestic markets,
or change in the existing financial, political or economic conditions in the
United States or elsewhere, which in the Underwriters' judgment makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Securities in the manner contemplated in the Prospectus.
(i) The Underwriters shall have received a certificate, dated the
Closing Date (and, if applicable, the Option Closing Date) and signed by the
President and the Chief Financial Officer of the Company, in their capacities as
such, stating that:
(i) the condition set forth in Section 6(a) has been fully
satisfied;
(ii) they have carefully examined the Registration Statement
and the Prospectus as amended or supplemented and all documents
incorporated by reference therein and nothing has come to their
attention that would lead them to believe that (A) the Registration
Statement or any amendment or supplement thereto or any documents
incorporated by reference therein as of their respective effective,
issue or filing dates, contained any untrue statement of a material
fact, or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein not misleading or
(B) the Prospectus as amended or supplemented when read together with
the documents incorporated by reference therein, as of its issue date
or as of its issue date or the Closing Date, contained or contains any
untrue statement of material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(iii) since the date of the Prospectus, there has occurred no
event required to be set forth in an amendment or supplement to the
Registration Statement or the Prospectus which has not been so set
forth and there has been no document required to be filed under the
1934 Act and the 1934 Act Rules and Regulations that upon such filing
would be deemed to be incorporated by reference into the Prospectus
that has not been so filed;
(iv) all representations and warranties made herein by the
Company are true and correct at such Closing Date, with the same effect
as if made on and as of such Closing Date, and all agreements herein to
be performed or complied with by the Company, and all conditions to be
satisfied by the Company on or prior to such Closing Date have been
duly performed and complied with and satisfied by the Company;
(v) except as disclosed in the Prospectus, none of the
Company, its subsidiaries or CN has sustained since the respective
dates as of which information is given in the Registration Statement
and the Prospectus, any material loss or interference with its business
20
<PAGE> 21
from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental
action, order or decree;
(vi) except as disclosed in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, none of the Company, its subsidiaries or
CN has incurred any liabilities or obligations, direct or contingent,
other than in the ordinary course of business, or entered into any
transactions not in the ordinary course of business, which in either
case are material to the Company, such subsidiary or CN; and there has
not been any change in the capitalization or material increase in the
short-term debt or long-term debt of the Company, any of its
subsidiaries or CN or any material adverse change or any development
involving or which may reasonably be expected to involve a prospective
material adverse change, in the condition (financial or other), net
worth, business, affairs, management, prospects, results of operations
or cash flow of the Company, its subsidiaries and CN, taken as a whole;
and there has been no dividend or distribution of any kind, paid or
made by the Company on any class of its capital stock (except for
dividends at an annual rate of $2.125 per share with respect to the
Series A Preferred Stock); and
(j) The Company shall have furnished to the Underwriters at the Closing
Date such further information, opinions, certificates, letters and documents as
the Underwriters may have reasonably requested.
(k) The Securities shall have been approved for trading upon official
notice of issuance on the New York Stock Exchange.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to the Underwriters and to Vinson & Elkins L.L.P., counsel for the
Underwriters. The Company will furnish the Underwriters with such signed and
conformed copies of such opinions, certificates, letters and documents as the
Underwriters may request.
If any of the conditions specified above in this Section 6 shall not
have been satisfied at or prior to the Closing Date (and, if applicable, the
Option Closing Date) or waived by the Underwriters in writing, this Agreement
may be terminated by the Underwriters on notice to the Company.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company will indemnify and
hold harmless each Underwriter for and against any losses, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the 1933 Act or otherwise, insofar as such losses, damages or liabilities
(or actions or claims in respect thereof) arise out of or are based upon (i) an
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading or (ii) an untrue statement or alleged untrue statement of a
material fact contained in the Preliminary Prospectus Supplement or the
Prospectus, or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in light of the circumstances under which they were made,
21
<PAGE> 22
not misleading, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating, preparing, pursuing or defending against or appearing as a third
party witness in connection with any such loss, damage, liability or action or
claim, including, without limitation, any investigation or proceeding by any
governmental agency or body, commenced or threatened, including the reasonable
fees and expenses of counsel to the indemnified party, as such expenses are
incurred (including such losses, damages, liabilities or expenses to the extent
of the aggregate amount paid in settlement of any such action or claim, provided
that (subject to Section 7(c) hereof) any such settlement is effected with the
written consent of the Company); provided, however, that the Company shall not
be liable in any such case to the extent that any such loss, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Preliminary Prospectus Supplement,
the Registration Statement, the Prospectus, or any amendment or supplement, in
reliance upon and in conformity with written information relating to the
Underwriters furnished to the Company by the Underwriters, expressly for use in
the preparation thereof (as provided in Section 12 hereof).
(b) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company for and against any losses, damages or liabilities to
which the Company may become subject, under the 1933 Act or otherwise, insofar
as such losses, damages or liabilities (or actions or claims in respect thereof)
arise out of or are based upon (i) an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment or supplement thereto, or arise out of are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading or (ii) an untrue
statement or alleged untrue statement of a material fact contained in the
Preliminary Prospectus Supplement or the Prospectus, or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Preliminary Prospectus
Supplement, the Registration Statement, the Prospectus, or any amendment or
supplement, in reliance upon and in conformity with written information relating
to the Underwriters furnished to the Company by the Underwriters, expressly for
use in the preparation thereof (as provided in Section 12 hereof), and will
reimburse the Company for any legal or other expenses incurred by the Company in
connection with investigating, preparing, pursuing or defending against any such
loss, damage, liability or action or claim, including, without limitation, any
investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of counsel to the
indemnified party, as such expenses are incurred (including such losses,
damages, liabilities or expenses to the extent of the aggregate amount paid in
settlement of any such action or claim, provided that (subject to Section 7(c)
hereof) any such settlement is effected with the written consent of the
Underwriters).
(c) Promptly after receipt by an indemnified party under Section 7(a)
or 7(b) hereof of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party under Section 7(a) or 7(b) hereof, notify each such indemnifying party in
writing of the commencement thereof, but the failure so to notify such
indemnifying party shall not relieve such indemnifying party from any liability
except to the extent that it has been prejudiced in any material respect by such
failure or from any liability that it may
22
<PAGE> 23
have to any such indemnified party otherwise than under Section 7(a) or 7(b)
hereof. In case any such action shall be brought against any such indemnified
party and it shall notify each indemnifying party of the commencement thereof,
each such indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, jointly with any other indemnifying party under
Section 7(a) or 7(b) hereof similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party (who shall not, except with
the consent of such indemnified party, be counsel to such indemnifying party),
and, after notice from such indemnifying party to such indemnified party of its
election so to assume the defense thereof, such indemnifying party shall not be
liable to such indemnified party under Section 7(a) or 7(b) hereof for any legal
expenses of other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation. The indemnified party shall have the
right to employ its own counsel in any such action, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
employment of counsel by such indemnified party at the expense of the
indemnifying party has been authorized by the indemnifying party, (ii) the
indemnified party shall have been advised by such counsel that there may be a
conflict of interest between the indemnifying party and the indemnified party in
the conduct of the defense, or certain aspects of the defense, of such action
(in which case the indemnifying party shall not have the right to direct the
defense of such action with respect to those matters or aspects of the defense
on which a conflict exists or may exist on behalf of the indemnified party) or
(iii) the indemnifying party shall not in fact have employed counsel reasonably
satisfactory to such indemnified party to assume the defense of such action, in
any of which events such fees and expenses to the extent applicable shall be
borne, and shall be paid as incurred, by the indemnifying party. If at any time
such indemnified party shall have requested such indemnifying party under
Section 7(a) or 7(b) hereof to reimburse such indemnified party for fees and
expenses of counsel, such indemnifying party agrees that it shall be liable for
any settlement of the nature contemplated by Section 7(a) or 7(b) hereof
effected without its written consent if (i) such settlement is entered into more
than 45 days after receipt by such indemnifying party of such request for
reimbursement, (ii) such indemnifying party shall have received notice of the
terms of such settlement at least 30 days prior to such settlement being entered
into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request for reimbursement prior to the
date of such settlement. No such indemnifying party shall, without the written
consent of such indemnified party, effect the settlement or compromise of, or
consent to the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not such indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (A) includes an unconditional release of such indemnified party from
all liability arising out of such action or claim and (B) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any such indemnified party. In no event shall such indemnifying
parties be liable for the fees and expenses of more than one counsel, including
any local counsel, for all such indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances.
(d) If the indemnification provided for in this Section 7 is
unavailable to or insufficient to indemnify or hold harmless an indemnified
party under Section 7(a) or 7(b) hereof in respect of any losses, damages or
liabilities (or actions or claims in respect thereof) referred to therein, then
each indemnifying party under Section 7(a) or 7(b) hereof shall contribute to
the amount paid or
23
<PAGE> 24
payable by such indemnified party as a result of such losses, damages or
liabilities (or actions or claims in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company, on the one
hand, and the Underwriters, on the other hand, from the offering of the
Securities. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the indemnified party failed
to give the notice required under Section 7(c) hereof and such indemnifying
party was prejudiced in a material respect by such failure, then each such
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault, as applicable, of the Company, on
the one hand, and the Underwriters, on the other hand, in connection with the
statements or omissions that resulted in such losses, damages or liabilities (or
actions or claims in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by, as applicable, the Company,
on the one hand, and the Underwriters, on the other hand, shall be deemed to be
in the same proportion as the total net proceeds from such offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault, as
applicable, of the Company, on the one hand, and the Underwriters, on the other
hand, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company, on the one hand, or the Underwriters, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 7(d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to above in this Section 7(d). The amount paid or payable by such an indemnified
party as a result of the losses, damages or liabilities (or actions or claims in
respect thereof) referred to above in this Section 7(d) shall be deemed to
include any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7(d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The obligations of the Underwriters in this
Section 7(d) to contribute are several in proportion to their respective
underwriting obligations with respect to the Securities and not joint.
(e) The obligations of the Company under this Section 7 shall be in
addition to any liability that the Company may otherwise have and shall extend,
upon the same terms and conditions, to each officer, director, employee, agent
or other representative and to each person, if any, who controls any Underwriter
within the meaning of the 1933 Act; and the obligations of the Underwriters
under this Section 7 shall be in addition to any liability that the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company who signed the
Registration Statement and to each person, if any, who controls the Company
within the meaning of the 1933 Act.
24
<PAGE> 25
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. The respective
representations, warranties, agreements and statements of the Company and the
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain operative and in full
force and effect regardless of any investigation (or any statement as to the
results thereof) made by or on behalf of any Underwriter, any officer, director,
employee, agent or other representative or any controlling person of any
Underwriter, or the Company, any officer or director of the Company who signed
the Registration Statement or any controlling person of the Company, and shall
survive delivery of and payment for the Securities.
9. TERMINATION. (a) This Agreement may be terminated by the
Underwriters at any time at or prior to the Closing Date by notice to the
Company if any condition specified in Section 6 hereof shall not have been
satisfied on or prior to the Closing Date. Any such termination shall be without
liability of any party to any other party except as provided in Sections 7 and
10 hereof.
(b) This Agreement also may be terminated by the Underwriters, by
notice to the Company, as to any obligation of the Underwriters to purchase the
Option Securities, if any condition specified in Section 6 hereof shall not have
been satisfied at or prior to the Option Closing Date.
If the Underwriters terminate this Agreement as provided in Sections
9(a) or 9(b), the Underwriters shall notify the Company by telephone or
telegram, confirmed by letter.
10. COSTS AND EXPENSES. The Company, whether or not the transactions
contemplated hereby are consummated or this Agreement is terminated, will bear
and pay the costs and expenses incident to the registration of the Securities
and public offering thereof, including, without limitation, (a) the filing fees
of the SEC and the fees and expenses of the Company's counsel and accountants,
(b) all expenses incurred in connection with the preparation, printing, filing,
delivery and shipping of the Registration Statement, the Preliminary Prospectus
Supplement, the Prospectus and any amendments or supplements thereto and the
printing, delivery and shipping of this Agreement and other underwriting
documents, (c) the furnishing of copies of such documents to the Underwriters,
(d) all expenses incurred in connection with the registration or qualification
of the Securities for offering and sale under the securities laws of the various
states and other jurisdictions, including the fees and disbursements of counsel
to the Underwriters relating to such registration or qualification, (e) the
filing fees of the NASD and fees and disbursements of counsel to the
Underwriters relating to any review of the offering by the NASD, (f) the cost of
the preparation, issuance and delivery of the Securities to the Underwriters,
including any charges of DTC in connection therewith, (g) all fees and expenses
relating to the authorization of the Securities for trading on the New York
Stock Exchange, (h) all travel expenses, including air fare and accommodation
expenses, of representatives of the Company in connection with the offering of
the Securities, (i) the fees and disbursements of the Trustee and any agent of
the Trustee and the fees and disbursements of their counsel incurred in
connection with the Indenture and the Securities, and (j) all of the other costs
and expenses incident to the performance by the Company of the registration and
offering of the Securities.
If this Agreement is terminated by the Underwriters in accordance with
the provisions of Section 9, the Company shall reimburse the Underwriters for
all of their out-of-pocket expenses, including the fees and disbursements of
counsel to the Underwriters.
25
<PAGE> 26
11. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to the
Underwriters shall be mailed, delivered, sent by facsimile transmission, or
telegraphed and confirmed c/o Morgan Keegan & Company, Inc. at 50 N. Front
Street, Memphis, Tennessee 38103, Attention: David Howard, facsimile number
(901) 579-4355, or if sent to the Company shall be mailed, delivered, sent by
facsimile transmission, or telegraphed and confirmed to the Company at 200 North
Canal Street, Natchez, Mississippi 39120, facsimile number (601) 445-8874.
12. INFORMATION FURNISHED BY UNDERWRITERS. The statements set forth in
the penultimate paragraph of the cover page of the Prospectus and the statements
in the table and the second, fourth, fifth and sixth paragraphs under the
caption "Underwriting" in the Prospectus constitute the only information
furnished by or on behalf of the Underwriters as such information is referred to
in Section 4(a)(ii) and Section 7 hereof.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the Underwriters, the Company and, to the extent provided in
Sections 7 and 8, the officers and directors of the Company and each person who
controls the Company or any Underwriter and their respective heirs, executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, corporation or
other entity any legal or equitable right, remedy or claim under or in respect
of this Agreement or any provision herein contained; this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective successors and
assigns and said controlling persons and said officers and directors, and for
the benefit of no other person, corporation or other entity. No purchaser of any
of the Securities from any Underwriter shall be construed a successor or assign
by reason merely of such purchase.
14. COUNTERPARTS. This Agreement may be executed by any one or more of
the parties hereto in any number of counterparts, each of which shall be deemed
to be an original, but all such counterparts shall together constitute one and
the same instrument.
15. PRONOUNS. Whenever a pronoun of any gender or number is used
herein, it shall, where appropriate, be deemed to include any other gender and
number.
16. TIME OF ESSENCE. Time shall be of the essence of this Agreement.
17. APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without giving effect to
the choice of law or conflict of laws principles thereof.
26
<PAGE> 27
If the foregoing is in accordance with the understanding of the
Underwriters, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between the Company
and the Underwriters.
CALLON PETROLEUM COMPANY
By: /s/ John S. Weatherly
-----------------------------------
Name: John S. Weatherly
---------------------------------
Title: Senior Vice President and CFO
--------------------------------
Accepted as of the date hereof.
MORGAN KEEGAN & COMPANY, INC.
A.G. EDWARDS & SONS, INC.
By: MORGAN KEEGAN & COMPANY, INC.
By: /s/ David Howard
-------------------------------
Name: David Howard
-----------------------------
Title: Senior Vice President
----------------------------
27
<PAGE> 28
SCHEDULE I
<TABLE>
<CAPTION>
Principal Amount of Firm
Name Notes
---- ------------------------
<S> <C>
Morgan Keegan & Company, Inc. ............... $ 24,500,000
A.G. Edwards & Sons, Inc. ................... $ 7,500,000
------------
Total .............................. $ 32,000,000
============
</TABLE>
I-1
<PAGE> 29
SCHEDULE II
Pursuant to Section 6(e) of the Underwriting Agreement, Arthur Andersen
LLP shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the 1933 Act and the
applicable Rules and Regulations thereunder.
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules audited (and, if applicable, prospective
financial statements and/or pro forma financial information examined) by them
and included or incorporated by reference in the Prospectus or the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the applicable Rules and Regulations
with respect to registration statements on Form S-3; and they have made a review
in accordance with standards established by the American Institute of Certified
Public Accountants of the unaudited consolidated interim financial statements,
selected financial data, [pro forma financial information], [prospective
financial statements] and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such letter, as
indicated in their reports thereon, copies of which have been furnished to the
Underwriters.
(iii) On the basis of limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a reading
of the unaudited financial statements and other information referred to below,
performing the procedures specified by the AICPA for a review of interim
financial information as discussed in SAS No. 71, Interim Financial Information,
on the latest available interim financial statements of the Company and its
subsidiaries, inspection of the minute books of the Company and its subsidiaries
since the date of the latest audited financial statements included in the
Prospectus, inquiries of officials of the Company and its subsidiaries
responsible for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their attention
that caused them to believe that:
(A) any material modifications should be made to the unaudited
statements of consolidated income, statements of consolidated financial position
and statements of consolidated cash flows included or incorporated by reference
in the Prospectus for them to be in conformity with generally accepted
accounting principles, or the unaudited statements of consolidated income,
statements of consolidated financial position and statements of consolidated
cash flows included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act and the
related published Rules and Regulations thereunder.
(B) any other unaudited income statement data and balance
sheet items included or incorporated by reference in the Prospectus do not agree
with the corresponding items in the unaudited consolidated financial statements
from which such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the basis
II-1
<PAGE> 30
for the corresponding amounts in the audited consolidated financial statements
included or incorporated by reference in the Prospectus.
(C) the unaudited financial statements which were not included
or incorporated by reference in the Prospectus but from which were derived any
unaudited condensed financial statements referred to in Clause (A) and any
unaudited income statement data and balance sheet items included in the
Prospectus and referred to in Clause (B) were not determined on a basis
substantially consistent with the basis for the audited consolidated financial
statements included or incorporated by reference in the Prospectus.
(D) any unaudited pro forma consolidated condensed financial
statements included or incorporated by reference in the Prospectus do not comply
as to form in all material respects with the applicable accounting requirements
of the 1933 Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical amounts in
the compilation of those statements.
(E) as of a specified date not more than five days prior to
the date of such letter, there have been any changes in the consolidated capital
stock or any increase in the consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated working capital, net current
assets or net assets, or any changes in any other items specified by the
Underwriters, in each case as compared with amounts shown in the latest balance
sheet included or incorporated by reference in the Prospectus, except in each
case for changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter.
(F) for the period from the date of the latest financial
statements included or incorporated by reference in the Prospectus to the
specified date referred to in Clause (E) there were any decreases in
consolidated net revenues or operating profit or the total or per share amounts
of consolidated net income or any changes in any other items specified by the
Underwriters, in each case as compared with the comparable period of the
preceding year and with any other period of corresponding length specified by
the Underwriters, except in each case for changes, decreases or increases which
the Prospectus discloses have occurred or may occur or which are described in
such letter.
(iv) In addition to the audit referred to in their report(s) included
or incorporated by reference in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to in
paragraph (iii) above, they have carried out certain specified procedures, not
constituting an audit in accordance with generally accepted auditing standards,
with respect to certain amounts, percentages and financial information specified
by the Underwriters, which are derived from the general accounting records of
the Company and its subsidiaries for the periods covered by their reports and
any interim or other periods since the latest period covered by their reports,
which appear or are incorporated by reference in the Prospectus, or in Part II
of, or in exhibits and schedules to, the Registration Statement specified by the
Underwriters, and have compared certain of such amounts, percentages and
financial information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
II-2
