Washington, D.C. 20549
in substantially all Callon-operated oil and gas leaseholds as of the effective date of such transactions. Kimmeridge’s remaining shares of Common Stock were purchased in the open market. It is headquartered at 412 West 15th Street, 11th Floor, New York, NY 10011. Neither Kimmeridge nor any of its affiliated entities has Board representation or any other governance rights with respect to the Company.
Q: Why is shareholder approval of the issuance of the New Common Stock required?
A:We are seeking shareholder approval of the Issuance Proposal in order to comply with Rule 312.03(b) of the New York Stock Exchange (“NYSE”) Listed Company Manual (“Rule 312.03(b)”). Under Rule 312.03(b), shareholder approval is required prior to any issuance or sale of common stock in any transaction or series of related transactions (i) to a substantial security holder of the company (a “Related Party”) if the number of shares of common stock to be issued exceeds either 1% of the number of shares of common stock or 1% of the voting power outstanding before the issuance or (ii) when a Related Party has a 5% or greater interest, directly or indirectly, in the company or in the consideration to be paid in the transaction or series of related transactions, and the present or potential issuance of common stock could result in an issuance that exceeds either 5% of the number of shares of common stock or 5% of the voting power outstanding before the issuance. Under Rule 312.04(e) of the NYSE Listed Company Manual (“Rule 312.04(e)”), a shareholder is presumed to be a “substantial security holder” (and therefore, a “Related Party” for purposes of Rule 312.03(b)) if it owns either 5% or more of the number of shares of common stock or 5% or more of the voting power outstanding of a NYSE listed company.
Due to Kimmeridge’s beneficial ownership of approximately 11.2% of our outstanding shares of Common Stock as of October 4, 2021, Kimmeridge is a Related Party for purposes of Rule 312.03(b). Upon consummation of the transactions contemplated by the Exchange Agreement, the Company would issue to Kimmeridge New Common Stock equal to approximately 10.0% of the Company’s then-outstanding Common Stock. As a result, the issuance of the New Common Stock pursuant to the Exchange Agreement is subject to shareholder approval for purposes of complying with Rule 312.03(b).
Q: What is the effect of shareholder approval?
A:Upon shareholder approval of the Issuance Proposal and the satisfaction of the other closing conditions contained in the Exchange Agreement (as described below), the transactions contemplated by the Exchange Agreement would be consummated. As a result of the issuance of the New Common Stock pursuant to the Exchange Agreement, Kimmeridge would hold, in the aggregate, approximately 19.3% of our issued and outstanding Common Stock and the Company would acquire and then cancel $197.0 million of Second Lien Notes.
The transactions contemplated by the Exchange Agreement are intended to strengthen the Company’s financial position by accelerating deleveraging initiatives and reducing cash interest expense by approximately $20 million per year. In addition, the transactions will improve the standing of shareholders in the capital structure of the Company and enhance Callon’s access to debt capital markets, providing the opportunity for reductions in the corporate cost of capital.
Q: What will happen if the Company’s shareholders do not approve the Issuance Proposal?
A:If we do not obtain the requisite shareholder approval of the Issuance Proposal at the Special Meeting, the transactions contemplated by the Exchange Agreement will not be consummated. The New Common Stock will not be issued to Kimmeridge and the $197.0 million of Second Lien Notes owed by Kimmeridge will remain outstanding.
Q: Are there conditions to the closing of the transactions pursuant to the Exchange Agreement?
A:Yes. The closing of the transactions pursuant to the Exchange Agreement is subject to various closing conditions, including (i) for purposes of complying with Rule 312.03(b) of the NYSE Listed Company
Manual, approval of the Company’s shareholders of the issuance of New Common Stock to Kimmeridge, (ii) the closing of the Company’s previously announced acquisitions of certain producing oil and gas properties and undeveloped acreage in the Delaware Basin from Primexx (the “Primexx Transaction”), which closing occurred on October 1, 2021, (iii) approval by the NYSE of the listing of the New Common Stock, (iv) the accuracy of each party’s representations and warranties, subject to certain materiality qualifiers and (v) the absence of any injunctions or orders preventing the Exchange.
If any of these conditions are not satisfied or waived, the transactions pursuant to the Exchange Agreement will not close and, as a result, (i) the New Common Stock will not be issued to Kimmeridge and (ii) the $197.0 million of Second Lien Notes owned by Kimmeridge will remain outstanding.
Q: How important is my vote?
A: Your vote “FOR” the Issuance Proposal is very important and you are encouraged to submit a proxy as soon as possible. The transactions contemplated by the Exchange Agreement cannot be completed without approval of the Issuance Proposal by the affirmative vote of the holders of a majority of the votes cast with regard to the Issuance Proposal at the Special Meeting.
Q: How does the Board recommend that I vote?
A:The Board has unanimously determined that the issuance to Kimmeridge of the New Common Stock is in the best interests of Callon and its shareholders. The Board unanimously recommends that you vote “FOR” the Issuance Proposal.
Q: When and where will the meeting take place?
A:The Special Meeting will be held on November 3, 2021, at 9:00 a.m. Central Daylight Time in the Conversation Salon room of the Hotel ZaZa Memorial City, located at 9787 Katy Freeway in Houston, Texas. You may register and attend the Special Meeting by following the instructions provided under the question “How do I attend the Special Meeting?”.
Q: Who may vote at the Special Meeting?
A:You may vote all of the shares of Common Stock that you owned at the close of business on the Record Date. On the Record Date, we had 55,132,150 shares of Common Stock issued and outstanding and entitled to be voted at the Special Meeting. You may cast one vote for each share of Common Stock held by you on the Record Date on the Issuance Proposal.
Q: How do I attend the Special Meeting?
A:If you wish to attend the Special Meeting in person, you must present valid, government-issued picture identification. If your shares are held in the name of a bank, broker or other nominee and you plan to attend the Special Meeting, in order to be admitted you must present proof of your beneficial ownership of the Common Stock, such as a bank or brokerage account statement, or copy of your Voting Instruction Form or Proxy Card, indicating that you owned shares of our Common Stock at the close of business on the Record Date.
For safety and security reasons, no cameras, recording equipment, cellular telephones, electronic devices, large bags, briefcases or packages will be permitted in the Special Meeting. No banners, signs, firearms or weapons will be allowed in the meeting room. We reserve the right to inspect all items entering the meeting room.
Q: What is the difference between a shareholder of record and a beneficial owner?
A:Shareholder of Record: If your shares of Common Stock are registered directly in your name with Callon’s transfer agent, American Stock Transfer & Trust Company, LLC, you are considered, with respect to those shares, to be the “shareholder of record.”
Beneficial Owner: If your shares of Common Stock are held by a nominee, you are considered the “beneficial owner” of shares held in “street name.” The Proxy Card has been forwarded to you by your nominee who is considered, with respect to those shares, to be the “shareholder of record.” As the beneficial owner, you have the right to direct your nominee on how to vote your shares by following their instructions for voting by telephone or on the Internet or, if you specifically request a copy of the printed materials, you may use the Proxy Card included in such materials.
Q: How do I obtain electronic access to the proxy materials?
A: This Proxy Statement is available to shareholders free of charge at www.viewproxy.com/CallonPetroleum/2021SM. If you hold your shares in street name, you may be able to elect to receive future annual reports or proxy statements electronically. For information regarding electronic delivery you should contact your brokerage firm, bank, trustee or other agent (each, a “nominee”).
Q: How do I vote?
A: Shareholder of Record: If you are a shareholder of record, there are four ways to vote:
•By Attending the Special Meeting. You may vote in person at the Special Meeting by requesting a ballot when you arrive. You must bring valid picture identification such as a driver’s license or passport and provide proof of stock ownership as of the Record Date.
•Via the Internet. You can vote via the Internet by going to the website address provided on your Proxy Card. You will need to use the control number appearing on your Proxy Card to vote via the Internet.
•By Telephone. You can also vote by telephone by calling the toll-free telephone number provided on your Proxy Card. You will need to use the control number appearing on your Proxy Card to vote by telephone. You may transmit your voting instructionsfrom any touch-tone telephone.
•By Mail. If you received a printed copy of the Proxy Card, you can vote by marking, dating and signing it, and returning it in the reply envelope provided. Please promptly mail your Proxy Card to ensure that we receive it prior to the closing of the polls at the Special Meeting.
Beneficial Owners: If you are a beneficial owner of shares held in “street name,” there are four ways to vote:
•By Attending the Special Meeting. You must obtain a “legal proxy” from the organization that holds your shares. A legal proxy is a written document that will authorize you to vote your shares held in “street name” at the Special Meeting. Please contact your nominee for instructions regarding obtaining a legal proxy. You must also bring valid picture identification such as a driver’s license or passport and provide proof of stock ownership as of the Record Date.
•Via the Internet. You can vote via the Internet by going to the website address provided on your Proxy Card. You will need to use the control number appearing on your Proxy Card to vote via the Internet. The availability of Internet voting may depend on the voting process of your nominee.
ABOUT CALLON•
Callon Petroleum is an independent oil and natural gas company focusedBy Telephone. You can also vote by telephone by calling the toll-free telephone number provided on your Proxy Card. You will need to use the control number appearing on your Proxy Card to vote by telephone. The availability of telephone voting may depend on the acquisition, explorationvoting process of your nominee.
•By Mail. You can vote by marking, dating and developmentsigning a printed copy of high-quality assetsthe Proxy Card, and returning it in the leading oil plays of West and South Texas.
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| Our Values | | |
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| Responsibility | The safety of our employees, contractors and communities is of utmost importance – this is not negotiable. We recognize that we earn the right to operate every day by developing our assets responsibly and with respect for the environment. We focus on safety and protection of the environment in every operation, and all Callon representatives are authorized to “stop work” if these are at risk. | |
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| Integrity | We always strive to do the right thing and pride ourselves on being a preferred partner. We are consistently open, honest, ethical and genuine. We do what we say and are accountable for our actions. | |
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| Drive | Keenly focused on leading, we relentlessly challenge the status quo to meet and exceed our expectations for top-tier performance in all aspects of our business. | |
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| Respect | We value the ideas and contributions of all team members and show consideration and appreciation for one another. We recognize and embrace each other’s differences and work towards our common goals. | |
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| Excellence | Our business requires focused innovation and evaluation of new opportunities for resource extraction. We balance the application of new technologies and testing of new concepts with prudent risk management and thorough data analysis. | |
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Awards and Recognition
We were recognized as onereply envelope provided. Please promptly mail your Proxy Card to ensure that we receive it prior to the closing of the top placespolls at the Special Meeting.
If you vote on the Internet or by telephone, you do not need to workreturn your Proxy Card. Internet and telephone voting for shareholders will be available 24 hours a day, and will close at 11:59 p.m., Central Daylight Time, on November 2, 2021. Even if you plan to attend the Special Meeting, the Company recommends that you vote your shares in 2017, 2018, 2019 and 2020 byadvance as described above so that your vote will be counted if you later decide not to attend the Houston Chronicle.Special Meeting.
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| A JOINT LETTER FROM OUR CHAIRMAN AND OUR CHIEF EXECUTIVE OFFICER |
| April 9, 2021 |
| DEAR FELLOW SHAREHOLDERS, |
| On behalf of the Board of Directors of Callon Petroleum Company, we are pleased to invite you to our 2021 Annual Meeting of Shareholders, which will take place on Friday, May 14, 2021 at 9:00 a.m. Central Daylight Time (CDT), in the Wishmaker Ballroom of the Hotel ZaZa, located at 9787 Katy Freeway in Houston, Texas.
Today we are filing the Notice of Annual Meeting of Shareholders and the Proxy Statement which describe the matters to be acted upon at the meeting. This year we are asking our shareholders to elect directors; approve, on a non-binding advisory basis, the compensation of our named executive officers; ratify the appointment of our auditors; and approve an amendment to our certificate of incorporation to increase the number of authorizedQ: How do I vote shares of common stock.
This past year presented our company, our employees, and the oil and gas sector as a whole with challenges unlike anything in recent memory. Our leadership was swift to react, our people were dedicated and innovative, and the Callon spirit was on display as our team successfully navigated some difficult situations; all while completing a corporate integration remotely. Our team found ways to help relieve financial pressures and showed enormous operational prowess, significantly reducing our capital expectations while improving field efficiency. We closed the year on a high note - exceeding our own expectations across nearly every guidance metric provided and generating positive adjusted free cash flow for the full year.
Despite the financial and operational hurdles presented by highly volatile commodity prices and the presence of COVID-19, our team still set new records for safety and showed significant progress in emissions reduction efforts. The continued focus on advancing our ESG initiatives and aligning ourselves with changing investor norms was well represented in our inaugural sustainability report. We are happy to present additional progress and notable changes in the pages that follow.
Your vote is important, and we encourage you to review this proxy statement and to vote promptly so that your shares will be represented at the meeting. On behalf of everyone at Callon, we want to thank you, our valued shareholders, for your continued support of the work we do.
Sincerely,
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L. Richard Flury
Chairman of the Board
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Joseph C. Gatto, Jr.
President, Chief Executive Officer and Director
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| L. Richard Flury
Chairman of the Board
| Joseph C. Gatto, Jr.
President, Chief Executive Officer and Director
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We encourage you to read our 2020 Annual Report, which includes our financial statements as of and for the year ended December 31, 2020. Please also refer to the sections captioned “Risk Factors” and “Special Note Regarding Forward-Looking Statements,” for a description of the substantial risks and uncertainties related to the forward-looking statements included herein.Callon Common Stock held in Callon’s 401(k) plan?
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| NOTICE OF ANNUAL |
MEETING OF SHAREHOLDERS |
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| | | Dear Shareholders,
You are invited to participate in the 2021 Annual Meeting of Shareholders (the “Annual Meeting”) of Callon Petroleum Company (“Callon,” the “Company,” “us,” “we,” “our” or like terms), a Delaware corporation.
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When
Friday, May 14, 2021, at 9:00 a.m.
Central Daylight Time (“CDT")
Where
Hotel ZaZa
Wishmaker Ballroom
9787 Katy Freeway
Houston, Texas 77024
We are monitoring coronavirus (COVID-19) developments and the related recommendations and protocols issued by public health authorities and federal, state and local governments, and we are sensitive to the public health and travel concerns that our shareholders may have. In the event we determine it is necessary or appropriate to postpone or move the Annual Meeting to another location or hold the Annual Meeting virtually, we will announce this decision in advance in a press release and post details on our website, which will also be filed with the Securities and Exchange Commission.
Whether or not you plan to attend the Annual Meeting, please vote electronically via the Internet, by telephone, or by mail as soon as possible.
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| Voting Matters | Board
Recommendation |
| Proposal 1:
To elect four Class III directors to serve on our Board of Directors (the “Board”), each for three years.
| | FOR each of the Class III directors |
| | See page 10 | | |
| Proposal 2:
To approve, on a non-binding advisory basis, the compensation of our named executive officers (“NEOs”).
| | FOR |
| | See page 35 | | |
| Proposal 3:
To ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021.
| | FOR |
| | See page 63 | | |
| Proposal 4:
To approve an amendment to our certificate of incorporation to increase the number of authorized shares of our common stock.
| | FOR |
| | See page 65 | | |
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| | | We will also transact other business that may properly come before the Annual Meeting.
This Notice of Annual Meeting of Shareholders and the Proxy Statement provide further information on the Company’s performance and corporate governance and describe the matters to be presented at the Annual Meeting. The Board set March 15, 2021, as the record date (the “Record Date”) for the Annual Meeting. Holders of record of our common stock at the close of business on the Record Date are entitled to receive this notice of, and vote at, the Annual Meeting. A list of the names of shareholders entitled to vote at the Annual Meeting will be available for ten days prior to the Annual Meeting for examination by any shareholder for any purpose germane to the Annual Meeting between the hours of 9:00 a.m. and 5:00 p.m., Central Time, at our headquarters at 2000 W. Sam Houston Parkway South, Suite 2000, Houston, TX 77042. This list will also be available for such purposes during the Annual Meeting at the place of the Annual Meeting or, in the event that the Annual Meeting is held virtually, at a website to be provided in the announcement notifying shareholders of the change in meeting format.
Beginning on or about April 9, 2021, we will mail this proxy statement, our 2020 Annual Report on Form 10-K, and the form of proxy to shareholders.
We thank you for your continued support and look forward to seeing you at the Annual Meeting.
By Order of the Board of Directors,
Michol L. Ecklund
Senior Vice President, General Counsel
and Corporate Secretary.
Houston, Texas
April 9, 2021 |
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| By Internet or telephone following the simple instructions on the enclosed proxy card or voting instruction form
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| By mail
mark, date and sign your proxy card, and return it in the reply envelope provided
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YOUR VOTE IS IMPORTANT!
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders. This Proxy Statement and our 2020 Annual Report on Form 10-K are available at: www.viewproxy.com/ CallonPetroleum/2021. If you have any questions or need assistance voting your shares, please call our proxy solicitor, Innisfree M&A Incorporated, 501 Madison Avenue, 20th Floor, New York, NY 10022
Banks and Brokerage Firms, please call: (212) 750-5833
Shareholders, please call toll-free:(888) 750-5834
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TABLE OF CONTENTS
PERFORMANCE HIGHLIGHTS
Callon isCommon Stock are held in Callon’s Employee Savings and Protection Plan (“Callon’s 401(k) plan”), you will receive an independent oil and natural gas company focused onemail from the acquisition, exploration, and development of high-quality assets in leading Texas oil plays located in the Permian and the Eagle Ford. Callon’s strong foundation spans over 70 yearsplan administrator with an ongoing mission to build trust, create long-term value, and drive sustainable cash flow growth for our stakeholders.voting instructions. The critical elements of our business that contribute to our ability to generate meaningful value for our shareholders include:
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PREPARATION | | PURPOSE | | EXECUTION |
• Significant scale and high operational control of ~180,000 net acres in Texas's producer-friendly Permian Basin and Eagle Ford Shale
• A robust infrastructure network from multiple years of thoughtful planning and investment that reduces overall capital intensity over time
• Scaled and cost-efficient multi-zone asset development programs that generate attractive rates of return while preserving future inventory value
| | • Talented workforce with expansive technical expertise paired with a culture of responsibility and adaptability in a cyclical commodity business
• Stakeholder alignment through a governance structure and ongoing engagement across shareholders, employees, and communities in which we operate
• Expanded sustainability disclosures and environmental, social and governance ("ESG") oversight to maximize impact of initiatives and ensure corporate responsibility priorities are achieved
| | • Durable business model which balances capital efficiency improvements with longer-term reinvestment reduction initiatives
• Specific targets for corporate returns on capital through margin preservation, capital intensity reduction, and portfolio optimization
• The ability to generate durable free cash flow through breakeven cost reduction and moderation of production declines
• Improved liquidity and no near-term maturities coupled with a variety of asset monetization opportunities
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2020 was a year marked by extraordinary volatility in commodity prices and workplace challenges created by the COVID-19 pandemic. While the dramatic decline in oil prices led to significant reduction in industry-wide activity, Callon’s rapid reduction in drilling and completion activity resulted in a more flexible operational plan that created opportunities for optimizing our balance sheet. Because of our thoughtful approach, we were able to achieve a number of initiatives that had a positive effect on both our margins and our surrounding community.
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• Completed the full integration of Carrizo and Callon, much of which was handled with a fully remote workforce due to social distancing and pandemic safety-related concerns.
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• Generated over $120 million of adjusted free cash flow(i) ("Adjusted FCF") during the last three quarters of the year, resulting in a positive FCF position for the full year.
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• Posted annual adjusted EBITDA(i) of over $700 million despite a drop of more than 40% in average realized prices compared to the prior year.
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• Issued $300 million in new second lien notes providing a meaningful increase in liquidity.
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• Exchanged $389 million of our existing senior notes for second lien notes, reducing our long-term debt outstanding by $172 million.
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• Completed an overriding royalty interest sale and non-operated property divestiture for combined net proceeds of approximately $170 million which were used to reduce outstanding borrowings.
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• Achieved full year production of 101.6 MBoe per day (63% oil) exceeding annual production guidance expectations.
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• Reduced lease operating expenses by more than $30 million (>10%) from pro forma 2019(ii) levels through effective implementation of our field operating best practices.
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• Reduced total cash general and administrative expenses by more than 60% from pro forma 2019(ii) levels.
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• Completed the expansion of our Delaware recycling facilities allowing for handling of up to 60,000 barrels per day of produced water volumes.
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• Completed our first six-well pad in the Delaware that sourced more than 95% of fracture stimulation volumes (nearly 100 million gallons) from recycled produced water volumes.
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• Expanded our electrical substation network allowing for the removal of over 40 diesel generators improving operating reliability and reducing our carbon emissions by approximately 34 metric tons.
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• Achieved our best year on record for safety with a total recordable incident rate of just 0.54.
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• Reduced our flaring volumes by 40%.
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• Lowered our spill rate by 66% as compared to our 2019 figures.
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(i) Adjusted FCF and adjusted EBITDA are non-GAAP financial measures. See Appendix A for reconciliations of our non-GAAP financials measures.
(ii) All references to 2019 pro forma figures assume full year Callon and Carrizo combined financials.
SUSTAINABILITY AT
CALLON PETROLEUM
At Callon, our commitment to our shareholders is simple: create value in a responsible manner. Our focus on integrating sustainable business practices and achieving long-term results drives our operations. In alignment with these goals, our Board oversees the Company’s safety and environmental policies, development of a positive corporate culture and an effective corporate governance program. To ensure that sustainability matters remain a priority at Callon, the independent Nominating, Environmental, Social and Governance Committee of our Board has direct oversight responsibility for our ESG policies and performance for the development of Company positions related to emerging issues that affect our industry. The entire Callon team is committed to improving returns for our shareholders while positively impacting the communities in which we live and work. Our 2020 ESG initiatives built a strong foundation for 2021 objectives.
The Callon executive team recognizes the need for transparent and robust ESG reporting. In 2020, we published our inaugural sustainability report in alignment with the Sustainability Accounting Standards Board (SASB) framework. We plan to publish our 2020 Sustainability Report with highlightstrustee of Callon’s continued commitment to ESG and transparency later this year which401(k) plan will include the following highlights:
Environmental
In 2020, we expanded on several strategies and programs to develop our natural resourcesvote your shares of Callon Common Stock in a responsible manner while working to minimize our impact on the environment. Our continued focus to reduce flaring by actively workingaccordance with third party natural gas gatherers and minimizing processing downtimes reduced flare volumes by 40%. We also connected to secondary gathering systems for our two highest-volume natural gas gathering systems and continue to pursue back-up options to minimize flaring in the future. Additionally, we implemented spill mitigation measures and achieved a 66% reduction in our total fluid spill rate. These additional measures, including night-time monitoring and activation of wellhead valves to shut in wells in emergency situations, demonstrate our commitment to prevent unnecessary releases to the environment.
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| WATER | | | AIR | | | LAND |
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Protecting local water supplies and minimizing our use of fresh water resources are high priorities in our operations. | | As part of our environmental program, Callon monitors and seeks to reduce greenhouse gas (GHG) and other emissions from our operations. | | At Callon, we strive to be good stewards of the environment and minimize our impact in the areas where we operate. |
| 10%increase in recycled produced water usage(1)
| | | 40% reduction in flared volumes(2)
| | | 66%reduction in total spill volumes(3)
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(1)Percentage of recycled water utilized in all operations.
(2)Percent change of total gas flared year-over-year.
(3)Percent change in total fluids released from primary containment year-over-year.your directions.
2021 PROXY STATEMENT7If you do not timely direct the trustee how to vote your shares in the Callon 401(k) plan, or if you do not direct the trustee, the trustee of Callon’s 401(k) plan will vote your shares of Callon Common Stock in proportion to the voting directions received from all plan participants who properly vote. Please note that votes for shares held in Callon’s 401(k) plan have an earlier voting deadline. Please review the instructions for the date by which your voting directions must be received in order for your shares of Callon Common Stock to be voted as you direct.
SUSTAINABILITY AT CALLON PETROLEUM
Social
Callon employs a talented workforce, and we are committed toIn the safety, health, and developmentcase of each team member. We remained focus on improving our safety culture and implementing programs to create a safe workplace for all stakeholders. In 2020, we reduced our OSHA Total Recordable Incident Rate (TRIR) by 10% and achieved record safety performance forinternet or telephone voting, you should have your voting instructions in hand until you have completed the second consecutive year despite the combined challenges of the pandemic. In addition, we recognized the hardship that the pandemic has caused to many of the communities where we operate and increased our philanthropic support in the areas of education and social welfare.voting process.
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| | Safety | | | | Community | |
| At Callon, protecting our people and our communities is our top priority. We believe that a strong safety culture is tantamount to being a leading operator in the exploration and production (E&P) business.In 2020 Callon quickly adapted operations to incorporate strict COVID-10 safety protocols. | | | OPERATING IN LOCAL COMMUNITIES
When our assets necessitate development projects near populated areas, we make every effort to mitigate the impact of our activities and work closely with city officials and neighboring landowners to proactively address considerations such as: noise, traffic, GHG emissions, and liquid spill prevention.
We also partner with beautification groups in Permian and Houston.
SUPPORTING LOCAL COMMUNITIES
Callon has a longstanding history of supporting the local communities in which we operate. It is our privilege to make a positive impact through charitable giving and volunteerism to support education, community, and the environment.
We also sponsor a charitable matching program to support our employees’ philanthropic priorities.
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| | 10% | | | |
| improvement in safety TRIR to 0.54 for a second straight record year for safety performance | | | |
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| | Workforce | | | |
| BUILDING A TOP PLACE TO WORK | | | |
| At Callon, a goal is to assemble and inspire a team of passionate and innovative professionals in an environment where they can achieve their professional goals. We empower our employees and engage team members in decision-making at every level while recognizing contributions to our success. This unique environment has helped us achieve top-tier engagement scores, resulting in Callon being named a Top Workplace by Houston Chronicle in for the fourth straight year.
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| EMBRACING DIVERSE BACKGROUNDS AND PERSPECTIVES | | | |
| At Callon, we value the diversity of our employees and their contributions. We are firmly committed to fostering an inclusive environment and providing equal opportunity to all qualified persons. | | MINORITY EMPLOYEES
IN 2020
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SUSTAINABILITY AT CALLON PETROLEUM
Governance
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At Callon, we are committed to high ethical standards and effective and sustainable corporate governance. We believe this commitment promotes the long-term interests of our shareholders, helps build public trust in our Company and strengthens Board and management accountability. We continually assess our governance principles to ensure that we are operating our business responsibly, ethically and in a manner aligned with the interests of our shareholders. Our Compensation Discussion and Analysis ("CD&A") beginning on page 37 provides additional information on governance practices for executive compensation. | Our Board expanded the remit and renamed our independent Nominating and Corporate Governance Committee as "Nominating, Environmental, Social, and Governance Committee" to better reflect the Committee's focus and oversight on the Company’s ESG policies, performance and disclosure. |
Please note that no votes will be accepted at the Special Meeting in respect of shares of Callon Common Stock held in Callon’s 401(k) plan and that all such votes must be voted prior to the Callon Special Meeting.
Q:
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Diversity | Refreshment | Independence |
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One minority and
two female directors
| Less than
five years' tenure
for nearly half the directors
| Ten directors are independent
and a non-executive director
serves as chair of the Board
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Our corporate focusWhat constitutes a quorum, and why is anchored by five core values: Responsibility, Integrity, Drive, RespectandExcellence. More information regarding our core values and details on our ESG initiatives and outcomes can be found in our 2019 Sustainability Report located on our Company’s website (https://www.callon.com/sustainability).a quorum required?
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Proposal 1
Election of
Class III
Directors
| | The Board recommends a vote FOR each of the Class III director nominees named in this Proxy Statement.
• Our director nominees provide experience and perspectives that enhance the overall strategic and oversight functions of Callon’s Board.
• For more information about the nominees’ experience, skills, and qualifications, please see page 13.
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BoardUnder our Amended and Restated Bylaws, we are required to have a quorum of Directors
Processshareholders present for Selecting Directors
Director Identification and Selection
Criteria.the Issuance Proposal to be voted at the Special Meeting. The Nominating, Environmental, Social and Governance Committee (the "N&ESG Committee") has established guidelines for considering nominations topresence at the Board. The N&ESG Committee evaluates potential nominees based on the contribution such nominee’s background and skills could have upon achieving the goal of a well-rounded, diverse Board that functions collegially as a unit. While not an exhaustive list, key criteria include:
• Relevant oil and gas E&P industry knowledge and experience;
• Complementary mix of backgrounds and experienceSpecial Meeting, in areas including business, finance, accounting, ESG, technology, and strategy;
• Personal qualities of leadership, character, judgment and personal and professional integrity and high ethical standards;
• The candidate’s ability to exercise independent and informed business judgment;
• Whether the candidate is free of conflicts and has the time required for preparation, participation, and attendance at meetings;
• Diversity, including differences in viewpoints, background, education, gender, raceperson or ethnicity, age, and other individual qualifications and attributes;
• The ability to work with other membersby proxy, of the Board, the Chief Executive Officer (the "CEO"), and senior officers of the Company in a constructive and collaborative fashion to achieve the Company’s goals and implement its strategy; and
• In the case of an incumbent director, such director’s past performance on the Board.
The N&ESG Committee and the Board may also consider other qualifications and attributes that they believe are appropriate in evaluating the ability of an individual to serve as a member of the Board. The N&ESG Committee’s goal is to assemble a Board that brings to us a variety of perspectives and skills derived from high quality business and professional experience to perform its oversight role satisfactorily for our shareholders. In making its determinations, the N&ESG Committee evaluates each individual in the context of the Board as a whole, with the objective of assembling a group that can best represent shareholder interests through the active, objective, and constructive participation in meetings and the strategic decision-making processes.
Diversity. Our Corporate Governance Guidelines set forth our policy with respect to Board diversity. We are committed to building a diverse Board comprised of individuals from different backgrounds, including differences in viewpoints, education, gender, race or ethnicity, age, and other individual qualifications and attributes. To accomplish this, the N&ESG Committee will continue to require that search firms engaged by the Company seek to present a robust selection of women and ethnically diverse candidates in all prospective director candidate pools.
Nominating Process. In making its nominations, the N&ESG Committee identifies nominees by first evaluating the current members of the Board willing to continue their service and any potential need to expand the Board to include additional expertise. Current members with a record of quality contribution to the Board whose experience contributes to a complementary mix of backgrounds that enhance the Board are renominated. When vacancies become available, the N&ESG Committee may seek input from industry experts or engage third-party search firms to help source particular areas of expertise or backgrounds.
Retirement Policy. The Board believes that, regardless of age, experienced individuals may make a substantial contribution to the Company. However, the Board has adopted a retirement policy for independent directors. Under the policy, an independent director must retire in conjunction with the annual meeting of stockholders prior to his or her 75th birthday, except in special circumstances upon the requestholders of a majority of the Board (not including the subject director).
Over time, the Board refreshes its membership through a combination of adding or replacing directorsstock issued and outstanding and entitled to achieve the appropriate balance between maintaining longer-term directors with deep institutional knowledgevote as of the Company and adding directors who bringRecord Date will constitute a diversity of perspectives and experience. As a reflection of this philosophy, if allquorum, permitting us to conduct the business of the nominees are elected to the Board, following the Annual Meeting:
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directors will have tenures of five or fewer years.
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directors will be independent.
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Board Succession Planning Initiatives
In 2020, the N&ESG Committee and the Board enhanced their focus on long-term board composition, diversity and succession, with the objective of developing a view of the key skills and experiences needed at the board level to support the Company’s strategy in the evolving energy landscape. The Board engaged a third-party advisory firm to conduct a fulsome evaluation of the board and its governance practices, including interviews with each director and select members of management. The firm provided a report to the Board on recommendations to prepare for board leadership and director successionSpecial Meeting. Proxies received but marked as abstentions as well as benchmarking against corporate governance best practices. Following discussions and uponbroker non-votes (as described below), if any, will be included in the recommendationcalculation of the N&ESG Committee,number of shares considered to be present at the Board adoptedSpecial Meeting for quorum purposes. If we do not have a retirement policy (as described above) as a governance best practice and in support of continuing refreshment of board composition.
In considering the nominees to stand for re-election, the N&ESG Committee and the Board discussed Chairman Flury’s proposed term as a Class III director, which would extend beyond the board retirement age. The Board considered Mr. Flury’s four-year tenure as Chairman and agreed they desire near-term continuity inquorum present or represented, then the Chairman role to continue momentum on the Company’s strategic priorities. The Board unanimously approved Mr. Flury’s re-nomination as a Class III director. The Board also agreed to appoint a special committee to evaluate candidates to succeed Chairman Flury with the intention of appointing a successor no later than the expiration of Mr. Flury’s term in 2024.
Voting Standard
Directors will be elected by a plurality of the votes cast bySpecial Meeting or the shares entitled to vote in the election of directors. This standard means the nominees for available directorships who receive the highest number of affirmative votes of the sharesshareholders present in person or represented by proxy and entitled to vote at the Special Meeting may adjourn the meeting from time to time, as authorized by our Amended and Restated Bylaws, until a quorum is present.
Q:How many votes are elected. However, as described below,needed to approve the Company has an additional voting standard in uncontested director elections. The Company believes that this voting standard ensures accountability and the opportunity for a positive mandate from the Company’s shareholders.Issuance Proposal?
Our Corporate Governance Guidelines provide that any nominee for director who receives a greater number of votes “withheld” than votes “for” in an uncontested election (i.e., an election in which the number of nominees for election does not exceed the number of directors to be elected) is required to tender his or her resignation for consideration by the N&ESG Committee and Board following certificationA:Approval of the shareholder vote. Such resignation will only be effective upon Board acceptance of such resignation after receivingIssuance Proposal requires the recommendationaffirmative vote of the N&ESG Committee. If the numberholders of nominees exceeds the number of directors to be elected as of the Record Date for such meeting then the directors shall be elected by a pluralitymajority of the votes cast. Full details of this policy are set forth in our Corporate Governance Guidelines.
If a director nominee receives a receives a greater number of votes “withheld” than votes “for” in an uncontested election, then promptly following the certification of the election results, the N&ESG Committee will consider any factors it deems relevantcast with regard to the best interests ofIssuance Proposal at the Company and our shareholders in determining whether to accept the director’s resignation and recommend to the Board that action to be taken with respect to the tendered resignation. Within 120 days following certification of the shareholder vote, the Board shall consider the recommendation and makeSpecial Meeting, if a determination as to whether to accept or reject such director’s resignation and shall notify the director concerned of its decision. We will also promptly publicly disclose the Board’s decision and process in a periodic or current report filed with or furnished to the Securities Exchange Commission ("SEC").
If you hold your shares through a broker and you do not instruct the broker how to vote, your broker will not have the authority to vote your shares.quorum is present. Abstentions and broker non-votes will each be counted as present for purposes of determining the presence of a quorum but
will not be included in determining the number of votes cast and will have no effect upon the outcome of the vote on this proposal. Allthe Issuance Proposal.
Pursuant to the Exchange Agreement, Kimmeridge has agreed to vote all shares of common stock representedCommon Stock beneficially owned by proxiesit as of the Record Date in favor of the Issuance Proposal. In connection with the execution of the Exchange Agreement, each of the Company’s executive officers and directors also entered into a Voting Agreement, dated as of the date of the Exchange Agreement (the “Voting Agreement”). On the terms and conditions set forth in the Voting Agreement, our executive officers and directors agreed to vote all of the shares of Common Stock over which they have voting power (representing in the aggregate approximately 2% of the Company’s total outstanding voting power as of October 4, 2021) in favor of the Issuance Proposal. The Voting Agreement is attached hereto as Annex B.
Additionally, pursuant to those certain purchase and sale agreements, dated as of August 3, 2021, between the Company and Callon Petroleum Operating Company and Primexx Resource Development LLC and BPP Acquisition, LLC, respectively (collectively, “Primexx”) executed in connection with the Primexx Transaction, Primexx has agreed to vote shares of Common Stock over which they have voting power (which, as of the Record Date, was approximately 8.8 million shares) in favor of the Issuance Proposal. In the aggregate, the foregoing voting agreements represent approximately 16 million, or approximately 30%, of the shares outstanding on the Record Date.
Q:What if I sign and return my proxy without making any selections?
A:If you sign and return your Proxy Card without making any selections, your shares will be voted “FOR”“FOR” the electionIssuance Proposal.
Q: What if I am a beneficial owner and I do not give the nominee voting instructions?
A:If you are a beneficial owner and your shares are held in the name of a broker or other nominee, such broker or nominee is bound by the rules of the director nominees, except whereNYSE regarding whether or not it can exercise discretionary voting power for any particular proposal if the broker has not received voting instructions from you. Brokers have discretionary authority to vote shares for which their customers do not provide voting instructions on certain “routine” matters. A broker non-vote occurs when a nominee who holds shares for another does not vote on a particular item because the nominee does not have discretionary voting authority for that item and has not received instructions from the beneficial owner of the shares. The Issuance Proposal is not considered a “routine” matter; accordingly, if you hold your shares of Common Stock through a broker or other nominee, and you return your voting instruction card without providing voting instructions, your nominee will not have discretionary authority to vote your shares of Common Stock.
Q: Can I change my vote after I have delivered my Proxy Card?
A:Yes. You may revoke your Proxy Card at any time before its exercise. You may also revoke your proxy by (i) voting in the election of directors has been withheld. Should the nominees become unable or unwilling to serve as a directorperson at the timeSpecial Meeting, (ii) delivering to the Corporate Secretary (at our principal executive offices in Houston, Texas) a revocation of proxy or (iii) executing a new proxy bearing a later date. If you are a beneficial owner, you must contact your nominee to change your vote or obtain a proxy to vote your shares if you wish to cast your vote in person at the AnnualSpecial Meeting.
Q: If I plan to attend the Special Meeting, should I still vote by proxy?
A:Yes. Casting your vote in advance does not affect your right to attend the person or persons exercisingSpecial Meeting.
If you vote in advance and also attend the proxiesSpecial Meeting, you do not need to vote again at the Special Meeting unless you want to change your vote. Written ballots will votebe available at the Special Meeting for the electionshareholders of substitute nominees designated by the Board, or the Boardrecord.
Q: What happens if I sell or otherwise transfer my shares of Common Stock before the Special Meeting?
A: The Record Date is prior to the date of the Special Meeting. If you sell or otherwise transfer your shares of Common Stock after the Record Date but before the Special Meeting, unless special arrangements are made between you and the person to whom you transfer your shares of Common Stock (such as provision of a proxy), you will retain your right to vote such shares at the Special Meeting but will otherwise transfer ownership of and the economic interest in your shares of Common Stock.
Q: Will any other business be conducted at the Special Meeting?
A: Callon will transact no other business at the Special Meeting, except such business as may choose to reduceproperly be brought before the number of membersSpecial Meeting or any adjournments or postponements thereof by or at the direction of the Board to be electedin accordance with Callon’s bylaws.
Q: Where can I find voting results of the Special Meeting?
A:We will announce the results for the proposals voted upon at the AnnualSpecial Meeting and publish final detailed voting results in ordera Form 8-K filed with the Securities and Exchange Commission (the “SEC”) within four business days after the Special Meeting.
Q: Am I entitled to eliminatedissenter’s rights?
A:No. Delaware General Corporation Law (the “DGCL”) does not provide for dissenter’s rights in connection with the vacancy. Your proxy cannot be otherwiseIssuance Proposal being voted for a person who ison at the Special Meeting.
Q: Am I entitled to preemptive rights?
A:No. Under the DGCL and our Certificate of Incorporation, as amended, shareholders are not namedentitled to any preemptive rights in connection with the issuance of the New Common Stock to Kimmeridge.
Q: Who should I call with other questions?
A:If you need assistance voting your shares, please contact Investor Relations at (281) 589-5200. If you have additional questions about this Proxy Statement as a candidate for director or for a greater numberthe Special Meeting or would like additional copies of persons thanthis Proxy Statement or the number of director nominees named. The Board has no reason to believe that the nominees will be unable or unwilling to serve if elected.Proxy Card, please contact our proxy solicitor:
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The Board recommends a vote FOR each of the four Class III director nominees.
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Innisfree M&A Incorporated 501 Madison Avenue, 20th Floor
New York NY 10022.
Banks and Brokerage Firms, please call: (281) 589-5200
Shareholders, please call toll-free: (888) 750-5834
Directors Nominated For Re-Election
The Board currently consists of eleven directors. Consistent with our certificate of incorporation, the current Board is divided into three classes designated as Class I, Class II, and Class III, each with staggered, three-year terms. Based on the recommendations from the N&ESG Committee, the Board has nominated four continuing Class III Directors, Frances Aldrich Sevilla-Sacasa, Major General (Ret.) Barbara J. Faulkenberry, L. Richard Flury, and Joseph C. Gatto, Jr., to stand for re-election or, in each case, until the election and qualification of their respective successors or until their earlier death, retirement, resignation or removal.
The following biographies reflect the particular experience, qualifications, attributes, and skills that led the Board to conclude that each nominee should stand for re-election to serve on the Board:
Class III Directors
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| | Frances Aldrich Sevilla-Sacasa |
| Former Chief Executive Officer of Banco Itaú International |
| Ms. Aldrich Sevilla-Sacasa is a private investor and was Chief Executive Officer of Banco Itaú International, Miami, Florida, from April 2012 to December 2016. Prior to that time, she served as Executive Advisor to the Dean of the University of Miami School of Business from 2011 to 2012, Interim Dean of the University of Miami School of Business from 2011 to 2011, President of U.S. Trust Bank of America Private Wealth Management from 2007 to 2008, President and Chief Executive Officer of US Trust Company in 2007, and President of US Trust Company from November 2005 until June 2007. She previously served in a variety of roles with Citigroup’s private banking business, including President of Latin America Private Banking, President of Europe Private Banking, and Head of International Trust Business. Ms. Aldrich Sevilla-Sacasa holds a Bachelor of Arts Degree from the University of Miami and an M.B.A. from the Thunderbird School of Global Management.
Ms. Aldrich Sevilla-Sacasa also serves on the boards of Camden Property Trust (NYSE: CPT), where she chairs the audit committee, New Senior Investment Group (NYSE: SNR), and the Delaware Funds by Macquarie, where she chairs the nominating and corporate governance committee.
Ms. Aldrich Sevilla-Sacasa holds a Bachelor of Arts Degree from the University of Miami and an M.B.A. from the Thunderbird School of Global Management.
SKILLS AND QUALIFICATIONS:
Ms. Aldrich Sevilla-Sacasa brings to the Board considerable experience in financial services, banking and wealth management. In addition, her experience as a former president and chief executive officer of a trust and wealth management company, and as a director of other corporate and not-for-profit boards has provided her with expertise in the area of corporate governance. Her designation as a “financial expert” and knowledge of public company reporting requirements add meaningful insights to the Board.
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INDEPENDENT
Age as of the Record Date65
Director Since 2019
Callon Committees:
N&ESG; Strategic Planning and Reserves
Other Current Directorships:
Camden Property Trust
New Senior Investment Group
Delaware Funds by Macquarie
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| | Barbara J. Faulkenberry |
| Former Major General, United States Air Force |
| Barbara Faulkenberry has served as a member of the Board since 2018. Ms. Faulkenberry retired from the U.S. Air Force in 2014 as a Major General (2-stars) after a 32-year career, finishing in the top 150 leaders of a 320,000-person global organization. Her last assignment was as Vice Commander (COO) and interim Commander (CEO) of a 37,000-person organization conducting all global Department of Defense air cargo, passenger, and medical patient movements with 1,100 military aircraft plus contracted commercial aircraft.
Ms. Faulkenberry is currently an independent director for USA Truck, a publicly-traded provider of logistics and trucking services across North America, where she serves as chair of the Technology Committee and as a member of the Nominating and Corporate Governance Committee.
Ms. Faulkenberry received a B.S. degree from the Air Force Academy in 1982, an M.B.A. from Georgia College in 1986, and a Master of National Security from the National Defense University in 1999. She has also attended strategic leadership courses at Harvard University, University of Cambridge, and Syracuse University.
SKILLS AND QUALIFICATIONS:
Ms. Faulkenberry brings to the Company senior leadership experience in the areas of supply chain management, logistics, strategic planning, risk management, technology, cyber security, and leadership development. Additionally, she is a NACD Board Leadership Fellow and earned the Carnegie Mellon/NACD CERT Certificate in Cybersecurity Oversight, both of which contribute to best practices in corporate governance and cyber security and provide great value to the Board.
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INDEPENDENT
Age as of the Record Date 61
Director Since 2018
Callon Committees:
Audit, N&ESG, Strategic Planning and Reserves
Other Current Directorships:
USA Truck, Inc.
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
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| | L. Richard Flury |
| Chairman of the Board
Former Chief Executive (Retired) for Gas, Power & Renewables of BP plc |
| Richard Flury has served as a member of the Board since 2004 and has served as Chairman since 2017. He spent over 30 years with Amoco Corporation, and later, BP plc, from which he retired as Chief Executive for Gas, Power and Renewables in 2001. Prior to Amoco’s merger with BP in 1998, he served in various executive positions and was Chief Executive for Worldwide Exploration and Production and Executive Vice President of Amoco Corporation at the time of the merger.
Mr. Flury was a director of McDermott International, a publicly-traded engineering, procurement and construction company, including when it filed voluntary petitions for reorganization in the United States Bankruptcy Court for the Southern District of Texas in January 2020. Mr. Flury was a director and the non-executive Chairman of Chicago Bridge and Iron Company, N.V., a publicly-traded engineering, procurement and construction company, until it merged into McDermott International in 2018. Previously, Mr. Flury was a member of the Board of QEP Resources, Inc., a publicly-traded oil and gas exploration company, from 2010 to 2015.
Mr. Flury graduated from University of Victoria with a degree in Honors Physics.
SKILLS AND QUALIFICATIONS:
Mr. Flury’s deep knowledge of the energy industry and years of executive and management experience provide him with valuable insights into the strategic issues affecting companies in the oil and gas industry that are helpful to our Company and Board. His service on the boards of other publicly-traded companies has provided him exposure to different industries and approaches to governance that we believe further enhances the Board.
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INDEPENDENT
Age as of the Record Date 73
Director Since 2004
Callon Committees:
Audit, Compensation, Strategic Planning and Reserves
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| | Joseph C. Gatto, Jr. |
| President, Chief Executive Officer and Director |
| Joseph C. Gatto, Jr. is President, CEO and Director of Callon. Mr. Gatto was elected to the Board in 2018. He has served as the Company's CEO since 2017 and as President since 2016. Prior to his appointment as CEO, he served as Chief Financial Officer and Treasurer of the Company from 2014 to 2017, and held various other senior leadership positions within the Company since joining Callon in 2012.
Prior to joining the Company, Mr. Gatto served as Head of Structuring and Execution with Merrill Lynch Commodities from 2010 to 2011, as the founder of MarchWire Capital, LLC, a financial advisory and strategic consulting firm in 2009, and as a Managing Director in the energy investment banking groups of Merrill Lynch & Co. and Barclays Capital from 1997 to 2009.
Mr. Gatto graduated from Cornell University with a B.S. degree and The Wharton School of the University of Pennsylvania with an M.B.A. He currently serves on the board of directors for the Independent Petroleum Association of America.
SKILLS AND QUALIFICATIONS:
Mr. Gatto’s extensive experience in investment banking and the oil and gas industry make him a valuable addition to the Board. Additionally, Mr. Gatto's knowledge of the Company and strong background in capital markets, transactions, strategic planning, and investor relations provide the Board with essential insight and guidance.
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Age as of the Record Date 50
Director Since 2018
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CORPORATE GOVERNANCE
Directors Continuing in Office
Biographical information, including age asThis Proxy Statement includes “forward-looking statements” within the meaning of Section 27A of the Record Date, for our directors continuing in office is set forth below. These individuals are not standing for re-election at this time:
Class I Directors
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| | Michael L. Finch |
| Former Chief Financial Officer (Retired) of Stone Energy Corporation |
| Michael Finch has served as a member of the Board since 2015. He spent nearly 20 years affiliated with Stone Energy Corporation, a publicly-traded oil and gas exploration company, from which he retired as Chief Financial Officer and a member of the Board of Directors in 1999. Prior to his service with Stone Energy, he was employed by Arthur Andersen & Co.
Mr. Finch currently serves on the advisory board of C.H. Fenstermaker & Associates, a multi-disciplinary consulting firm that specializes in surveying and mapping, engineering and environmental consulting. Previously, Mr. Finch was an independent director of Petroquest Energy, Inc. a publicly-traded oil and gas company, from 2003 to 2016, where he served as chairman of the Audit Committee and as a member of the Compensation Committee and the Nominating and Corporate Governance Committee.
Mr. Finch holds a B.S. in Accounting from the University of South Alabama and was licensed as a Certified Public Accountant (currently inactive).
SKILLS AND QUALIFICATIONS:
Mr. Finch’s extensive financial, accounting, and operating experience within the oil and gas industry are extremely valuable to the Board and qualify him as a director. In particular, Mr. Finch’s accounting background and status as a “financial expert” provide the Board valuable perspective on issues facing audit committees.
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INDEPENDENT
Age as of the Record Date 65
Director Since 2015
Callon Committees:
Audit, Compensation, Strategic Planning and Reserves
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| | S. P. Johnson IV |
| Former President, Chief Executive Officer and Co-Founder (Retired) of Carrizo Oil & Gas, Inc. |
| Mr. Johnson was a co-founder of Carrizo and served as its President and CEO as well as a director from December 1993 to December 2019, when Carrizo merged with the Company. Prior to that, he worked for Shell Oil Company for 15 years, where his managerial positions included Operations Superintendent, Manager of Planning and Finance and Manager of Development Engineering.
Mr. Johnson currently serves as a director of Southwestern Energy Company, a publicly-traded oil and gas exploration company. Mr. Johnson previously served as a director of Basic Energy Services, Inc., an oilfield service provider, and as a director of Pinnacle Gas Resources, Inc., a coalbed methane exploration and production company.
Mr. Johnson is a Registered Petroleum Engineer and holds a B.S. in Mechanical Engineering from the University of Colorado.
SKILLS AND QUALIFICATIONS:
Mr. Johnson brings to the Board extensive experience in oil and gas exploration and production and the energy industry through his roles at Carrizo and other energy companies.
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INDEPENDENT
Age as of the Record Date 65
Director Since 2019
Callon Committees:
Strategic Planning and Reserves
Other Current Directorships:
Southwestern Energy Company
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| | Larry D. McVay |
| Managing Director of Edgewater Energy, LLC |
| Larry McVay has served as a member of the Board since 2007. Mr. McVay has been a Managing Director of Edgewater Energy, LLC, a privately held oil and gas investment company, since 2007. From 2003-2006, he served as Chief Operating Officer of TNK-BP Holding, one of the largest oil producing companies in Russia. From 2000-2003, he served as Technology Vice President and Vice President of Health, Safety and Environment for BP plc. Prior to joining BP, Mr. McVay held numerous positions at Amoco, including engineering management and senior operating leadership positions.
Mr. McVay is a director of Linde plc, a publicly-traded industrial gas and engineering company. Previously, Mr. McVay was a director of Praxair, Inc., an industrial gases company in North and South America, until Praxair, Inc. and Linde AG combined to create Linde plc in 2018. Additionally, Mr. McVay was previously a director of Chicago Bridge and Iron Company, N.V., a publicly-traded engineering, procurement and construction company, until it merged into McDermott International in 2018.
Mr. McVay earned a B.S. in Mechanical Engineering from Texas Tech University, where he was recognized as a Distinguished Engineer in 1995.
SKILLS AND QUALIFICATIONS:
Mr. McVay has been directly involved in nearly all aspects of the oil and gas industry, including drilling, production, finance, environmental, risk, and safety. We believe that this experience and his knowledge of the exploration and production industry, particularly in the Permian Basin, as well as his senior executive experience, service on other boards, and independence, provide valuable insight in the development of our long-term strategies and qualify him for service on the Board.
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INDEPENDENT
Age as of the Record Date 73
Director Since 2007
Callon Committees:
Strategic Planning and Reserves (Chairman), Audit, N&ESG
Other Current Directorships:
Linde plc
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| | Steven A. Webster |
| Former Chairman of the Board and Co-Founder of Carrizo Oil & Gas, Inc. |
| Mr. Webster was a co-founder of Carrizo for which he served as a director since 1993 and as its Chairman of the Board since 1997 until December 2019, when Carrizo merged with the Company. Since 2016, Mr. Webster has served as Managing Partner of AEC Partners, a private equity firm engaged in energy investment which was the successor to Avista Capital Partners, a private equity firm he co-founded in 2005 and for which he served as Co-Managing Partner. From 2000 through 2005, Mr. Webster served as Chairman of Global Energy Partners, an affiliate of DLJ Merchant Banking and CSFB Private Equity. From 1988 through 1999, Mr. Webster was the CEO and President of R&B Falcon Corporation and Chairman and CEO of one of its predecessor companies, Falcon Drilling Company, which he founded. Mr. Webster has been a founder or seed investor in numerous other private and public companies.
He has held numerous board positions and currently serves as a director of Oceaneering International and various private companies. Since its founding in 1993, Mr. Webster has served as a Trust Manager of Camden Property Trust, a REIT. Previously, Mr. Webster was a director of Era Group, Inc.
Mr. Webster holds an M.B.A. from Harvard Business School where he was a Baker Scholar. He also holds a B.S. in Industrial Management and an Honorary Doctorate in Management from Purdue University.
SKILLS AND QUALIFICATIONS:
Mr. Webster brings to the Board experience in, and knowledge of, the energy industry, business leadership skills from his tenure as chief executive officer of publicly traded companies and his over 30-year career in private equity and investment activities, and experience as a director of several other public and private companies.
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INDEPENDENT
Age as of the Record Date 69
Director Since 2019
Callon Committees:
Audit, Strategic Planning and Reserves
Other Current Directorships:
Camden Property Trust
Oceaneering International, Inc.
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Class II Directors
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| | Matthew R. Bob |
| President of Eagle Oil and Gas; Managing Member of MB Exploration |
| Matthew Bob has served as a member of the Board since 2014. Mr. Bob currently serves as President of Eagle Oil and Gas and has been the founder and managing member of MB Exploration and affiliated companies since 1994. Previously, Mr. Bob served as President of Hall Phoenix Energy LLC, a privately held oil and gas exploration company, from 2009 to 2011. Prior to forming MB Exploration, Mr. Bob was Chief Geophysicist at Pitts Oil Company. He began his career at Union Oil Company of California where he held various geological positions.
Mr. Bob currently serves as an independent director of Southcross Energy, a natural gas processing and transportation company with operations in South Texas.
Mr. Bob holds a B.A. in Geology from St. Louis University and an M.S. in Geology from Memphis University, and is a graduate of Harvard University’s Executive Management Program. He is a member of the American Association of Petroleum Geologists, the Society of Exploration Geophysicists and the Dallas Petroleum Club, and is a registered Geoscientist in the States of Texas, Mississippi and Louisiana.
SKILLS AND QUALIFICATIONS:
Mr. Bob’s extensive knowledge of the exploration and production industry and technical expertise are assets to the Board and qualify him as a director. His experience as a senior executive further strengthens the strategic and oversight functions of the Board. He is NACD Directorship Certified.
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INDEPENDENT
Age as of the Record Date 63
Director Since 2014
Callon Committees:
Compensation (Chairman), N&ESG, Strategic Planning and Reserves
Other Current Directorships:
Southcross Energy
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| | Anthony J. Nocchiero |
| Former SVP and Chief Financial Officer (Retired) of CF Industries, Inc. |
| Anthony Nocchiero has served as a member of the Board since 2011. Mr. Nocchiero retired as Senior Vice President and Chief Financial Officer for CF Industries, Inc. in 2010, a position he had held since 2007. From 2005 to 2007, he was the Vice President and Chief Financial Officer for Merisant Worldwide, Inc. Prior to that, Mr. Nocchiero was self-employed as an advisor and private consultant from 2002 to 2005. From 1999 to 2001, Mr. Nocchiero served as Vice President and Chief Financial Officer of BP Chemicals, the global petrochemical business of BP plc. Prior to that, he spent 24 years with Amoco Corporation in various financial and management positions, including service as Amoco’s Vice President and Controller from 1998 to 1999.
Mr. Nocchiero has previous experience serving as a board member of various public and private companies, including Terra Nitrogen LP, Keytrade AG, Vysis Corporation and the Chicago Chamber of Commerce.
Mr. Nocchiero holds a B.S. degree in Chemical Engineering from Washington University in St. Louis and an M.B.A. degree from the Kellogg Graduate School of Management at Northwestern University.
SKILLS AND QUALIFICATIONS:
Mr. Nocchiero’s broad financial, accounting and operating experience within the energy industry are valuable to the Board and make him a meaningful contributor as a director. Additionally, Mr. Nocchiero’s status as a “financial expert” and knowledge of public company reporting requirements add meaningful insights to the Board and Audit Committee.
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INDEPENDENT
Age as of the Record Date 69
Director Since 2011
Callon Committees:
Audit (Chairman), Compensation, Strategic Planning and Reserves
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| | James M. Trimble |
| Former Chief Executive Officer and President (Retired) of Stone Energy Corporation |
| James Trimble has served as a member of the Board since 2014. Most recently, Mr. Trimble served as the interim Chief Executive Officer and President of Stone Energy Corporation from 2017 to 2018. Prior to that, Mr. Trimble served as CEO and President of PDC Energy, Inc. from 2011 until his retirement in 2015. Mr. Trimble was Managing Director of Grand Gulf Energy Limited, a public company traded on the Australian Securities Exchange, and President and CEO of Grand Gulf’s U.S. subsidiary Grand Gulf Energy Company LLC, an exploration and development company focused primarily on drilling in mature basins in Texas, Louisiana and Oklahoma, from 2005 to 2010. Earlier in his career, Mr. Trimble was CEO of TexCal (formerly Tri-Union Development) and CEO of Elysium Energy, a privately held oil and gas exploration company. Prior to that, he was Senior Vice President of Exploration and Production for Cabot Oil and Gas, a publicly-traded independent energy company.
Mr. Trimble currently serves as a director of Talos Energy, a publicly-traded oil and gas exploration company, and Chairman of the Board of Crestone Peak Resources LLC, a privately held oil and gas exploration company. Previously, Mr. Trimble was a director of Stone Energy Corporation from 2017 to 2018, PDC Energy from 2009 to 2016, C&J Energy Services from 2016 to 2017, Seisgen Exploration from 2008 to 2015, Grand Gulf Energy from 2009 to 2012, and Blue Dolphin Energy from 2002 to 2006.
Mr. Trimble was an officer of PDC Energy in September 2013, when each of the twelve partnerships for which the company was the managing general partner filed for bankruptcy in the federal bankruptcy court, Northern District of Texas, Dallas Division and was on the board of directors of C&J Energy Services when it filed for bankruptcy in the court of the Southern District of Texas, Houston Division in July 2016.
Mr. Trimble graduated from Mississippi State University where he majored in petroleum engineering for undergraduate (Bachelor of Science) and graduate studies. He is a Registered Professional Engineer in the State of Texas.
SKILLS AND QUALIFICATIONS:
Mr. Trimble’s deep knowledge of the exploration and production industry and his leadership experience at previous companies strengthen the strategic and oversight functions of the Board. His experience on the boards of several other public companies provide valuable perspective on best practices relating to corporate governance, management and strategic transactions.
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INDEPENDENT
Age as of the Record Date 72
Director Since 2014
Callon Committees:
N&ESG (Chairman), Compensation, Strategic Planning and Reserves
Other Current Directorships:
Talos Energy
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Current CompositionSecurities Act of the Board
The following table provides information with respect to the skills1933, as amended (the “Securities Act”), and experience of all current directors and the nominees for Class III terms who have been nominated to stand for election at the Annual Meeting.
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| Name | Frances Aldrich Sevilla-Sacasa | Matthew R. Bob | Barbara J. Faulkenberry | Michael L. Finch | L. Richard Flury
(Chairman) | Joseph C. Gatto, Jr. | S.P. Johnson IV | Larry D. McVay | Anthony J. Nocchiero | James M. Trimble | Steven A. Webster |
| Age (on March 15, 2021) | 65 | 63 | 61 | 65 | 73 | 50 | 65 | 73 | 69 | 72 | 69 |
| Tenure (on March 15, 2021) | 2 | 7 | 3 | 6 | 17 | 3 | 2 | 14 | 10 | 7 | 2 |
| Gender Diversity | ● | | ● | | | | | | | | |
| CEO/President Experience | ● | ● | | | ● | ● | ● | | | ● | ● |
| Senior Executive Leadership | ● | ● | ● | ● | ● | ● | ● | ● | ● | ● | ● |
| Outside Public Boards (current) | ● | ● | ● | | ● | | ● | ● | | ● | ● |
| Outside Public Boards (prior) | | | | ● | ● | | ● | ● | ● | ● | ● |
| E&P Industry Experience | | ● | | ● | ● | ● | ● | ● | ● | ● | ● |
| Energy (Other than E&P) Industry Experience | | ● | | ● | ● | ● | | ● | ● | | ● |
| Financial Expert | ● | | | ● | | | | | ● | | |
| Financial Literacy | ● | ● | ● | ● | ● | ● | ● | ● | ● | ● | ● |
| Financial Oversight/Accounting | ● | | | ● | ● | ● | ● | ● | ● | ● | ● |
| Petroleum and Other Engineering | | | | | | | ● | ● | ● | ● | |
| Geologist or Geophysicist | | ● | | | ● | | | | | | |
| Government/Public Policy/Regulatory | | | ● | | | | | ● | | | |
| HES Experience/Environmental | | | | | | | ● | ● | | ● | |
| Strategic Advising | ● | ● | ● | | ● | ● | ● | ● | ● | ● | ● |
| Investment Banking | ● | | | | | ● | | | | | |
| Supply Chain | | | ● | | | | | ● | | | |
| Technology/IT/Cybersecurity | | | ● | | | | | ● | ● | ● | |
Director Compensation
The compensation of our non-employee directors is reviewed by the Compensation Committee and is approved by the Board. We use a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on the Board. In determining director compensation, we consider the responsibilities of our directors, the significant amount of time the directors spend fulfilling their duties, and the competitive market for skilled directors.
Annually the Compensation Committee directly engages an independent compensation consultant to conduct an analysis of director compensation and recommend any adjustments to the total annual compensation of the non-employee directors. The consultant evaluates competitive market data, utilizing the same industry peer group used for executive compensation market data (see page 50). The Compensation Committee generally targets total compensation near the median of this peer group. The Company's director compensation program generally consists of cash retainers and an annual grant of restricted stock units ("RSUs") awarded under the 2020 Omnibus Incentive Plan (the "2020 Plan"). The RSU grants are awarded to match competitive practices and encourage a long-term alignment with shareholders. The RSUs vest on the first anniversary following the grant, or on the date of the Company’s subsequent Annual Meeting, whichever occurs first.
In first quarter 2020, prior to the global outbreak of COVID-19, the Compensation Committee reviewed the competitiveness of the director compensation package with input from its compensation consultant Meridian Compensation Partners, LLC and determined that director compensation was at approximately the median of the peer group. Upon recommendation from the Compensation Committee, the Board determined to maintain compensation levels established in 2019, except to increase fees for the chairs of the N&ESG Committee and the Strategic Planning and Reserves Committee to $15,000 and $20,000, respectively, in recognition of the increased scope of responsibilities of those roles.
However, in response to commodity price volatility resulting from the worldwide outbreak of COVID-19 and the related supply decisions of the Organization of Petroleum Exporting Countries ("OPEC"), Board members agreed to temporarily reduce their compensation by 17.5% for 2020. This reduction was executed through an initial 35% reduction in compensation in June 2020. After evaluating the partial recovery of commodity prices later in the year, the Board approved and paid a supplementary payment to the non-employee directors in an amount of half of the original reduction (i.e., 17.5%) to align with the reinstatement of senior officer salaries as described on page 42. Due to share price volatility and dilution concerns, the Board also decided to limit the annual grant of RSUs for non-employee directors to 2,037 RSUs (the same number of RSUs granted to each director in 2019) and issue the remaining amount of the annual director compensation in cash.
For 2021, the Board has approved a 12.5% reduction in non-employee director compensation to align with investor priorities and changes to the executive compensation program as described more fully on page 42.
For 2020, the Company's non-employee director compensation consisted of the following, which reflects the net 17.5% compensation reduction:
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| Fee Type | Original 2020 Compensation | Actual 2020 Compensation (with 17.5% Reduction and Equity Reallocation) |
| Board member cash retainer | $80,000 | $150,966 |
Restricted Stock Unit (RSU) Grant Value(1) | $165,000 | $51,129 |
| Chairmen Fees | | |
| Non-Executive Chair | $120,000 | $99,000 |
| Audit Committee Chair | $20,000 | $16,500 |
| Compensation Committee Chair | $15,000 | $12,375 |
| Nominating, Environmental, Social and Governance Committee Chair | $15,000 | $12,375 |
| Strategic Planning and Reserves Committee Chair | $20,000 | $16,500 |
(1) Targeted equity value for 2020 delivered via same number of shares granted in 2019, which is 2,037 (with a grant date fair value of $51,129 based on June 8, 2020, closing stock price of $25.10, adjust to reflect the 1-for-10 reverse stock split effective August 7, 2020), with the remainder paid in cash in a single lump sum on June 8, 2020.
In the first quarter of 2020, the Company issued payment to Ms. Aldrich Sevilla-Sacasa and Messrs. Johnson and Webster for the final quarterly retainer for their 2019-2020 service on the Carrizo Board of Directors in accordance with the terms of the merger agreement.
Each non-employee director is reimbursed for reasonable out-of-pocket costs incurred to attend Board and Committee meetings. If a member of the Board is an officer or employee of the Company, he or she does not receive compensation for his or her service as a director.
Non-employee directors have the opportunity to make an annual election to defer some or all of their cash retainer or annual stock award pursuant to the terms of a deferred compensation plan for non-employee directors (the "Deferred Compensation Plan") until separation from service as a director. All deferrals under the plan are credited as phantom stock units of Callon stock. Callon's non-employee directors are subject to stock ownership guidelines of five times the annual cash retainer of $80,000. As of December 31, 2020, all non-employee directors were in compliance with the stock ownership policy, either through meeting the ownership requirement or by being within the transition period. For more information on the stock ownership guidelines, see page 50.
The table below indicates the total compensation earned during 2020 for each non-employee director:
NON-EMPLOYEE DIRECTOR COMPENSATION FOR 2020
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| Director | Fees Earned or Paid in Cash(a)(b)(c) | | Stock Awards(d) | | All Other
Compensation | | Total |
Frances Aldrich Sevilla-Sacasa(e) | $ | 170,996 | (f) | $ | 51,129 | (g) | $0 | | $ | 222,125 |
| Matthew R. Bob | $ | 163,371 | (h) | $ | 51,129 |
| $0 | | $ | 214,500 |
| Barbara J. Faulkenberry | $ | 150,996 | (f) | $ | 51,129 | | $0 | | $ | 202,125 |
| Michael L. Finch | $ | 150,996 | (f) | $ | 51,129 | | $0 | | $ | 202,125 |
| L. Richard Flury | $ | 249,996 | (i) | $ | 51,129 | | $0 | | $ | 301,125 |
S. P. Johnson IV(e) | $ | 170,996 | (j) | $ | 51,129 | (g) | $4,816,175 | (n) | $ | 5,038,300 |
| Larry D. McVay | $ | 167,496 | (k) | $ | 51,129 | | $0 | | $ | 218,625 |
| Anthony J. Nocchiero | $ | 167,496 | (l) | $ | 51,129 | | $0 | | $ | 218,625 |
| James M. Trimble | $ | 163,371 | (m) | $ | 51,129 | | $0 | | $ | 214,500 |
Steven A. Webster(e) | $ | 170,996 | (j) | $ | 51,129 | | $0 | | $ | 222,125 |
(a)Does not include reimbursement of expenses associated with attending Board and Committee meetings.
(b)The Board elected to receive a 17.5% reduction in annual retainer and fees related chairing a Board committee for 2020.
(c)Cash compensation for 2020 includes the director's annual retainer as well as cash paid in lieu of equity in the amount of $84,996 as a result of the decision by the Board to limit the issuance of shares to non-employee directors in 2020 due to the recent low trading prices of Callon.
(d)Amounts calculated utilizing the provisions of FASB ASC Topic 718. These amounts utilize a grant date fair value of $25.10 per share for the awards. The aggregate number of stock unit awards outstanding as of December 31, 2020 for each director is 2,037. These amounts reflect the 1-for-10 reverse stock split of common stock of the Company effective August 7, 2020.
(e)Mr. Johnson, Mr. Webster, and Ms. Aldrich Sevilla-Sacasa received a $20,000 cash payment in January 2020 for outstanding board fees owed by Carrizo. Mr. Johnson and Mr. Webster each elected to have his cash payment deferred pursuant to the terms of the Deferred Compensation Plan.
(f)Represents annual retainer of $66,000 and $84,996 in lieu of equity.
(g)Mr. Johnson and Ms. Aldrich Sevilla-Sacasa each elected to have their equity award deferred pursuant to the terms of the Deferred Compensation Plan.
(h)Represents annual retainer of $66,000, $84,996 in lieu of equity, and an additional $12,375 for acting as Chairman of the Compensation Committee.
(i)Represents annual retainer of $66,000, $84,996 in lieu of equity, and an additional $99,000 for acting as the non-executive Chairman of the Board.
(j)Represents annual retainer of $66,000 and $84,996 in lieu of equity. Mr. Johnson and Mr. Webster each elected to have his annual retainer deferred pursuant to the terms of the Deferred Compensation Plan.
(k)Represents annual retainer of $66,000, $84,996 in lieu of equity, and an additional $16,500 for acting as Chairman of the Strategic Planning and Reserves Committee.
(l)Represents annual retainer of $66,000, $84,996 in lieu of equity, and an additional $16,500 for acting as Chairman of the Audit Committee.
(m)Represents annual retainer of $66,000, $84,996 in lieu of equity, and an additional $12,375 for acting as Chairman of the N&ESG Committee.
(n)Pursuant to the terms of the Merger Agreement and the Carrizo Change in Control Severance Plan, in July 2020 the Company paid to Mr. Johnson $4,146,000 in severance benefits and a 2019 annual bonus of $670,175
Director Independence
To minimize potential conflicts, it is a policy of the Board that a majority of the Board be independent. In accordance with the standards for companies listed on the New York Stock Exchange ("NYSE") and the rules and regulations promulgated by the SEC, as well as our Corporate Governance Guidelines, the Board considers a director to be independent if it has affirmatively determined that the director has no material relationship with the Company that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. The Board revisits the independence of each director on an annual basis and makes independence determinations when a newly appointed director joins the Board between annual meetings. The Board reviewed the independence of its directors and nominees in accordance with the standards described above and affirmatively determined that each of the directors (other than Mr. Gatto) and nominees is independent.
Board Structure and Responsibilities
Governance Highlights
We are committed to effective and sustainable corporate governance, which we believe strengthens Board and management accountability, promotes the long-term interests of our shareholders, and helps build public trust in our Company. We adhere to our core values and governance principles to ensure that we operate our business responsibly, ethically, and in a manner aligned with the interests of our shareholders. Highlights of our commitment to strong corporate governance include the following:
• Ten of our eleven directors are independent. Joseph C. Gatto, Jr., our President and CEO, is the only non‑independent member of the Board.
• All Board committees are comprised entirely of independent directors.
• An independent, non-executive director serves as the Company’s Chairman of the Board.
• The Company encourages a paced refreshment of the Board. Five of the eleven directors have joined within the last five years.
• The Board includes a balance of experience, tenure, and qualifications in areas important to our business.
• We have an over-boarding policy in place for directors.
• The Board conducts regular executive sessions with our independent directors.
• We regularly refresh our governance documents.
• The Board and its committees conduct annual self-evaluations.
• We have adopted stringent insider trading, anti-hedging, and anti-pledging policies.
• We engage in active shareholder engagement practices.
• The Board oversees environmental, social and governance practices.
• The Board oversees succession planning for the CEO and executive officer positions.
• We engage an independent executive compensation consultant that reports directly to the Compensation Committee.
• The Company adopted Annual Say-On-Pay voting.
• The Compensation Committee has implemented significant director and executive officer stock ownership guidelines.
• We do not have employment agreements with any executive officers, with the exception of a legacy employment agreement with Gregory F. Conaway that was inherited by the Company as a result of the Carrizo Acquisition.
• We have double-trigger change in control provisions in our severance agreements and equity awards.
• We do not have a Poison Pill (Shareholder Rights Plan).
General Information
The Board is responsible for determining the ultimate direction of our business strategy, overseeing our governance policies and culture and promoting the long-term interests of the Company. The Board possesses and exercises oversight authority over our business but, subject to our governing documents and applicable law, delegates day-to-day management of the Company to our CEO and senior management. The Board generally fulfills its responsibilities through regular meetings to review significant developments affecting the Company and to act on matters requiring Board approval. Between regularly scheduled meetings, the Board may also hold special meetings, execute written consents, and participate in telephonic conference calls when an important matter requires Board action. During 2020, faced with the challenges of COVID-19 and the related commodity price volatility the Board met formally 16 times. All of our directors attended at least 75% of Board and committee meetings either in person or by telephone during the time he or she served on the Board or committees. In addition, to promote open discussion, the non-employee directors meet in executive session without management regularly. L. Richard Flury, the Chairman of the Board, was selected to preside over all executive sessions during 2020. It is the policy of the Company that, to the extent possible, all directors attend the Company’s Annual Meetings of Shareholders. Each then-current member of the Board attended the Company's 2020 Annual Meeting of Shareholders.
The Board, in consultation with the N&ESG Committee, has determined that a classified board structure continues to be appropriate for us, particularly in an industry where a long-term strategic planning outlook is critical for the successful development of oil and natural gas resources through commodity price cycles. Our future success depends in significant part on the in-depth knowledge of our business and operations by our directors. We believe that a classified board promotes stability, continuity and experience among our directors, which is essential to developing and implementing long-term strategies, while resisting the pressure to focus on short-term results at the expense of enhancing long-term value and success.
Board Leadership Structure
One of the Board’s key responsibilities is determining the appropriate leadership structure for the Board, which helps ensure its effective and independent oversight of management on behalf of our shareholders. The Board believes that there is no one generally accepted approach to providing board leadership and given the dynamic and competitive environment in which we operate, the optimal board leadership structure may vary as circumstances warrant. Accordingly, the Board has no policy mandating the separation or combination of the roles of Chairman of the Board and CEO, but periodically discusses and considers the structure as circumstances change. As such, the Board believes that it is in the best position to evaluate the needs of the Company and to determine how best to organize the Company’s leadership structure to meet those needs.
Currently, the Board has separated the roles of CEO and Chairman of the Board and appointed independent director Mr. Flury as Chairman of the Board and Mr. Gatto as CEO.
The Board is currently comprised of eleven directors, of whom ten are independent. Mr. Gatto, the Company’s President and CEO, serves as an executive member of the Board. Independent directors and management generally have different perspectives and roles in strategy development. Our independent directors have backgrounds in the oil and gas industry or other relevant experiences which complement the CEO’s comprehensive, company-specific perspective. As the officer having primary responsibility for managing our daily operations and identifying strategic priorities, the CEO is best positioned to lead the Board through reviews of key business and strategy decisions. This dynamic effectively promotes the opportunity for a successful blend of our independent directors’ perspectives and oversight responsibilities and facilitates information flow and communication between senior management and the Board, which are both essential to effective governance.
Areas of Board Oversight
Board Risk Oversight
As an independent oil and gas company, we face a number of risks. Assessing and managing material risk is the responsibility of our management team, while the Board, as a whole and through its committees, generally oversees risk management and our long-term strategic direction, ensuring that risks undertaken by the Company are consistent with the Board’s risk tolerance. The Board leadership structure and our practice of a high degree of interaction between our directors and members of senior management facilitate this oversight function. Our executive officers regularly attend the Board meetings and are available to address any questions or concerns raised by the Board related to risk management and any other matters. Other members of our management team periodically attend Board meetings or are otherwise available to confer with the Board to the extent their expertise is required to address risk management matters. The information flow and communication throughout the year between the Board and senior management regarding long-term strategic planning and short-term operational reporting includes matters of material risk inherent in our business of developing oil and natural gas assets. The Board realizes, however, that it is not possible or prudent to eliminate all risk and that appropriate risk-taking is essential in order to achieve our near and longer-term objectives.
While the Board is ultimately responsible for risk oversight, the Board exercises additional risk oversight responsibilities through its committees, which are comprised solely of independent directors. Each such committee has primary risk oversight responsibility with respect to matters within the scope of its duties as contemplated by its charter and as described below.
Standing Committees of the Board of Directors
The Board has four standing committees, each of which is comprised entirely of independent directors. Each committee, discussed below in greater detail, has a written charter that establishes the responsibilities and scope of the committee and its Chairman. Each committee charter was reviewed in 2020 and revised as deemed necessary by the Board.
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| BOARD OF DIRECTORS | |
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The Audit Committee, among other duties, is charged with overseeing material risk exposures in the areas of financial reporting.
| | | The N&ESG Committeefocuses on issues relating to corporate governance, ESG matters, and Board committee composition. This Committee also assists the Board in fulfilling its oversight responsibilities with respect to succession planning for our directors and executive officers.
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The Compensation Committeeoversees the Company's compensation programs and reviews the potential risks that may result from our compensation policies to ensure they do not encourage unnecessary or excessive risk taking by management.
| | | The Strategic Planning and Reserves Committeeoversees the development and implementation of our strategic plan and the integrity of our reserve estimation reporting process.
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Committees of the Board
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| | Callon Committees |
Name and Independence | Audit | Compensation | Nominating
and ESG | Strategic
Planning and
Reserves |
Class I Directors (term expires in 2022) |
| Michael L. Finch
Independent
| ○ | ○ | | ○ |
| S. P. Johnson IV
Independent
| | | | ○ |
| Larry D. McVay
Independent
| ○ | | ○ | ● |
| Steven A. Webster
Independent
| ○ | | | ○ |
Class II Directors (term expires in 2023) |
| Matthew R. Bob
Independent
| | ● | ○ | ○ |
| Anthony J. Nocchiero
Independent
| ● | ○ | | ○ |
| James M. Trimble
Independent
| | ○ | ● | ○ |
Class III Directors (term expires in 2021) |
| Frances Aldrich Sevilla-Sacasa
Independent
| | | ○ | ○ |
| Barbara J. Faulkenberry
Independent
| ○ | | ○ | ○ |
| L. Richard Flury
Independent Chairman of the Board
| ○ | ○ | | ○ |
| Joseph C. Gatto, Jr.
President and Chief Executive Officer
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● Chairman ○Member
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Audit Committee
Anthony J. Nocchiero (Chairman and Financial Expert)
Barbara J. Faulkenberry
Michael L. Finch (Financial Expert)
L. Richard Flury
Larry D. McVay
Steven A. Webster
| PURPOSE
The principal function of the Audit Committee is to assist the Board in overseeing the areas of financial reporting, accounting integrity, compliance, and risk management.
MEETINGS IN 2020
Six meetings; all members attended at least 75% of Committee meetings during the time he or she served on the Committee.
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RESPONSIBILITIES
Pursuant to its charter, our Audit Committee functions in an oversight role and has the following purposes:
• Overseeing the quality, integrity and reliability of the financial statements and other financial information we provide to any governmental body or the public;
• Overseeing our compliance with legal and regulatory requirements;
• Selecting and hiring (subject to ratification by our shareholders) the independent public accounting firm;
• Overseeing the qualifications, independence and performance of the independent auditor;
• Overseeing the effectiveness and performance of our internal audit function;
• Overseeing our internal controls regarding finance, accounting, legal compliance and ethics;
• Establishing and overseeing procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or audit matters, including the confidential, anonymous submission of concerns regarding such matters;
• Assessing matters related to risk, risk controls and compliance, including the review and approval of hedging practices and policies;
• Overseeing matters related to cybersecurity and the security of information technology systems, including management’s plans, programs and policies designed to mitigate cybersecurity risks and third party reports on the information technology control environment;
• Producing the Audit Committee Report for inclusion in our annual proxy statement; and
• Performing such other functions the Board may assign to the Audit Committee from time to time.
The Audit Committee oversees our accounting and auditing procedures and financial reporting practices, and is responsible for the engagement of and oversight of all audit work conducted by our independent registered public accounting firm. The Audit committee also oversees the periodic rotation of the lead audit partner from our independent registered public accounting firm, as required by SEC rules, and is directly involved in the selection of such partner. The Audit Committee meets at least quarterly with our executive and financial management teams, internal auditor and our independent registered public accounting firm to review our financial information and systems of internal controls. The independent registered public accounting firm reports directly to the Audit Committee and, if requested, meets with the Audit Committee in executive session without management representatives present. The Audit Committee has the authority to investigate any matters brought to its attention and to retain outside legal, accounting or other consultants if deemed necessary.
The Audit Committee is required to pre-approve all audit, audit-related and non-audit services provided by the independent registered public accounting firm exceeding $25,000. The Audit Committee approved all of the fees described in Proposal 3.
Relationship with Independent Registered Public Accounting Firm
Management is responsible for establishing and maintaining internal controls over financial reporting and for assessing the effectiveness of those controls. The independent registered public accounting firm is responsible for performing independent audits of our consolidated financial statements and internal controls over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (“PCAOB”) (United States) and issuing reports thereon. The Audit Committee’s responsibility is to monitor and oversee these processes. Grant Thornton LLP has served as our independent registered public accounting firm since 2016. The Audit Committee evaluated and reaffirmed Grant Thornton LLP as our independent registered public accounting firm following the Carrizo Acquisition.
INDEPENDENCE
The Board has determined that all members meet the independence requirements of the SEC and NYSE rules and the financial literacy requirements of the NYSE. Members of the Audit Committee may not simultaneously serve on the audit committee of more than two other public companies.
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Compensation Committee
Matthew R. Bob (Chairman)
Michael L. Finch
L. Richard Flury
Anthony J. Nocchiero
James M. Trimble
| PURPOSE
The purpose of the Compensation Committee is to establish our compensation programs and oversee the alignment of our compensation with our business strategies.
MEETINGS IN 2020
Eleven meetings; all members attended at least 75% of Committee meetings.
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RESPONSIBILITIES
Pursuant to its charter, the Compensation Committee’s duties include the responsibility to assist the Board in:
• Evaluating the performance of and establishing the compensation of the CEO;
• Establishing, with input from the CEO, the compensation for our other executive officers;
• Establishing and reviewing our overall executive compensation philosophy and approving changes to our compensation program;
• Reviewing incentive compensation arrangements to confirm that executive compensation does not encourage unnecessary risk taking;
• Administering our long-term incentive plans;
• Reviewing and approving the CD&A for inclusion in our annual proxy statement;
• Reviewing and recommending to the Board compensation for non-employee directors;
• Retaining and overseeing compensation consultants, including the independence of the consultants;
• Reviewing and approving performance criteria and results for bonus and performance-based equity awards for executive officers and approving awards to those officers; and
• Performing such other functions as the Board may assign to the Compensation Committee from time to time.
The Committee retains the services of an independent compensation consultant to assist in the annual review of market and industry data to assess our competitive position with respect to each element of total compensation and to assist with the attraction and retention of, and appropriate reward to, our CEO and other executive officers. Pursuant to applicable SEC and NYSE rules, the Committee has determined that no conflicts of interest exist or have existed related to the Committee’s engagement of FW Cook or Meridian.
INDEPENDENCE
Consistent with the listing requirements of the NYSE, the Compensation Committee is composed entirely of independent members of the Board, as each member meets the independence requirements set by the NYSE and applicable federal securities laws.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
L. Richard Flury, Matthew R. Bob, Michael L. Finch, Anthony J. Nocchiero and James M. Trimble served on the Company’s Compensation Committee during fiscal year 2020. No member of our Compensation Committee is presently or has been an officer or employee of the Company. In addition, during the last fiscal year, no executive officer served as a member of the board or the compensation committee (or other board committee performing similar functions or, in the absence of any such committee, the entire board) of any entity in which a Callon Board member is an executive officer.
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Nominating, Environmental, Social and
Governance Committee
James M. Trimble (Chairman)
Frances Aldrich Sevilla-Sacasa
Matthew R. Bob
Barbara J. Faulkenberry
Larry D. McVay
| PURPOSE
The purpose of the N&ESG Committee is to oversee ESG matters; identify and recommend qualified candidates to the Board for nomination as members of the Board; assess director, Board and committee effectiveness; develop and implement our Corporate Governance Guidelines; oversee succession planning for executive officers; and otherwise take a leadership role in shaping the corporate governance of our Company.
MEETINGS IN 2020
Four meetings; all members attended at least 75% of Committee meetings.
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RESPONSIBILITIES
Pursuant to its charter, the N&ESG Committee’s duties include the responsibility to assist the Board in:
• Overseeing ESG policies, performance and disclosure, as well as developing recommendations for the Board on emerging issues related to our industry;
• Evaluating a set of specific criteria for Board membership and identifying individuals qualified to become Board members, recommending nominees for election at the next annual meeting of shareholders, reviewing the suitability for continued service as a director of each Board member, and filling any Board vacancies;
• Assessing the size and composition of the Board and its committees and recommending to the Board the members and chair for each Board committee;
• Overseeing and approving plans for Board continuity and succession;
• Advising the Board and making recommendations regarding appropriate corporate governance practices and assisting the Board in implementing those practices, including periodically reviewing the adequacy of our Corporate Governance Guidelines, our Code of Business Conduct and Ethics, and the various Board committee charters, and making recommendations for changes thereto to the Board;
• Overseeing the annual self-evaluation of the performance of the Board and its committees;
• Overseeing and approving plans for management continuity and succession;
• Recommending to the Board a successor to the CEO when a vacancy occurs;
• Reviewing directorships in other public companies held by or offered to directors or executive officers of the Company;
• Overseeing continuing education for the Board; and
• Performing other such functions as the Board may assign to the N&ESG Committee from time to time.
INDEPENDENCE
Each member of the Committee meets the independence requirements of the NYSE and applicable federal securities laws.
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Strategic Planning and
Reserves Committee
Larry D. McVay (Chairman)
Frances Aldrich Sevilla-Sacasa
Matthew R. Bob
Barbara J. Faulkenberry
Michael L. Finch
L. Richard Flury
S. P. Johnson IV
Anthony J. Nocchiero
James M. Trimble
Steven A. Webster
| PURPOSE
The purpose of the Strategic Planning and Reserves Committee is to manage and oversee the Board’s participation in the development of the Company’s strategic plan, and oversee the integrity of the determination of our oil and natural gas reserve estimates.
MEETINGS IN 2020
Five meetings; all members attended at least 75% of Committee meetings.
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RESPONSIBILITIES
The Strategic Planning and Reserves Committee was created to oversee the responsibilities of the Board relating to strategic planning, including:
•Overseeing the Board’s participation in the development of a strategic plan and the consideration and assessment of strategic decisions;
•Monitoring management's implementation of the strategic plan, and advising the Board if additional Board action appears to be needed;
•Assuring that management is addressing the personnel requirements for the successful implementation of the strategic plan;
•Overseeing our reserve engineering reports and reserve engineering firm, including: (i) the integrity of our reserve reports, (ii) determinations regarding the qualifications and independence of our independent reserve engineering firm, and (iii) the performance of our independent reserve engineering firm; and
•Performing other such functions as the Board may assign to the Strategic Planning and Reserves Committee from time to time.
INDEPENDENCE
Each member of the Committee meets the independence requirements of the NYSE and applicable federal securities laws.
Corporate Governance Matters
Corporate Governance Principles
The Board believes that sound corporate governance practices and policies provide an important framework to assist in fulfilling its duty to shareholders. The framework for our corporate governance can be found in our governance documents, which include:
•Corporate Governance Guidelines;
•Code of Business Conduct and Ethics; and
•Charters for the Audit, Compensation, N&ESG, and Strategic Planning and Reserves Committees.
In keeping with sound corporate governance practices, each of these documents is reviewed annually and is available on our website www.callon.com under the “About Callon - Governance” menu. Shareholders may obtain a printed copy, free of charge, by sending a written request to our Corporate Secretary at our principal executive office in Houston, Texas. Any amendments to these documents are promptly posted on our website.
Code of Business Conduct and Ethics
Our Code of Business Conduct and Ethics (the “Code”) sets forth the policies and expectations for Callon’s officers, employees and directors as well as consultants, representatives, agents, and contractors while acting on Callon’s behalf. The Code addresses a number of topics including conflicts of interest, compliance with laws, insider trading, prohibitions on discrimination and harassment, workplace safety and protection of the environment, and fair disclosure. In addition, the Code explicitly prohibits directors, officers and employees from engaging in hedging transactions in Callon stock. It also states that no corporate funds may be used for political contributions.
The Code meets the NYSE’s requirements for a code of business conduct and ethics and also includes a code of ethics applicable to our senior financial officers consistent with the requirements of the SEC. We intend to satisfy the disclosure requirements regarding any amendment to, or any waiver of, a provision of the Code by promptly posting such information on our website. Concerns about potential violations of the Code can be anonymously reported to our ethics helpline by calling 1-844-471-7637 or accessing the following website: callon.ethicspoint.com.
Environmental, Social and Governance
Callon’s mission is to build trust, create value and drive sustainable growth responsibly for our investors, our employees and the communities in which we operate. Consistent with this mission, the Board oversees the Company’s ESG programs with a focus on long-term, sustainable investments in our operations, team member development, and protecting the environment in the best interests of all of our stakeholders. The Board regularly addresses the Company’s efforts to continuously improve outcomes regarding workplace safety, environmental impact, team member diversity and workforce development. As described in more detail above beginning on page 10, the Board is also committed to effective and sustainable corporate governance, which we believe strengthens Board and management accountability, promotes the long-term interests of our shareholders, and helps build public trust in our Company.
Communication with Directors
Shareholders or other interested parties who wish to communicate with the full Board, independent directors as a group, or individual directors, may do so by sending a letter in care of the Corporate Secretary to our principal executive office located at 2000 West Sam Houston Parkway South, Suite 2000, Houston, Texas 77042. Our Corporate Secretary has the authority to discard any solicitations, job inquiries, advertisements, surveys or other inappropriate communications, but will forward any other mail to the named director or group of directors. Our Corporate Secretary will forward approved mail addressed to the full Board to the Chairman of the Board who, if appropriate, will share the item with the full Board.
Board Evaluations
The N&ESG Committee, in consultation with the Chairman of the Board, annually leads the performance review of the Board and its committees. The self-evaluation process seeks to obtain each director’s assessment of the effectiveness of the Board, the committees and their leadership, Board and committee composition, and Board and management dynamics. In 2020, the Board engaged an independent third-party advisor to conduct the annual Board evaluation process. Each director, as well as select members of management, was interviewed by the advisor and also completed a survey about the Board and the committees on which the director served. The results were discussed by the full Board and within each committee.
Director Education
The Company sponsors an ongoing director education program that assists Board members in fulfilling their responsibilities. Training commences with an orientation program when a new director joins the Board. Ongoing education is provided through written materials, presentations in Board meetings, and training outside the boardroom. All Callon directors are members of the National Association of Corporate Directors and are provided an annual training allowance to pursue relevant director education programs.
EXECUTIVE OFFICERS
Executive Officer Biographies
President, Chief Executive Officer and Director
Joseph C. Gatto, Jr. has served the Company as Chief Executive Officer since May 2017 and as a Director since May 2018. Mr. Gatto joined the Company in April 2012 as Senior Vice President, Corporate Finance, with responsibility for our capital markets and strategic planning functions, in addition to investor relations activities. Effective March 31, 2014, Mr. Gatto was appointed Chief Financial Officer and Treasurer of the Company and in August 2016 was promoted to President while retaining the roles of Chief Financial Officer and Treasurer. In May 2017 he was promoted to Chief Executive Officer while retaining the role as President. Mr. Gatto was elected as a member of the Board of Directors in May 2018. Prior to joining Callon, Mr. Gatto was a Managing Director in the energy investment banking groups of Merrill Lynch & Co. and Barclays Capital from July 1997 until February 2009, with involvement in all phases of M&A and capital raising transactions for his clients. In February 2009, he founded MarchWire Capital, LLC, a financial advisory and strategic consulting firm, and subsequently served as Head of Structuring and Execution with Merrill Lynch Commodities, Inc. from January 2010 until November 2011. Mr. Gatto currently serves on the board of directors for the Independent Petroleum Association of America and as a member of the Contemporary Arts Museum Houston Board of Trustees. Mr. Gatto graduated from Cornell University with a B.S. degree and The Wharton School of the University of Pennsylvania with an M.B.A.
Senior Vice President and Chief Financial Officer
James P. Ulm, II has served the Company as Senior Vice President and Chief Financial Officer since December 2017. Prior to joining Callon in December 2017, Mr. Ulm was Founder and Managing Partner of NewVista Energy Partners, a private E&P company focused on emerging resource plays in the Permian and Anadarko Basins, from 2015 to 2017. Previously, he served as Senior Vice President and Chief Financial Officer for three private companies from 2008 to 2015 where he was responsible for financial and accounting management, capital formation, and corporate strategy. Prior to these roles, Mr. Ulm served from 1999 to 2008 as Senior Vice President and Chief Financial Officer for Pogo Producing Company, a publicly-traded oil and gas company which had meaningful operations in the Permian Basin. From 1995 to 1999, he was the Treasurer for Newfield Exploration Company. Earlier in his career, he held finance and accounting leadership roles with American Exploration Company and Tenneco Oil Company. Mr. Ulm has more than 30 years of experience in the energy industry with responsibilities including finance, accounting, strategic planning, M&A, business development and risk management. Mr. Ulm holds an M.B.A. and an undergraduate degree in Accounting, both from the University of Texas at Austin.
On March 16, 2021, the Company announced that, due to personal and health reasons, Mr. Ulm will retire in May 2021. The Company has commenced a search for a successor to Mr. Ulm, who will continue in an advisory role to the Company after his retirement to assist with the transition of the new CFO.
Senior Vice President and Chief Operating Officer
Dr. Jeffrey S. Balmer served the Company as Senior Vice President and Chief Operating Officer since November 2018. Dr. Balmer has over 30 years of operations and subsurface leadership experience in the energy industry. Prior to joining Callon in November 2018, his most recent role was Vice President and General Manager, Southern Operating Area, for Encana Corporation with responsibility for all of Encana’s upstream operations in the Permian Basin from 2015 to 2018. After joining Encana in 2008, he held various leadership roles including Vice President and General Manager, Western Operating Area, managing operations in the Eagle Ford, DJ, San Juan, Piceance and Wind River Basins, and Vice President, Emerging Plays. Prior to joining Encana, Dr. Balmer served in a variety of technical and operations leadership roles, including positions with ConocoPhillips, Burlington Resources and ExxonMobil Corporation. Dr. Balmer is a member of the board of directors of the Permian Basin Petroleum Association. He holds B.S. and Ph.D. degrees in Petroleum Engineering, in addition to an M.S. in Environmental and Planning Engineering, from Missouri University of Science and Technology (formerly University of Missouri – Rolla).
Senior Vice President, General Counsel and Corporate Secretary
Michol L. Ecklund has served the Company as Senior Vice President, General Counsel and Corporate Secretary since February 2019 and as Vice President, General Counsel and Corporate Secretary from November 2017 to February 2019. Prior to joining Callon in November 2017, Ms. Ecklund was Deputy General Counsel for Operations & Commercial Law at Marathon Oil Company from October 2014 to October 2017, where she oversaw the legal team for global operations and acquisitions and divestitures as well as corporate communications. During her 15 years at Marathon Oil, Ms. Ecklund served in progressive positions within and outside the Law Organization including compliance, litigation, human resources, investor relations, corporate communications and tax. Prior to Marathon Oil, she practiced law at Baker Botts LLP in Houston. Ms. Ecklund currently serves as a member of the Rice University Board of Trustees, a director of The Woman's Hospital of Texas, and a director of the World Affairs Council of Houston. Ms. Ecklund received a B.A. degree from Rice University and a J.D. degree from Harvard Law School.
Vice President and Chief Accounting Officer
Gregory F. Conaway has served the Company as Vice President and Chief Accounting Officer since he joined Callon in December 2019. Prior to joining Callon, Mr. Conaway served as Vice President and Chief Accounting Officer of Carrizo from 2014 to December 2019, when Carrizo merged with the Company, as Controller of Financial Reporting from 2012 to 2014 and Assistant Controller from 2011 to 2012. Prior to that, Mr. Conaway worked for Ernst & Young, holding positions of increasing responsibility, including senior manager. Mr. Conaway began his career with Arthur Andersen in 1998. Mr. Conaway is a member of the American Institute of CPAs and the Texas Society of CPAs, and is a board member of Faith West Academy Athletic Booster Club. Mr. Conaway is a CPA and holds an M.B.A. and a B.B.A. in Accounting from Angelo State University.
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Proposal 2
Approve, on an Advisory Basis,
the Compensation
of the Company’s NEOs
| | The Board recommends a vote FOR the compensation paid to the Company’s named executive officers, as disclosed in this Proxy Statement.
• Provides performance-based and market-aligned pay opportunities that are intended to foster alignment, engagement, and retention of key talent to drive Company performance and long-term shareholder value.
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In accordance with the requirements of Section 14A21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”),. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the related rules of the SEC, we are includingforward-looking statements. In some cases, you can identify forward-looking statements in this Proxy Statement a separate proposal, which gives by words such as “anticipate,” “project,” “intend,” “estimate,” “expect,” “believe,” “predict,” “budget,” “projection,” “goal,” “plan,” “forecast,” “target” or similar expressions.
All statements, other than statements of historical facts, included in this Proxy Statement and the information incorporated by reference that address activities, events or developments that we expect or anticipate will or may occur in the future are forward-looking statements, including such things as:
•our shareholdersoil and natural gas reserve quantities, and the opportunity to approve discounted present value of these reserves;
•the compensationamount and nature of our NEOs by voting “capital expenditures;
•FORour future drilling and development plans and our potential drilling locations;
•” or “the timing and amount of future capital and operating costs;
•AGAINSTproduction decline rates from our wells being greater than expected;
•” the resolution below (commonly referred to as “Say-on-Pay”) on an annual basis. While the Boardcommodity price risk management activities and the Compensation Committee intendimpact on our average realized prices;
•business strategies and plans of management;
•our ability to carefully considerconsummate and efficiently integrate recent acquisitions; and
•prospect development and property acquisitions.
We caution you that the shareholder vote resulting fromforward-looking statements contained or incorporated by reference in this Proxy Statement are subject to all of the proposal,risks and uncertainties, many of which are beyond our control, incident to the final vote willexploration for and development, production and sale of oil and natural gas. These and other risks include, but are not be binding on us and is advisory in nature.
The Board recognizes that executive compensation is an important matter for our shareholders. The Compensation Committee is tasked withlimited to, the implementation of our executive compensation philosophy and, asrisks described in detail in the CD&A below, the design of our executive compensation programs. Our executive compensation program is designed to attract, motivate and retain a qualified executive management team and to appropriately reward our executive officers for their contributions to the achievement of our short-term and long-term business goals and the creation and enhancement of shareholder value.
As described in the CD&A, we believe our compensation program is effective, appropriate and aligned with the long-term interests of our shareholders and that the total compensation package provided to the NEOs is reasonable and not excessive. As you consider this Proposal 2, we urge you to read the CD&A for a full descriptionPart I, Item 1A of our 2020 executive compensation programAnnual Report on Form 10-K and recently-adopted leading-edge 2021 program. Further, in determining whether to approve this proposal, we believe that shareholders should also consider the following:all Quarterly Reports on Form 10-Q filed subsequently thereto. These factors include:
•Performance-based compensation.Our executive compensation program seeks to align executive compensation with shareholder value on an annualvolatility of oil, natural gas and long-term basis throughnatural gas liquids (“NGLs”) prices or a combinationprolonged period of base pay, annual incentives and long-term incentives. By design, a significant portion of our NEO compensation is performance-based, with variable pay comprising 83% percent of compensation opportunity for our CEO. Please review the CD&A for more information on how our 2020 compensation was linked to Company performance.low oil, natural gas or NGLs prices;
•Pay practices reflect individualgeneral economic conditions including the availability of credit and market factors.access to existing lines of credit;
• The Compensation Committee considerschanges in the skills, experiencesupply of and performance of each of our NEOsdemand for oil and natural gas, including as well as competitive market data in setting annual compensation opportunities, and directs our independent compensation consultant to provide benchmarking data which serves as onea result of the considerationsCOVID-19 pandemic and various governmental actions taken to mitigate its impact or actions by, or disputes among, members of compensation decisions.
• “Double trigger” severance agreements with fixed term.Change in control severance compensation agreements (CIC Agreement) with our executive officers require an actual or constructive termination of employment before benefits are paid following any change in control.
• Stock ownership guidelines. Each of the NEOs has been granted equity to provide the officer a stake in our long-term success. The purpose of the ownership requirement is to further our goal of increasing shareholder value by aligning the interests of our NEOs with those of our long-term shareholders.
• Clawback Policy. The Compensation Committee has adopted a comprehensive clawback policy (the "Clawback Policy") that establishes conditions under which the Committee may recoup previously-paid compensation in event of error, misconduct, or certain other circumstances.
• Hedging policy. Our directors and executive officers are prohibited from entering into transactions in puts, callsOPEC and other derivative securitiesoil and natural gas producing countries, such as Russia, with respect to our securitiesproduction levels or other matters related to the price of oil;
•the uncertainty of estimates of oil and from engaging in short salesnatural gas reserves;
•impairments;
•the impact of our securities. We believe these activities are often perceived as involving insider trading and may focus the holder’s attention on our short-term performance rather than our long-term objectives.competition;
In light•the availability and cost of the aboveseismic, drilling and as more fully describedother equipment, waste and water disposal infrastructure, and personnel;
•operating hazards inherent in the CD&A, we believe thatexploration for and production of oil and natural gas;
•difficulties encountered during the compensationexploration for and production of oil and natural gas;
•the potential impact of future drilling on production from existing wells;
•difficulties encountered in delivering oil and natural gas to commercial markets;
•the uncertainty of our NEOs for 2020 was appropriateability to attract capital and reasonable and that our compensation programs and practices are sound andobtain financing on favorable terms;
•compliance with, or the effect of changes in, the best interestsextensive governmental regulations regarding the oil and natural gas business including those related to climate change and greenhouse gases;
•the impact of government regulation, including regulation of hydraulic fracturing and water disposal wells;
•any increase in severance or similar taxes;
•the Companyfinancial impact of accounting regulations and critical accounting policies;
•the comparative cost of alternative fuels;
•credit risk relating to the risk of loss as a result of non-performance by our shareholders. We therefore respectfully request that shareholders vote on the following resolution:counterparties;
“RESOLVED, that the compensation paid to Callon’s NEOs, as disclosed in Callon’s 2021 Proxy Statement (including the Compensation Discussion and Analysis, the compensation tables and related footnotes and narrative disclosures) is hereby approved.”
The vote on this resolution is not intended to address any specific element of compensation, but rather the overall compensation of our NEOs and our compensation-related policies and practices as described in this Proxy Statement. As noted above, the vote solicited by this proposal is advisory in nature and its outcome will not be binding•cyberattacks on the Company or on systems and infrastructure used by the Boardoil and natural gas industry; and
•weather conditions.
In addition, there are risks and uncertainties relating to the Primexx Transaction, which include the following:
•the Primexx Transaction may not be accretive, and may be dilutive, to Callon’s earnings per share, which may negatively affect the market price of Callon Common Stock; and
•the ultimate timing, outcome, and results of integrating the assets acquired in the Primexx Transaction.
Should one or the Compensation Committee, nor will the outcomemore of these risks or uncertainties occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. Additional risks or uncertainties that are not currently known to us, that we currently deem to be immaterial, or that could apply to any company could also materially adversely affect our business, financial condition, or future results. Any forward-looking statement speaks only as of the vote requiredate of which such statement is made and the BoardCompany undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.
In addition, we caution that reserve engineering is a process of estimating oil and natural gas accumulated underground and cannot be measured exactly. Accuracy of reserve estimates depend on a number of factors including data available at the Compensation Committee to take any action. The outcomepoint in time, engineering interpretation of the vote will not be construeddata, and assumptions used by the reserve engineers as overruling any decision of the Board or the Compensation Committee or creating or implying any additional fiduciary duty of the Board or the Compensation Committee. However, the Boardit relates to price and the Compensation Committee will carefully consider the outcome of the vote when considering future executive compensation arrangements. For a review of thecost estimates and recoverability. New results of thedrilling, testing, and production history may result in revisions of previous year's vote, which reflects overwhelming validationestimates and, if significant, would impact future development plans. As such, reserve estimates may differ from our shareholdersactual results of our pay philosophyoil and approach, please see the “Role of Annual Say-on-Pay Advisory Vote” on page 41.
Notwithstanding the advisory nature of this vote, the foregoing resolution will be deemed approved with the affirmative vote of the majority of the votes present and entitled to vote on the proposal at the Annual Meeting. If you hold your shares through a broker and you do not instruct the broker how to vote, your broker will not have the authority to vote your shares. Abstentions will have the effect of a vote cast against the proposal. Broker non-votes will not be counted as shares present and entitled to vote, and so will have no effect upon the outcome of the vote.
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The Board recommends a vote FOR the compensation paid to the Company’s named executive officers.
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natural gas quantities ultimately recovered.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Unprecedented 2020 Impact on Oil and Gas Industry
What Happened
The challenges that the oil and gas industry facedExcept as required by applicable law, all forward-looking statements attributable to us are expressly qualified in 2020 were unprecedented duetheir entirety by this cautionary statement. This cautionary statement should also be considered in part to the worldwide outbreak of COVID-19 that resulted in a dramatic drop in demand for oil and natural gas. At the same time, the decision by Saudi Arabia in March 2020 to drastically reduce export prices and increase oil production followed by curtailment agreements among OPEC and other producing countries such as Russia, further increased uncertainty and volatility around global oil supply/demand dynamics. The combination of excess supply and drastically reduced demand resulted in a precipitous decline in commodity prices.
The drop in commodity prices had a negative impact on Callon and its peers in 2020:
•Average total shareholder return for Callon and its peer group was -44%
•Oil and gas revenue declined by 35% on average for Callon and its peers, reflecting the ~30% drop in average crude prices year over year
•Two of the companies in the peer group filed for bankruptcy (Oasis Petroleum and Whiting Petroleum)
Our Decisive Response – 2020 & Beyond
To combat these macro industry conditions, the Board and management team took decisive steps to strategically reposition the Company in 2020 while integrating the Carrizo acquisition that closed in December 2019 (the "Carrizo Acquisition"). In connection with its strategic repositioning, the Company took action to recalibrate pay in 2020 and undertook a holistic evaluation of its executive compensation programs for 2021 and beyond to realign with investor priorities and the long-term industry outlook. These actions allowed the Company to navigate a challenging industry environment and positioned the Company for success as illustrated byany subsequent written or oral forward-looking statements that we or persons acting on our March 17, 2021, closing stock price of $39.05, which is nearly 300% higher than the stock price at year end 2020 and over a 1,000% higher than the March 2020 low of $3.80.behalf may issue.
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Key Strategic Actions | Compensation Actions to Support Strategy |
Integration of Carrizo Acquisition | Aligned Compensation with Synergy Capture |
•
Achieved sustainable capital efficiency gains from scaled operations
•Exceeded targeted annual run rate synergies of $125MM
| •Adopted 2020 annual bonus framework that tied 20% of payouts to merger synergies and a portion of the qualitative component to merger integration
|
Reduced Spending to Maintain Commitment to Free Cash Flow Generation | Temporarily Reduced 2020 Compensation |
•Reduced 2020 operational capital program by over 50% versus original plan
•Captured ~$30 million in annual LOE run rate savings
•Reduced cash G&A costs by 60% year-over-year
| •Lowered Board of Director compensation by 17.5%
•Lowered base salaries by 20% for CEO, 15% for SVPs and 10% for VPs
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Strategically Repositioned the Company for Future Success | Aligned 2020 Pay Program with Evolving Priorities |
•Generated over $120 million of free cash flow in the last three quarters of 2020
•Improved liquidity in 3Q 2020 with issuance of $300 million of 2nd lien notes
•Reduced absolute debt by >10% from March 2020 via a senior notes exchange and $170 million in asset monetizations
| •Evolved 2020 annual bonus framework to align with investor priorities of returns, leverage and free cash flow and increased quantitative weighting to 80%
•Exercised downward discretion for 2020 bonus payouts in recognition of stock price performance
•Added an absolute total shareholder return (“TSR”) multiplier to long-term performance share units that reduces payouts if annualized TSR is less than 5%
•Adopted a cash-based transition incentive retention program derived from positive free cash flow to help retain executives critical to our strategic repositioning by serving as a bridge between our existing incentive program and new design in 2021
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| Adopted Leading-Edge Incentive Compensation Program in Support of Go-Forward Business Objectives |
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| •Developed a new executive compensation program beginning in 2021 that supports our strategic repositioning and aligns with investor priorities
•Adopted a new annual bonus framework that prioritizes financial performance and ESG initiatives, eliminates traditional operational metrics, and caps payouts at target in the event of negative absolute TSR
•Implemented a new long-term incentive ("LTI") program that maintains a 60% weighting on performance-based LTI with performance units tied to free cash flow and return on capital employed ("ROCE") performance
•Reduced target LTI values by 17.5% for CEO and an average of >10% for other NEOs compared to 2020 grant values
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Building on Strong Foundation for Continuous Improvement in ESG Initiatives | Enhanced Compensation Alignment with ESG Performance |
•Reduced flaring volumes by 40% and GHG emissions >20% year-over-year
•Achieved 2nd consecutive company record for annual TRIR safety performance
•Continued diversity focus with 36% minority employees
•Issued first comprehensive, SASB-aligned sustainability report
•Established long-term GHG and flaring reduction targets
| •Embedded ESG goals related to flaring, safety, environment, diversity, and team development in 2020 annual bonus framework
•Adopted ESG metrics for 2021 annual bonus framework with 15% quantitative weighting plus qualitative component tied to sustained progress towards GHG reduction targets
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WHERE YOU CAN FIND MORE INFORMATION2021 Incentive Compensation Program Supports Go-Forward Business Objectives
Following a comprehensive review of its compensation structure, inWe file annual, quarterly and current reports, proxy statements and other information with the first quarter of 2021SEC (File No. 001-14039). The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Company adopted a leading-edge compensation program to align with investor priorities and drive sustainable results.SEC. The 2021 program includes reductions to target pay levels for executives and directors:
•The target LTI value for the CEO was reduced by 17.5%, which lowered his total target compensation by 12.5%
•The target LTI value for the other NEOs was reduced by an average of more than 10%
•Annual compensation for directors was reduced by 12.5%
Within the refreshed program, the Compensation Committee (referred to in this section as “the Committee”) implemented a mix of incentive metrics aligned with emerging investor priorities for the energy industry across the annual and long-term frameworks as follows:
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| Investor Priorities |
| Debt Reduction | Cash Flow | Returns | Stock Performance | ESG |
Annual Cash Bonus Incentive
(1 year performance)
| Net Debt / EBITDA | Total Corporate Cash Margin | Cash Return On Capital Invested | TSR vs XOP(i) peers
Absolute TSR
(cap @ target if negative)
| Flaring
Safety
Spills
Progress on 5-yr Emissions Target |
LTIP
(3 year performance)
| | Free Cash Flow
(performance unit metric)
| ROCE
(performance unit metric)
| Restricted Stock Units | |
Sustainability
Implications
(linkage of short-termprogram to long-termgoals and incentives todrive sustainability)
| Financial strength for durability through commodity price volatility | Revenue and cost management to support near-term cash flow; Prudent capital allocation and reinvestment rate decisions to drive sustainable FCF over time | Transition from cash-based returns excluding DD&A (CROCI) to more earnings / profitability-based metric (ROCE) over time | Highlight imperative to compete for investor mindshare in an industry with varying capital deployment | Our license to operate and sustain investor, stakeholder and employee support in the near and long-term |
(i) Relative TSR performance will be determined relative to the companies in the S&P Oil & Gas Exploration & Production Select Industry Index (“XOP”) at the beginningaddress of the year. Net Debt to Adjusted EBITDAsite is calculated as the sumhttp://www.sec.gov.
We also make available free of total long-term debt less unrestricted cash and cash equivalents, divided by the Company’s Adjusted EBITDA inclusive of annualized pro forma results from its acquisitions and divestitures completed over the last twelve-month period. See Appendix A for a reconciliation of non-GAAP financial measures.
The table below outlines the 2021 annual incentive compensation framework, which accomplishes the following objectives:
•Focuscharge on pay-for-performance by maintaining 80% weighting on quantitative metrics
•Prioritize financial performance by increasing the financial metric weighting to 65% and eliminating traditional operational metrics
•Demonstrate our ESG value proposition by introducing a quantitative ESG category (weighted 15%) focused on flaring, safety, and spills; other key ESG focus areas such as GHG emission targets and diversity and development initiatives will be assessedwebsite, at www.callon.com under the qualitative component“Investor” section, all of the program
•Align incentive plan payoutsdocuments that we file with the shareholder experience by including a relative TSR comparison to a broader energy index (XOP) and capping bonus payouts at target if absolute TSR is negative for the year
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2021 Annual Incentive Compensation Framework |
Financial | 65% |
| Net Debt / EBITDA | 20% |
| Cash Return on Capital Invested | 20% |
| Total Corporate Cash Margin | 15% |
| TSR vs. XOP Peers | 10% |
ESG | 15% |
| Environmental - Flaring Intensity
(volumes flared / gas produced)
| 5% |
| Safety - TRIR | 5% |
| Environmental - Spill Rate | 5% |
Qualitative | 20% |
The Committee established qualitative objectives for management in 2021 related to progress on long-term GHG emissions targets, diversity and team development initiatives, inventory delineation, ongoing evaluation of strategy, and management of unforeseen challenges.
Our 2021 long-term incentive program was designed to accomplish the following objectives:
•Focus on pay-for-performance by maintaining 60% weighting on performance-based LTI
•Align compensation with company strategy and shareholder priorities of free cash flow and ROCE
•Manage equity dilution by delivering a portion of the long-term incentive program in cash
•Provide direct alignment with shareholders by providing a portion of the program in Restricted Stock Units
Our 2021 long-term incentive program incorporates two elements:
•Cash Performance Units (weighted 60% of the LTI vehicle mix): These awards will vest at the end of the three-year performance period. The value of the awards will range from 0-200% of target and will be determined by (i) our adjusted free cash flow performance over three, one-year performance periods relative to goals established by the Committee and (ii) a cap on the final payout opportunity will be capped based on our three-year average ROCE performance including a maximum payout of 75% of target if three-year ROCE is less than 10 percent
•Restricted Stock Units (weighted 40% of the LTI vehicle mix): These awards will vest ratably over three-years
Executive Pay Aligned with Shareholders
Realizable Compensation Demonstrates Alignment Between Pay and Performance
The Committee designs our compensation programs to reward our CEO and other NEOs for delivering results consistentSEC as soon as reasonably practicable after we electronically file those documents with the Company’s long-term strategic objectivesSEC. Information contained on, or that can be accessed through, our website is not incorporated by reference into this Proxy Statement, and to align their interests with those of our shareholders. To do so, the Committee has adopted programs that are heavily weighted to “at risk” compensation delivered through annual cash incentives and long-term incentive awards. As a resultyou should not consider such information as part of this philosophy, the compensation outcomes for our NEOs were meaningfully impactedProxy Statement.
Information Incorporated by the challenges faced by the oil and gas industry and our shareholders in 2020, As shown below, our CEO's realized and realizable compensation at year-end 2020 reflected the Company’s share price performance:
| | | | | | | | | | | |
2020 CPE Share Price | | | 73% Less |
CEO Target Pay vs.
Realizable Pay(i) (2020)
| | | 56% Less |
CEO PSUs: Target Value
vs. Realized Value
(2018 – 2020)
| | | 95% Less |
(i)2020 CEO realizable pay includes (i) actual amounts received for salary, 2020 annual bonus, and third and fourth quarter 2020 transition cash incentive program, and (ii) the value as of December 31, 2020, of RSUs and PSUs granted in 2020 based on the closing price of $13.16 per share of our common stock on the last trading day of 2020, a relative TSR modifier of 0.36 and an absolute TSR modifier of 0.50.
Strong Compensation GovernanceReference
We believe our compensation program incorporates many sound practices, including the following:
| | | | | | | | | | | | | | |
| What We Do | | | What We Don’t Do |
| | |
• Substantial focus on performance-based pay
• Strong alignment with shareholder priorities through significant weighting on long-term incentives
• Review of peer group benchmarks when establishing compensation
• Robust stock ownership guidelines for our NEOs and directors
• Clawback policy applies in the event of error, fraud or misconduct
• Double-trigger change in control severance for both cash severance and equity vesting
| | • NOhedging or pledging of our stock
• NOemployment agreements*
• NOexcessive benefits or perquisites
• NO single trigger change in control benefits
|
* Callon assumed an employment agreement with Mr. Conaway, our Vice President and Chief Accounting Officer, as a result of the Carrizo Acquisition. See “Employment Agreements, Termination of Employment and Change in Control Arrangements” on page 59.
Role of Annual Say-on-Pay Advisory Vote
| | | | | | | | |
We have historically received strong support from our shareholders for our executive compensation practices. In the advisory vote held at the Company's 2020 Annual Meeting of Shareholders, approximately 93% of the votes cast were in favor of our 2019 executive compensation programs. The Committee acknowledged the support received from our shareholders and viewed the results as an affirmation of our existing executive compensation policies and programs. The Committee will continue to review shareholder votes and feedback on our executive compensation programs to ensure alignment with shareholder interests. | | Approximately 93% of the votes were cast in favor of our 2019 executive compensation programs
|
Executive Compensation Philosophy
Our executive compensation program is designed to achieve the following objectives:
•Emphasize pay for performance, in which Company and individual performance against preset goals are inherently linked to the amount realized“incorporate by an NEO;
•Attract and retain a qualified and motivated management team by offering industry competitive opportunities and providing the majority of NEO compensation in the form of long-term incentives that vest over a three-year period;
•Incentivize NEOs and appropriately reward them for their contributions to the achievement of our key short-term and long-term strategic objectives with variable compensation; and
•Align the compensation of our NEOsreference” into this Proxy Statement certain information we file with the interestsSEC, which means that we can disclose important information to you by referring you to that information. The information incorporated by reference is considered to be part of our long-term shareholders by providing 60% of the LTI mix in the form of performance-based incentivesthis Proxy Statement, and 40% in the form of restricted stock units.
Executive Pay Program and Decisions
2020 Named Executive Officers
Our named executive officers (“NEOs”) include the Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers who were serving in such capacity at the end of 2020. Our NEOs for 2020 were:
| | | | | | | | |
NEO | Age | Title |
Joseph C. Gatto, Jr. | 50 | President, Chief Executive Officer and Director |
James P. Ulm, II(i)
| 58 | Senior Vice President and Chief Financial Officer |
Jeffrey S. Balmer | 56 | Senior Vice President and Chief Operating Officer |
Michol L. Ecklund | 46 | Senior Vice President, General Counsel and Corporate Secretary |
Gregory F. Conaway | 45 | Vice President and Chief Accounting Officer |
(i) On March 16, 2021, the Company announcedlater information that due to personal and health reasons, Mr. Ulm has elected to retire in May 2021. The Company has commenced a search for a successor to Mr. Ulm, who will continue in an advisory role to the Company after his retirement to assistwe file with the transition ofSEC will automatically update and supersede that information. We incorporate by reference the new CFO.
Incentive-Based 2020 Compensation Program
In the first quarter of 2020 prior to the global outbreak of COVID-19, the Committee established the 2020 executive compensation program, including target pay levelsdocuments listed below and performance metrics. The program was heavily weighted to incentive-based compensation for the NEOs, including Mr. Gatto as follows:
Base Salaries
We provide all of our employees, including the NEOs, with an annual base salary that is reflective of individual skills, experience and expertise to compensate them for their service throughout the year. The Committee evaluates our NEOs’ salaries and other components of their compensation to ensure that the NEOs’ total compensation is competitive relative to market practices and is consistentany future filings made by us with the Committee’s compensation philosophy.
In January 2020, the Committee established base salaries for eachSEC under Section 13(a), 13(c), 14 or 15(d) of the NEOs as set forth in the table below. With the input of the independent compensation consultant, the Committee approved these salary increases to reflect the increased scope of responsibility for each of the NEOs following the Carrizo Acquisition and market data for the revised peer group.
Pay Reductions in Response to COVID-19
In April 2020 our NEOs volunteered to have their base salaries reduced due to the challenging industry conditions. Our CEO's annual base salary was reduced by 20% and our senior vice presidents' and vice presidents' annual base salaries were reduced by 15% and 10%, respectively. As macro conditions improved, the Committee approved the reinstatement of the NEOs’ base salaries effective in July for vice presidents and in October for the CEO and senior vice presidents.
| | | | | | | | | | | |
| NEO | 2019 Base Salary | 2020 Base Salary | Actual 2020 Base Salary Received |
| Joseph C. Gatto, Jr. | $825,000 | $865,000 | $773,885 |
| James P. Ulm, II | $465,000 | $500,000 | $458,462 |
| Jeffrey S. Balmer | $450,000 | $510,000 | $464,827 |
| Michol L. Ecklund | $400,000 | $430,000 | $394,289 |
| Gregory F. Conaway | $282,000 | $295,000 | $286,125 |
Performance-Based Annual Cash Bonus Incentive
Each year, the Committee establishes an annual incentive bonus program that is designed to align NEO compensation with the annual business plan and strategic priorities. In January 2020, the Committee set annual bonus target award opportunities for each NEO as a percentage of the NEO’s annual base salary as follows:
| | | | | | | | |
| NEO | 2019 Target Bonus Opportunity
(% of Base Salary) | 2020 Target Bonus Opportunity
(% of Base Salary) |
| Joseph C. Gatto, Jr. | 110% | 115% |
| James P. Ulm, II | 90% | 95% |
| Jeffrey S. Balmer | 85% | 95% |
| Michol L. Ecklund | 80% | 90% |
| Gregory F. Conaway | 70% | 70% |
The Committee approved increased bonus targets for the CEO and senior vice presidents for 2020 after considering competitive market analysis for the new peer group of larger companies adopted following the Carrizo Acquisition and to enhance retention of the senior leadership team. Actual awards can range from 0 - 200% of target based on the achievement of pre-established performance metrics as described below.
2020 Annual Bonus Metrics
In early 2020, prior to the global outbreak of the COVID-19 pandemic, the Committee established the framework for the annual cash bonus incentive program, including increasing the quantitative weighting to 80%. The objectives were designed to align with achievement of the financial, operational and strategic priorities of the Company for 2020, including capture of the synergies identified in the Carrizo Acquisition, as follows:
| | | | | | | | | | | |
| Objective | Description | Weighting |
Quantitative Objectives (60%) | Net Debt/Adjusted EBITDA(i)
| Measure of our ability to cover our debt, which is impacted by cash flow, and ensures focus on a strong balance sheet | 15% |
Cash Return on Capital Invested(ii)
| Measure of total corporate returns on capital | 15% |
LOE+GP&T/Boe | Measure of critical cash margin components that are controlled by management | 10% |
| Oil Production | Key component in our ability to deliver cash flow and returns on capital investment | 10% |
| Proved Developed F&D/BOE(iii)
| Measure of capital efficiency for annual proved developed reserve base additions | 10% |
Carrizo Transaction Synergies (20%) | G&A Synergies | Measure of cash G&A savings relative to 2019 pro forma spend | 10% |
Operations Synergies | Captures achievement of scale efficiencies by measuring reductions in Delaware Basin DC&E spend per 1,000’ lateral | 10% |
Qualitative Objectives (20%) | ESG, Integration, Strategy, Other Key Objectives | Measure of our success relative to key objectives tied to ESG performance, merger integration, execution of strategic objectives, and other key organizational mandates | 20% |
(i) Net Debt to Adjusted EBITDA is calculated as the sum of total long-term debt less unrestricted cash and cash equivalents, divided by the Company’s Adjusted EBITDA inclusive of annualized pro forma results from its acquisitions and divestitures completed over the last twelve-month period. See Appendix A for a reconciliation of non-GAAP financial measures.
(ii) Cash Return on Invested Capital is defined as (GAAP cash flow from operations + after tax interest expense) / (average total debt + average stockholders’ equity).
(iii) Proved Developed F&D/BOE cost is defined as exploration and development costs, divided by the sum of reserves associated with transfers from proved undeveloped reserves during 2020 including any associated revisions except pricing revisions, and extensions and discoveries placed on production during 2020.
Following the global outbreak of COVID-19, the Company adopted a revised development plan that reduced the 2020 operational capital program by over 50% versus original plan. To align with this shift in priorities and revised business plan, during the third quarter the Committee adopted a revised discretionary annual incentive plan framework that included quantitative metrics for synergy attainment, free cash flow, LOE, safety and environmental performance.
2020 Performance Results
After the close of the 2020 calendar year, the Committee assessed the Company’s and the NEOs’ annual performance overall and relative to the frameworks established for the annual incentive compensation program. The Committee chose to adhere to the more rigorous, pre-COVID-19 performance framework even though the Company’s performance was significantly impacted by the unprecedented global oil supply/demand dynamics of the pandemic to better align with shareholder outcomes. If the Committee had chosen to reflect the revised, discretionary framework adopted in the third quarter, quantitative performance would have exceeded 120% of target. Results relative to the original 2020 performance framework are set forth below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Quantitative Objective | Weighting | Threshold
(50%) | Target
(100%) | Max
(200%) | | Actuals | Weighted
Contribution |
| Net Debt/Adjusted EBITDA | 15% | 2.8x | 2.5x | 2.2x | | 4.2x | 0% |
| Cash Return on Cash Invested | 15% | 17.0% | 18.5% | 20.0% | | 13.5% | 0% |
| LOE+GP&T/Boe | 10% | $7.50 | $6.50 | $5.75 | | $7.30 | 6% |
| Oil Production | 10% | 75,000 | 77,500 | 79,500 | | 64,325 | 0% |
| Proved Developed F&D/BOE | 10% | $15.00 | $13.50 | $12.00 | | $10.78 | 20% |
G&A Synergies Cash G&A Savings | 10% | $35.0 | $40.0 | $45.0 | | $74.2 | 20% |
Operational Synergies DC&E in DE Basin/1,000' | 10% | $995 | $950 | $885 | | $825.0 | 20% |
| Qualitative/Discretionary | 20% | — | — | — | | | 4%/9% CEO/NEOs |
| Total | 100% | — | — | — | | | 70%/75% CEO/NEOs |
When determining the weighted contribution for the discretionary component of the program, the Committee considered the Company’s and management’s overall performance for 2020. The Committee believes that the management team performed well during the challenging industry environment of 2020 and met or exceeded expectations relative to the qualitative performance factors set forth in the table below. The Committee also commended the management team’s efforts to evaluate and execute financial alternatives during the COVID-19 crisis, which ultimately led to the notes issuance, debt exchange and asset sale transactions that bolstered Callon’s financial position in the third and fourth quarters of 2020.
The Committee also believes that annual bonuses should reflect, in part, share price performance for the year. This belief was reflected through qualitative discretion in 2020 and is being codified as a quantitative element in the redesigned 2021 program. Given the Company’s negative share price performance in 2020, the Committee elected to reduce the funding of the qualitative portion of the program to only 20% of target for the CEO (4% weighted contribution) and 45% of target (9% weighted contribution) for the other NEOs. The Committee’s decision to reduce the qualitative weighting for the CEO reflects a larger discretionary reduction for the CEO for greater alignment with shareholders.
| | | | | |
Qualitative Factors | 2020 Achievements |
Environmental, Social, and Governance | • 40% reduction in flared volumes
• Achieved the Company's best safety performance on record for a second straight year, reducing the total recordable incident rate by 10%
•66% reduction in total spill volumes
•Published inaugural SASB-aligned sustainability report
|
Strategic Initiatives | • On track to deliver medium-term adjusted FCF in line with public CRZO acquisition targets
• ~$170MM of credit-enhancing divestitures despite challenging A&D market
•Adherence to “life of field development” to preserve value of inventory
|
Integration & Development | • Assimilated team into cohesive culture within a remote work environment
• Named a “Top Workplace” by Houston Chronicle for 4th year in a row
• Harmonized compensation programs and continued expansion of succession planning initiatives
|
2020 Annual Incentive Compensation Payouts
Based on the Committee’s assessment of 2020 performance relative to the pre-established annual bonus programs as described above, the Committee awarded 2020 annual incentive compensation payouts of 70% of target for the CEO and 75% of target for the other NEOs, which were below the funding level for the annual bonus pool for non-officers for 2020. Bonuses were calculated based on the actual amount of salary received by each officer in 2020 to reflect the temporary salary reductions as set forth above.
| | | | | | | | |
| NEO | Payout as a % of Target | 2020 Annual Bonus |
| Joseph C. Gatto, Jr. | 70% | $622,977 |
| James P. Ulm, II | 75% | $326,654 |
| Jeffrey S. Balmer | 75% | $331,189 |
| Michol L. Ecklund | 75% | $266,145 |
| Gregory F. Conaway | 75% | $150,216 |
Annual Award of Long-Term Incentives
Our executive compensation program is heavily weighted to long-term incentives, which reward our NEOs for delivering results consistent with the Company’s long-term strategic objectives and align their interests with those of our shareholders. For 2020, the Committee awarded long-term incentives via the following vehicles:
| | | | | | | | |
LTI Vehicle | Weighting | Objective |
Time-Based RSUs
(3-year Ratable Vest)
| 40% | • Create direct alignment with shareholder interests
• Provide direct retention incentives for our executives
|
Performance Share Units
(3-year Cliff Vest)
| 60% | • Reward for absolute shareholder return and shareholder return relative to other oil and gas companies
|
For the grant of LTI awards to executive officers, the Committee considers market analysis and the advice of the independent compensation consultant to determine the program design and target award amounts. In 2020, the Committee adjusted target long-term incentive values for the NEOs to reflect market competitiveness relative to the post-Carrizo Acquisition peer group; a continued shift in the mix of total compensation towards long-term awards; appropriate retention incentives especially for shorter-tenured executives; and personal and Company performance.
The following table sets forth the target LTI value for each NEO and the number of RSUs and target PSUs awarded to the executive officers in January 2020. The Committee uses the 20-day average closing price of Callon stock as of the grant date to determine the number of RSUs and PSUs granted. | | | | | | | | | | | |
| NEO | Target Value
$(a) | RSUs Payable in Common Stock(b) | PSUs Payable in
50% Stock and 50% cash(c) |
| Joseph C. Gatto, Jr. | $4,697,000 | 48,799 | 73,200 |
| James P. Ulm, II | $2,125,000 | 22,078 | 33,118 |
| Jeffrey S. Balmer | $2,219,000 | 23,049 | 34,574 |
| Michol L. Ecklund | $1,398,000 | 14,519 | 21,780 |
| Gregory F. Conaway | $516,000 | 5,364 | 8,046 |
(a)Represents the intended target value of the awards, which is different from the grant date fair value computed in accordance with FASB ASC Topic 718 as reported in the Summary Compensation Table. The methodology adopted by the Committee for awarding LTI equity awards uses the 20-day average closing price of Callon stock as of the grant date to determine the number of RSUs and PSUs granted.
(b)Amounts represent RSUs that are subject to three-year ratable vesting with one-third vesting each year subsequent to the award year. The first tranche vests on April 1, 2021; the second vests on April 1, 2022; and the third vests on April 1, 2023; and each tranche will settle in Company common stock on the vesting date. Reflects the 1-for-10 reverse split of the common stock of the Company, effective August 7, 2020.
(c) Amounts represent PSUs that are scheduled to vest on December 31, 2022 at a variable rate between 0% and 300% based on our absolute TSR and relative TSR when compared to a pre-determined group of peer companies. The PSUs will be settled 50% in Company common stock and 50% in cash. Reflects the 1-for-10 reverse split of the common stock of the Company, effective August 7, 2020.
RSU program
In January 2020, the Committee awarded NEOs with time-based RSUs that will vest in one-third increments annually beginning April 1, 2021, provided the executive officer continues to be employed on the vesting dates. The RSUs will be settled in shares of the Company’s common stock.
PSU program
In January 2020, the Committee awarded PSUs to the NEOs that will vest based on the Company’s performance over the 36-month performance period (January 1, 2020 to December 31, 2022) on absolute TSR—a new modifier added to the program in 2020—and relative TSR compared to the 2020 peer group described on page 50. The PSUs are eligible for vesting if the employee continues to be employed until the vesting date on December 31, 2022 and will settle 50% in cash and 50% in stock. The vested value of the PSUs at the end of the performance period on December 31, 2022 will be determined as follows:
Relative TSR
The Committee believes relative TSR is an appropriate long-term performance metric because it provides a measure of long-term performance relative to peers as well as strong alignment with the Company’s long-term shareholders. The relative TSR modifier for the PSUs will be the percentage set forth below based on the Company’s relative TSR ranking for the performance period compared to the 11 peer companies described on page 50. Vesting will be interpolated for percentile ranks between the percentiles described:
| | | | | |
Callon’s TSR Percentile
Rank Among the Peer Companies | PSUs Vesting as a
Percentage of Target |
1st | 200 | % |
4th | 145 | % |
6th | 109 | % |
9th | 55 | % |
12th | 0 | % |
Absolute TSR
For 2020, the Committee added an absolute TSR modifier to the PSU awards to further link NEO compensation to absolute shareholder returns and reflect investor feedback regarding recent energy industry compensation trends. The absolute TSR modifier further incentivizes NEOs to create positive shareholder value during the three-year performance period and reduces outcomes if annualized TSR is less than 5% over that period and effectively caps payouts out at target or below if absolute TSR is negative:
| | | | | |
Callon’s annualized absolute TSR during the performance period | Modifier |
>15% | 150 | % |
10 - 15% | 125 | % |
5 - 10% | 100 | % |
0 - 5% | 75 | % |
<0% | 50 | % |
Transition Cash Incentive Awards & Retention Award Programs
In September 2020, the Committee adopted an incentive (“Cash Incentive Awards”) that provides our NEOs and other officers with the near-term opportunity to earn performance-based cash payments for generating positive free cash flow. This is a one-time program that the Committee believes is aligned with the following critical priorities:
1.Retention of key employees – the business is in a period of strategic transition and our management is well qualified to execute on our evolving strategy.
2.Focus on free cash flow imperative – Investors have expressed a priority for oil and gas companies to generate free cash flow to fund operational activities and strengthen balance sheets. The transition cash incentive plan provides direct alignment with the optimization of the Company’s free cash flow.
3.Self-funded program – the Cash Incentive Awards were designed to only pay out if adjusted free cash flow is positive.
4.Build a bridge to newly designed incentive systems – in response to industry conditions, we redesigned our 2021 incentive system to support our go-forward business strategy. The Cash Incentive Award program provides an opportunity to earn incentive pay in the transition period.
The Cash Incentive Awards are performance-based and designed to align the officers with the Company’s focus on sustainable free cash flow generation. Under the program, officers are eligible to receive quarterly cash awards from a pool equal to 2.5% of the Company’s positive adjusted free cash flow (excluding non-recurring items) from third quarter 2020 through the end of 2021. The total aggregate award value may not exceed $6 million over the six quarters of the program. Each NEO’s cash incentive award opportunity is based on the relative proportion of such individual’s target annual bonus amount to the total target annual bonus compensation of the participants in the Cash Incentive Award program. The Cash Incentive Awards, if earned, are paid on a quarterly basis in respect of six three-month performance periods, commencing on July 1, 2020 and ending December 31, 2021. No Cash Incentive Award payment is made if the Company does not have positive free cash flow for the quarter. We do not anticipate that this arrangement will continue beyond the 2021 fiscal year.
The following table sets forth each NEO’s applicable percentage the maximum amount he or she is eligible to receive over the six quarters of the Cash Incentive Award program. The amount earned by each NEO for the third and fourth quarters of 2020 is reported in the non-equity incentive plan compensation column of the summary compensation table on page 53.
| | | | | | | | |
| NEO | Applicable Percentage of Pool (%) | Maximum ($) |
| Joseph C. Gatto, Jr. | 28.89% | $1,733,140 |
| James P. Ulm, II | 13.79% | $827,586 |
| Jeffrey S. Balmer | 14.07% | $844,138 |
| Michol L. Ecklund | 11.24% | $674,265 |
| Gregory F. Conaway | 6.00% | $359,782 |
As of September 30, 2020, the Committee also awarded a one-time cash retention award for Dr. Balmer in recognition of operational performance under his leadership and to incentivize his retention with the Company. Under the terms of the award, Dr. Balmer will receive $175,000 on each of the first- and second anniversaries of the grant date subject to his continued employment with the Company.
In connection with his appointment as Chief Accounting Officer upon the closing of the Carrizo Acquisition in December 2019, the Committee awarded Mr. Conaway a retention award of 4,935 RSUs effective as of January 1, 2020. The RSUs vest in one-third increments on the first three anniversaries of the grant date, subject to Mr. Conaway’s continued employment with the Company.
Vesting of 2018-2020 Performance Awards
In May 2018, the Compensation Committee granted PSUs to the then-executive officers covering the performance period from May 2018 to December 2020. The Company’s relative TSR for the performance period relative to the peer companies defined by the Compensation Committee, resulted in vesting of 50% of the target PSUs awarded. Vested PSUs were paid 50% in cash and 50% in Company common stock.
The table below summarizes the PSUs earned by the executive officers for the 2018-2020 performance period:
| | | | | | | | | | | |
| NEO | Target Number of PSUs(a) | Percent of Target
PSUs Earned | Actual Vested PSUs
(Settled 50% Cash and 50% Shares) |
| Joseph C. Gatto, Jr. | 16,526 | 50% | 8,263 |
| James P. Ulm, II | 7,500 | 50% | 3,750 |
Jeffrey S. Balmer(b) | — | — | — |
| Michol L. Ecklund | 2,966 | 50% | 1,483 |
Gregory F. Conaway(b) | — | — | — |
(a) Reflects the 1-for-10 reverse split of the common stock of the Company, effective August 7, 2020.
(b) Executive was not employed by the Company in May 2018 when award was granted.
Other Compensation
Perquisites and Other Benefits
Benefits represent a relatively small part of our overall compensation package; however, these benefits help attract and retain senior level executives. We review these benefits annually to ensure that they are competitive with industry norms. We provide benefits commonly offered in the E&P industry to all of our employees. These benefits consist of:
•Group medical and dental insurance program for employees and their qualified dependents;
•Group life insurance for employees and their spouses;
•Accidental death and dismemberment coverage for employees;
•Long-term disability coverage;
•Callon's sponsored cafeteria plan; and
•401(k) employee savings and protection plan (the "401(k) plan").
We pay the full costs of these benefits, including the 401(k) plan administration, for all employees.
Under our 401(k) plan, all eligible employees may elect to defer a portion of their compensation up to the statutorily prescribed limit. In 2020, the Company provided a matching contribution of up to 6% of the employee’s IRS eligible salary for qualified employees, including NEOs, and the potential for a profit sharing contribution of up to 2%.
Our NEOs are entitled to certain benefits, or perquisites, that are not otherwise available to all of our employees. We provide our executive officers with use of a Company automobile. We purchase the automobile and pay for all maintenance, repairs, insurance and fuel. The employee is required to recognize taxable income using the IRS’s annual lease value method for personal use of the vehicle. The costs associated with these benefits for the NEOs are reported as “Other Compensation” in the Summary Compensation Table. The Committee believes these perquisites are modest, yet competitive with the perquisites provided to similarly situated oil and gas industry executives.
Change in Control Severance and Employment Agreements
We have no employment agreements with our executive officers, with the exception Mr. Conaway, but we do provide CIC Agreements with each of our executive officers that provide for certain protections upon a change in control. The Committee believes that CIC Agreements serve shareholders’ best interests by helping ensure retention of management and by diminishing potential distractions for our executive officers in the event of a change in control transaction. However, the Committee believes that executives should not be unduly enriched, and all benefits under the CIC Agreements require a “double trigger.” Mr. Conaway and the Company (as successor-in-interests to Carrizo as a result of the Carrizo Acquisition) are parties to an employment agreement. For a more detailed explanation of the CIC Agreements and Mr. Conaway’s employment agreement, please see “Employment Agreements, Termination of Employment and Change in Control Arrangements” on page 59.
How We Make Compensation Decisions
Role of Independent Compensation Consultant
For the first half of 2020, the Committee continued its engagement of Meridian as its independent compensation consultant to provide information and objective advice regarding executive officer and director compensation. After issuing a request for proposals and conducting a fulsome interview process, in August of 2020 the Committee engaged FW Cook as its independent compensation consultant. The Committee retained Meridian and later FW Cook because of their extensive familiarity with executive compensation programs in our industry.
The Committee makes all final decisions with respect to our executive compensation, and in setting compensation for our NEOs, and it considers the independent compensation consultant’s advice as one factor among many other factors discussed within this CD&A. Other factors include our overall Company performance; individual NEO performance, experience, skills and tenure with the Company; and industry trends.
The compensation consultant reports solely to the Committee, and the Committee determines the scope of the engagement. In an effort to ensure that our NEO compensation programs are competitive and consistent with our compensation philosophy, Meridian and then FW Cook assisted the Committee as follows:
• Regularly attending meetings of the Committee and meeting privately in executive session with the Committee to discuss its recommendations;
• Providing recommendations on executive compensation matters to align the Committee’s actions with shareholder interests, our business strategy and pay philosophy, prevailing market practices and relevant legal and regulatory requirements;
• Periodically evaluating the Peer Group and providing peer company data for the Committee to use in its decision-making process, including assessment of pay and performance relative to peers;
• Providing competitive market data to consider in evaluating the competitiveness of the executive base salaries and short- and long-term incentive plans and awards;
• Reviewing data in connection with the Committee’s determination of annual cash incentive performance objectives and performance-based incentive vesting levels for completed performance periods;
• Advising on the Company’s compensation arrangements for its non-employee directors, including providing Peer Group data;
• Reviewing and providing feedback on our SEC filings relating to executive compensation disclosures, including our CD&A disclosures; and
• Informing the Committee about compensation trends in the industry, best practices and other general trends and developments affecting executive compensation.
The Committee has the final authority to hire and terminate the compensation consultant, and the Committee evaluates the consultant’s performance annually.
Pursuant to applicable SEC and NYSE rules, the Committee has determined that no conflicts of interest existed related to Meridian’s or FW Cook’s engagement by the Committee in 2020.
Role of Management
The Committee considers input from our CEO in making determinations regarding our executive compensation program and the individual compensation of each of the executives. The officer team makes recommendations to the Committee regarding potential objectives for the annual cash bonus incentive program and provides information to the Committee regarding the performance of the Company for the Committee’s determination of annual cash bonuses. The Committee makes the final determination of all elements of NEO compensation. Our CEO makes no recommendations regarding, and does not participate in discussions about, his own compensation.
Role of Market Data
The Committee reviews compensation of our NEOs annually. Individual compensation amounts reflect the Committee’s subjective analysis of a number of factors, including:
• Individual NEO’s experience, skills, contributions and tenure with Callon;
• Changes to the NEO’s position within Callon;
• Competitive market data within our peer group and industry; and
• The NEO’s roles, responsibilities and expected future contributions to Callon’s success.
On an annual basis, the Committee reviews and discusses compensation data for our CEO and other NEOs as compared with compensation data for similarly situated executive officers at peer companies recommended by the compensation consultant and approved by the Committee. The peer group is selected based on multiple factors, such as:
• Size, including enterprise value and market capitalization;
• Similar geographic footprint and operational focus;
• Comparability of asset portfolio; and
• Availability of compensation data.
The Committee believes this Peer Group provides a reasonable point of reference for comparing the compensation of our NEOs to others holding similar positions and having similar responsibilities. The peer group used by the Committee in evaluating the competitiveness of executive compensation and making 2020 compensation decisions consisted of the companies set forth in the following table. In 2020, the Committee also reviewed data from proprietary E&P benchmarking surveys provided by Meridian for additional market perspective and to validate the peer group data.
The Committee does not consider data collected from any of these sources to be prescriptive. Rather, the Committee relies upon this and similar data as reference points around which to make informed decisions about the appropriate level and form of compensation for each NEO.
| | | | | | | | |
| | |
2020 Compensation Peer Group |
• Centennial Resource Development, Inc.
• Cimarex Energy Co.
• Jagged Peak Energy, Inc.
• Matador Resources, Inc.
| • Oasis Petroleum Inc.
• Parsley Energy, Inc.
• PDC Energy, Inc.
• QEP Resources, Inc.
| • SM Energy Company
• Whiting Petroleum Corporation
• WPX Energy, Inc.
|
|
|
| | |
In addition, the Committee adopted a peer group for purposes of measuring the Company’s relative TSR performance to determine vesting of the 2020 PSUs over the three-year performance period. For the January 2020 PSU grant, the Committee used the peer group listed in the table above but replaced Jagged Peak Energy, which had been acquired, with Magnolia Oil & Gas to provide an additional similarly-sized peer with Texas-based operations. Since the January 2020 grant date of the 2020 PSU awards, the Committee has replaced Parsley Energy, QEP Resources, and WPX Energy, each of whom has been acquired, with Laredo Petroleum and Penn Virginia Corporation, both of whom are similarly-sized with Texas-based operations, and the XOP index, which provides a comparison to a broader basket of energy investment options against whom the Company competes for capital.
Practices and Policies Related to Compensation
Stock Ownership Guidelines
Consistent with its goal of driving long-term value creation for our shareholders, the Company's stock ownership guidelines require significant stock ownership by the executive officers and directors. The guidelines require the executive officers and directors to hold the following amounts of our stock: | | | | | |
Executive Officers/Directors | Required Common Stock Ownership as a Multiple of Annual Base Salary / Annual Retainer |
CEO | 6x |
Directors | 5x |
Other Executive Officers | 2x |
The Committee evaluates compliance with these guidelines on an annual basis. For purposes of the guidelines, shares owned indirectly, shares in the executive officer's 401(k) plan and any unvested time-based RSUs are included. The value of unvested
PSUs is excluded. Pursuant to the policy, shares granted to the executive under the Company’s incentive compensation plans are valued at the greater of the then-current trading price or the value on the date of grant.
Each executive officer has a transition period of five years from the date the individual becomes subject to the guidelines to attain the required investment position. If an executive officer becomes subject to a greater ownership requirement due to a promotion or an increase in salary, the executive officer will be expected to attain the higher level within three years of the change.
Each outside director is required to achieve the ownership requirement within five years following their election as a director.
As of December 31, 2020, all participants were in compliance with the stock ownership policy, either through meeting the ownership requirement or by being within the transition period.
Internal Revenue Service Limitations
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Tax Code") places a limit of $1.0 million on the amount of compensation that we may deduct in any one year with respect to compensation paid to each covered employee. For years prior to 2018, an exception to the deduction limit applied to compensation that qualified as “performance-based.” The enactment of the Tax Cuts and Jobs Act on December 22, 2017 repealed the "performance-based" exemption from Section 162(m)‘s deduction limit. In addition, the limitation on deductibility was expanded to include any individual who is an NEO in 2017 or any later calendar year. As a result, compensation paid to our NEOs in excess of $1.0 million will not be deductible for years subsequent to 2017, subject to limited transition relief for arrangements in place as of November 2, 2017. Despite the change in law, the Committee intends to continue to consider the deductibility of compensation and to implement compensation programs that it believes are competitive and in the best interests of the Company and its shareholders.
Insider Trading Policy
The Board has adopted a comprehensive Insider Trading Policy for employees and directors to promote compliance with federal and state securities laws. The policy prohibits certain persons who are aware of material non-public information about a company from: (i) trading in securities of that company; or (ii) providing material non-public information to other persons who may trade on the basis of that information. When material non-public information about us may exist and may have an influence on the marketplace, a trading blackout period is placed in effect by management. In addition, this Insider Trading Policy also applies to family members, other members of a person’s household, and entities controlled by a person covered by this Insider Trading Policy. Officers, directors, and designated employees, as well as the family members and controlled entities of such persons, may not engage in any transaction in Company securities without first obtaining pre-clearance of the transaction from our General Counsel.
Under the Insider Trading Policy, directors, executive officers and other employees are prohibited from entering into any hedging or monetization transactions relating to Callon's securities or otherwise trading in any instrument relating to the securities' future price. This Insider Trading Policy also prevents directors and executive officers from pledging Callon common stock as collateral for loans or holding Callon securities in a margin account. The Insider Trading Policy is published as Addendum A to our Code of Business Conduct and is available at www.callon.com/about-callon/governance.
Clawback Policy
In January 2020, the Committee adopted the Clawback Policy. The Clawback Policy provides the Committee the authority to recoup previously-paid compensation under the following circumstances:
•If there is a correction to previously approved performance metrics (not necessarily limited to a financial restatement), the Committee may clawback from executive officers any annual or long-term incentive compensation paid in error during the prior three years.
•If an executive officer engages in fraud or misconduct, or was grossly negligent in a supervisory role, where such action caused or could reasonably lead to material financial or reputational harm to Callon, the Committee may clawback annual and long-term incentive compensation from the past year from the executive officer
The Committee believes the Clawback Policy helps protect the Company and its shareholders in the unlikely event of a restatement or potential fraud or misconduct by an executive officer. The clawback rights described above are in addition to those required under the Sarbanes-Oxley Act of 2002.
Risk Assessment Related to Our Compensation Structure
The Committee believes our compensation plans and policies are appropriately structured to encourage and reward prudent business judgment and avoid excessive risk-taking. The Committee, with the assistance of Meridian, reviewed the compensation programs maintained by the Company during 2020 to determine whether they encouraged excessive risk taking. Upon evaluation of the assessment, the Committee concluded that our compensation policies and practices for our employees do not present risks that are reasonably likely to have a material adverse effect on the Company. The Committee’s risk review identified the following risk mitigating features of our compensation programs:
• A balance of short-term and long-term programs to focus management on both elements of Callon’s performance;
• Annual grants of long-term incentives designed to be the largest component of each NEO’s compensation package, with typical vesting periods of three years that are based on the value of our common stock and not on any particular metric that could encourage excessive risk-taking;
• Performance criteria and targets for our annual bonus program designed to encourage performance, but not excessive risk taking, and discretion to decrease payouts if it is believed management exercised excessive risk taking;
• Performance targets measured at the corporate level, rather than at the individual or business unit level;
• A Clawback Policy that grants the Committee authority to recoup compensation due to error, fraud or other misconduct;
• Reasonable change in control severance protections; and
• Significant executive stock ownership requirements.
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the CD&A required by Item 402(b) of Regulation S-K promulgated under the Exchange Act, and based on such review and discussions, the Committee has recommended to the Board that the CD&A be included in this Proxy Statement relating to the Annual Meeting.
Respectfully submitted by the Compensation Committee of the Board of Directors,
Matthew R. Bob, Chairman
Michael L. Finch
L. Richard Flury
Anthony J. Nocchiero
James M. Trimble
Executive Compensation Tables
The compensation paid to the Company’s executive officers generally consists of base salaries, annual cash incentive payments, awards under the 2018 Omnibus Incentive Plan (the "2018 Plan") and the 2020 Plan, contributions to the Company’s 401(k) plan and miscellaneous perquisites. The table below sets forth information regarding fiscal years 2020, 2019, and 2018 compensation awarded to, earned by or paid to the Company’s NEOs, in each case for the years in which these individuals constituted "named executive officers" under SEC rules. This includes all individuals who served as the Company's CEO or CFO during 2020, and the three other most highly compensated executive officers serving at the end of the fiscal year. The CD&A above provides a full description of our 2020 executive compensation program design.
Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | Year | Salary | Bonus(a) | Stock
Awards(b) | Non-Equity Incentive Plan Compensation (c) | All Other Compensation (d) | Total | Realizable Total Compensation(e) |
Joseph C. Gatto, Jr.(f) President & CEO | 2020 | $ | 773,885 | $ | — | $ | 3,945,450 | $ | 1,378,902 | $ | 30,288 | $ | 6,128,525 | $ | 2,998,666 |
| 2019 | $ | 796,153 | $ | — | $ | 5,136,754 | $ | 1,043,625 | $ | 33,055 | $ | 7,009,587 | $ | 2,359,461 |
| 2018 | $ | 666,346 | $ | 980,000 | $ | 4,313,125 | $ | — | $ | 31,430 | $ | 5,990,901 | $ | 1,931,496 |
James P. Ulm, II(g) Senior Vice President & CFO | 2020 | $ | 458,462 | $ | — | $ | 1,785,040 | $ | 687,478 | $ | 36,837 | $ | 2,967,817 | $ | 1,551,773 |
| 2019 | $ | 465,000 | $ | — | $ | 2,083,367 | $ | 481,275 | $ | 42,352 | $ | 3,071,994 | $ | 1,185,994 |
| 2018 | $ | 465,000 | $ | 585,900 | $ | 1,249,500 | $ | — | $ | 39,245 | $ | 2,339,645 | $ | 1,139,495 |
Jeffrey S. Balmer(h)(i) Senior Vice President & Chief Operating Officer | 2020 | $ | 464,827 | $ | — | $ | 1,863,529 | $ | 699,339 | $ | 23,242 | $ | 3,050,937 | $ | 1,572,632 |
| 2019 | $ | 450,000 | $ | — | $ | 1,968,015 | $ | 439,875 | $ | 57,350 | $ | 2,915,240 | $ | 1,150,138 |
Michol L. Ecklund(j) Senior Vice President, General Counsel & Corporate Secretary | 2020 | $ | 394,289 | $ | — | $ | 1,173,912 | $ | 560,246 | $ | 42,605 | $ | 2,171,052 | $ | 1,239,803 |
| 2019 | $ | 388,462 | $ | — | $ | 1,194,593 | $ | 368,000 | $ | 38,953 | $ | 1,990,008 | $ | 908,584 |
| 2018 | $ | 340,577 | $ | 343,000 | $ | 774,155 | $ | — | $ | 38,131 | $ | 1,495,863 | $ | 767,247 |
Gregory F. Conaway(k)(l) Vice President & Chief Accounting Officer | 2020 | $ | 286,125 | $ | — | $ | 672,040 | $ | 307,210 | $ | 25,653 | $ | 1,291,028 | $ | 773,582 |
| 2019 | $ | 8,677 | $ | — | $ | — | $ | 197,400 | $ | 174 | $ | 206,251 | $ | 206,251 |
(a) The annual cash bonus for 2018 did not qualify as non-equity incentive plan compensation.
(b) The amounts reported in the “Stock Awards” column represent the aggregate grant date fair value of RSUs and PSUs computed in accordance with FASB ASC Topic 718. The PSUs granted in 2020, 2019, and 2018 are subject to market conditions and have been valued utilizing a Monte Carlo simulation as of the grant date of the awards. The assumptions utilized in the calculation of these amounts for 2020 are set forth in footnote 10 to our consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2020.
(c) The amounts reported in the “Non-Equity Incentive Plan Compensation” column represent payouts under the annual performance bonus program for 2019 and 2020 and the transition cash incentive award payouts for the third and fourth quarters of 2020. See “Performance-Based Annual Cash Incentive” and “Transition Cash Incentive Awards & Retention Award Programs” in the CD&A above for further information.
(d) See the "Table of All Other Compensation” below and related footnotes for reconciliation.
(e) Amounts shown are intended to illustrate the pay-for-performance nature of the executive compensation program by presenting the realizable pay of the 2020, 2019 and 2018 compensation programs for the named executive officers as of December 31, 2020. The amounts reported in this column differ substantially from the amounts reported in the Total column required under SEC rules and are not a substitute for total compensation. Realizable pay includes (i) actual amounts received for salary and bonus for the applicable year, and (ii) the value as of December 31, 2020, of RSUs and PSUs granted in the applicable year based on the closing price of $13.16 per share of our common stock on the last trading day of 2020 and the applicable TSR-based performance modifier for each PSU grant as of December 31, 2020.
(f) Mr. Gatto’s salary was increased from $825,000 to $865,000 effective February 2020. In April 2020 Mr. Gatto voluntarily reduced his salary by 20%. The Compensation Committee reinstated senior executive officer salaries in October 2020.
(g) Mr. Ulm's salary was increased from $465,000 to $500,000 effective February 2020. In April 2020 Mr. Ulm voluntarily reduced his salary by 15%. The Compensation Committee reinstated senior executive officer salaries in October 2020.
(h) Dr. Balmer was not an NEO prior to 2019.
(i) Dr. Balmer's salary was increased from $450,000 to $510,000 effective February 2020. In April 2020 Dr. Balmer voluntarily reduced his salary by 15%. The Compensation Committee reinstated senior executive officer salaries in October 2020.
(j) Ms. Ecklund's salary was increased from $400,000 to $430,000 effective February 2020. In April 2020 Ms. Ecklund voluntarily reduced her salary by 15%. The Compensation Committee reinstated senior executive officer salaries in October 2020.
(k) Mr. Conaway was appointed to an executive officer role with the Company as of the closing of the Carrizo Acquisition on December 20, 2019.
(l) Mr. Conaway's salary was increased from $282,000 to $295,000 effective February 2020. In April 2020 Mr. Conaway voluntarily reduced his salary by 10%. The Compensation Committee reinstated vice president salaries in October 2020.
Table of All Other Compensation
| | | | | | | | | | | | | | | | | | | | |
| NEO | Year | Company
Contributions to 401(k)(a) | Company
Provided
Auto(b) | Additional Perquisites | Total |
| Joseph C. Gatto, Jr. | 2020 | $ | 22,800 | | $ | 7,488 | | $ | — | | $ | 30,288 |
| 2019 | $ | 26,250 | $ | 6,805 | $ | — | | $ | 33,055 |
| 2018 | $ | 25,000 | $ | 6,430 | $ | — | | $ | 31,430 |
| James P. Ulm, II | 2020 | $ | 22,685 | | $ | 14,152 | | $ | — | | $ | 36,837 |
| 2019 | $ | 28,000 | $ | 14,352 | $ | — | | $ | 42,352 |
| 2018 | $ | 26,493 | $ | 12,752 | $ | — | | $ | 39,245 |
| Jeffrey S. Balmer | 2020 | $ | 17,414 | | $ | 5,828 | | | | $ | 23,242 |
| 2019 | $ | 24,642 | $ | 1,851 | $ | 30,857 | (c) | $ | 57,350 |
| Michol L. Ecklund | 2020 | $ | 19,090 | | $ | 23,515 | | | | $ | 42,605 |
| 2019 | $ | 25,962 | $ | 12,991 | $ | — | | $ | 38,953 |
| 2018 | $ | 25,312 | $ | 12,819 | $ | — | | $ | 38,131 |
| Gregory F. Conaway | 2020 | $ | 18,911 | | $ | 6,742 | | | | $ | 25,653 |
| 2019 | $ | 174 | $ | — | $ | — | | $ | 174 |
(a) Subject to IRS limits, Company contributions to each employee's 401(k) account for 2020 consist of a 6% matching contribution plus a a 2% profit sharing contribution for a portion of 2020.
(b) The imputed value for personal use of a company-provided automobile represents annual depreciation based on a three-year life, plus insurance, fuel, maintenance and repairs, pursuant to IRS rules.
(c) Dr. Balmer received $30,857 for reimbursement for certain reasonable relocation expenses which included transportation expenses, home sale and purchase assistance, shipment of additional household goods, and tax gross-ups on these payments.
Stock-Based Incentive Compensation Plans
The 2018 Plan was approved by shareholders on May 10, 2018. The 2020 Plan was approved by shareholders on June 8, 2020. Awards available under each of the 2018 Plan and the 2020 Plan include grants of stock options, stock appreciation rights or units, restricted stock, RSUs, and performance shares or units. As of June 8, 2020, no more shares were issued from the 2018 Plan and the then-remaining 1,008,354 shares authorized and available for issuance under the 2018 Plan were transferred into the 2020 Plan. Shares, which would otherwise become available for issuance under the 2018 Plan as a result of vesting and/or forfeiture of any equity awards existing prior to the effective date of the 2020 Plan, increased the authorized shares available to the 2020 Plan. As of March 15, 2021, approximately 1,922,707 shares remain unissued and available for grant in the 2020 Plan.
Grants of Plan-Based Awards During 2020
The following table presents grants of awards under the 2020 Plan during the fiscal year ending December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grant
Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(a) | Estimated Future Payouts Under Equity Incentive Plan Awards(b)(c) | Other Awards
(Shares or Units)(b)(d) | Grant Date
Fair Value of Stock Awards(e) |
| NEO | Threshold | Target | Maximum | Threshold | Target | Maximum |
| Joseph C. Gatto, Jr. | 1/1/2020 | $ | — | $ | 995,000 | | $ | 1,990,000 | | | | | |
|
| 1/31/2020 | | | | — | | | 48,799 | $ | 1,463,970 | |
| 1/31/2020 | | | | — | 73,200 | 219,600 | | $ | 2,481,480 | |
| 9/29/2020 | $ | — | $ | 801,577 | | $ | 1,733,140 | | | | | | |
| James P. Ulm, II | 1/1/2020 | $ | — | $ | 475,000 | | $ | 950,000 | | | | | | |
| 1/31/2020 | | | | | | | 22,078 | $ | 662,340 | |
| 1/31/2020 | | | | — | 33,118 | 99,354 | | $ | 1,122,700 | |
| 9/29/2020 | $ | — | $ | 382,759 | | $ | 827,587 | | | | | | |
| Jeffrey S. Balmer | 1/1/2020 | $ | — | $ | 485,000 | | $ | 970,000 | | | | | | |
| 1/31/2020 | | | | | | | 23,049 | $ | 691,470 | |
| 1/31/2020 | | | | | 34,574 | 103,722 | | $ | 1,172,059 | |
| 9/29/2020 | $ | — | $ | 390,414 | | $ | 844,139 | | | | | | |
| Michol L. Ecklund | 1/1/2020 | $ | — | $ | 387,000 | | $ | 774,000 | | | | | | |
| 1/31/2020 | | | | — | — | — | 14,519 | $ | 435,570 | |
| 1/31/2020 | | | | — | 21,780 | 65,340 | | $ | 738,342 | |
| 9/29/2020 | $ | — | $ | 311,848 | | $ | 674,266 | | | | | | |
| Gregory F. Conaway | 1/1/2020 | $ | — | $ | 207,000 | | $ | 414,000 | | | | | | |
| 1/1/2020 | | | | | | | 4,935(f) | $ | 238,361 | |
| 1/31/2020 | | | | — | — | — | 5,364 | $ | 160,920 | |
| 1/31/2020 | | | | — | 8,046 | 24,138 | — | $ | 272,759 | |
| 9/29/2020 | $ | — | $ | 166,399 | | $ | 359,782 | | | | | | |
(a) Amounts represent the threshold, target, and maximum payouts for the 2020 annual performance bonus program and the target and maximum award values for the transition cash incentive award. The actual amounts paid under the annual performance bonus program and the transition cash incentive award for 2020 are set forth in the "Non-Equity Incentive Compensation" column in the Summary Compensation Table above.
(b)Reflects the 1-for-10 reverse split of the common stock of the Company, effective August 7, 2020.
(c)Amounts represent PSUs payable 50% in cash and 50% in stock on the vesting date, currently scheduled for December 31, 2022. See "PSU Program" in the CD&A above for further details.
(d) Except as otherwise indicated, amounts represent RSUs granted to our NEOs on January 31, 2020. The first tranche will vest on April 1, 2021; the second and third tranches are scheduled to vest in equal installments on April 1, 2022 and 2023, subject to the NEO’s continued service.
(e) This column shows the grant date fair value of the awards granted to the NEOs on the date indicated computed in accordance with FASB ASC Topic 718. The value ultimately realized by the executive upon the actual vesting of the awards may be more or less than the grant date fair value.
(f)Amount represents RSUs granted to Mr. Conaway on January 1, 2020 at a grant price of $48.30. The first tranche vested on January 1, 2021; the second and third tranches are scheduled to vest in equal installments on January 1, 2022 and 2023, subject to Mr. Conaway’s continued service.
Outstanding Equity Awards at Fiscal Year-End
The following table contains information concerning all outstanding equity awards that were held as of December 31, 2020 for the NEOs:
| | | | | | | | | | | | | | | | | | | | |
| Stock Awards(a) |
| NEO | Number of Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested(b) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(a) |
| Joseph C. Gatto, Jr. | 48,799 | | (c) | $ | 642,195 | — | | | $ | — |
| — | | | $ | — | 36,600 | | (d) | $ | 481,656 |
| — | | | $ | — | 36,600 | | (e) | $ | 481,656 |
| 14,087 | | (f) | $ | 185,385 | — | | | $ | — |
| — | | | $ | — | 15,848 | | (g) | $ | 208,560 |
| — | | | $ | — | 15,848 | | (h) | $ | 208,560 |
| 3,672 | | (i) | $ | 48,324 | — | | | $ | — |
| James P. Ulm, II | 22,078 | | (c) | $ | 290,546 | — | | | $ | — |
| — | | | $ | — | 16,559 | | (d) | $ | 217,916 |
| — | | | $ | — | 16,559 | | (e) | $ | 217,916 |
| 5,713 | | (f) | $ | 75,183 | — | | | $ | — |
| — | | | $ | — | 6,428 | | (g) | $ | 84,592 |
| | | | 6,428 | | (h) | $ | 84,592 |
| 3,000 | | (j) | $ | 39,480 | — | | | $ | — |
| Jeffrey S. Balmer | 23,049 | | (c) | $ | 303,325 | — | | | $ | — |
| — | | | $ | — | 17,287 | | (d) | $ | 227,497 |
| — | | | $ | — | 17,287 | | (e) | $ | 227,497 |
| 6,000 | | (k) | $ | 78,960 | — | | | $ | — |
| — | | | $ | — | 6,419 | | (g) | $ | 84,474 |
| — | | | $ | — | 6,419 | | (h) | $ | 84,474 |
| Michol L. Ecklund | 14,519 | | (c) | $ | 191,070 | | | |
| — | | | $ | — | 10,890 | | (d) | $ | 143,312 |
| — | | | $ | — | 10,890 | | (e) | $ | 143,312 |
| 3,276 | | (f) | $ | 43,112 | — | | | $ | — |
| — | | | $ | — | 3,686 | | (g) | $ | 48,508 |
| — | | | $ | — | 3,686 | | (h) | $ | 48,508 |
| 1,250 | | (l) | $ | 16,450 | — | | | $ | — |
| 659 | | (i) | $ | 8,672 | — | | | $ | — |
Gregory F. Conaway(n) | 5,364 | | (c) | $ | 70,590 | — | | | $ | — |
| — | | | $ | — | 4,023 | | (d) | $ | 52,943 |
| — | | | $ | — | 4,023 | | (e) | $ | 52,943 |
| 4,935 | | (m) | $ | 64,945 | — | | | $ | — |
(a) Reflects the 1-for-10 reverse split of the common stock of the Company, effective August 7, 2020.
(b) Amounts calculated using the closing price of $13.16 per share of our common stock on the last trading day of 2020.
(c) Stock settleable RSUs awarded on January 31, 2020 subject to three-year ratable vesting with one-third vesting each year subsequent to the award year. The first tranche will vest on April 1, 2021. The second tranche will vest on April 1, 2022. The third and final tranche will vest on April 1, 2023.
(d) Stock settleable PSUs awarded on January 31, 2020 with vesting terms subject to performance criteria related to the TSR of the Company compared to a group of peer companies from December 31, 2019 through December 31, 2022. The number of units subject to vest under this award can range from 0% to 300%.
(e) Cash settleable PSUs awarded on January 31, 2020 with vesting terms subject to performance criteria related to the TSR of the Company compared to a group of peer companies from December 31, 2019 through December 31, 2022. The number of units subject to vest under this award can range from 0% to 300%.
(f) Stock settleable RSUs awarded on January 31, 2019 subject to three-year ratable vesting with one-third vesting each year subsequent to the award year. The first tranche vested on April 1, 2020. The second tranche vested on April 1, 2021. The third and final tranche will vest on April 1, 2022.
(g) Stock settleable PSUs awarded on January 31, 2019 with vesting terms subject to performance criteria related to the TSR of the Company compared to a group of peer companies from December 31, 2018 through December 31, 2021. The number of units subject to vest under this award can range from 0% to 200%.
(h) Cash settleable PSUs awarded on January 31, 2019 with vesting terms subject to performance criteria related to the TSR of the Company compared to a group of peer companies from December 31, 2018 through December 31, 2021. The number of units subject to vest under this award can range from 0% to 200%.
(i) Stock settleable RSUs awarded on May 10, 2018 subject to three-year ratable vesting with one-third vesting each year subsequent to the award year. The first tranche vested on June 1, 2019. The second tranche vested on June 1, 2020. The third and final tranche will vest on June 1, 2021.
(j) Stock settleable RSUs awarded to Mr. Ulm upon his hiring on December 11, 2017 subject to three-year ratable vesting with one-third vesting each year subsequent to the award year. The first tranche vested on January 1, 2019. The second tranche vested on January 1, 2020. The third and final tranche vested on January 1, 2021.
(k) Stock settleable RSUs awarded on January 1, 2019 subject to three-year ratable vesting with one-third vesting each year subsequent to the award year. The first tranche vested on January 1, 2020. The second tranche vested on January 1, 2021. The third and final tranche will vest on January 1, 2022.
(l) Stock settleable RSUs awarded to Ms. Ecklund upon her hiring on November 6, 2017 subject to three-year ratable vesting with one-third vesting each year subsequent to the award year. The first tranche vested on January 1, 2019. The second tranche vested on January 1, 2020. The third and final tranche vested on January 1, 2021.
(m) Stock settleable RSUs awarded to Mr. Conaway on January 1, 2020, upon his appointment as an executive officer following the Carrizo Acquisition, subject to three-year ratable vesting with one-third vesting each year subsequent to the award year. The first tranche vested on January 1, 2021. The second tranche will vest on January 1, 2022. The third and final tranche will vest on January 1, 2023.
(n) Mr. Conaway held the following outstanding cash-settled stock appreciation right awards as of December 31, 2020:
| | | | | | | | | | | | | | | | | | | | |
| Option/SAR Awards |
| NEO | Number of Securities Underlying Unexercised Options/
SARs (#) Exercisable | | Number of Securities Underlying Unexercised Options/
SARs (#) Unexercisable | Equity Incentive Plan Awards:
Number of Securities Underlying Exercised Unearned Options/SARs (#) | Option/
SARs Exercise Price
($) | Option/
SARs Expiration Date |
| Gregory F. Conaway | 1,996 | | (1) | — | | — | | $ | 156.00 | 3/17/2021 |
| 2,005 | | (2) | — | | — | | $ | 154.00 | 3/23/2022 |
| 3,144 | | (3) | — | | — | | $ | 83.90 | 3/17/2025 |
| 4,258 | | (4) | — | | — | | $ | 62.80 | 3/17/2026 |
(1) Cash-settled stock appreciation rights received in connection with the Carrizo Acquisition in exchange for 11,406 Carrizo stock appreciation rights with an exercise price of $27.295 pursuant to the merger agreement relating to the Carrizo Acquisition (the "Merger Agreement").
(2) Cash-settled stock appreciation rights received in connection with the Carrizo Acquisition in exchange for 11,458 Carrizo stock appreciation rights with an exercise price of $26.94 pursuant to the Merger Agreement.
(3) Cash-settled stock appreciation rights received in connection with the Carrizo Acquisition in exchange for 17,967 Carrizo stock appreciation rights with an exercise price of $14.67 pursuant to the Merger Agreement.
(4) Cash-settled stock appreciation rights received in connection with the Carrizo Acquisition in exchange for 24,336 Carrizo stock appreciation rights with an exercise price of $10.98 pursuant to the Merger Agreement.
Stock Vested
The following table provides information about the value realized by the NEOs on vesting of RSUs and PSUs during 2020:
| | | | | | | | | | | |
| Stock Awards(a)(b) |
| NEO | Number of Shares
Acquired on Vesting (#) | | Value Realized on Vesting $(c) |
| Joseph C. Gatto, Jr. | 4,287 | | (d) | $ | 33,439 |
| 4,005 | | (e) | $ | 46,058 |
| 3,672 | | (f) | $ | 26,438 |
| 8,262 | | (g) | $ | 108,728 |
| 7,043 | | (h) | $ | 28,876 |
| James P. Ulm, II | 3,000 | | (i) | $ | 144,900 |
| 3,750 | | (g) | $ | 49,350 |
| 2,857 | | (h) | $ | 11,714 |
| Jeffrey S. Balmer | 3,000 | | (j) | $ | 144,900 |
| Michol L. Ecklund | 1,250 | | (k) | $ | 60,375 |
| 659 | | (f) | $ | 4,745 |
| 1,482 | | (g) | $ | 19,503 |
| 1,638 | | (h) | $ | 6,716 |
| Gregory F. Conaway | — | | | $ | — |
(a) Reflects the 1-for-10 reverse split of the common stock of the Company, effective August 7, 2020.
(b) No options were awarded, outstanding, expired, or exercised by any NEO in 2020.
(c) Except as otherwise indicated, represents the aggregate dollar amount realized on the date of vesting, based on the closing market price per share of Company common stock on the vesting date or last business day prior to the vesting date if such date fell on a weekend or holiday.
(d) Represents RSUs awarded on May 11, 2017, that cliff-vested on May 11, 2020.
(e) Represents RSUs awarded to Mr. Gatto upon his promotion to CEO on July 11, 2017, the third and final tranche of which vested on July 1, 2020.
(f) Represents RSUs awarded on May 10, 2018, the second tranche of which vested on June 1, 2020.
(g) Represents PSUs awarded on May 10, 2018, that settled 50% in stock and 50% in cash on December 31, 2020, at 50% of target.
(h) Represents RSUs awarded on January 31, 2019, the first tranche of which vested on April 1, 2020.
(i) Represents RSUs awarded to Mr. Ulm upon his hiring on December 11, 2017, the second tranche of which vested on January 1, 2020.
(j) Represents RSUs awarded to Dr. Balmer upon his hiring on January 1, 2019, the first tranche of which vested on January 1, 2020.
(k) Represents RSUs awarded to Ms. Ecklund upon her hiring on November 6, 2017, the second tranche of which vested on January 1, 2020.
Employment Agreements, Termination of Employment and Change in Control Arrangements
Employment Agreements; Carrizo Change in Control Severance Plan
We do not have employment agreements with any of our executive officers, with the exception of an employment agreement with Mr. Conaway that was inherited by the Company as a result of the Carrizo Acquisition and amended in connection therewith.
Mr. Conaway's employment agreement has an initial one-year term, provided thatuntil the date of the agreement and on every day thereafter, the term of the employment agreement is automatically extended for one day, such that the remaining term of the agreement shall never be lessSpecial Meeting (unless otherwise stated, other than one year until an event (as described in the agreement) that gives rise to termination of employment occurs. The Company has given notice that the employment agreement will terminate on December 20, 2021, unless earlier terminated in accordance with its terms. Mr. Conaway’s employment agreement also subjects Mr. Conaway to a one-year post-termination non-competition and non-solicitation covenant, and a perpetual confidentiality covenant.
Mr. Conaway’s employment agreement provides for severance benefits, subject to Mr. Conaway's execution and non-revocation of a general release of claims in favor of the Company, upon a termination as a result of disability, but does not provide for severance benefits (other than accrued benefits) in the event of a termination by the Company without causeinformation furnished under Items 2.02 or by Mr. Conaway for any or no reason. However, Mr. Conaway is party to a Severance Compensation Agreement with the Company (a “CIC Agreement”) and is a participant of the Carrizo Change in Control Severance Plan (which the Company inherited as a result of the Carrizo Acquisition), each of which provide for severance benefits upon a termination without cause or for good reason under certain circumstances (as further described below). Pursuant to the terms of Mr. Conaway’s CIC Agreement, in the event a change in control of Callon occurs and Mr. Conaway experiences a qualifying termination following such change in control, Mr. Conaway will be entitled to the severance benefits provided for under his CIC Agreement in lieu of those provided for under his employment agreement or the Carrizo Change in Control Severance Plan. The severance benefits payable under his CIC Agreement are described in the “Severance Compensation Agreements” section below.
In the event Mr. Conaway is terminated on or prior to the second anniversary of the closing of the Carrizo Acquisition (the “Carrizo CIC Protected Period”), the severance provisions of the Carrizo Change in Control Severance Plan will apply in lieu of the severance provisions set forth in his employment agreement, except to the extent the employment agreement provides for additional or greater severance benefits. The Carrizo Change in Control Severance Plan provides for the following severance benefits if Mr. Conaway's employment is terminated during the Carrizo CIC Protected Period by the Company without cause, by Mr. Conaway for good reason, or as a result of death or disability (as such terms are defined in the Carrizo Change in Control Severance Plan): (i) accrued benefits, (ii) a lump sum payment equal to 1.5 multiplied by the sum of (A) his base salary plus (B) his target annual bonus, (iii) continued Company-paid health benefits for up to 18 months, (iv) a pro-rated target annual bonus for the calendar year in which his termination occurs, and (v) any outstanding equity awards then held by Mr. Conaway will vest in full with any performance-based awards earned at the target level and, to the extent applicable, any awards with an exercise period (e.g. stock appreciation rights) will remain exercisable for their full original term. Such severance benefits are conditioned upon Mr. Conaway’s execution and non-revocation of a general release of claims in favor of the Company. The Carrizo Change in Control Severance Plan also includes a 280G “best-net” cutback provision, which provides that if amounts payable to a participant under the Carrizo Change in Control Severance Plan (together with any other amounts that are payable as a result of a change in control) would subject a participant to an excise tax under Section 280G of the Internal Revenue Code, such payments will either be: (i) reduced to the level at which no excise tax applies, or (ii) paid in full, whichever results in a better after-tax result for the participant.
Upon termination as a result of disability outside of the Carrizo CIC Protected Period, Mr. Conaway’s employment agreement provides for the following severance benefits: (i) accrued benefits (including any earned but unpaid annual bonus with respect to the prior fiscal year), (ii) a lump sum payment equal to 97% of his annual base salary, (iii) an additional lump sum payment equal to 70% of his annual base salary, (iii) an additional lump sum payment equal to 3% of his annual base salary, (iv) continued medical and dental benefits coverage for Mr. Conaway and his dependents for one year following his termination of employment, and (v) any outstanding equity awards then held by Mr. Conaway will vest in full, and, to the extent applicable, the period of exercisability7.01 of any such awards will extend to the earlier of (A) one year following his termination date or (B) the date such awards would have lapsed had Mr. Conaway remained employed for the remaining term. Mr. Conaway’s employment agreement also entitles Mr. Conaway to accrued benefits and equity acceleration benefits (as described in the immediately prior sentence) in the event Mr. Conaway’s employment is terminated as a result of his death.
Change in Control Severance Compensation Agreements ("CIC Agreements")
We entered into amended CIC Agreements with each of our NEOs effective as of January 1, 2019, with the exception of Mr. Conaway, who entered into his CIC Agreement effective December 20, 2019 in connection with his appointment as an officer. The CIC Agreements will terminate, except to the extent that any obligation of Callon thereunder remains unpaid as of such time, on December 31, 2020, except that, on each anniversary date thereafter, the expiration date will automatically be extended for one additional year unless, as of such date and prior to such anniversary date, either party has given proper written notice that it does not wish to extend the CIC Agreement, but in no event will the expiration date be earlier than the second anniversary of the effective date of a change in control; (ii) the termination of the NEO's employment with Callon based on death, disability (as defined in the CIC Agreement), or cause (as defined in the CIC Agreement); (iii) the voluntary resignation of the NEO for any reason other than a post-change in control resignation for good reason (as defined in the CIC Agreement); and (iv) any resignation of the NEO prior to a change in control.
Pursuant to the CIC Agreement, if the executive is terminated without cause by Callon or for good reason by him within two years following a change in control of Callon (or in certain cases, prior to a change in control (i.e., a "double-trigger termination)), then the executive is entitled to a single lump-sum cash payment equal to an CIC Agreement multiple times the sum of (i) the annual base salary in effect immediately prior to the change in control or, if higher, in effect immediately prior to the separation from service, and (ii) the greater of the average bonus earned with respect to the three most recently completed full fiscal years, the target bonus for the fiscal year inForm 8-K, which the change in control occurs, or the target bonus for the fiscal year in which the change in control or termination occurs. For Mr. Gatto, the CIC Agreement multiple is three times. For the other NEOs, the CIC Agreement multiple is two times. The CIC Agreements also provide that in the event an NEO is eligible for benefits due to a “double trigger” termination, any outstanding equity awards then held by the NEO shall vest in full with any performance-based awards earned at the level specified in the applicable award agreement or, if not specified, at the target level. In addition, we must maintain at our expense until twenty-four months after a "double-trigger" separation from service all medical, dental, and health insurance coverage. Such severance benefits are subject to the executive’s execution and non-revocation of a general release of claims. A change in control as generally defined in the CIC Agreement occurs when (i) any person or group of persons acting in concert becomes the beneficial owner of more than 50% of our outstanding common stock; (ii) our shareholders cause a change in the majority of the members of the Board within a thirty-six month period; (iii) there is a change in control in ownership of at least 40% of Company assets; or (iv) a third party acquires more than 30% of the voting power of our common stock in a twelve month period.
The CIC Agreements also subject each executive to a one-year post-termination non-competition and two- year post-termination non-solicitation covenant in the event the applicable executive becomes eligible to receive severance benefits under the CIC Agreement. The CIC Agreements also include a perpetual confidentiality covenant.
The CIC Agreements incorporate a provision to provide for the possible impact of the federal excise tax on excess parachute payments. If any CIC Agreement payment is subject to any excise tax under Section 4999 of the Tax Code, the payment will be reduced so that no portion of the payment is subject to such excise tax if the net benefit payable would be at least as much as it would have been if no reduction was made. The so-called “golden parachute” tax rules subject “excess parachute payments” to a dual penalty: the imposition of a 20% excise tax upon the recipient and non-deductibility of such payments by the paying corporation. While the excise tax is seemingly evenhanded, the excise tax can discriminate against long-serving employees in favor of new hires, against individuals who do not exercise stock options in favor of those who do and against those who elect to defer compensation in favor of those who do not. For these reasons, we believe that the 280G “best-net” cutback provision included in the CIC Agreement is appropriate.
Potential Payments upon Termination or Change in Control
The following table shows the estimated gross taxable compensation payable upon termination following a change in control ("CIC") or upon death, disability or retirement (or, in the case of Mr. Conaway, during the Carrizo CIC Protection Period on his termination without cause or for good reason, or due to death or disability). No amounts would be payable upon termination for other causes. The information assumes, in each case, that the officer’s termination was effective as of December 31, 2020. In presenting this disclosure, we describe amounts earned through December 31, 2020 and, in those cases where the actual amounts to be paid out can only be determined at the time of such executive’s separation from us, the estimates are of the amounts which would be paid out to the executives upon their termination.
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| NEO / Reason for Termination | Base
Salary(a) | Cash
Bonus(a) | Accelerated Cash Incentive and Stock Award Vesting(b)(c) | Continued
Employee
Benefits(d) | Total |
| Joseph C. Gatto, Jr. | | | | | |
| Change in Control | $ | — | $ | — | $ | — | $ | — | $ | — |
Change in Control Termination(e) | $ | 2,595,000 | $ | 2,984,250 | $ | 2,236,812 | $ | 61,002 | $ | 7,877,064 |
Death, Disability or Retirement(f) | $ | — | $ | — | $ | 2,236,812 | $ | — | $ | 2,236,812 |
James P. Ulm, II | | | | | |
| Change in Control | $ | — | $ | — | $ | — | $ | — | $ | — |
Change in Control Termination(e) | $ | 1,000,000 | $ | 950,000 | $ | 1,035,787 | $ | 61,002 | $ | 3,046,789 |
Death, Disability or Retirement(f) | $ | — | $ | — | $ | 1,035,787 | $ | — | $ | 1,035,787 |
| Jeffrey S. Balmer | | | | | |
| Change in Control | $ | — | $ | — | $ | — | $ | — | $ | — |
Change in Control Termination(e)(g) | $ | 1,020,000 | $ | 1,319,000 | $ | 1,025,457 | $ | 61,002 | $ | 3,425,459 |
Death, Disability or Retirement(f)(g) | $ | — | $ | 350,000 | $ | 1,025,457 | $ | — | $ | 1,375,457 |
| Michol L. Ecklund | | | | | |
| Change in Control | $ | — | $ | — | $ | — | $ | — | $ | — |
Change in Control Termination(e) | $ | 860,000 | $ | 774,000 | $ | 740,090 | $ | 61,002 | $ | 2,435,092 |
Death, Disability or Retirement(f) | $ | — | $ | — | $ | 740,090 | $ | — | $ | 740,090 |
| Gregory F. Conaway | | | | | |
| Change in Control | $ | — | $ | — | $ | — | $ | — | $ | — |
Change in Control Termination(e) | $ | 590,000 | $ | 413,000 | $ | 357,563 | $ | 60,924 | $ | 1,421,487 |
Without Cause, Good Reason, Death or Disability(h) | $ | 752,250 | $ | 206,500 | $ | 357,563 | $ | 45,693 | | $ | 1,362,006 |
(a)In accordance with Mr. Gatto’s CIC Agreement, the computation uses a 3x multiple with respect to the severance amount relating to salary and target bonus, while a 2x multiple is used for the other NEOs. See “Employment Agreements, Termination of Employment and Change in Control Arrangements.”
(b)The amounts include the value of unvested Cash Incentive Awards at December 31, 2020. The table above assumes the Cash Incentive Awards for the remaining quarters of the program are paid out at the average of the actual results for the third and fourth quarters of 2020. The actual amount paid with respect to the Cash Incentive Award would be determined based on the average award for the completed quarters at the time of such executive’s separation.
(c)The amounts include the value of unvested stock awards at December 31, 2020 using the closing price of $13.16 per share of our common stock on the last trading day of 2020. The table above assumes that PSUs vest based on actual performance as of December 31, 2020. Actual vesting of PSUs would be determined based on performance at the time of such executive's separation.
(d)Benefits consist of twenty-four months of employer-provided family medical and dental insurance and disability and life insurance for the NEOs in the table.
(e)We entered into an CIC Agreement with each of the NEOs listed in the table above. See “Employment Agreements, Termination of Employment and Change in Control Arrangements.”
(f)“Disability,” for purposes of the CIC Agreements, is generally defined as the employee’s inability to carry out the normal and usual duties of his employment on a full-time basis for an entire period of six continuous months together with the reasonable likelihood, as determined by
the Board after consultation of a qualified physician, he will be unable to carry out his normal and usual duties of employment. “Retirement” is generally defined as the employee’s attainment of age 55 with at least 10 years of service.
(g)The amounts for Dr. Balmer include $350,000 for his unvested fixed cash retention award, which would vest in the event of a change in control termination, death or disability, but not in the event of retirement.
(h)Mr. Conaway would be entitled to payments of 1.5 times the sum of his annual base salary and target annual bonus, a pro-rated target annual bonus for the calendar year in which his termination occurs, accelerated vesting of outstanding equity awards, and 18 months of continued subsidized benefits continuation under the Carrizo Change in Control Severance Plan in the event he is terminated without cause or for good reason or due to death or disability within two years after the closing of the Carrizo Acquisition. “Disability,” for purposes of the Carrizo Change in Control Severance Plan, has the same meaning assigned to such term in the Company’s long-term disability plan, as in effect from time to time, or if no such plan is in effect. “Disability” means “permanent and total disability” as defined in Section 22(e)(3) of the Tax Code. The Carrizo Change in Control Severance Plan does not provide for severance benefits upon retirement or a voluntary resignation by the executive. See "Employment Agreements, Termination of Employment and Change in Control Agreements."
Pension and Non-Qualified Deferred Compensation Plans
We sponsor a 401(k) plan for all eligible employees, including the NEOs as described on page 48. We do not sponsor any qualified or non-qualified defined benefit plans, or any non-qualified defined contribution plan for NEOs or other employees. The Board or Compensation Committee may elect to adopt qualified or non-qualified defined benefit plans or non-qualified defined contribution plans in the future if it determines that doing so is in the Company’s best interest.
CEO Pay Ratio
Pursuant to a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are disclosing here that the ratio of our median employee’s compensation to the compensation of our CEO is 38:1.
In order to find the median employee, we compared the sum of the base salary, bonus, and any overtime paid to each employee that was employed by the Company on December 31, 2020. For any employees who were not employed the entire 2020 calendar year (excluding temporary and seasonal employees), we annualized the bonus, base salary, and any overtime.
In accordance with SEC rules, we determined the annual total compensation of our median employee for 2020 was $150,560. This amount represents the total compensation that would have been reported in the Summary Compensation Table in accordance with the requirements of Item 402(c)(x) of Regulation S-K for the median employee if the employee had been a NEO for fiscal year 2020. For purposes of calculating the ratio, an additional value of $11,043 was included in the annual compensation for non-discriminatory benefits bringing the annual total compensation to $161,603.
We determined the amount of the CEO’s annual total compensation was $6,128,525, which represents the amount reported for the CEO in the “Total” column of our 2020 Summary Compensation Table. For purposes of the ratio, an additional value of $30,501 was included in the annual total compensation for non-discriminatory benefits to bring the value to $6,159,026.
Based on the foregoing, for 2020 the ratio of the median of the annual total compensation of all employees to the annual total compensation of our CEO (the "CEO Pay Ratio") is 38:1. This ratio demonstrates a lower pay ratio for 2020 than 2019, reducing from 40:1 in 2019 to the current ratio of 38:1 for 2020.
The CEO Pay Ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records.
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Proposal 3
Ratification of the Appointment of the Independent Registered Public Accounting Firm, Grant Thornton LLP, for 2021.
| | The Board recommends a vote FOR the ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021.
• The Board and the Audit Committee believe the retention of Grant Thornton LLP is in the best interests of Callon and its shareholders based on the information presented below.
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The Audit Committee has appointed Grant Thornton LLP, as the independent registered public accounting firm to audit our consolidated financial statements for the year ending December 31, 2021. We are asking shareholders to ratify this appointment. Grant Thornton LLP has served as the Company’s independent registered public accounting firm since being appointed effective March 3, 2016. A representative of Grant Thornton LLP will be present at the Annual Meeting and will have the opportunity to make a statement, if they desire, and to respond to appropriate questions from shareholders.
Fees
The following table sets forth the fees incurred by us for services performed by Grant Thornton LLP in the fiscal years 2019 and 2020:
| | | | | | | | |
| Fee Category | 2019 | 2020 |
Audit fees(a) | $ | 1,187,217 | | $ | 1,208,400 | |
Audit-related fees(b) | $ | — | | $ | — | |
Tax fees(c) | $ | 108,385 | | $ | 178,398 | |
All other fees(d) | $ | — | | $ | — | |
| Total | $ | 1,295,602 | $ | 1,386,798 | |
(a)Audit fees consist of the aggregate fees billed for professional services related to the audit and quarterly reviews of our financial statements and for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements.
(b)Audit-related fees consist of the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements that are not reported above under “Audit fees."
(c)Tax fees consist of the aggregate fees billed for professional services rendered for tax compliance (including filing state and federal tax returns), tax advice and tax planning. Tax fees do not include fees for services rendered in connection with the audit.
(d)Other fees consist of the aggregate fees billed for professional services other than the services reported above.
Pre-approval policy
The Audit Committee pre-approves all audit and permissible non-audit services (including the fees and terms thereof) exceeding $25,000 to be performed on behalf of the Company by our independent registered public accounting firm, as required by applicable law or listing standards and subject to the terms of the audit and non-audit services pre-approval policy in accordance with the Audit Committee charter. The Committee may delegate authority to one or more of its members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that any decisions to grant pre-approvals are consistent with the terms of the delegation and the Audit Committee charter and are presented to the full Committee at its next scheduled meeting.
Required Vote
The submission of this matter for approval by shareholders is not legally required. However, the Board and Audit Committee believe that this submission is consistent with best practices in corporate governance and is an opportunity for shareholders to provide direct feedback to the Board and Audit Committee on an important issue of corporate governance. Although the results of the vote are not binding on the Audit Committee, if the appointment is not ratified by the shareholders, then the Audit Committee will consider whether it should select another independent registered public accounting firm.deemed filed):
This proposal will be approved if it receives the affirmative vote of a majority of shares of •our common stock present and entitled to vote at the Annual Meeting. If you hold your shares through a broker and you do not instruct the broker how to vote, your broker will have the authority to vote your shares in its discretion on this proposal. Abstentions will have the effect as a vote cast against this proposal.
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The Board recommends a vote FOR the ratification of the appointment of Grant Thornton LLP as the Company’s independent registered public accounting firm.
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Audit Committee Report
Acting pursuant to its charter, the Audit Committee reviewed and discussed the Company’s audited financial statements for the year ended December 31, 2020, with management and Grant Thornton LLP, and recommended to the Board that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 for filing with the SEC. This recommendation was based on:
•The Audit Committee’s review of the audited financial statements;filed on February 25, 2021;
•Discussion of the financial statements with management;
•Discussion with our independent registered public accounting firm, Grant Thornton LLP, of the matters required to be discussed by auditing standards generally accepted in the United States of America, including the communication matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, issued by the PCAOB;
•Receipt from Grant Thornton LLP of the written disclosures and letter required by Public Company Accounting Standards Board Rule 3526 (Communications with Audit Committees Concerning Independence);
•Discussions with Grant Thornton LLP regarding its independence from Callon, the Board and our management;
•Grant Thornton LLP’s confirmation that it would issue its opinion that the consolidated financial statements present fairly, in all material respects, our financial position and the results of our operations and cash flowsQuarterly Reports on Form 10-Q for the periods presented in conformity with accounting principles generally accepted inthree months ended March 31, 2021 filed on May 6, 2021, and for the United States of America (“GAAP”);six months ended June 30, 2021 filed on August 4, 2021; and
•Other mattersour Current Reports on Form 8-K filed on March 16, 2021, April 16, 2021, May 11, 2021, May 14, 2021, June 21, 2021, June 22, 2021, July 7, 2021, July 23, 2021, August 5, 2021, August 5, 2021, and October 5, 2021.
Any statement contained in this Proxy Statement or in a document incorporated or deemed to be incorporated by reference in this Proxy Statement shall be deemed to be modified or superseded for purposes of this Proxy Statement to the Audit Committeeextent that a statement contained herein or in any other subsequently filed document which also is or is deemed relevant and appropriate.to be incorporated by reference modifies or supersedes the statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this offering memorandum.
Management is responsible for the preparation, presentation and integrity of our consolidated financial statements in accordance with GAAP, the establishment and maintenance of our disclosure controls and procedures, and the establishment, maintenance and evaluationYou may obtain any of the effectivenessdocuments incorporated by reference in this Proxy Statement from the SEC through the SEC’s website at the address provided above. We will provide you a copy of our internal controls over financial reporting. The independent registered public accounting firm is responsible for performing an independent audit of our consolidated financial statements and internal control over financial reporting in accordance with the standardsthis Proxy Statement or any or all of the PCAOB and issuing reports thereon. The Audit Committee’s responsibilities include monitoring and overseeing these processes.information that has been incorporated by reference in this Proxy Statement (including exhibits to those documents specifically incorporated by reference in this document), at no cost, upon your written or oral request to us at the following address or telephone number:
MembersCallon Petroleum Company
One Briarlake Plaza
2000 W. Sam Houston Parkway S., Suite 2000
Houston, TX 77042
Telephone: (281) 589-5200
Attn: Investor Relations
If you would like to request any documents, please do so by October 27, 2021, which is five business days prior to the date of the Audit Committee rely, without independent verification, onSpecial Meeting, in order to receive them before the information provided to them and on the representations made by management and our independent registered public accounting firm. The Audit Committee’s considerations and discussions referred to above do not assure that the audit of our financial statements and internal control over financial reporting have been carried out according to the standards of the PCAOB, that the financial statements are presented according to GAAP, or that Grant Thornton LLP is in fact independent.
Respectfully submitted by the Audit Committee of the Board of Directors,
Anthony J. Nocchiero, Chairman
Barbara J. Faulkenberry
Michael L. Finch
L. Richard Flury
Larry D. McVay
Steven A. Webstermeeting.
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Proposal 4
Approve the Amendment to the Certificate of Incorporation to Increase Authorized Shares of Common Stock.
| | The Board recommends a vote FOR the approval of an amendment to the Company's certificate of incorporation to increase the number of authorized shares from 52.5 million to 78.75 million.
• Provides the Company with the flexibility to issue shares for business, financial, and compensation purposes.
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THE ISSUANCE PROPOSALOverview and Reason for the Issuance Proposal
On August 3, 2021, the Company, entered into the Exchange Agreement by and among the Company and Kimmeridge, as holder of the Second Lien Notes. Pursuant to the Exchange Agreement, Kimmeridge agreed to exchange, on the Closing Date (as defined in the Exchange Agreement), $197.0 million in aggregate principal amount of Second Lien Notes held by Kimmeridge for 5,512,623 shares of New Common Stock (which equals a notional amount of approximately $223.1 million of New Common Stock as of August 3, 2021). Kimmeridge’s current holdings in the Company’s Second Lien Notes and all but 602,503 shares of Common Stock were obtained as part of concurrent transactions agreed to in September 2020 whereby Kimmeridge purchased Second Lien Notes, warrants for Common Stock, and an overriding royalty interest in substantially all Callon-operated oil and gas leaseholds as of the effective date of such transactions. Kimmeridge’s remaining shares of Common Stock were purchased in the open market.
The closing of the transactions pursuant to the Exchange Agreement is subject to various closing conditions, including (i) for purposes of complying with Rule 312.03(b), approval of the Company’s shareholders of the issuance of New Common Stock to Kimmeridge, (ii) the closing of the Primexx Transaction (which closing occurred on October 1, 2021), (iii) approval by the NYSE of the listing of the New Common Stock, (iv) the accuracy of each party’s representations and warranties, subject to certain materiality qualifiers and (v) the absence of any injunctions or orders preventing the Exchange. If any of these conditions are not satisfied or waived, the transactions pursuant to the Exchange Agreement will not close and, as a result, (i) the New Common Stock will not be issued to Kimmeridge and (ii) $197.0 million of Second Lien Notes owned by Kimmeridge will remain outstanding.
The Exchange Agreement may be terminated (i) upon the mutual consent of the parties thereto, (ii) by either party if the Exchange has not been consummated by December 31, 2021 (the “Outside Date”), (iii) by either party in the event of an order, judgment or decree delaying the closing beyond the Outside Date and (iv) by either party if the other party materially breaches the Exchange Agreement.
The foregoing description of the Exchange Agreement is qualified in its entirety by reference to the Exchange Agreement, which is attached hereto as Annex A.
We are seeking shareholder approval for a proposalof the Issuance Proposal in order to adopt an amendmentcomply with Rule 312.03(b) with respect to our certificatethe issuance of incorporationthe New Common Stock pursuant to permit usthe Exchange Agreement. Our Common Stock is listed on the NYSE, and thus, we are subject to increase the authorized numberNYSE listing requirements. Under Rule 312.03(b), shareholder approval is required prior to any issuance or sale of shares of Callon common stock from 52.5 million sharesin any transaction or series of related transactions (i) to 78.75 million shares (the "Proposed Charter Amendment"). Our certificate of incorporation currently provides thata Related Party if the total number of shares of common stock that Callon is authorized to issue is 52.5 million. The Board believes that the increased numberbe issued exceeds either 1% of authorized shares of Callon common stock contemplated by the Proposed Charter Amendment is important to the Company as it will ensure the availability of additional shares for issuance from time to time, without further action or authorization by the Callon shareholders (except as required by law or the NYSE rules), if needed for such corporate purposes as may be determined by the Board.
The additional 26.25 million authorized shares would be a part of the existing class of Callon common stock and, if issued, would have the same rights and privileges as the shares of Callon common stock presently issued and outstanding. Adoption of the Proposed Charter Amendment would not affect the rights of the holders of currently outstanding shares of the Company’s common stock, except, if and to the extent additional shares of common stock are ultimately issued, the effects of increasing the number of shares of the Company’s common stock outstanding, such as dilutionor 1% of the earnings per sharevoting power outstanding before the issuance or (ii) when a Related Party has a 5% or greater interest, directly or indirectly, in the company or in the consideration to be paid in the transaction or series of related transactions, and voting rights of current holdersthe present or potential issuance of common stock. The Proposed Charter Amendment does not affectstock could result in an issuance that exceeds either 5% of the number of shares of preferredcommon stock authorized.
If our shareholders approveor 5% of the proposalvoting power outstanding before the issuance. Under Rule 312.04(e), a shareholder is presumed to amend our certificatebe a “substantial security holder” (and therefore, a “Related Party” for purposes of incorporation, Callon expects to file a certificateRule 312.03(b)) if it owns either 5% or more of amendment with the Delaware Secretary of State (the "Certificate of Amendment") to increase the number of authorized shares of its capital and common stock. Upon filing of the Certificate of Amendment with the Delaware Secretary of State, the text of which is provided in Appendix B, the first sentence of Article IV of our certificate of incorporation will be amended and restated to read as follows:
The Corporation shall have authority to issue two classes of stock, and the total number authorized shall be 78,750,000 shares of Common Stock, par value $.01 per share, and 2,500,000 shares of Preferred Stock, par value $.01 per share.
Rationale for the Proposed Charter Amendment
As of March 15, 2021, Callon had an aggregate of 46,155,799 shares of common stock issued and outstanding or reserved for issuance. The Board has no immediate or specific plans, arrangements or understandings to issue any of the shares of common stock that would be authorized under the Proposed Charter Amendment. However, the Board desires to have the shares available to provide additional flexibility for business and financial purposes and provide appropriate equity incentives for Callon’s employees and directors. The additional shares may be used for various purposes without further shareholder approval (except as required by law or the NYSE rules). These purposes may include: (i) raising capital, if Callon has an appropriate opportunity, through offerings of common stock or securities that are convertible into common stock; (ii) exchanging common stock or securities that are convertible into common stock for other outstanding securities; (iii) providing equity incentives to employees, officers, directors, consultants, or advisors; (iv) expanding Callon’s business through the acquisition of other businesses or assets; (v) stock splits, dividends, and similar transactions; and (vi) debt or equity restructuring or refinancing transactions.
The Board has not proposed the increase in the number of authorized shares of common stock with the intent of preventing or discouraging any actual or threatened tender offers or takeover attempts of the Company. Rather, the Proposed Charter Amendment has been prompted by business and financial considerations, as set out above, and it is the intended purpose of the Proposed Charter Amendment to provide greater flexibility to the Board in considering and planning for our potential future corporate needs. Under certain circumstances, however, an increase in the number of authorized shares of the Company’s common stock may make it more difficult to, or discourage an attempt to, obtain control of the Company by means of a takeover bid that the Board determines is not in the Company’s best interest nor in the best interests of the Company’s shareholders. In this regard, if the Company was to become concerned that it may be a potential target of an unsolicited acquisition attempt, it could try to impede the acquisition by issuing additional shares of common stock or rights5% or other equity interests related thereto, thereby dilutingmore of the voting power outstanding of a NYSE listed company.
Due to Kimmeridge’s beneficial ownership of approximately 11.2% of our outstanding shares of Common Stock as of October 4, 2021, Kimmeridge is a Related Party for purposes of Rule 312.03(b). Upon consummation of the other outstanding shares and increasingtransactions contemplated by the potential costExchange Agreement, the Company would issue to Kimmeridge New Common Stock equal to approximately 10.0% of the Company’s then-outstanding Common Stock. As a result, the issuance of the New Common Stock pursuant to the bidderExchange Agreement is subject to shareholder approval for purposes of complying with Rule 312.03(b). Approval of the acquisition. The Company does not currently have a shareholder rights plan (commonly referred to as a “poison pill”) in place, nor does the Board currently have any plans to adopt any such plan or similar anti-takeover measures. The Board is not currently aware of any attempt or plan to acquire control of the Company.
Required Vote
Approval of this proposalIssuance Proposal requires the affirmative vote either in person or by proxy, of the holders of a majority of the issued and outstanding sharesvotes cast with regard to the Issuance Proposal at the Special Meeting, if a quorum is present.
The terms of common stock. Abstentions, failingthe Exchange Agreement were negotiated between the parties on an arms-length basis. Neither Kimmeridge nor any of its affiliated entities has Board representation or any other governance rights with respect to vote, and “broker non-votes” will have the same effect as voting “AGAINST” the adoptionCompany. The value of this proposal because the required vote isCommon Stock to be delivered was based on the numberconstruct of shares outstanding rather than the number of votes cast.
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The Board recommends a vote FOR the approval of an amendment to our certificate of incorporation to increase the number of authorized shares of common stock.
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OTHER MATTERSredemption language in the Second Lien Notes Indenture. The price of the Common Stock used to calculate the Common Stock issued was based on the 10-day volume-weighted average price as of August 2, 2021, which was the 10-day period prior to execution of the Exchange Agreement.
The Exchange Agreement was unanimously approved by the Board upon the recommendation of the independent Nominating & ESG Committee of the Board, which is responsible for review of related party transactions for the Company.
Beneficial OwnershipThe Board believes that the transactions contemplated by the Exchange Agreement will strengthen the Company’s financial position by accelerating deleveraging initiatives and reducing cash interest expense by approximately $20 million per year. In addition, the transactions will improve the standing of Securitiesshareholders in the capital structure of the Company and enhance Callon’s access to debt capital markets, providing the opportunity for reductions in the corporate cost of capital.
The Voting Agreements
Principal ShareholdersIn connection with the execution of the Exchange Agreement, each of our executive officers and Managementdirectors entered into the Voting Agreement. On the terms and conditions set forth in the Voting Agreement, our executive officers and directors agreed to vote all of the shares of Common Stock over which they have voting power (representing in the aggregate approximately 2% of the Company’s total outstanding voting power as of the Record Date) in favor of the Issuance Proposal. The foregoing description of the Voting Agreement is qualified in its entirety by reference to the Voting Agreement, which is attached hereto as Annex B.
Kimmeridge has also agreed, pursuant to the Exchange Agreement, to vote all of the shares of Common Stock for which it has voting power in favor of the Issuance Proposal. Additionally, Kimmeridge agreed, pursuant to the Exchange Agreement, not to transfer any Second Lien Notes and substantially all of the Common Stock beneficially held by it until the closing of the transactions pursuant to the Exchange Agreement, subject to certain exceptions, including (i) transfers of Common Stock to Affiliates who agree in writing to be bound by the Exchange Agreement and deliver an executed written agreement to that effect to the Company prior to such transfer, (ii) transfers of up to 500,000 shares of Common Stock, and (iii) transfers of Common Stock with the prior written consent the Company. As of October 4, 2021, Kimmeridge was the beneficial owner of 6,188,157 shares of Common Stock, representing approximately 11.2% of the Company’s total outstanding voting power. Additionally, pursuant to the purchase and sale agreements executed in connection with the Primexx Transaction, Primexx has also agreed to vote all shares of Common Stock over which they have voting power (which, as of the Record Date, was approximately 8.8 million shares) in favor of the Issuance Proposal.
In the aggregate, the foregoing voting agreements represent approximately 16 million, or approximately 30%, of the shares outstanding on the Record Date.
Registration Rights Agreement
In connection with the execution of the Exchange Agreement and issuance of New Common Stock thereunder, the Company and Kimmeridge agreed to enter into a registration rights agreement (the “Registration Rights Agreement”) pursuant to which the Company is required to, subject to certain exceptions, prepare and file a registration statement under the Securities Act with the Securities and Exchange Commission, within three business days of the Closing Date (as defined in the Exchange Agreement), in order to permit the public resale of the New Common Stock. The Registration Rights Agreement will also include certain customary demand rights for underwritten offerings and piggyback rights.
RECOMMENDATION OF THE BOARD
THE BOARD RECOMMENDS A VOTE “FOR”
THE APPROVAL OF THE ISSUANCE PROPOSAL
BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth beneficial ownership information with respect to our common stockCommon Stock as of the Record Date (March 15,(October 4, 2021) for (i) each person known by us to beneficially own 5% or more of our outstanding common stock;Common Stock; (ii) each of our NEOs,named executive officers (“NEOs”), (iii) each of our directors, and nominees for director, and (iv) all of our directors and executive officers as of the Record Date, as a group. Unless otherwise noted, each person listed below has sole voting and investment power with respect to the shares of our common stockCommon Stock listed below as beneficially owned by the person. Information set forth in the table with respect to beneficial ownership of common stockCommon Stock has been obtained from filings made by the named beneficial owners with the SEC as of March 15,October 4, 2021, or, in the case of our executive officers and directors, has been provided to us by such individuals. As of March 15,October 4, 2021, the Company had 46,155,79955,132,150 shares outstanding.
None of the shares beneficially owned by our executive officers or directors has been pledged as security for an obligation. Our Insider Trading Policy prohibits our executive officers and directors from holding Callon securities in a margin account or pledging Callon securities as collateral for a loan.
| | | Beneficial Ownership(1)(2) | | Beneficial Ownership |
| Name of Beneficial Owner | Name of Beneficial Owner | Shares (#) | Percent of Class | Name of Beneficial Owner | Shares (#) | Percent of Class |
| Holders of More Than 5%: | Holders of More Than 5%: | | Holders of More Than 5%: | |
Kimmeridge Energy Management Company, LLC(3) | 5,585,654 | | 12.1 | % | |
BlackRock, Inc.(4) | 4,415,315 | | 9.6 | % | |
JB Investments Management, LLC(5) | 2,459,022 | | 5.3 | % | |
Blackstone Inc.(1) | | Blackstone Inc.(1) | 8,841,539 | 16.0% |
Kimmeridge Energy Management Company, LLC(2) | | Kimmeridge Energy Management Company, LLC(2) | 6,188,157 | 11.2% |
BlackRock, Inc.(3) | | BlackRock, Inc.(3) | 4,415,315 | 8.0% |
JB Investments Management, LLC(4) | | JB Investments Management, LLC(4) | 3,055,211 | 5.5% |
| | Named Executive Officers: | Named Executive Officers: | | Named Executive Officers: | |
Joseph C. Gatto, Jr.(6) | 78,550 | | * | |
James P. Ulm, II(7) | 19,450 | | * | |
Jeffrey S. Balmer(8) | 11,504 | | * | |
Michol L. Ecklund(9) | 11,633 | | * | |
Gregory F. Conaway(10) | 34,988 | | * | |
Joseph C. Gatto, Jr.(5) | | Joseph C. Gatto, Jr.(5) | 75,457 | * |
Kevin Haggard(6) | | Kevin Haggard(6) | – | – |
Jeffrey S. Balmer(7) | | Jeffrey S. Balmer(7) | 8,480 | * |
Michol L. Ecklund(8) | | Michol L. Ecklund(8) | 9,482 | * |
Gregory F. Conaway(9) | | Gregory F. Conaway(9) | 34,289 | * |
James P. Ulm, II(10) | | James P. Ulm, II(10) | 15,428 | * |
| Directors: | Directors: | | * | Directors: | |
Frances Aldrich Sevilla-Sacasa(11) | Frances Aldrich Sevilla-Sacasa(11) | 2,347 | | * | Frances Aldrich Sevilla-Sacasa(11) | 4,384 | * |
| Matthew R. Bob | Matthew R. Bob | 10,199 | | * | Matthew R. Bob | 12,236 | * |
| Barbara J. Faulkenberry | Barbara J. Faulkenberry | 6,760 | | * | Barbara J. Faulkenberry | 8,798 | * |
| Michael L. Finch | Michael L. Finch | 7,044 | | * | Michael L. Finch | 9,081 | * |
L. Richard Flury(12) | L. Richard Flury(12) | 31,858 | | * | L. Richard Flury(12) | 33,895 | * |
S. P. Johnson IV(13) | S. P. Johnson IV(13) | 155,257 | | * | S. P. Johnson IV(13) | 148,894 | * |
Larry D. McVay(14) | Larry D. McVay(14) | 22,598 | | * | Larry D. McVay(14) | 24,635 | * |
| Anthony J. Nocchiero | Anthony J. Nocchiero | 15,984 | | * | Anthony J. Nocchiero | 18,021 | * |
| James M. Trimble | James M. Trimble | 8,299 | | * | James M. Trimble | 10,336 | * |
Steven A.Webster(15) | 761,559 | | 1.6 | % | |
All Executive Officers and Directors as a Group (consisting of 15 persons)(16) | 1,178,030 | | 2.6 | % | |
Steven A. Webster(15) | | Steven A. Webster(15) | 763,596 | 1.4% |
All Executive Officers and Directors as a Group (consisting of 16 persons)(16) | | All Executive Officers and Directors as a Group (consisting of 16 persons)(16) | 1,177,012 | 2.1% |
Certain RelationshipsRequirements, including Deadlines, for Submission of Proxy Proposals, Nomination of Directors and Related Party Transactions
The Audit Committee charter provides that the Audit Committee shall review and approve all related party transactions. A transaction will be considered a “related party transaction” if the transaction would be required to be disclosed under Item 404Other Business of Regulation S-K. In addition, our Code provides that an officer’s or a director’s conflict of interest with Callon may only be waived if the N&ESG Committee approves the waiver and the full Board ratifies the waiver.
We are not aware of any related party transactions with our executive officers that require disclosure under Item 404 of Regulation S-K.
Shareholders’ Proposals and Director Nominations for the 2022 Annual MeetingShareholders
In order for a proposal to be considered for inclusion in the proxy statement for the 2022 Annual Meeting of Shareholders (the “2022 Annual Meeting”) pursuant to Rule 14a-8 of the Exchange Act, such proposal must be received by the Secretary of the Company at our principal executive offices no later than December 10, 2021 (assuming the date of the 2022 Annual Meeting has not been changed by more than 30 days from the date of this year’sthe 2021 Annual Meeting)Meeting of Shareholders), and must otherwise be in compliance with the requirements of the SEC’s proxy rules. If the date of the 2022 Annual Meeting has been changed by more than 30 days from the date of this Annual Meeting, then the deadline is a reasonable time before we begin to print and send our proxy materials for the 2022 Annual Meeting.
For a shareholder proposal to be introduced for consideration at the 2022 Annual Meeting but not intended to be considered for inclusion in the Company'sCompany’s proxy statement and form of proxy relating to such meeting (i.e. not pursuant to Rule 14a-8 of the Exchange Act), including shareholder nominations for candidates for election as directors, a shareholder must provide written notice of such proposal to the Company not later than 120 days nor earlier than 150 days before the date of the 2022 Annual Meeting. Any such notice must describe the shareholder proposal in reasonable detail and otherwise comply with the requirements set forth in our bylaws.
Nominating Process
In accordance with our certificate of incorporation and bylaws, any shareholder may nominate a person for election to the Board upon delivery of written notice to us of such nomination. Such notice must be sent as provided in our certificate of incorporation and bylaws on or before the deadline set forth in our certificate of incorporation and bylaws and must otherwise comply with the procedures set forth in our certificate of incorporation. For nominations, the Board will consider individuals identified by shareholders on the same basis as nominees identified from other sources. A submission recommending a nominee should include:
•Sufficient biographical information to allow the N&ESGNominating & ESG Committee to evaluate the qualifications of a potential nominee in light of the director nomination procedures and criteria and any other information that would be required to be disclosed in solicitations of proxies for the election of directors;
•An indication as to whether the proposed nominee will meet the requirements for independence under NYSE and SEC guidelines;
•A description of all direct and indirect compensation and other material monetary agreements, arrangements, and understandings during the past three years, and any other material relationships, between or among the nominating shareholder or beneficial owner and each proposed nominee;
•A completed and signed questionnaire, representation, and agreement, pursuant to our bylaws, with respect to each nominee for election or re-election to the Board; and
•The proposed nominee’s written consent to serve if nominated and elected.
Other than the Issuance Proposal described in this Proxy Statement, there are no other matters to be considered at the Special Meeting.
ANNUAL MEETING INFORMATIONList of Shareholders Entitled to Vote at the Special Meeting
The names of shareholders of record entitled to vote at the Special Meeting will be available at the Company’s principal office in Houston, Texas, for a period of ten (10) days prior to the Special Meeting and continuing through the Special Meeting.
Information Concerning Solicitation and Voting
We are providing youExpenses Relating to this Proxy Statement in connection with the solicitation of proxies by the Board to be voted at the Annual Meeting, which will be held on Friday, May 14, 2021, at 9:00 a.m. CDT in the Wishmaker Ballroom of Hotel ZaZa, 9787 Katy Freeway, Houston, Texas. This Proxy Statement contains important information for you to consider when deciding how to vote on the matters brought before the meeting. Please read it carefully.Solicitation
The Board will primarily solicit proxies by mail, and we will bear all costs incurred in the solicitation of proxies, including the preparation, printing and mailing of these proxy materials. In addition to solicitation by mail, our directors, officers and employees may solicit proxies personally or by telephone, email, facsimile or other means, without additional compensation. We may also make arrangements with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation material to the beneficial owners of the common stockCommon Stock held by such persons, and we may reimburse those brokerage houses and other custodians, nominees and fiduciaries for reasonable expenses incurred in connection therewith. In addition, to assist us with our solicitation efforts, we have retained the services of Innisfree M&A Incorporated for a fee of approximately $15,000, plus out-of-pocket expenses.
Information About Voting
ANNEX A
Execution Version
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this “Agreement”) is made and the Annual Meeting
Who may vote
You may vote if you are the recordentered into as of August 3, 2021 (the “Execution Date”) by and among Callon Petroleum Company, a Delaware corporation (the “Company”) and Chambers Investments, LLC a Delaware limited liability company (“Kimmeridge”) as holder of ourthe Company’s 9.00% Second Lien Senior Secured Notes due 2025 (the “Second Lien Notes”), issued pursuant to the Indenture, dated as of September 30, 2020 (the “Second Lien Notes Indenture”), by and among the Company, the subsidiary guarantors named therein and U.S. Bank National Association, as trustee and collateral agent (in such capacity, the “Second Lien Notes Trustee”).
RECITALS
WHEREAS, subject to the terms and conditions set forth herein, the Company desires to issue to Kimmeridge, in exchange for the Exchanged Notes (as defined herein), new shares of common stock, par value $0.01, of the Company (the “Common Stock”), and grant certain registration rights to Kimmeridge pursuant to the registration rights agreement substantially in the form attached hereto as Exhibit A (the “Registration Rights Agreement”).
NOW, THEREFORE, subject to the premises and other conditions contained herein, the parties hereto hereby agree as follows:
ARTICLE I
EXCHANGE OF NOTES
Section 1.1 Exchange of Exchanged Notes.
(a) Subject to the terms and conditions set forth in this Agreement, at the Closing, Kimmeridge shall assign, transfer and deliver to the Company all of its right, title and interest in and to all of the Second Lien Notes held by Kimmeridge as of the closedate hereof, as set forth on Schedule I hereto (the “Exchanged Notes”), free and clear of business onany Lien (as defined herein).
(b) Subject to the Record Date. On that date, 46,155,799terms and conditions set forth in this Agreement, at the Closing, the Company shall issue and deliver to Kimmeridge, which shall be deemed in full satisfaction of all obligations of the Company under the Exchanged Notes, including in respect of any accrued and unpaid interest, 5,512,623 shares of our common stock were outstanding and areCommon Stock (such shares the “New Common Stock”). For the avoidance of doubt, Kimmeridge will be entitled to vote at the Annual Meeting. Each share of common stockinterest payment that is due on October 1, 2021, and shall not be entitled to any cash payment for accrued interest after such date.
(c) The Company is entitled to one vote on each matter considereddeduct and withhold from the consideration otherwise payable by or deliverable by the Company to Kimmeridge in connection with the transactions contemplated by this Section 1.1 such amounts as are required to be withheld under the Internal Revenue Code of 1986, as amended (the “Code”), or other applicable law. Any amount properly deducted and withheld and timely remitted to the appropriate taxing authority shall be treated for all purposes of this Agreement as having been paid to Kimmeridge in respect of which such deduction and withholding was made. Except in the case of any withholding required as a result of Kimmeridge’s failure to comply with Section 2.2(d), the Company shall use commercially reasonable efforts to notify Kimmeridge of its intention to withhold or deduct from the consideration payable or deliverable to Kimmeridge at this meeting. A list of shareholders entitled to vote at the Annual Meeting will be available at our office at 2000 West Sam Houston Parkway South, Suite 2000, Houston, TX 77042 during normal business hours for a period of ten (10) daysleast two (2) Business Days prior to the meeting and will also be available for inspection at the Annual Meeting.
Attending the Annual Meeting
If you meet the above criteria to vote at our Annual Meeting, you may attend the Annual Meeting. If you wish to attend the Annual Meeting in person, you must present valid, government-issued picture identification. If your shares are held in the name of a bank, broker or other nominee and you plan to attend the Annual Meeting, in order to be admitted you must present proof of your beneficial ownershipdate of the common stock, such asapplicable payment or delivery, which notice shall include a bank or brokerage account statement or copy of your Voting Instruction Form or proxy card, indicating that you owned shares of our common stock at the close of business on the Record Date.
For safety and security reasons, no cameras, recording equipment, cellular telephones, electronic devices, large bags, briefcases or packages will be permitted in the Annual Meeting. No banners, signs, firearms or weapons will be allowed in the meeting room. We reserve the right to inspect all items entering the meeting room.
Proposals
Qualifying shareholders will vote on the following five proposals at the Annual Meeting:
1)The election of directors;
2)Advisory approval of our executive compensation;
3)The ratification of the appointment of Grant Thornton LLP;
4)The approval of an amendmentamounts it intends to our certificate of incorporation increasing the number of authorized shares of our common stock; and
5)The approvalwithhold or deduct in respect of the Proposed Incentive Plan Amendment.applicable payment or delivery and the applicable provision of law requiring such withholding or deduction. To the extent any such
ANNUAL MEETING INFORMATIONwithholding or deduction is required by law, the parties hereto shall cooperate in good faith to reduce or otherwise eliminate any such withholding or deduction.
(d) The transactions contemplated by this Section 1.1 are referred to herein as the “Exchange.”
ARTICLE II
CLOSINGS
Section 2.1 Closing. Subject to the terms and conditions set forth in this Agreement, the closing of the Exchange will take place two Business Days following the satisfaction or waiver of the conditions set forth in Article V hereof or at such time as the Company and Kimmeridge mutually agree upon in writing, at the offices of Kirkland & Ellis LLP, 609 Main Street, Houston, Texas 77002 (which time and place are designated as the “Closing” and which day is referred to herein as the “Closing Date”).
Section 2.2 Closing Deliverables. On the Closing Date:
(a) Kimmeridge shall deliver to the Second Lien Notes Trustee customary closing documentation relating to the cancelation of the Exchanged Notes, duly executed and delivered by Kimmeridge;
(b) the Company shall deliver to Kimmeridge evidence that the New Common Stock has been issued to Kimmeridge, in accordance with Section 1.1 and the allocations set forth on Schedule I hereto, in book-entry form which such entry shall include customary restrictive legends;
(c) Kimmeridge shall effect through, the facilities of the DTC, the delivery to the Company (or its trustee or designee) of the Exchanged Notes and all other documents and instruments reasonably requested by the Company to effect the transfer and cancellation of such Exchanged Notes to the Company in accordance with the terms hereof; and
(d) Kimmeridge shall deliver to the Company, as applicable, a properly completed and duly executed Internal Revenue Service Form W-9 or applicable W-8 or other applicable tax forms to provide the information and certification necessary to minimize or avoid any withholding tax.
Section 2.3 Consummation of Closings. Subject to the satisfaction of all of the closing actions and deliverables set forth in Section 2.2 other than Section 2.2(d), all acts, deliveries and confirmations comprising the Closing, regardless of chronological sequence, will be deemed to occur contemporaneously and simultaneously on the date hereof.
Section 2.4 No Transfer of Exchanged Notes after the Exchange Closing; No Further Ownership Rights in Exchanged Notes. Upon consummation of the Exchange, all Exchanged Notes (or interests therein) exchanged pursuant to this Agreement will cease to be transferable and there shall be no further registration of any transfer of any such Exchanged Notes or interests therein. From and after the Exchange, Kimmeridge will cease to have any rights with respect to such Exchanged Notes, including in respect of any accrued and unpaid interest, except as otherwise provided for herein or by applicable law. Upon consummation of the Exchange, the Exchanged Notes will be cancelled and will cease to be outstanding.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Kimmeridge that the statements contained in this Article III are true and correct, except as may be disclosed in the Company’s reports (the “Company Reports”) filed with or furnished to the Securities and Exchange Commission (the “Commission”) and publicly available prior to the date of this Agreement (other than in the case of fraud or intentional misrepresentation or as set forth in any risk factor contained in the Company Reports):
Casting yourSection 3.1 Organization and Good Standing. The Company is a corporation duly organized or formed, validly existing and in good standing under the laws of its state of incorporation and has all requisite corporate power and authority (a) to own and operate its properties, and to enter into this Agreement and the Registration Rights Agreement and perform its obligations hereunder and thereunder and (b) to issue and deliver the New Common Stock. The Company is duly qualified to do business and is in good standing in all jurisdictions wherein such qualification is necessary, except where failure so to qualify would not have a material adverse effect on the business, properties, operations, condition (financial or otherwise), prospects or results of operations of the Company, taken as a whole (a “Material Adverse Effect”).
Section 3.2 Due Authorization. The Company has all requisite power and authority (corporate, limited liability company and other) to execute, deliver and perform its obligations under this Agreement and the Registration Rights Agreement. This Agreement has been duly and validly authorized, executed and delivered by the Company and, assuming the due authorization, execution and delivery of Kimmeridge, constitutes a valid and legally binding obligation of the Company enforceable against, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles, whether considered in a proceeding in equity or at law (collectively, the “Enforceability Exceptions”).
Section 3.3 No Conflicts. The execution and delivery by the Company of this Agreement and the Registration Rights Agreement and consummation of the transactions contemplated herein and therein do not and will not (i) result in any violation of any terms of the organizational documents of the Company; (ii) conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other material agreement or instrument to which the Company is a party or by which the Company or any of its properties or assets is bound or affected or (iii) violate or contravene any applicable law, rule or regulation or any applicable decree, judgment or order of any court or arbitrator or regulatory or government or political subdivision thereof, whether federal, state, local or foreign, or any agency or instrumentality of any such government or political subdivision thereof (a “Governmental Body”) having jurisdiction over the Company or any of its properties or assets, except, in the case of (ii) and (iii), as would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.
Section 3.4 No Consents Required. No consent, approval, authorization, order, registration or qualification of, or filing with, any such court or governmental agency or body is required for the execution, delivery and performance, as relevant, by the Company of this Agreement or the Registration Rights Agreement or the consummation of the transactions contemplated herein or therein, except for such consents, approvals, authorizations, registrations or qualifications: (i) as have been obtained and which are in full force and effect, (ii) as are required in connection with the filing with the SEC of the Proxy Statement in definitive form, (iii) as are required in connection with the filing with the SEC of such reports and other filings under, and such other compliance with, the Exchange Act and the Securities Act, and under state securities, takeover and “blue sky” laws, in each case as may be required in connection with this Agreement and the transactions contemplated hereby, (iv) as are required in connection with obtaining NYSE Stockholder Approval, (v) as are required in connection with obtaining approval of the listing of the New Common Stock to be issued pursuant to this Agreement, and (vi) such consents, approvals, authorizations, orders, registrations, qualifications or filings which if not obtained or made would not, individually or in the aggregate, have a Material Adverse Effect.
Section 3.5 Capitalization. The authorized capital stock of the Company is (a) 78,750,000 shares of Common Stock and (b) 2,500,000 shares of preferred stock, par value $0.01 per share (the “Preferred Stock”). All of the outstanding capital stock of the Company has been duly authorized and validly issued and is fully paid and nonassessable. As of July 31, 2021, there were: (a) 46,290,613 shares of Common Stock outstanding and (b) no shares of Preferred Stock outstanding. As of July 31, 2021, the Company had (a) 919,975 shares of Common Stock reserved for issuance pursuant to outstanding restricted stock unit awards, (b) 338,098 shares of Common Stock reserved for issuance pursuant to outstanding performance stock unit awards, which includes the maximum number of shares issuable pursuant to such awards, (c) 1,589,450 shares of Common Stock authorized and available for issuance pursuant to future grants made under the Company’s equity incentive plan and (d) 1,066,380 shares of Common Stock reserved for future exercises of currently outstanding warrants. The Company has no shares of
Common Stock reserved for issuance except for the shares of Common Stock referenced in the preceding sentence. The Company has good title to all outstanding capital stock or limited liability company interests of its subsidiaries, subject to Liens granted under the Company’s Credit Agreement, dated as of December 20, 2019, by and among the Company, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto (as amended, the “Credit Agreement”), the Security Documents (as defined in the Second Lien Notes Indenture) and other liens permitted under the Credit Agreement, the Second Lien Notes Indenture, and all such capital stock or limited liability company interests are duly issued, fully paid and non-assessable, to the extent applicable. Except as disclosed in the Company Reports, as of the date of this Agreement, there are no preemptive or other outstanding rights, options, warrants, conversion rights, stock appreciation rights, redemption rights, repurchase rights, agreements, arrangements, calls, commitments or rights of any kind that obligate the Company to issue or sell any shares of capital stock or other equity securities of the Company or any securities or obligations convertible or exchangeable into or exercisable for, or giving any person a right to subscribe for or acquire, any equity securities of the Company, and no securities or obligations evidencing such rights are authorized, issued or outstanding. Except as disclosed in the Company Reports, as of the date of this Agreement, the Company does not have outstanding any bonds, debentures, notes or other obligations the holders of which have the right to vote (or convertible into or exercisable for securities having the right to vote) with the stockholders of the Company on any matter.
Section 3.6 No Violation or Default. Neither the Company nor any of its subsidiaries is in (i) violation of its certificate of formation, certificate of incorporation, limited liability company agreement, bylaws or other equivalent organizational documents, (ii) breach or default (or an event which, with notice or lapse of time or both, would constitute such an event) in the performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound or (iii) violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties and assets, except for, with respect to clauses (ii) and (iii), any such violation, breach or default that has not had, or would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.
Section 3.7 Offering. Assuming the accuracy of the representations and warranties of Kimmeridge contained in Article IV, (i) the offer, issue, and delivery of the New Common Stock pursuant to this Agreement by the Company to Kimmeridge under this Agreement does not require registration under the Securities Act, (ii) the New Common Stock was not offered by any form of general solicitation or general advertising and (iii) the New Common Stock is not being offered in a manner involving a public offering under, or in a distribution in violation of, the Securities Act or any state securities laws.
Section 3.8 No Broker’s Fees. Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person that would give rise to a valid claim against the Company or any of its subsidiaries for a brokerage commission, finder’s fee or like payment in connection with the Exchange. Kimmeridge is not required to pay any broker, finder or investment banker any brokerage, finder’s or other fee or commission with respect to the consummation of the transactions contemplated by this Agreement as a result of arrangements made the Company or any of its subsidiaries.
Section 3.9 No Other Representations or Warranties. Except for the representations and warranties contained in this Article III, neither the Company nor any Affiliate or representative of the Company has made or is making any representation or warranty of any kind or nature whatsoever, oral or written, express or implied with respect to the Company, this Agreement or the transactions contemplated hereby and the Company hereby disclaims any reliance on any representation or warranty of Kimmeridge or any Affiliate or representative thereof except for the representations and expressly set forth in Article IV.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF KIMMERIDGE
Kimmeridge hereby represents and warrants to the Company that the statements contained in this Article IV are true and correct:
Section 4.1 Organization and Good Standing. Kimmeridge is duly organized, validly existing and in good standing under the laws of its jurisdiction of formation or incorporation and has all requisite power and authority to enter into this Agreement and perform its obligations hereunder.
Section 4.2 Due Authorization. Kimmeridge has all requisite power and authority (corporate, limited liability company or other) to execute, deliver and perform its obligations under this Agreement. This Agreement has been duly and validly authorized, executed and delivered by Kimmeridge and will constitute a valid and binding obligation of Kimmeridge, enforceable against such Kimmeridge in accordance with its terms, except as such enforceability may be limited by Enforceability Exceptions.
Section 4.3 No Conflicts. The execution and delivery by Kimmeridge of this Agreement and consummation of the transactions contemplated herein do not and will not (i) result in any violation of any terms of the organizational documents of Kimmeridge; (ii) conflict with or result in a breach by Kimmeridge of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other material agreement or instrument to which Kimmeridge is a party or by which Kimmeridge or any of its properties or assets is bound or affected or (iii) violate or contravene any applicable law, rule or regulation or any applicable decree, judgment or order of any court or arbitrator or regulatory or Governmental Body having jurisdiction over Kimmeridge or any of its properties or assets, except, in the case of (ii) and (iii), as would not reasonably be expected to, individually or in the aggregate, have a material adverse effect on the business, properties, operations, financial condition or results of operations of Kimmeridge and its subsidiaries, taken as a whole.
Section 4.4 Ownership of Notes. Kimmeridge is, as of the date hereof, (i) the sole beneficial owner of the Exchanged Notes, the principal amount of which is set forth on Schedule I hereto, having the power to vote and dispose of such Exchanged Notes and (ii) entitled to all of the rights and economic benefits of such Exchanged Notes. There are three methodsno outstanding agreements, arrangements or understandings under which Kimmeridge may be obligated to transfer any of the Exchanged Notes, other than this Agreement.
Section 4.5 Ownership of Common Stock. Kimmeridge is, as of the date hereof, the sole beneficial owner of 5,585,654 shares of Common Stock, having the sole power to dispose of such shares Common Stock and vote such shares of Common Stock at any meeting of the stockholders of the Company. There are no outstanding agreements, arrangements or understandings under which Kimmeridge may be obligated to transfer such shares of Common Stock prior to the Closing Date.
Section 4.6 Transfers. Kimmeridge has made no prior assignment, sale, participation, grant, conveyance or other transfer of, and has not entered into any other agreement to assign, sell, participate, grant or otherwise transfer (except for Liens in favor of a broker dealer over property in an account with such dealer generally in which an encumbrance is released upon transfer), in whole or in part, any portion of its right, title or interests in the Exchanged Notes, subject to this Agreement, that is inconsistent with the representations and warranties made in Section 4.4 or Section 4.5 hereof or that would render Kimmeridge otherwise unable to comply with its obligations under this Agreement.
Section 4.7 No Liens. The Exchanged Notes are not subject to any Lien, except for Liens in favor of a broker dealer over property in an account with such dealer generally in which an encumbrance is released upon transfer. The execution and delivery of, and the performance by Kimmeridge of its obligations under, this Agreement, will not result in the creation of any Lien upon the Exchanged Notes other than those arising hereunder. Upon the consummation of the Exchange, the Company will acquire the Exchanged Notes free and clear of any Lien other than Liens arising from acts of the Company, contemplated herein, provided for under the Credit Agreement or the Second Lien Notes Indenture or arising under applicable securities laws.
Section 4.8 Investment Experience. Kimmeridge has such knowledge and experience in financial and business affairs that Kimmeridge is capable of evaluating the merits and risks of an investment in the New Common Stock. Kimmeridge is an “accredited investor,” within the meaning of Rule 501 under the Securities Act and a “qualified institutional buyer” as defined in Rule 144A under the Securities Act. Kimmeridge will acquire the New Common Stock for its own account, for investment, and not with a view to or for sale in connection with any
distribution thereof in violation of the registration provisions of the Securities Act or the rules and regulations promulgated thereunder. Kimmeridge understands that the New Common Stock is being issued to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and Kimmeridge’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of Kimmeridge set forth herein in order to determine the availability of such exemptions and the eligibility of Kimmeridge to acquire the New Common Stock. Kimmeridge acknowledges that no representations, express or implied, are being made with respect to the Company, the New Common Stock, or otherwise in connection with the transactions contemplated by this Agreement, other than those expressly set forth herein. In making its decision to invest in the New Common Stock hereunder, Kimmeridge has relied upon independent investigations made by Kimmeridge and, to the extent believed by Kimmeridge to be appropriate, Kimmeridge’s representatives, including Kimmeridge’s own professional, tax and other advisors. Kimmeridge and its representatives have been given the opportunity to ask questions of, and to receive answers from, the Company and its representatives concerning the terms and conditions of the investment in the New Common Stock. Kimmeridge has reviewed, or has had the opportunity to review, all information it deems necessary and appropriate for its to evaluate the financial risks inherent in an investment in the New Common Stock and has had sufficient time to evaluate the transactions contemplated by the this Agreement. Kimmeridge understands that its investment in the New Common Stock involves a high degree of risk and that no Governmental Body having jurisdiction over such Investor or any of its subsidiaries or any of their properties and assets has passed on or made any recommendation or endorsement of the New Common Stock.
Section 4.9 Securities Law Matters. Kimmeridge has been advised by the Company and acknowledges that: (i) the offer and sale of the New Common Stock has not been registered shareholdersunder the Securities Act; and (ii) the offer and sale of the New Common Stock is intended to be exempt from registration under the Securities Act pursuant to Section 4(a)(2) under the Securities Act. Kimmeridge is familiar with the Securities Act, as presently in effect, and understands the resale limitations imposed thereby.
Section 4.10 No Other Representations or Warranties. Except for the representations and warranties contained in this Article IV, neither Kimmeridge nor any Affiliate or representative of Kimmeridge has made or is making any representation or warranty of any kind or nature whatsoever, oral or written, express or implied with respect to Kimmeridge, this Agreement or the transactions contemplated hereby and Kimmeridge hereby disclaims any reliance on any representation or warranty of the Company or any Affiliate or representative thereof except for the representations and expressly set forth in Article III.
ARTICLE V
CONDITIONS PRECEDENT TO EXCHANGE
Section 5.1 Conditions Precedent to the Company’s Obligation to Consummate the Exchange. The obligation of the Company to consummate the Exchange at Closing is subject to the satisfaction or waiver (by the Company) of the following conditions:
(a) Representations and Warranties. Each of the representations and warranties of Kimmeridge set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of such date (except to the extent such representation or warranty speaks to a specific date, in which case, as of such specific date).
(b) Performance; No Default. Kimmeridge shall have performed and complied in all material respects with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing Date.
(c) No Actions. No action suit or legal, administrative or arbitral proceeding or investigation (an “Action”) shall have been instituted (or be pending) by or before any court or governmental agency or body to restrain or prohibit this Agreement or the consummation of the Exchange. No preliminary or permanent injunction or other order issued by any federal or state court of competent jurisdiction preventing consummation of the Exchange shall be in effect.
(d) Stockholder Approval. The Company shall have obtained NYSE Stockholder Approval for the issuance of the New Common Stock to Kimmeridge pursuant to this Agreement.
Section 5.2 Conditions Precedent to Kimmeridge’s Obligation to Consummate the Exchange. The obligation of Kimmeridge to consummate the Exchange at Closing is subject to the satisfaction or waiver (by Kimmeridge) of the following conditions:
(a) Representations and Warranties. Each of the representations and warranties of the Company set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Closing Date as though made on and as of such date (except to the extent such representation or warranty speaks to a specific date, in which case, as of such specific date).
(b) Performance; No Default. The Company shall have performed and complied in all material respects with all agreements and conditions contained in this Agreement required to be performed or complied with by the Company prior to or at the Closing Date.
(c) Officer’s Certificate. Kimmeridge shall have received a certificate, dated as of the Closing Date, of an Officer of the Company, certifying that the conditions specified in Section 5.2(a) and Section 5.2(b) have been fulfilled.
(d) No Actions. No Actions shall have been instituted (or be pending) by or before any court or governmental agency or body to restrain or prohibit this Agreement or the consummation of the Exchange. No preliminary or permanent injunction or other order issued by any federal or state court of competent jurisdiction preventing consummation of the Exchange shall be in effect.
(e) Stockholder Approval. The Company shall have obtained NYSE Stockholder Approval for the issuance of the New Common Stock to Kimmeridge pursuant to this Agreement.
(f) NYSE SLAP. The Company has delivered to Kimmeridge a fully executed “Supplemental Listing Application” approving the shares of New Common Stock for listing by the NYSE.
(g) Registration Rights Agreement. The Registration Rights Agreement shall have been executed and delivered by the parties thereto and shall be in full force and effect.
(h) Primexx Acquisition. The Company shall have consummated the transactions contemplated by (i) that certain purchase and sale agreement, dated as of the date hereof, by and among the Company, Callon Petroleum Operating Company and Primexx Resource Development, LLC and (ii) that certain purchase and sale agreement, dated as of the date hereof, by and among the Company, Callon Petroleum Operating Company and BPP Acquisition LLC.
ARTICLE VI
CERTAIN COVENANTS AND AGREEMENTS
Section 6.1 NYSE Stockholder Approval. The Company shall use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things reasonably necessary or advisable to obtain, as promptly as reasonably practicable, stockholder approval (“NYSE Stockholder Approval”) under the stockholder approval rules contained in Rule 312.03(b) of the New York Stock Exchange Listed Company Manual, for the issuance of the New Common Stock to Kimmeridge pursuant to this Agreement. Notwithstanding the foregoing, within 30 days following the date hereof, the Company shall prepare and file with the Commission a proxy statement in preliminary form containing the information specified in Schedule 14A of the Securities Exchange Act of 1934, as amended, in connection with obtaining NYSE Stockholder Approval (the “Proxy Statement” and such proposal to be approved by the Company’s stockholders, the “Related Party Issuance Proposal”). The Company shall cooperate and provide Kimmeridge with a reasonable opportunity to review and comment on the Proxy Statement (including each amendment or supplement thereto) and all responses to requests
for additional information by and replies to comments of the SEC, including the proposed final version of any such document or responses, prior to filing such documents with the SEC, and the Company will give reasonable consideration to all comments reasonably proposed by Kimmeridge. The Company will take, in accordance with applicable law, the NYSE listing rules and its certificate of incorporation and bylaws, all action necessary to call, hold and convene a special meeting of its stockholders to consider and vote upon the Related Party Issuance Proposal as promptly as reasonably practicable after the filing of the Proxy Statement in definitive form with the SEC.
Section 6.2 Agreement To Retain Securities.
(a) From the date hereof until the Closing Date, Kimmeridge shall not, with respect to any shares of Common Stock Beneficially Owned or Exchanged Notes held by Kimmeridge, (i) Transfer any such Exchanged Notes or Common Stock or (ii) deposit any such shares of Common Stock into a voting trust or enter into a voting agreement or arrangement with respect to such shares of Common Stock or grant any proxy (except as otherwise provided herein) or power of attorney with respect thereto or (iii) agree (regardless of whether in writing) to take any of the actions referred to in the foregoing clause (i) or (ii).
(b) Notwithstanding Section 6.2(a), Kimmeridge may: (i) Transfer shares of Common Stock to one or more Affiliates who agrees in writing to be bound by this Agreement and delivers a copy of such executed written agreement to the Company prior to the consummation of such transfer, (ii) Transfer up to 500,000 shares of Common Stock or (iii) Transfer shares of Common Stock with the prior written consent the Company.
Section 6.3 Agreement to Vote.
(a) From and after the date hereof until the earlier of (i) the Closing Date and (ii) the termination of this Agreement in accordance with Section 8.1, Kimmeridge irrevocably and unconditionally agrees that it shall, at any meeting of the stockholders of the Company (whether or not an adjourned or postponed meeting), however called, (x) appear at such meeting or otherwise cause the shares of Common Stock to be counted as present thereat for purpose of establishing a quorum and (y) with respect to any meeting at which a vote of the Company’s stockholders is requested, vote, or cause to be voted at such meeting, all shares of Common Stock then Beneficially Owned by Kimmeridge (including by proxy or written consent, if applicable) as of the record date set therefore:
(i) in favor of the Related Party Issuance Proposal;
(ii) against any other proposal, transaction, agreement or other action inconsistent with or made in opposition to approval of the Related Party Issuance Proposal or matters contemplated by this Agreement.
(iii) against any other proposal, transaction, agreement or other action that would or would reasonably be expected to result in a breach in any respect of any covenant, representation, warranty or other agreement contained in this Agreement; and
(iv) in favor of any proposal to adjourn or postpone such stockholder meeting to a later date if there are not sufficient votes to approve the Related Party Issuance Proposal.
(b) From and after the date hereof until the earlier of (i) the Closing Date and (ii) the termination of this Agreement in accordance with Section 8.1, Kimmeridge hereby irrevocably and unconditionally grants to, and appoints, the Company and any designee of the Company (determined in the Company’s sole discretion) as its proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of Kimmeridge, to vote or cause to be voted (including by proxy or written consent, if applicable) its then owned shares of Common Stock at any such meeting of the Company’s stockholders contemplated by this Agreement in accordance with the Section 6.3(a). Kimmeridge further affirms that the irrevocable proxy set forth in this Section 6.3(b) is coupled with an interest and, except upon the occurrence of the Closing or termination in accordance with Section 8.1, is intended to be irrevocable.
(c) From and after the date hereof until the earlier of (i) the Closing Date and (ii) the termination of this Agreement in accordance with Section 8.1, Kimmeridge agrees not to take, and shall cause its controlled Affiliates and representatives not to take, any other action that could reasonably be expected to impede, interfere with, delay, discourage, postpone or adversely affect the transactions contemplated by this Agreement. Any attempt to vote, consent or dissent with respect to (or otherwise to utilize the voting power of), the shares of Common Stock Beneficially Owned by Kimmeridge in contravention of Section 6.2 and this Section 6.3 shall be null and void ab initio.
Section 6.4 Tax Matters. The Company and Kimmeridge agree that the transactions contemplated by this Agreement are properly considered a “recapitalization” under Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended. Each of the Company and Kimmeridge shall report the transactions contemplated herein consistent with this Section 6.4 and shall not take any position contrary on any tax return, audit, or otherwise except as clearly required by law; provided, that nothing in this Section 6.4 shall be interpreted to in any way hinder or prevent either Party’s ability to settle any audit, litigation, or other dispute with any taxing authority.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1 Survival. The representations and warranties of the Company and Kimmeridge contained in this Agreement or in any certificate furnished hereunder shall survive Closing for a period of twelve (12) months following the Closing Date regardless of any investigation made by or on behalf of the Company or Kimmeridge, except (a) the representations and warranties of the Company set forth in Section 3.1, and 3.2, shall survive indefinitely and (b) the representations and warranties of Kimmeridge set forth in Section 4.1, and 4.2 shall survive indefinitely. The covenants in this Agreement that are to be performed in whole or part from or after Closing shall survive the Closing until fully performed.
Section 7.2 Indemnification.
(a) The Company agrees to indemnify and hold harmless Kimmeridge, its affiliates, directors and officers, from and against any and all losses, claims, damages and liabilities (including, without attendinglimitation, reasonable legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), joint or several, that arise out of, or are based upon, any breach of its representations or covenants contained in this Agreement.
(b) Kimmeridge agrees to indemnify and hold harmless the Annual Meeting:Company, each of its respective directors and officers from and against any and all losses, claims, damages and liabilities (including, without limitation, reasonable legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), joint or several, that arise out of, or are based upon, any breach of Kimmeridge’s representations or covenants contained in this Agreement.
(c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnification may be sought pursuant to either paragraph (a) or (b) above, such person (the “Indemnified Person”) shall promptly notify the person against whom such indemnification may be sought (the “Indemnifying Person”) in writing; provided that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under paragraph (a) or (b) above except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under paragraph (a) or (b) above. If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person (who shall not, without the consent of the Indemnified Person, be counsel to the Indemnifying Person) to represent the Indemnified Person in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding, as incurred. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless
(i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be paid or reimbursed as they are incurred. Any such separate firm for Kimmeridge, its affiliates, directors and officers and any control persons of Kimmeridge shall be designated in writing by Kimmeridge and any such separate firm for the Company, its respective directors and officers and any control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by the Indemnifying Person of such request and (ii) the Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (x) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Termination.
(a) This Agreement may be terminated at any time prior to Closing as follows:
(i) by the Company and Kimmeridge upon the mutual written agreement to terminate the Agreement;
(ii) by the Company or Kimmeridge if the consummation of the Exchange has not occurred at or prior to 11:59 p.m. on December 31, 2021 (the “Outside Date”);
(iii) by the Company or Kimmeridge in the event of an order, judgment or decree delaying the consummation of the Exchange beyond the Outside Date; or
(iv) by Kimmeridge, if the Company has materially breached this Agreement, or by the Company, if Kimmeridge has materially breached this Agreement.
(b) In the event of any termination as provided in this Section 8.1, this Agreement, solely as it relates to the agreements contained herein between Kimmeridge and the Company, shall immediately become void and of no further force or effect; provided, however, that the provisions of this Article VIII shall survive any such termination. Notwithstanding the foregoing, in no event shall any such termination pursuant to this Section 8.1 relieve Kimmeridge or the Company from: (i) liability for its breach or non-performance of its obligations under this Agreement before the date of such termination or (ii) any obligations under this Agreement which expressly survive any such termination hereunder.
Section 8.2 Severability. The invalidity or unenforceability of any provision hereof will in no way affect the validity or enforceability of any other provision or the validity and enforceability of this Agreement in any other jurisdiction.
Section 8.3 Governing Law; Jurisdiction. This Agreement will in all respects be construed in accordance with and governed by the substantive laws of the State of New York, without reference to its choice of law rules. All actions or proceedings arising out of or relating to this Agreement will be heard and determined exclusively in any federal court of the United States of America sitting in the City of New York, Borough of Manhattan; provided, that if such federal court does not have jurisdiction over such action or proceeding, such action or proceeding will be heard and determined exclusively in any state court sitting in the City of New York, Borough of Manhattan. Consistent with the preceding sentence, the parties hereto hereby (i) submit to the exclusive jurisdiction of any federal or state court sitting in City of New York, Borough of Manhattan, for the purpose of any action or proceeding arising out of or relating to this Agreement brought by any party hereto and (ii) irrevocably waive, and agree not to assert by way of motion, defense, or otherwise, in any such action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the action or proceeding is brought in an inconvenient forum, that the venue of the action or proceeding is improper, or that this Agreement or the transactions contemplated by this Agreement may not be enforced in or by any of the above-named courts.
Section 8.4 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 8.5 Headings. Section headings in this Agreement are included herein for convenience of reference only and will not constitute a part of, or affect the interpretation of, this Agreement.
Section 8.6 Certain Definitions. Capitalized terms in this Agreement shall have the meanings specified below, or as specified elsewhere in this Agreement, for all purposes hereof. The following terms, as used in this Agreement, shall have the meanings as set forth below:
(a) “Affiliate” means, with respect to a specified Person, any other Person, directly or indirectly Controlling or Controlled by or under direct or indirect common Control with such specified Person; provided, that the Company, Affiliates of the Company, and any portfolio company of Kimmeridge, or any Affiliates of any portfolio company of Kimmeridge (which are not otherwise Affiliates of Kimmeridge and would only be deemed Affiliates of Kimmeridge pursuant to their relationship with one or more portfolio companies of Kimmeridge) shall not be deemed an Affiliate of Kimmeridge, as applicable.
(b) “Beneficially Own” shall have the meaning assigned to such term in Rule 13d-3 under the Exchange Act, and any Person’s beneficial ownership of securities shall be calculated in accordance with the provisions of such Rule.
(c) “Business Day” means any day other than a day on which banks are permitted or required to be closed in New York City.
(d) “Control,” “Controlling” or “Controlled” means, as to a specified Person, the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.
(e) “Lien” means, except as otherwise specifically defined in this Agreement, any lien, pledge, mortgage, security interest, charge, option or other encumbrance of adverse claim of any kind.
(f) “Officer” means the President and Chief Executive Officer, the Chief Financial Officer, or any Senior Vice President of the Company.
(g) “Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.
(h) “Transfer” means (a) any direct or indirect offer, sale, lease, assignment, encumbrance, loan, pledge, grant of a security interest, hypothecation, disposition or other similar transfer (by operation of law or otherwise), either voluntary or involuntary, or entry into any contract, option or other arrangement or understanding with respect to any offer, sale, lease, assignment, encumbrance, loan, pledge, hypothecation, disposition or other transfer (by operation of law or otherwise), of any shares of Common Stock owned by Kimmeridge (whether beneficially or of record), including in each case through the Transfer of any Person or any interest in any Person or (b) in respect of any capital stock or interest in any capital stock, to enter into any swap or any other agreement, transaction or series of transactions, other than as permitted by Section 6.2(b), that results in an amount of Shares subject to Section 6.2 and 6.3 that is less than the amount of shares of Common Stock subject to Section 6.2 and 6.3 as of the date hereof.
Section 8.7 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and either of the parties hereto may execute this Agreement by signing any such counterpart. A facsimile transmission of this Agreement bearing a signature on behalf of a party hereto shall be legal and binding on such party.
Section 8.8 Assignment; Binding Effect. Kimmeridge shall not convey, assign or otherwise transfer any of its rights or obligations under this Agreement without the express written consent of the Company, and the Company shall not convey, assign or otherwise transfer any of its rights and obligations under this Agreement without the express written consent of each Kimmeridge. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.
Section 8.9 Waiver; Remedies. No delay on the part of Kimmeridge or the Company in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any waiver on the part of Kimmeridge or the Company of any right, power or privilege under this Agreement operate as a waiver of any other right, power or privilege of such party under this Agreement, nor shall any single or partial exercise of any right, power or privilege under this Agreement preclude any other or further exercise thereof or the exercise of any other right, power or privilege under this Agreement.
Section 8.10 Specific Performance. The parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to an injunction or injunctions to prevent breaches of this agreement or to enforce specifically the performance of the terms and provisions hereof in addition to any other remedy to which they are entitled at law or in equity.
Section 8.11 Entire Agreement. This Agreement represent the entire agreement between the parties hereto with respect to the transactions contemplated hereby and supersedes all prior agreements and understandings (whether written or oral) between the parties hereto with respect to the subject matter hereof.
Section 8.12 Amendment. This Agreement may be modified or amended only by written agreement of each of the parties to this Agreement.
Section 8.13 Notice. Any notice or communications hereunder shall be in writing and will be deemed to have been given if delivered in person or by electronic transmission or by registered or certified first-class mail or
courier service to the following addresses, or such other addresses as may be furnished hereafter by notice in writing:
if to the Company:
| | | | | |
1. By Internet | You can vote via the Internet by going to the website address provided on your proxy card. You will need to use the control and request ID appearing on your proxy card to vote via the Internet. You can use the Internet to transmit your voting instructions up until 11:59 p.m. CDT on May 13, 2021. If you vote via the Internet, you do NOT need to vote by telephone or return a proxy card. Internet voting is available 24 hours a day. | | | | |
2. By TelephoneCallon Petroleum Company | You can also vote by telephone by calling the toll-free telephone number provided on your proxy card. You will need to use the control and request ID appearing on your proxy card to vote by telephone. You may transmit your voting instructions from any touch-tone telephone up until 11:59 p.m. CDT on May 13, 2021. Voting by telephone is available 24 hours a day. |
3. By MailOne Briarlake Plaza | If you received a printed copy of the proxy card, you can vote by marking, dating |
| 2000 W. Sam Houston Parkway S., Suite 2000 | |
| Houston, Texas | | | |
| Attention: | Michol Ecklund, Senior Vice President, General Counsel and signing it, and returning it in the reply envelope provided. Please promptly mail your proxy card to ensure that we receive it prior to the closing of the polls at the Annual Meeting.Corporate Secretary |
| Email: | mecklund@callon.com |
| legal@callon.com | | |
If you receive more than one Proxy Statement then it means that your shares are likely registered in more than one account. Please provide voting instructions for all proxy and voting instruction cards you receive. If you send us a signed proxy card without marking your voting selections, your shares will be voted on each proposal as recommended by the Board, and in the discretion of the proxy holders as to any other matters that may properly come before the meeting or any postponement or adjournment of the meeting. The Board is not presently aware of any other proposals or any other business to be considered at the Annual Meeting.
Difference between a “holder of record” and a “street name” holder
If your shares are registered directly in your name, you are considered the shareholder of record with respect to those shares. If your shares are held in a stock brokerage account or by a bank, trust or other nominee, then the broker, bank, trust or other nominee is considered to be the shareholder of record with respect to those shares. However, you are still considered to be the beneficial owner of those shares, and your shares are said to be held in “street name.” Street name holders generally cannot submit a proxy or vote their shares directly and must instead instruct the broker, bank, trust or other nominee how to vote their shares. You will receive instructions from your broker, bank or other nominee that you must follow in order for your broker, bank or other nominee to vote your shares per your instructions. Many brokerage firms and banks have a process for their beneficial holders to provide instructions via the Internet or over the telephone. If Internet or telephone voting is unavailable from your broker, bank or other nominee, please complete and return the enclosed voting instruction card in the addressed, postage paid envelope provided.
In the event you do not provide instructions on how to vote shares held in street name, your broker may have authority to vote your shares. Under the rules that govern brokers who are voting with respect to shares that are held in street name, brokers have the discretion to vote such shares on routine matters, but they are not permitted to vote (a “broker non-vote”) on non-routine or non-discretionary items absent instructions from the beneficial owner. With respect to the Annual Meeting, brokers are prohibited from exercising discretionary authority in the election of directors and the non-binding advisory proposal on executive compensation, but such brokers may exercise discretionary authority with respect to the ratification of the appointment of our independent registered public accounting firm. Your vote is especially important. Therefore, please promptly instruct your broker regarding how to vote your shares on these matters.
If you hold shares through a broker, bank or other nominee and wish to be able to vote in person at the meeting, you must obtain a legal proxy from your broker, bank or other nominee and present it to the inspector of election with your ballot at the meeting. If you have questions about how to obtain a legal proxy, please call Innisfree M&A Incorporated toll-free at (888) 750-5834. Submitting your proxy by mail will not affect your right to vote in person if you decide to attend the Annual Meeting.
Revoking a proxy
You may revoke or change a previously delivered proxy at any time before the meeting by delivering another proxy with a later date, by voting again via the Internet or by telephone, or by delivering written notice of revocation of your proxy to our Corporate Secretary at our principal offices in Houston, Texas before the beginning of the meeting. You may also revoke your proxy by attending the meeting and voting in person, although attendance at the meeting will not necessarily revoke a valid proxy that was previously delivered. If you hold shares through a broker, bank or other nominee, you must contact that nominee
ANNUAL MEETING INFORMATION
with a copy to, revoke any prior voting instructions. You also may revoke any prior voting instructions by voting in person at the meeting if you obtain a legal proxy as described above.
Recommendation of the Board
The Board unanimously recommends you vote “FOR” each of the proposals. A proxy that is properly completed and submitted will be voted at the Annual Meeting in accordance with the instructions on the proxy. If you properly complete and submit a proxy, but dowhich shall not indicate any contrary voting instructions, your shares will be voted as follows:
•“FOR” the election of each of the nominees named in this Proxy Statementconstitute notice to the Board of Directors;
•“FOR” the approval, on an advisory basis, of our executive compensation;
•“FOR” the ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021; and
•“FOR” the approval of an amendment to our certificate of incorporation to increase the number of authorized shares of common stock.
Counting the vote
We have appointed Alliance Advisors to tabulate and certify the vote.
Quorum
A quorum is the number of shares that must be present to hold the meeting. The quorum requirement for the meeting is a majority of the outstanding shares as of the Record Date, present in person or represented by proxy. We will count your shares for purposes of determining if there is a quorum if either you are present and vote in person at the meeting or have voted on the Internet, by telephone or by properly submitting a proxy card or voting instruction card by mail. Abstentions and broker non-votes also count toward the quorum.
ANNUAL MEETING INFORMATION
Required Vote
Proposal 1 - Election of directors
The nominees for election as directors will be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors. However, because the number of director nominees equals the number of directors to be elected at this Annual Meeting, if any nominee for director receives a greater number of votes “withheld” than votes “for” then such nominee required to tender his or her resignation for consideration by the N&ESG Committee following certification of the shareholder vote. Such resignation will only be effective upon Board acceptance of such resignation after receiving the recommendation of the N&ESG Committee. Abstentions and broker non-votes will not be included in determining the number of votes cast in the election of directors and will not have any effect on the outcome. This voting standard is discussed further under “Proposal 1 - Election of Class III Directors.”
Proposal 2 - Advisory vote to approve NEO compensation
The advisory vote on our executive compensation is non-binding, so no specific vote is required. Abstentions will have the same effect as a vote against this proposal, and broker non-votes will not be counted as shares present and entitled to vote, and, accordingly, will not affect the outcome of the vote on this proposal. While the law requires this advisory vote, the vote will neither be binding on us or the Board, nor will it create or imply any change in the fiduciary duties of, or impose any additional fiduciary duty on, us or the Board. However, the views of our shareholders are important to us, and our Compensation Committee will take into account the outcome of the vote when considering future executive compensation decisions. We urge you to read the section entitled “Compensation Discussion and Analysis,” which discusses in detail how our executive compensation program implements our compensation philosophy.
Proposal 3 - Ratification of the appointment of the independent registered public accounting firm
The advisory vote on the ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for the 2020 fiscal year is non-binding, so no specific vote is required. If you hold your shares through a broker and you do not instruct the broker how to vote, your broker will have the authority to vote your shares in its discretion on this proposal. An abstention will have the effect of a vote against this proposal. Because your vote is advisory, it will not be binding on the Board or the Company. However, the Board and the Audit Committee will consider the outcome of the vote in determining the selection of the Company’s independent registered public accounting firm.
Proposal 4 - Approval of an amendment to our certificate of incorporation in increase the number of authorized shares of common stock
Approval of this proposal requires the affirmative vote, either in person or by proxy, of the holders of a majority of the issued and outstanding shares of common stock. Abstentions, failing to vote, and “broker non-votes” will have the same effect as voting “AGAINST” the adoption of this proposal because the required vote is based on the number of shares outstanding rather than the number of votes cast.
ANNUAL MEETING INFORMATION
Voting Results
We will announce the preliminary voting results at the Annual Meeting and will publish the final voting results in a Current Report on Form 8-K to be filed with the SEC within four business days of the meeting.
Householding Information
The SEC permits companies and intermediaries (such as brokers and banks) to satisfy delivery requirements for proxy statements and annual reports with respect to two or more shareholders sharing the same address by delivering a single proxy statement and annual report to those shareholders. This process, which is commonly referred to as “householding,” is intended to reduce the volume of duplicate information shareholders receive and reduce expenses for companies. Both we and some of our intermediaries may be householding our proxy materials and annual report. Once you have received notice from your broker or another intermediary that they will be householding materials sent to your address, householding will continue until you are notified otherwise or until you revoke your consent. Should you wish to receive separate copies of our Annual Report and Proxy Statement in the future, we will promptly deliver a separate copy of each of these documents to you if you send a written request to us at our address appearing on the cover of this Proxy Statement, to the attention of the Corporate Secretary. If you hold your shares through an intermediary that is householding and you want to receive separate copies of our Annual Report and Proxy Statement in the future, you should contact your bank, broker or other nominee record holder.
Financial Statements and Other Available Documents
Financial statements for our most recent fiscal year are contained in the 2020 Annual Report to Shareholders and our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on February 25, 2021. Our Annual Report, our Annual Report on Form 10-K, Corporate Governance Guidelines, Code, and charters of Board committees may be accessed by shareholders on our website at www.callon.com or printed copies are available upon written request to Michol L. Ecklund, Corporate Secretary at our principal executive office in Houston, Texas.
Other Business
The Board is not aware of any matter to be acted upon at the Annual Meeting other than those described above. If other business properly comes before the Annual Meeting, the persons named on the proxy will vote the proxy in accordance with what they consider to be in the best interests of us and our shareholders. Please sign, date, and return your proxy promptly to avoid unnecessary expense. All shareholders are urged, regardless of the number of shares owned, to participate in the Annual Meeting by voting their shares.Company:
| | | | | |
By Order of the Board of Directors, | | |
| Kirkland & Ellis LLP |
| 609 Main St |
| Houston, TX 77002 |
| Attention: | Sean T. Wheeler | |
Joseph C. Gatto, Jr.
President, Chief Executive Officer and Director
| Houston, Texas
April 9, 2021Michael W. Rigdon |
| Email: | sean.wheeler@kirkland.com |
| michael.rigdon@kirkland.com |
if to Kimmeridge:
74 CALLON PETROLEUM
APPENDIX A
| | | | | |
| NON-GAAP RECONCILIATIONS | |
Adjusted EBITDA (in thousands): | 2020 |
| Net loss | $ | (2,533,621) | |
| Adjustments: | |
| Loss on derivatives contracts | $ | 27,773 | |
| Gain on commodity derivative settlements, net | $ | 95,856 | |
| Non-cash stock-based compensation expense | $ | 2,663 | |
| Impairment of evaluated oil and gas properties | $ | 2,547,241 | |
| Merger and integration expense | $ | 28,482 | |
| Other expense | $ | 14,625 | |
| Income tax expense | $ | 122,054 | |
| Interest expense, net of capitalized amounts | $ | 94,329 | |
| Depreciation, depletion and amortization | $ | 480,631 | |
| Gain on extinguishment of debt | $ | (170,370) | |
| Adjusted EBITDA | $ | 709,633 |
| | | | | | | | |
| c/o Kimmeridge Energy Management Company |
| 412 West 15th Street, 11th Floor |
| New York, New York 10011 |
| Attention: | Tamar Goldstein | |
| Email: | tamar.goldstein@kimmeridge.com |
| | | | | | | | | | | | | | |
Adjusted Free Cash Flow (in thousands): | 1Q2020 | 2Q2020 | 3Q2020 | 4Q2020 |
| Net cash provided by operating activities | $ | 191,695 | | $ | 97,801 | | $ | 135,701 | | $ | 134,578 | |
| Changes in working capital and other | $ | (32,569) | | $ | 40,078 | | $ | 14,473 | | $ | 12,011 | |
| Change in accrued hedge settlements | $ | 22,513 | | $ | (14,480) | | $ | (5,993) | | $ | (5,055) | |
| Cash interest expense, net | $ | 20,071 | | $ | 21,944 | | $ | 24,246 | | $ | 24,167 | |
| Merger and integration expense | $ | 15,830 | | $ | 8,067 | | $ | 2,465 | | $ | 2,120 | |
| Adjusted EBITDA | $ | 217,540 | | $ | 153,410 | | $ | 170,892 | | $ | 167,821 | |
| Less: Operational capital expenditures (accrual) | $ | 277,640 | | $ | 85,087 | | $ | 38,408 | | $ | 87,488 | |
| Less: Capitalized interest | $ | 23,985 | | $ | 20,924 | | $ | 20,675 | | $ | 23,015 | |
| Less: Interest expense, net of capitalized amounts | $ | 20,478 | | $ | 22,682 | | $ | 24,683 | | $ | 26,486 | |
| Less: Capitalized cash G&A | $ | 7,371 | | $ | 6,740 | | $ | 6,831 | | $ | 6,465 | |
| Adjusted Free Cash Flow | $ | (111,934) | $ | 17,977 | $ | 80,295 | $ | 24,367 |
| | | | | | | | |
| c/o Sidley Austin LLP |
| 1000 Louisiana Street, Suite 5900 |
| Houston, TX 77002 |
| Attention: | Irving L. Rotter | |
| George J. Vlahakos |
| Email: | irotter@sidley.com |
| gvlahakos@sidley.com |
Section 8.14 Expenses. If, prior to the consummation of the Exchange, this Agreement is terminated in accordance with Section 8.1, all costs and expenses incurred by Kimmeridge in connection with, or in anticipation of, this Agreement and the transactions contemplated hereby shall be paid by the Company within fifteen (15) Business Days after the Company’s receipt of the applicable invoice. For the avoidance of doubt, in the event that the Exchange is consummated, all costs and expenses incurred by Kimmeridge in connection with, or in anticipation of, this Agreement and the transactions contemplated hereby shall be borne by Kimmeridge.
[Signature pages follow]
2021 PROXY STATEMENT75A-13
APPENDIX BIN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers, as of the date first above written.
FORM OF CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OFCOMPANY:
CALLON PETROLEUM COMPANY
The undersigned, Michol L. Ecklund, Corporate Secretary | | | | | | | | |
| By: | /s/ Joseph C. Gatto, Jr. | |
| Name: | Joseph C. Gatto, Jr. | |
| Title: | President & CEO | |
KIMMERIDGE:
CHAMBERS INVESTMENTS, LLC
| | | | | | | | |
| By: | /s/ Noam Lockshin | |
| Noam Lockshin | |
| Manager | |
Schedule I
| | | | | | | | | | | | | | |
| Holder Name | Aggregate Principal Amount of 2025 Notes for DWAC Withdrawal CUSIP/ISIN Numbers: 13123X BB7 / U1303X AF3 | Aggregate Number of Shares of New Common Stock to be Issued | Holder EIN | Business Address |
| Chambers Investments, LLC | $197,000,000 | 5,512,623 | 85-3027096 | 412 West 15th Street, 11th Floor New York, New York 10011 |
Schedule I to Exchange Agreement
Exhibit A
Form of Registration Rights Agreement
[See attached]
Exhibit A to Exchange Agreement
Exhibit Version
REGISTRATION RIGHTS AGREEMENT
BY AND BETWEEN
CALLON PETROLEUM COMPANY
AND
CHAMBERS INVESTMENTS, LLC
This REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made and entered into as of [●], by and among Callon Petroleum Company, a Delaware corporation (the “Corporation”“Company”), a corporation organized and existing underChambers Investments, LLC, and by virtuethe entities affiliated therewith (“Kimmeridge”).
WHEREAS, this Agreement is entered into in connection with the Company’s issuance of shares of common stock, par value $0.01, of the General Corporation LawCompany (the “Common Stock”) in exchange for the Company’s 9.0% Second Lien Senior Secured Notes due 2025 pursuant to that certain Exchange Agreement (the “Exchange Agreement”), dated as of August 3, 2021, by and between the Company and Kimmeridge; and
WHEREAS, the Company has agreed to provide the registration and other rights set forth in this Agreement for the benefit of Kimmeridge pursuant to the Exchange Agreement; and
WHEREAS, it is a condition to the obligations of Kimmeridge under the Exchange Agreement that this Agreement be executed and delivered.
NOW THEREFORE, in consideration of the Statemutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of Delaware (the “DGCL”), doeswhich are hereby certifyacknowledged by each party hereto, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
FIRSTSection 1.01 :Definitions. The nameterms set forth below are used herein as so defined:
“Affiliate” shall have the meaning ascribed to it, on the date hereof, in Rule 405 under the Securities Act.
“Agreement” has the meaning specified therefor in the introductory paragraph of this Agreement.
“Board” means the Board of Directors of the Corporation is Callon Petroleum Company.
SECOND“: This Amendment (this “Amendment”)Beneficially Own” shall have the meaning assigned to such term in Rule 13d-3 under the CertificateExchange Act, and any Person’s beneficial ownership of Incorporation of the Corporation (the “Certificate”) was duly adoptedsecurities shall be calculated in accordance with the provisions of Section 242such Rule.
“Business Day” means any day other than a Saturday, Sunday, any federal legal holiday or day on which banking institutions in the State of New York or State of Texas are authorized or required by law or other governmental action to close.
“Closing Date” means the date of consummation of the DGCL.transactions contemplated by the Exchange Agreement.
“Common Stock” means the shares of common stock, par value $0.01 per share, of the Company.
“Common Stock Price” means the volume weighted average closing price of the Common Stock (as reported by the NYSE or, if the NYSE is not the Company’s primary securities exchange or market, such primary securities exchange or market) for the twenty (20) trading days immediately preceding the date on which the determination is made (or, if such price is not available, as determined in good faith by the Board).
“Company” has the meaning specified therefor in the introductory paragraph of this Agreement.
“Control” means the possession, directly or indirectly, of the power to direct, or cause the direction of, the management and policies of a Person whether though the ownership of voting securities, by contract or otherwise. The Boardterms “Controlled” and “Controlling” shall have correlative meanings.
“Effective Date” means, with respect to a particular Shelf Registration Statement, the date of Directors has duly adopted resolutions setting fortheffectiveness of such Shelf Registration Statement.
“Effectiveness Period” means the period beginning on the Effective Date for the Registration Statement and declaring advisable this Amendmentending at the time all Registrable Securities covered by such Registration Statement have ceased to be Registrable Securities.
“Exchange Act” means the Securities Exchange Act of 1934, as amended and the rules and regulations of the SEC promulgated thereunder.
“Exchange Agreement” has the meaning specified therefor in the recitals of this Agreement.
“Existing Registration Rights Agreement” means the registration rights agreement, dated as of September 30, 2020, by and between the Company and Kimmeridge.
“Freely Tradable” means, with respect to any security, that such security, when held by the holder thereof, is no longer subject to the restrictions on trading under the provisions of Rule 144 under the Securities Act (or any successor rule or regulation to Rule 144 then in force), including volume and manner of sale restrictions, and the current public information requirement of Rule 144(e) (or any successor rule or regulation to Rule 144 then in force) no longer applies; provided that if a Holder Beneficially Owns 10% or more of the Company’s then outstanding Common Stock, then such Holder’s Common Stock shall be deemed not to be Freely Tradable for so long as such Holder Beneficially Owns 10% or more of the Company’s outstanding Common Stock.
“Governmental Authority” means any federal, state, local or foreign government, or other governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body.
“Holder” means the holder of any Registrable Securities.
“Included Registrable Securities” has the meaning specified therefor in Section 2.02(a) of this Agreement.
“Kimmeridge” has the meaning specified therefor in the introductory paragraph of this Agreement.
“Law” means any statute, law, ordinance, regulation, rule, order, code, governmental restriction, decree, injunction or other requirement of law, or any judicial or administrative interpretation thereof, of any Governmental Authority.
“Losses” has the meaning specified therefor in Section 2.08(a) of this Agreement.
“Managing Underwriter” means, with respect to any Underwritten Offering, the book-running lead manager of such Underwritten Offering.
“Notes” has the meaning specified therefor in the introductory paragraph of this Agreement.
“NYSE” means The New York Stock Exchange, Inc.
“Opt-Out Notice” has the meaning specified therefor in Section 2.02(a) of this Agreement.
“Person” means an individual or a corporation, limited liability company, joint venture, trust, unincorporated organization, association, government agency or political subdivision thereof or other entity.
“Purchase Agreement” means that certain purchase agreement, dated as of September 30, 2020, by and among the Company, Kimmeridge and the other parties thereto, which provided for the issuance and sale of the Company’s 9.00% Second Lien Senior Secured Notes due 2025 and the Warrants to Kimmeridge.
“Registrable Securities” means the Common Stock issued to the Holder pursuant to the Exchange Agreement and any securities issued or then issuable upon the exercise of the Warrants or any stock split, dividend or other distribution, recapitalization or similar event with respect thereto.
“Registrable Securities Amount” means the calculation based on the product of the Common Stock Price times the number of applicable Registrable Securities.
“Registration Expenses” has the meaning specified therefor in Section 2.07(b) of this Agreement.
“Registration Statement” has the meaning specified therefor in Section 2.01 of this Agreement.
“Required Holders” means initially, Kimmeridge, and subsequent to a transfer by Kimmeridge of the Registrable Securities, the Holder or collective Holders of greater than 50% of the Registrable Securities.
“Rule 405” means Rule 405 under the Securities Act (or any successor or similar provision adopted by the SEC then in effect).
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
“Selling Expenses” has the meaning specified therefor in Section 2.07(b) of this Agreement.
“Selling Holder” means a Holder who is selling Registrable Securities under a Registration Statement pursuant to the terms of this Agreement.
“Selling Holder Indemnified Persons” has the meaning specified therefor in Section 2.08(a) of this Agreement.
“Shelf Registration Statement” means a registration statement under the Securities Act to permit the public resale of the Registrable Securities from time to time as permitted by Rule 415 under the Securities Act (or any successor or similar provision adopted by the SEC then in effect).
“Underwritten Offering” means an offering (including an offering pursuant to a Shelf Registration Statement) in which Registrable Securities are sold to one or more underwriters on a firm commitment basis for reoffering to the public or an offering that is a “bought deal” with one or more investment banks.
“Warrants” means the Series B warrants issued by the Company pursuant to the Purchase Agreement.
“WKSI” means a “well known seasoned issuer” as defined under Rule 405.
Section 1.02 Registrable Securities. Any Registrable Security shall cease to be a Registrable Security at the earliest of the following: (a) when a registration statement covering such Registrable Security becomes or has been declared effective by the SEC and such Registrable Security has been sold or disposed of pursuant to such effective registration statement; (b) when such Registrable Security has been sold or disposed of (excluding transfers or assignments by a Holder to an Affiliate) pursuant to Rule 144 under the Securities Act (or any successor or similar provision adopted by the SEC then in effect) under circumstances in which all of the applicable conditions of Rule 144 (as then in effect) are met; (c) when such Registrable Security is held by the Company or one of its Affiliates; or (d) when such Registrable Security has been sold or disposed of in a private transaction in which the transferor’s rights under this Agreement are not assigned to the transferee of such securities pursuant to Section 2.10 hereof. In addition, any Registrable Security will cease to be a Registrable Security upon the date that such security is Freely Tradeable; provided that, for the avoidance of doubt, Common Stock that is not a Registrable Security because it is Freely Tradable will become a Registrable Security to the extent it is subsequently not Freely Tradable.
ARTICLE II
REGISTRATION RIGHTS
Section 2.01 Shelf Registration.
(a) Shelf Registration. Within three Business Days of the Closing Date, the Company shall prepare and file a Shelf Registration Statement with the SEC to permit the public resale of all Registrable Securities on the terms and conditions specified in this Section 2.01 (a “Registration Statement”). The Registration Statement filed with the SEC pursuant to this Section 2.01 shall be on Form S-3 and, if the Company is a WKSI as of the filing date thereof, shall be an Automatic Shelf Registration Statement or, if Form S-3 is not then available to the Company, on Form S-1 or such other form of registration statement as is then available to effect a registration for resale of the Registrable Securities, covering the Registrable Securities, and shall contain a prospectus in such form as to permit any Selling Holder covered by such Registration Statement to sell such Registrable Securities pursuant to Rule 415 under the Securities Act (or any successor or similar provision adopted by the SEC then in effect) at any time beginning on the Effective Date for such Registration Statement. The Company shall use its reasonable best efforts to cause a Registration Statement filed pursuant to this Section 2.01 to be declared effective as soon as reasonably practicable thereafter. During the Effectiveness Period, the Company shall use its reasonable best efforts to cause a Registration Statement filed pursuant to this Section 2.01 to remain effective, and to be supplemented and amended to the extent necessary to ensure that such Registration Statement is available or, if not available, that another registration statement is available for the resale of the Registrable Securities until all Registrable Securities have ceased to be Registrable Securities; provided, that the Company shall not be required to supplement or amend such Registration Statement more than once in any calendar quarterly period to name additional parties as the result of any transfer of registration rights. The Company shall prepare and file a supplemental listing application with the NYSE (or such other national securities exchange on which the Registrable Securities are then listed and traded) to list the Registrable Securities covered by a Registration Statement and shall use its reasonable best efforts to have such Registrable Securities approved for listing on the NYSE (or such other national securities exchange on which the Registrable Securities are then listed and traded) by the Effective Date of such Registration Statement, subject only to official notice of issuance. As soon as practicable following the Effective Date of a Registration Statement, but in any event within three Business Days of such date, the Company shall notify the Required Holders of the effectiveness of such Registration Statement. When effective, a Registration Statement (including the documents incorporated therein by reference) will comply as to form in all material respects with all applicable requirements of the Securities Act and the Exchange Act and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any prospectus contained in such Registration Statement, in the light of the circumstances under which a statement is made).
(b) Delay Rights. Notwithstanding anything to the contrary contained herein, the Company may, upon written notice to (i) the Holders, delay the filing of a Registration Statement required under Section 2.01, or (ii) any Selling Holder whose Registrable Securities are included in a Registration Statement or other registration statement contemplated by this Agreement, suspend such Selling Holder’s use of any prospectus that is a part of
such Registration Statement or other registration statement (in which event the Selling Holder shall discontinue sales of the Registrable Securities pursuant to such Registration Statement or other registration statement contemplated by this Agreement but may settle any previously made sales of Registrable Securities) if the Company (x) is pursuing an acquisition, merger, tender offer, reorganization, disposition or other similar transaction and the Board determines reasonably and in good faith that (A) the Company’s ability to pursue or consummate such a transaction would be materially adversely affected by any required disclosure of such transaction in such Registration Statement or other registration statement or (B) such transaction renders the Company unable to comply with SEC requirements, in each case under circumstances that would make it impractical or inadvisable to cause the Registration Statement (or such filings) to become effective or to promptly amend or supplement the Registration Statement or other registration statement contemplated by this Agreement on a post effective basis, as applicable, or (y) has experienced some other material non-public event the disclosure of which at such time, in the reasonable and good faith judgment of the Board, would materially adversely affect the Company; provided, however, that in no event shall the Selling Holders be suspended from selling Registrable Securities pursuant to such Registration Statement for a period that exceeds an aggregate of 60 days in any 180-day period or 105 days in any 365-day period. Upon disclosure of such information or the termination of the condition described above, the Company shall provide prompt notice, but in any event within one Business Day of such disclosure or termination, to the Selling Holders whose Registrable Securities are included in such Registration Statement and shall promptly terminate any suspension of sales it has put into effect and shall take such other reasonable actions to permit registered sales of Registrable Securities as contemplated in this Agreement.
Section 2.02 Piggyback Rights.
(a) Participation. So long as a Holder has Registrable Securities, if the Company proposes to file (i) a shelf registration statement other than a Registration Statement contemplated by Section 2.01 and other than a registration statement on Forms S-4 or S-8 and any successor forms, (ii) a prospectus supplement to an effective shelf registration statement relating to the sale of equity securities of the Company, other than a Registration Statement contemplated by Section 2.01 and Holders may be included without the filing of a post-effective amendment thereto, or (iii) a registration statement, other than a shelf registration statement, and other than a registration statement on Forms S-4 or S-8 and any successor forms, in each case, for the sale of Common Stock in an Underwritten Offering for its own account or that of another Person, or both, then the Company shall give prompt written notice of its intention to effect such registration at least five Business Days before the proposed date of filing of the applicable Registration Statement or prospectus supplement, or at least two Business Days in connection with any overnight or bought Underwritten Offering, to the Holders and such notice shall (A) describe the intended method(s) of distribution, and the name of the proposed Managing Underwriter or Underwriters, if any, in such offering and (B) offer the Holders the opportunity to include in such registration statement, prospectus supplement or Underwritten Offering, as the case may be, such number of Registrable Securities (the “Included Registrable Securities”) as the Holders may request in writing (such request may include the Registrable Securities to be included on behalf of any other Holder, as specified by the Holders); provided, however, that if the Company has been advised by the Managing Underwriter of any such Underwritten Offering that the inclusion of all Registrable Securities that the Selling Holders intend to include in such offering exceeds the number that can be sold in such offering without being likely to have an adverse effect on the price, timing or distribution of the Common Stock in the Underwritten Offering, then (x) if no Registrable Securities can be included in the Underwritten Offering in the opinion of the Managing Underwriter without having such adverse effect, the Company shall not be required to offer such opportunity to the Holders or (y) if any Registrable Securities can be included in the Underwritten Offering in the opinion of the Managing Underwriter without having such adverse effect, then the amount of Registrable Securities to be offered for the accounts of Holders shall be determined based on the provisions of Section 2.02(b) or in such other manner as such Selling Holders may agree. Any notice required to be provided in this Section 2.02(a) to the Holders shall be provided on a Business Day and receipt of such notice shall be confirmed by the Holders. Holders shall then have two Business Days (or one Business Day in connection with any overnight or bought Underwritten Offering) after notice has been delivered to request in writing the inclusion of Registrable Securities in the Underwritten Offering. If no written request for inclusion from Holders is received within the specified time, each such Holder shall have no further right to participate in such Underwritten Offering. If, at any time after giving written notice of its intention to undertake an Underwritten Offering and prior to the closing of such Underwritten Offering, the Company shall determine for any reason not to undertake or to delay such Underwritten Offering, the
Company may, at its election, give written notice of such determination to the Selling Holders and, (1) in the case of a determination not to undertake such Underwritten Offering, shall be relieved of its obligation to sell any Included Registrable Securities in connection with such terminated Underwritten Offering, and (2) in the case of a determination to delay such Underwritten Offering, shall be permitted to delay offering any Included Registrable Securities as part of such Underwritten Offering for the same period as the delay in the Underwritten Offering. Any Selling Holder shall have the right to withdraw such Selling Holder’s request for inclusion of such Selling Holder’s Registrable Securities in such Underwritten Offering by giving written notice to the Company of such withdrawal at least one Business Day before the time of pricing of such Underwritten Offering. Holders may deliver written notice (an “Opt-Out Notice”) to the Company requesting that such Holder not receive notice from the Company of any proposed Underwritten Offering; provided, however, that such Holder may later revoke any such Opt-Out Notice in writing prior to five Business Day before the time of pricing of such underwritten offering. Following receipt of an Opt-Out Notice from a Holder (unless subsequently revoked), the Company shall not be required to deliver any notice to such Holder pursuant to this Section 2.02(a) and such Holder (unless such Holder’s Opt-Out Notice is subsequently revoked) shall no longer be entitled to participate in Underwritten Offerings by the Company pursuant to this Section 2.02(a).
(b) Priority. If the Managing Underwriter of any proposed Underwritten Offering of Common Stock involving Included Registrable Securities pursuant to this Section 2.02 advises the Company that the total amount of Common Stock that the Selling Holders and any other Persons intend to include in such offering exceeds the number of shares of Common Stock that can be sold in such offering without being likely to have an adverse effect on the price, timing or distribution of the Common Stock offered or the market for the Common Stock, then the Common Stock to be included in such Underwritten Offering shall include the number of Registrable Securities that such Managing Underwriter advises the Company can be sold without having such adverse effect, with such number to be allocated (i) first, to the Company or other party or parties requesting or initiating such registration, (ii) second, by the Selling Holders who have requested participation in such Underwritten Offering, allocated among such Selling Holders pro rata on the basis of the number of Registrable Securities held by each Selling Holder or in such manner as they may agree and (iii) third, by the other holders of a majorityCommon Stock (other than Holders) with registration rights entitling them to participate in such Underwritten Offering, allocated among such other holders pro rata on the basis of the outstanding stocknumber of shares of Common Stock held by each applicable other holder or in such manner as they may agree.
Section 2.03 Underwritten Offerings.
(a) Demand Offering. In the event that any Holder elects to dispose of Registrable Securities under a Registration Statement pursuant to an Underwritten Offering and reasonably expects gross proceeds of at least $25 million from such Underwritten Offering (together with any Registrable Securities to be disposed of by a Selling Holder who has elected to participate in such Underwritten Offering pursuant to Section 2.02), the Company shall, at the written request of such Selling Holder(s), enter into an underwriting agreement in a form as is customary in Underwritten Offerings of securities by the Company with the Managing Underwriter or Underwriters selected by the Company (subject to the written consent of the Corporation entitledInitiating Holder of such Underwritten Offering, which consent shall not be unreasonably withheld), which shall include, among other provisions, indemnities to votethe effect and to the extent provided in Section 2.08, and shall take all such other reasonable actions as are requested by the Managing Underwriter or Underwriters in order to expedite or facilitate the disposition of such Registrable Securities; provided, however, that the Company shall have no obligation to facilitate or participate in, including entering into any underwriting agreement for more than two Underwritten Offerings at the special meetingrequest of the stockholders calledHolders hereunder; provided, further, that if the Company is conducting or actively pursuing a securities offering of Common Stock with anticipated gross offering proceeds of at least $25 million (other than in connection with any at-the-market offering or similar continuous offering program), then the Company may suspend such Selling Holders’ rights to require the Company to conduct an Underwritten Offering pursuant to this Section 2.03; provided, however, that the Company may only suspend such Selling Holders’ rights to require the Company to conduct an Underwritten Offering pursuant to this Section 2.03 once in any six-month period and in no event for a period that exceeds an aggregate of 75 days in any 180-day period or 105 days in any 365-day period.
(b) General Procedures. In connection with any Underwritten Offering contemplated by Section 2.03(a), the underwriting agreement into which each Selling Holder and the Company shall enter shall contain such representations, covenants, indemnities (subject to Section 2.08) and other rights and obligations as are customary in Underwritten Offerings of securities by the Company. No Selling Holder shall be required to make any representations or warranties to, or agreements with, the Company or the Underwriters other than representations, warranties or agreements regarding (i) such Holder’s ownership of its Registrable Securities to be sold or transferred, (ii) such Selling Holder’s authority to enter into such underwriting agreement and to sell or transfer such securities, (iii) its intended method of distribution and (iv) any other such matters or representations pertaining to compliance with securities laws as may be reasonably requested. If any Selling Holder disapproves of the terms of an Underwritten Offering contemplated by this Section 2.03, such Selling Holder may elect to withdraw therefrom by notice to the Company and the Managing Underwriter; provided, however, that such withdrawal must be made at least one Business Day prior to the time of pricing of such Underwritten Offering to be effective; provided, further, that in the event the Managing Underwriter or Underwriters of any proposed Underwritten Offering advise the Company that the total amount of Registrable Securities that Holders intend to include in such offering exceeds the number that can be sold in such offering without being likely to have an adverse effect on the price, timing or distribution of the Registrable Securities offered or the market for the Common Stock, and the amount of Registrable Securities requested to be included in such Underwritten Offering by the Holder that initiated such Underwritten Offering pursuant to Section 2.03(a) (the “Initiating Holder”) is reduced by 50% or more, the Initiating Holder will have the right to withdraw from such Underwritten Offering by delivering notice to the Company at least one Business Day prior to the time of pricing of such Underwritten Offering. If, pursuant to the preceding sentence, the entire Demand Registration Request is revoked, then, at the option of the Holder or Holders who revoke such request, either (i) such Holder or Holders shall reimburse the Company for all of its reasonable and documented incremental out-of-pocket expenses incurred in the preparation, filing and processing of the Registration Statement or prospectus supplement with respect to such requested Underwritten Offering, which incremental out-of-pocket expenses, for the avoidance of doubt, shall not include overhead expenses and which requested Underwritten Offering, whether or not completed, will not decrease the number of Underwritten Offerings the Holders shall have the right and option to request under this Section 2.03.
(c) Priority. If the Managing Underwriter of any proposed Underwritten Offering of Registrable Securities pursuant to this Section 2.03 advises the Company that the total amount of Common Stock that the Selling Holders and any other Persons intend to include in such offering exceeds the number of shares of Common Stock that can be sold in such offering without being likely to have an adverse effect on the price, timing or distribution of the Common Stock offered or the market for the Common Stock, then the Common Stock to be included in such Underwritten Offering shall include the number of Registrable Securities that such Managing Underwriter advises the Company can be sold without having such adverse effect, with such number to be allocated (i) first, to the Selling Holder who requested such Underwritten Offering, (ii) second, to any other Holders of Registrable Securities who have elected to participate in such Underwritten Offering, allocated among such other Selling Holders pro rata on the basis of the number of Registrable Securities held by each such Selling Holder or in such other manner as such Selling Holders may agree, and (iii) third, to the Company.
Section 2.04 Sale Procedures. In connection with its obligations under this Article II, the Company shall, as expeditiously as possible:
(a) use its reasonable best efforts to prepare and file with the SEC such amendments and supplements to a Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the Effectiveness Period and as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such Registration Statement;
(b) if a prospectus supplement will be used in connection with the marketing of an Underwritten Offering from a Registration Statement and the Managing Underwriter at any time shall notify the Company in writing that, in the sole judgment of such Managing Underwriter, inclusion of detailed information to be used in such prospectus supplement is of material importance to the success of the Underwritten Offering of such
Registrable Securities, the Company shall use its reasonable best efforts to include such information in such prospectus supplement;
(c) furnish to each Selling Holder (i) as far in advance as reasonably practicable before filing a Registration Statement or any other registration statement contemplated by this Agreement or any supplement or amendment thereto, upon request, copies of reasonably complete drafts of all such documents proposed to be filed (including exhibits and each document incorporated by reference therein to the extent then required by the rules and regulations of the SEC other than annual or quarterly reports on Form 10-K or 10-Q, respectively, current reports on Form 8-K or proxy statements; provided, however, that such reports or proxy statements shall be provided at least two Business Days prior to filing in connection with any Underwritten Offering), and provide each such Selling Holder the opportunity to object to any information pertaining to such Selling Holder and its plan of distribution that is contained therein and make the corrections reasonably requested by such Selling Holder with respect to such information prior to filing a Registration Statement or such other registration statement or supplement or amendment thereto, and (ii) such number of copies of such Registration Statement or such other registration statement and the prospectus included therein and any supplements and amendments thereto as such Selling Holder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities covered by such Registration Statement or other registration statement;
(d) if applicable, use its reasonable best efforts to register or qualify the Registrable Securities covered by a Registration Statement or any other registration statement contemplated by this Agreement under the securities or blue sky laws of such jurisdictions as the Selling Holders or, in the case of an Underwritten Offering, the Managing Underwriter, shall reasonably request; provided, however, that the Company shall not be required to qualify generally to transact business in any jurisdiction where it is not then required to so qualify or to take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject;
(e) promptly notify each Selling Holder, at any time when a prospectus relating thereto is required to be delivered by any of them under the Securities Act, of (i) the filing of a Registration Statement or any other registration statement contemplated by this Agreement or any prospectus or prospectus supplement to be used in connection therewith, or any amendment or supplement thereto, and, with respect to such Registration Statement or any other registration statement or any post-effective amendment thereto, when the same has become effective; and (ii) the receipt of any written comments from the SEC with respect to any filing referred to in clause (i) and any written request by the SEC for amendments or supplements to such Registration Statement or any other registration statement or any prospectus or prospectus supplement thereto;
(f) promptly notify each Selling Holder, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of (i) the happening of any event as a result of which the prospectus or prospectus supplement contained in a Registration Statement or any other registration statement contemplated by this Agreement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any prospectus contained therein, in the light of the circumstances under which a statement is made); (ii) the issuance or express threat of issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or any other registration statement contemplated by this Agreement, or the initiation of any proceedings for that purpose; or (iii) the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction. Following the provision of such notice, the Company agrees to as promptly as practicable amend or supplement the prospectus or prospectus supplement or take other appropriate action so that the prospectus or prospectus supplement does not include 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 in the light of the circumstances then existing and to take such other commercially reasonable action as is necessary to remove a stop order, suspension, threat thereof or proceedings related thereto;
(g) upon request and subject to appropriate confidentiality obligations, furnish to each Selling Holder copies of any and all transmittal letters or other correspondence with the SEC or any other governmental agency or
self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to such offering of Registrable Securities;
(h) in the case of an Underwritten Offering, use its reasonable best efforts to furnish to the underwriters upon request, (i) an opinion of counsel for the Company dated the date of the closing under the underwriting agreement and (ii) a “cold comfort” letter, dated the pricing date of such Underwritten Offering and a letter of like kind dated the date of the closing under the underwriting agreement, in each case, signed by the independent public accountants who have certified the Company’s financial statements included or incorporated by reference into the applicable registration statement, and each of the opinion and the “cold comfort” letter shall be in customary form and covering substantially the same matters with respect to such registration statement (and the prospectus and any prospectus supplement included therein) as have been customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to the underwriters in Underwritten Offerings of securities by the Company and such other matters as such underwriters and Selling Holders may reasonably request;
(i) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders (which may be satisfied by making such information available on the SEC’s Electronic Data Gathering, Analysis and Retrieval system or any successor system known as “EDGAR”), as soon as reasonably practicable, an earnings statement, covering a period of twelve months beginning within three months after the Effective Date of such Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder;
(j) make available to the appropriate representatives of the Managing Underwriter and Selling Holders access to such information and Company personnel as is reasonable and customary to enable such parties to establish a due diligence defense under the Securities Act; provided, that the Company need not disclose any non-public information to any such representative unless and until such representative has entered into a confidentiality agreement with the Company;
(k) use its reasonable best efforts to cause all such Registrable Securities registered pursuant to this Agreement to be listed on each securities exchange or nationally recognized quotation system on which the Common Stock are then listed or quoted;
(l) use its reasonable best efforts to cause the Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the Selling Holders to consummate the disposition of such Registrable Securities;
(m) provide a transfer agent and registrar for all Registrable Securities covered by such registration statement not later than the Effective Date of such registration statement;
(n) enter into customary agreements and take such other actions as are reasonably requested by the Selling Holders or the underwriters, if any, in order to expedite or facilitate the disposition of such Registrable Securities (including, in the case of an Underwritten Offering of $50 million or greater of Registrable Securities (calculated based on the Registrable Securities Amount), making appropriate officers of the Company available to participate in any “road show” presentations before analysts, and other customary marketing activities (including one-on-one meetings with prospective purchasers of the Registrable Securities)); provided, however, that the officers of the Company shall not be required to dedicate an unreasonably burdensome amount of time in connection with activities for any Underwritten Offering;
(o) if requested by a Selling Holder, (i) as soon as practicable incorporate in a prospectus supplement or post-effective amendment such information as such Selling Holder reasonably requests to be included therein relating to the sale and distribution of Registrable Securities, including information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering, and (ii) as soon as practicable make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and
(p) if reasonably required by the Company’s transfer agent, use commercially reasonably efforts to promptly deliver any authorizations, certificates and directions required by the transfer agent which authorize and direct the transfer agent to transfer such Registrable Securities without legend, in accordance with applicable law, upon sale by the Holder of such Registrable Securities under the Registration Statement.
Notwithstanding anything to the contrary in this Section 2222.04, the Company shall not name a Holder as an underwriter (as defined in Section 2(a)(11) of the DGCLSecurities Act) in any Registration Statement without such Holder’s consent.
Each Selling Holder, upon receipt of notice from the Company of the happening of any event of the kind described in Section 2.04(f), shall forthwith discontinue offers and sales of the Registrable Securities by means of a prospectus or prospectus supplement until such Selling Holder’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.04(f) or until it is advised in writing by the Company that the use of the prospectus may be resumed and has received copies of any additional or supplemental filings incorporated by reference in the prospectus, and, if so directed by the Company, such Selling Holder shall, or shall request the Managing Underwriter, if any, to deliver to the Company (at the Company’s expense) all copies in their possession or control, other than permanent file copies then in such Selling Holder’s possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice.
Section 2.05 Cooperation by Holders. The Company shall have no obligation to include Registrable Securities of a Holder in a Registration Statement or in an Underwritten Offering pursuant to Section 2.02(a) or Section 2.03(a) who has failed to timely furnish after receipt of a written request from the Company such information that the Company determines, after consultation with its counsel, is reasonably required in order for the registration statement or prospectus supplement, as applicable, to comply with the Securities Act.
Section 2.06 Restrictions on Public Sale by Holders of Registrable Securities. To the extent requested by the Managing Underwriter, each Holder of Registrable Securities that participates in an Underwritten Offering will enter into a customary letter agreement with underwriters providing such Holder will not effect any public sale or distribution of Registrable Securities during the 60 calendar-day period beginning on the date of a prospectus or prospectus supplement filed with the SEC with respect to the pricing of such Underwritten Offering, provided that, notwithstanding the foregoing, (i) the duration of the foregoing restrictions shall be no longer than the duration of the shortest restriction imposed by the Underwriters on the Company or the officers, directors or any other Affiliate of the Company on whom a restriction is imposed and (ii) that the restrictions set forth in this Section 2.06 shall not apply to any Registrable Securities that are included in such Underwritten Offering by such Holder. In addition, this Section 2.06 shall not apply to any Holder that is not entitled to participate in such Underwritten Offering, whether because such Holder delivered an Opt-Out Notice prior to receiving notice of the Underwritten Offering or because the Registrable Securities held by such Holder may be disposed of without restriction pursuant to Rule 144 under the Securities Act (or any successor or similar provision adopted by the SEC then in effect).
Section 2.07 Expenses.
(a) Expenses. The Company shall pay all reasonable Registration Expenses as determined reasonably and in good faith by the Board, including, in the case of an Underwritten Offering, the Registration Expenses of an Underwritten Offering, regardless of whether any sale is made pursuant to such Underwritten Offering. Each Selling Holder shall pay its pro rata share of all Selling Expenses in connection with any sale of its Registrable Securities hereunder. For the avoidance of doubt, each Selling Holder’s pro rata allocation of Selling Expenses shall be the percentage derived by dividing (i) the number of Registrable Securities sold by such Selling Holder in connection with such sale by (ii) the aggregate number of Registrable Securities sold by all Selling Holders in connection with such sale. In addition, except as otherwise provided in Sections 2.07 and 2.08 hereof, the Company shall not be responsible for legal fees incurred by Holders in connection with the exercise of such Holders’ rights hereunder.
(b) Certain Definitions. “Registration Expenses” means all expenses incident to the Company’s performance under or compliance with this Agreement to effect the registration of Registrable Securities on a
Registration Statement pursuant to Section 2.01 or an Underwritten Offering covered under this Agreement, and the disposition of such Registrable Securities, including, without limitation, all registration, filing, securities exchange listing and NYSE fees, all registration, filing, qualification and other fees and expenses of complying with securities or blue sky laws, fees of the Financial Industry Regulatory Authority, Inc., fees of transfer agents and registrars, all word processing, duplicating and printing expenses, any transfer taxes, and the fees and disbursements of counsel and independent public accountants for the Company, including the expenses of any special audits or “cold comfort” letters required by or incident to such performance and compliance. “Selling Expenses” means all underwriting discounts and selling commissions or similar fees or arrangements allocable to the sale of the Registrable Securities, transfer taxes and fees and disbursements of counsel to the Selling Holders, except for the reasonable fees and disbursements of counsel for the Selling Holders required to be paid by the Company pursuant to Sections 2.07 and 2.08.
Section 2.08 Indemnification.
(a) By the Company. In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Company shall indemnify and hold harmless each Selling Holder thereunder, its directors, officers, managers, members, partners, employees, agents and Affiliates and each Person, if any, who controls such Selling Holder or its Affiliates within the meaning of the Securities Act and the Exchange Act, and its directors, officers, members, partners, employees or agents (collectively, the “Selling Holder Indemnified Persons”), against any losses, claims, damages, third party expenses incurred by or on such Holder’s behalf or liabilities (including reasonable attorneys’ fees and third party expenses incurred by or on such Holder’s behalf) (collectively, “Losses”), joint or several, to which such Selling Holder Indemnified Person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact (in the case of any prospectus, in light of the circumstances under which such statement is made) contained in (which, for the avoidance of doubt, includes documents incorporated by reference in) such Registration Statement or any other registration statement contemplated by this Agreement, any preliminary prospectus, prospectus supplement or final prospectus contained therein, or any amendment or supplement thereof, or any free writing prospectus relating 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 (in the case of a prospectus, in light of the circumstances under which they were made) not misleading, and shall reimburse each such Selling Holder Indemnified Person for any legal or other third party expenses reasonably incurred by or on such Holder’s behalf in connection with investigating, defending or resolving any such Loss or actions or proceedings; provided, however, that the Company shall not be liable in any such case if and to the extent that any such Loss arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Selling Holder Indemnified Person in writing specifically for use in such Registration Statement or such other registration statement, or prospectus supplement, as applicable. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Selling Holder Indemnified Person, and shall survive the transfer of such securities by such Selling Holder.
(b) By Each Selling Holder. Each Selling Holder agrees severally and not jointly to indemnify and hold harmless the Company, its directors, officers, employees and agents and each Person, if any, who controls the Company within the meaning of the Securities Act or of the Exchange Act, and its directors, officers, employees and agents, to the same extent as the foregoing indemnity from the Company to the Selling Holders, but only with respect to information regarding such Selling Holder furnished in writing by or on behalf of such Selling Holder expressly for inclusion in such Registration Statement or any other registration statement contemplated by this Agreement, any preliminary prospectus, prospectus supplement or final prospectus contained therein, or any amendment or supplement thereof, or any free writing prospectus relating thereto; provided, however, that the liability of each Selling Holder shall not be greater in amount than the dollar amount of the proceeds (net of any Selling Expenses) received by such Selling Holder from the sale of the Registrable Securities giving rise to such indemnification.
(c) Notice. Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party in writing thereof, but the omission to so notify the indemnifying party shall not relieve it from any liability that it may have to any indemnified party other than under this Section 2.08. In any action brought against any indemnified party, it shall notify the indemnifying party of the commencement thereof. The indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to such indemnified party and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 2.08 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided, however, that, (i) if the indemnifying party has failed to assume the defense or employ counsel reasonably acceptable to the indemnified party or (ii) if the defendants in any such action include both the indemnified party and the indemnifying party and counsel to the indemnified party shall have concluded that there may be reasonable defenses available to the indemnified party that are different from or additional to those available to the indemnifying party, or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, then the indemnified party shall have the right to select a separate counsel and to assume such legal defense and otherwise to participate in the defense of such action, with the reasonable expenses and fees of such separate counsel and other reasonable expenses related to such participation to be reimbursed by the indemnifying party as incurred. Notwithstanding any other provision of this Agreement, no indemnifying party shall settle any action brought against any indemnified party with respect to which such indemnified party is or may be entitled to indemnification hereunder without the consent of the indemnified party, unless the settlement thereof imposes no liability or obligation on, and includes a complete and unconditional release from all liability of, and does not contain any admission of wrongdoing by, the indemnified party.
(d) Contribution. If the indemnification provided for in this Section 2.08 is held by a court or government agency of competent jurisdiction to be unavailable to any indemnified party or is insufficient to hold them harmless in respect of any Losses, then each such indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Loss in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of such indemnified party on the other in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations; provided, however, that in no event shall such Selling Holder be required to contribute an aggregate amount in excess of the dollar amount of proceeds (net of Selling Expenses) received by such Selling Holder from the sale of Registrable Securities giving rise to such indemnification. The relative fault of the indemnifying party on the one hand and the indemnified party on the other 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 has been made by, or relates to, information supplied by such party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this paragraph were to be determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to herein. The amount paid by an indemnified party as a result of the Losses referred to in the first sentence of this paragraph shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, defending or resolving any Loss that is the subject of this paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who is not guilty of such fraudulent misrepresentation.
(e) Other Indemnification. The provisions of this Section 2.08 shall be in addition to any other rights to indemnification or contribution that an indemnified party may have pursuant to law, equity, contract or otherwise. To the extent that any of the Holders is, or would be expected to be, deemed to be an underwriter of Registrable Securities pursuant to any SEC comments or policies or any court of law or otherwise, the Company agrees that (i) the indemnification and contribution provisions contained in this Section 2.08 shall be applicable to the benefit of such Holder in its role as deemed underwriter in addition to its capacity as a Holder (so long as the amount for which any other Holder is or becomes responsible does not exceed the amount for which such Holder would be responsible if the Holder were not deemed to be an underwriter of Registrable Securities) and (ii) such Holder and its representatives shall be entitled to conduct the due diligence which would normally be conducted in connection with
an offering of securities registered under the Securities Act, including receipt of customary opinions and comfort letters.
Section 2.09 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the SEC that may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its reasonable best efforts to:
(a) make and keep public information regarding the Company available, as those terms are understood and defined in Rule 144 under the Securities Act (or any successor or similar provision adopted by the SEC then in effect), at all times from and after the date hereof (which may be satisfied by making such information available on EDGAR);
(b) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at all times from and after the date hereof; and
(c) so long as a Holder owns any Registrable Securities, furnish, (i) to the extent accurate, forthwith upon request, a written statement of the Company that it has complied with the reporting requirements of Rule 144 under the Securities Act (or any similar provision then in effect) and (ii) unless otherwise available electronically at no additional charge via the SEC’s EDGAR system, to such Holder forthwith upon request a copy of the most recent annual or quarterly report of the Company, and such other reports and documents as such Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing such Holder to sell any such securities without registration.
Section 2.10 Transfer or Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities under this Article II may not be transferred or assigned except pursuant to this Section 2.10.
(a) If a Holder transfers or assigns all (and not less than all) of the Registerable Securities Beneficially Owned by such Holder, then such Holder may transfer or assign its rights pursuant to this Agreement to such transferee or assignee.
(b) If a Holder transfers or assigns (A) 20% or more of the Registerable Securities issued on the Closing Date but less than all of the Registerable Securities issued on the Closing Date, then the transferee or assignee thereof shall be entitled to the rights granted to a Holder pursuant to this Agreement except those contained in Section 2.03 and (B) less than 20% of the Registerable Securities issued on the Closing Date, then the transferee or assignee thereof shall be entitled to the rights granted to a Holder pursuant to this Agreement except those contained in Sections 2.02 and 2.03.
(c) In the case of any such transfer or assignment where the transferee or assignee shall have any rights of a Holder hereunder, the Holder making such transfer or assignment must provide the Company written notice of any said transfer or assignment, stating the name and address of each such transferee or assignee and identifying the Registerable Securities Beneficially Owned thereby.
Section 2.11 Limitation on Subsequent Registration Rights. From and after the date hereof, the Company shall not, without the prior written consent of the Required Holders, enter into any agreement with any current or future holder of any equity securities of the Company that would allow such current or future holder to require the Company to include equity securities in any registration statement filed by the Company on a basis other than pari passu with, or expressly subordinated to the piggyback rights granted to the Holders pursuant to Section 2.02; provided, that in no event shall the Company enter into any agreement that would permit another holder of securities of the Company to participate on a superior or pari passu basis (in terms of priority of cut-back based on advice of Underwriters) with a Holder requesting registration or takedown in an Underwritten Offering pursuant to Section 2.03(a).
Section 2.12 Termination of Registration Rights. The rights to cause the Company to register Registrable Securities granted to the Required Holders by the Company under this Article II shall terminate upon the date on which all Registrable Securities no longer constitute Registrable Securities in accordance with Section 1.02.
ARTICLE III
MISCELLANEOUS
Section 3.01 Communications. All notices and other communications provided for or permitted hereunder shall be made in writing by electronic mail, courier service or personal delivery:
(a) if to Kimmeridge:
| | | | | | | | |
| c/o Kimmeridge Energy Management Company |
| 412 West 15th Street, 11th Floor |
| New York, New York 10011 |
| Attention: | Noam Lockshin | |
| Email: | noam.lockshin@kimmeridge.com |
With a copy to:
| | | | | | | | |
| c/o Kimmeridge Energy Management Company |
| 412 West 15th Street, 11th Floor |
| New York, New York 10011 |
| Attention: | Tamar Goldstein | |
| Email: | tamar.goldstein@kimmeridge.com |
With a copy to (which shall not constitute notice):
| | | | | | | | |
| c/o Sidley Austin LLP |
| 1000 Louisiana Street, Suite 5900 |
| Houston, Texas 77002 |
| Attention: | Irving L. Rotter | |
| George J. Vlahakos |
| Email: | irotter@sidley.com |
| gvlahakos@sidley.com |
(b) if to a transferee of Kimmeridge, to such Holder at the address provided pursuant to Section 2.10 above; and
(c) if to the Company:
| | | | | | | | | | | |
| Callon Petroleum Company | |
| 2000 W. Sam Houston Parkway S., Suite 2000 | |
| Houston, TX 77042 | | |
| Attention: | Michol L. Ecklund, Senior Vice President, General Counsel and Corporate Secretary |
| Email: | mecklund@callon.com |
| legal@callon.com | | |
With a copy to (which shall not constitute notice):
| | | | | | | | |
| c/o Kirkland & Ellis LLP |
| 609 Main Street |
| Houston, Texas 77002 |
| Attention: | Sean T. Wheeler, P.C. |
| Michael W. Rigdon |
| Email: | sean.wheeler@kirkland.com |
| michael.rigdon@kirkland.com |
All such notices and communications shall be deemed to have been received at the time delivered by hand, if personally delivered; when receipt acknowledged, if sent via electronic mail; and when actually received, if sent by courier service or any other means.
Section 3.02 Successor and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties, including subsequent Holders of Registrable Securities to the extent permitted herein.
Section 3.03 Assignment of Rights. The rights, interests or obligations of the Holders hereunder may not be transferred or assigned, by operation of law or otherwise, in whole or in part, by the Holders without the prior written consent of the Company, except in accordance with Section 2.10 hereof.
Section 3.04 Recapitalization, Exchanges, Etc. Affecting the Common Stock. The provisions of this Agreement shall apply to the full extent set forth herein with respect to any and all equity interests of the Company or any successor or assign of the Company (whether by merger, acquisition, consolidation, reorganization, sale of assets or otherwise) that may be issued in respect of, in exchange for or in substitution of, the Registrable Securities, and shall be appropriately adjusted for combinations, share splits, recapitalizations, pro rata distributions of shares and the like occurring after the date of this Agreement.
Section 3.05 Aggregation of Registrable Securities. All Registrable Securities held or acquired by Persons who are Affiliates of one another shall be aggregated together for the purpose of votingdetermining the availability of any rights under this Agreement.
Section 3.06 Specific Performance. Damages in the event of breach of this Agreement by a party hereto may be difficult, if not impossible, to ascertain, and it is therefore agreed that each such Person, in addition to and without limiting any other remedy or right it may have, shall have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach, and enforcing specifically the terms and provisions hereof, and each of the parties hereto hereby waives any and all defenses it may have on the Amendment have voted in favorground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. The existence of this Amendment.right shall not preclude any such Person from pursuing any other rights and remedies at law or in equity that such Person may have.
THIRDSection 3.07 : UponCounterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, including facsimile or .pdf counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the filingsame Agreement.
Section 3.08 Headings. The headings in this Agreement are for convenience of reference only and effectivenessshall not limit or otherwise affect the meaning hereof.
Section 3.09 Governing Law. This Agreement, including all issues and questions concerning its application, construction, validity, interpretation and enforcement, shall be construed in accordance with, and governed by, the laws of the State of New York without regard to the choice of law or conflicts of law.
Section 3.10 Waiver of Jury Trial. THE PARTIES TO THIS AGREEMENT EACH HEREBY WAIVE, AND AGREE TO CAUSE THEIR AFFILIATES TO WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. THE PARTIES TO THIS AGREEMENT EACH HEREBY AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE PARTIES TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
Section 3.11 Severability of Provisions. Any provision of this Amendment pursuantAgreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the DGCL,extent of such prohibition or unenforceability without invalidating the Certificate is hereby amendedremaining provisions hereof or affecting or impairing the validity or enforceability of such provision in any other jurisdiction.
Section 3.12 Entire Agreement. This Agreement and the Exchange Agreement are intended by amendingthe parties as a final expression of their agreement and restating the first sentence of Article Fourintended to be a complete and read as follows:exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or in the Exchange Agreement with respect to the rights granted by the Company set forth herein. This Agreement and the Exchange Agreement supersede all prior agreements and understandings between the parties with respect to such subject matter, including the Existing Registration Rights Agreement which shall terminate upon on the execution hereof, and in the event of a conflict between any such agreement or agreements and this Agreement, the terms of this Agreement shall prevail.
“The CorporationSection 3.13 Amendment. This Agreement may be amended only by means of a written amendment signed by the Company and the Required Holders; provided, however, that no such amendment shall materially and adversely affect the rights of any Holder hereunder without the prior written consent of such Holder.
Section 3.14 No Presumption. If any claim is made by a party relating to any conflict, omission or ambiguity in this Agreement, no presumption or burden of proof or persuasion shall be implied by virtue of the fact that this Agreement was prepared by or at the request of a particular party or its counsel.
Section 3.15 Obligations Limited to Parties to Agreement. Each of the parties hereto covenants, agrees and acknowledges that no Person other than the Required Holders (and its permitted transferees and assignees) and the Company shall have authority to issue two classes of stock, and the total number authorizedany obligation hereunder. No recourse under this Agreement or under any documents or instruments delivered in connection herewith or therewith shall be 78,750,000 shareshad against any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of Common Stock, par value $.01 per share,the Required Holders or any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate thereof, whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any applicable Law, it being expressly agreed and 2,500,000 sharesacknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of Preferred Stock, par value $.01 per share.the Required Holders or any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate thereof, as such, for any obligations of the Required Holders under this Agreement or any documents or instruments delivered in connection herewith or therewith or for any claim based on, in respect of or by reason of such obligation or its creation, except in each case for any transferee or assignee of a Required Holders hereunder.
Section 3.16 Interpretation. Article and Section references are to this Agreement, unless otherwise specified. All references to instruments, documents, contracts and agreements are references to such instruments,
documents, contracts and agreements as the same may be amended, supplemented and otherwise modified from time to time, unless otherwise specified. The words “include,” “includes” and “including” or words of similar import shall be deemed to be followed by the words “without limitation.” A term has the meaning assigned to it. Words in the singular include the plural, and words in the plural include the singular. The word “or” is not exclusive. The words “herein,” “hereof” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision. References to agreements or instruments, or to statutes or regulations, are to such agreements or instruments, or statutes or regulations, as amended from time to time (or to successor statutes and regulations). Whenever any determination, consent or approval is to be made or given by the Required Holders (and its transferees or assignees) under this Agreement, such action shall be in the Required Holder’s (and its transferees or assignees) sole discretion unless otherwise specified. Unless expressly set forth or qualified otherwise (e.g., by “Business” or “trading”), all references herein to a “day” are deemed to be a reference to a calendar day.
(Signature pages follow)
IN WITNESS WHEREOF, the undersigned has executedparties hereto execute this Amendment on behalfAgreement, effective as of the Corporation and has attested such execution and does verify and affirm, under penalty of perjury, that this Amendment is the act and deed of the Corporation and that the facts stated herein are true as of this [•] day of [•] 2021.date first above written.
Callon Petroleum Company
By:
Michol L. Ecklund, Corporate SecretaryCALLON PETROLEUM COMPANY
76
CHAMBERS INVESTMENTS, LLC
CALLON PETROLEUM
Signature Page to Registration Rights Agreement
VOTING AGREEMENT
THIS VOTING AGREEMENT (this “Agreement”) is made and entered into as of August 3, 2021 by and among Callon Petroleum Company, a Delaware corporation (the “Company”), and each of the undersigned stockholders listed on the signature page hereto (each, a “Stockholder” and collectively, the “Stockholders”) of the Company.
WHEREAS, the Company has entered into an Exchange Agreement on or about August 3, 2021 (the “Exchange Agreement”), pursuant to which the Company will issue to Chambers Investments, LLC, a Delaware limited liability company (“Kimmeridge”), in exchange for certain principal amounts of the Company’s 9.00% Second Lien Senior Secured Notes due 2025 held by Kimmeridge, new shares of common stock, par value $0.01, of the Company (the “Exchange”).
WHEREAS, each Stockholder has agreed that certain shares of the Company’s common stock (“Company Common Stock”) owned by it shall be subject to the terms and conditions of this Agreement.
NOW, THEREFORE, intending to be legally bound, the parties hereto hereby agree as follows:
1. Certain Definitions. Capitalized terms that are used but not otherwise defined herein shall have the respective meanings ascribed to them in the Exchange Agreement. For purposes of this Agreement, the following terms shall have the following respective meanings:
(a) “Affiliate” shall mean, with respect to a specified Person, any other Person, directly or indirectly Controlling or Controlled by or under direct or indirect common Control with such specified Person.
(b) “Control,” “Controlling” or “Controlled” means, as to a specified Person, the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.
(c) “Beneficially Own” shall have the meaning assigned to such term in Rule 13d-3 under the Securities Exchange Act of 1934, as amended, and any Person’s beneficial ownership of securities shall be calculated in accordance with the provisions of such Rule.
(d) “Expiration Time” shall mean the earlier to occur of (i) such date and time as the Exchange Agreement shall have been terminated in accordance with its terms, and (ii) the Exchange.
(e) “Person” shall mean any individual, corporation, limited liability company, general or limited partnership, business trust, unincorporated association or other business organization or entity, or any governmental body or authority.
(f) “Shares” shall mean any and all voting securities of the Company beneficially owned (however held or titled, and including joint ownership) by the Stockholder as of the record date (whether now owned or hereafter acquired) for every meeting of stockholders of the Company called with respect to the Proposal (as defined below), and every postponement or adjournment thereof.
(g) Transfer. A Person shall be deemed to have effected a “Transfer” of a security if such person directly or indirectly (i) sells, pledges, encumbers, grants an option with respect to, transfers or disposes of such security or any interest in such security, or (ii) enters into an agreement or commitment providing for the sale of, pledge of, encumbrance of, grant of an option with respect to, transfer of or disposition of such security or any interest therein.
2. Voting Restrictions. Each Stockholder hereby agrees that, other than pursuant to the terms of this Agreement, at all times during the period commencing with the execution and delivery of the Exchange Agreement and continuing until the Expiration Time, each Stockholder shall not, directly or indirectly, grant any proxies or enter into any voting trust or other agreement or arrangement that would transfer, limit or otherwise affect the rights of the Stockholder with respect to the voting of any Shares in respect of the Proposal (as defined below).
3. Agreement to Vote Shares. Each Stockholder hereby, each separately, agrees with the Company that, at all times during the period commencing with the execution and delivery of the Exchange Agreement and continuing until the Expiration Time, the Stockholder shall (a) when a meeting of the stockholders of the Company is called to present the Exchange for a vote of the stockholders (whether or not an adjourned or postponed meeting), appear at such meeting or otherwise cause any shares of Company Common Stock Beneficially Owned by such Stockholder to be counted as present thereat for the purpose of establishing a quorum and (b) with respect to any meeting at which a vote of the Company’s stockholders is requested, vote, or cause to be voted at such meeting, all shares of Company Common Stock Beneficially Owned by such Stockholder or any of its Affiliates (including by proxy or written consent, if applicable) (i) in favor of any proposal (the “Proposal”) to approve the Exchange and in favor of any other matter presented or proposed that is related to the Exchange in accordance with the terms and conditions set forth in the Exchange Agreement, (ii) against any other proposal, transaction, agreement or other action inconsistent with or made in opposition to approval of the Exchange and (iii) in favor of any proposal to adjourn or postpone such stockholder meeting to a later date if there are not sufficient votes to approve the Exchange. Prior to the Expiration Time, each Stockholder shall not enter into any agreement or understanding with any person to vote or give instructions in any manner inconsistent with the terms of this Agreement. The provisions of this Section 3 shall apply to all Shares owned as of the record date for the vote on the Proposal (the “Record Date”), regardless of whether a Transfer of some or all of such Shares occurs after the Record Date.
4. Irrevocable Proxy. Each Stockholder hereby, each separately, appoints the Company and any designee of the Company (determined in the Company’s sole discretion) as its proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of such Stockholder, to vote or cause to be voted (including by proxy or written consent, if applicable) its shares of Company Common Stock to approve the Exchange at any such meeting of the Company’s stockholders in accordance with Section 3 hereof. This proxy is given to secure the performance of the duties of each Stockholder under this Agreement. Each Stockholder shall take such further action or execute such other instruments as may be necessary to effectuate the intent of this proxy. The proxy and power of attorney granted pursuant to Section 4 by each Stockholder shall be irrevocable during the term of this Agreement, shall be deemed to be coupled with an interest sufficient in law to support an irrevocable proxy and shall revoke any and all prior proxies granted by such Stockholder. The power of attorney granted by each Stockholder herein is a durable power of attorney and shall survive the bankruptcy, death or incapacity of such Stockholder. The proxy and power of attorney granted hereunder shall terminate upon the termination of this Agreement.
5. Representations and Warranties of the Stockholders. Each Stockholder hereby represents and warrants, severally and not jointly, to the Company that this Agreement has been duly and validly executed and delivered by such Stockholder and (assuming due authorization, execution and delivery of this Agreement by the Company) constitutes the valid and binding obligation of such Stockholder, enforceable against such Stockholder in accordance with its terms, except as enforcement may be limited by general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors’ rights and remedies generally.
6. Termination. This Agreement shall terminate and be of no further force or effect whatsoever upon the Expiration Time without any action on the part of any party hereto.
7. Miscellaneous.
(a) Waiver. No waiver by any party hereto of any condition or any breach of any term or provision set forth in this Agreement shall be effective unless in writing and signed by each party hereto. The waiver of a condition or any breach of any term or provision of this Agreement shall not operate as, or
be construed to be, a waiver of any other previous or subsequent breach of any term or provision of this Agreement.
(b) Severability. In the event that any term, provision, covenant or restriction set forth in this Agreement, or the application of any such term, provision, covenant or restriction to any person, entity or set of circumstances, shall be determined by a court of competent jurisdiction to be invalid, unlawful, void or unenforceable to any extent, the remainder of the terms, provisions, covenants and restrictions set forth in this Agreement, and the application of such terms, provisions, covenants and restrictions to persons, entities or circumstances other than those as to which it is determined to be invalid, unlawful, void or unenforceable, shall remain in full force and effect, shall not be impaired, invalidated or otherwise affected and shall continue to be valid and enforceable to the fullest extent permitted by applicable law.
(c) Binding Effect; Assignment. This Agreement and all of the terms and provisions hereof shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and permitted assigns, but, except as otherwise specifically provided herein, neither this Agreement nor any of the rights, interests or obligations of the Stockholders may be assigned to any other Person without the prior written consent of the Company.
(d) Amendments. This Agreement may not be modified, amended, altered or supplemented, except upon the execution and delivery of a written agreement executed by each of the parties hereto; provided that any amendment to an agreement between a specific party and the Company contained herein shall only require the consent of such parties and not all parties hereto.
(e) Specific Performance; Injunctive Relief. Each of the parties hereto hereby acknowledge that (i) the representations, warranties, covenants and restrictions set forth in this Agreement are necessary, fundamental and required for the protection of the Company and to preserve for the Company the benefits of the Exchange, (ii) such covenants relate to matters which are of a special, unique, and extraordinary character that gives each such representation, warranty, covenant and restriction a special, unique, and extraordinary value, and (iii) a breach of any such representation, warranty, covenant or restriction, or any other term or provision of this Agreement, will result in irreparable harm and damages to the Company which cannot be adequately compensated by a monetary award. Accordingly, the Company and each Stockholder hereby expressly agree that in addition to all other remedies available at law or in equity, the Company shall be entitled to the immediate remedy of specific performance, a temporary and/or permanent restraining order, preliminary injunction, or such other form of injunctive or equitable relief as may be used by any court of competent jurisdiction to restrain or enjoin any of the parties hereto from breaching any representations, warranties, covenants or restrictions set forth in this Agreement, or to specifically enforce the terms and provisions hereof.
(f) Governing Law. This Agreement shall be governed by and construed, interpreted and enforced in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision, rule or principle (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.
(g) Entire Agreement. This Agreement and the other agreements referred to in this Agreement set forth the entire agreement and understanding of the Company and the Stockholders with respect to the subject matter hereof and thereof, and supersede all prior discussions, agreements and understandings between the Company and the Stockholders, both oral and written, with respect to the subject matter hereof and thereof.
(h) Notices. All notices and other communications pursuant to this Agreement shall be in writing and deemed to be sufficient if contained in a written instrument and shall be deemed given if delivered personally, telecopied, sent by nationally-recognized overnight courier or mailed by registered or certified mail (return receipt requested), postage prepaid, to the respective parties at the following address (or at such other address for a party as shall be specified by like notice):
(i) If to the Company, to:
| | | | | | | | | | | |
| Callon Petroleum Company | |
| One Briarlake Plaza | |
| 2000 W. Sam Houston Parkway S., Suite 2000 | |
| Houston, Texas | | | |
| Attention: | Michol Ecklund, Senior Vice President, General Counsel and Corporate Secretary |
| Email: | mecklund@callon.com |
| legal@callon.com | | |
with a copy to, which shall not constitute notice to the Company:
| | | | | | | | |
| Kirkland & Ellis LLP |
| 609 Main St |
| Houston, TX 77002 |
| Attention: | Sean T. Wheeler | |
| Michael W. Rigdon |
| Email: | sean.wheeler@kirkland.com |
| michael.rigdon@kirkland.com |
(ii) If to a Stockholder, such holder shall provide separately to the Company.
(i) Headings. The section headings set forth in this Agreement are for convenience of reference only and shall not affect the construction or interpretation of this Agreement in any manner.
(j) Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be validly executed by a duly authorized officer thereof as of the date first above written.
| | | | | | | | | | | |
| CALLON PETROLEUM COMPANY | |
| | | |
| | | |
| By: | | |
| Name: | | |
| Title: | | |
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be validly executed as of the date first above written.
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| Joseph C. Gatto, Jr. | | S. P. Johnson IV | |
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| Jeffrey S. Balmer | | Larry D. McVay | |
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| Kevin Haggard | | Anthony J. Nocchiero | |
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| Michol L. Ecklund | | James M. Trimble | |
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| Gregory F. Conaway | | Steven A.Webster | |
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| Frances Aldrich Sevilla-Sacasa | | | |
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| Matthew R. Bob | | | |
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| Barbara J. Faulkenberry | | | |
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| Michael L. Finch | | | |
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| L. Richard Flury | | | |
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| CALLON PETROLEUM COMPANY |
ANNUALSPECIAL MEETING OF SHAREHOLDERS |
May 14,NOVEMBER 3, 2021, AT 9:00 AMA.M. CDT |
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| SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CALLON PETROLEUM COMPANY |
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The undersigned hereby appoints Michol L. Ecklund, as proxy with full power of substitution and re-substitution, to vote all shares of Common Stock of Callon Petroleum Company that the undersigned is entitled to vote at the AnnualSpecial Meeting of Shareholders thereof to be held atin the Wishmaker BallroomConversation Salon meeting room of the Hotel ZaZa Memorial City, 9787 Katy Freeway, Houston, Texas 77024 on May 14,November 3, 2021, or at any adjournment or postponement thereof, as follows:
ALL SHARES WILL BE VOTED AS DIRECTED HEREIN AND, UNLESS OTHERWISE DIRECTED, WILL BE VOTED “FOR” THE ISSUANCE PROPOSAL, 1 (ALL NOMINEES), “FOR” PROPOSAL 2, “FOR” PROPOSAL 3, AND "FOR" PROPOSAL 4, AND IN ACCORDANCE WITH THE DISCRETION OF THE PERSON VOTING THE PROXY WITH RESPECT TO ANY OTHER BUSINESS PROPERLY BROUGHT BEFORE THE MEETING OR AT ANY ADJOURNMENT OR POSTPONEMENT THEREOF. The undersigned shareholder further hereby ratifies all that the said proxy may do by virtue hereof. If any nominee named on the reverse side is unable to serve or for good cause will not serve as a director, the person named as proxy shall have the authority to vote for any other person who may be nominated at the instruction and discretion of the Board of Directors or an authorized committee thereof.
The undersigned shareholder hereby revokes any other proxy heretofore executed by the undersigned for the AnnualSpecial Meeting and acknowledges receipt of the Notice of the 2021 AnnualSpecial Meeting of Shareholders and Proxy Statement dated April 9, 2021 and the Annual Report to Shareholders furnished in connection therewith.October 5, 2021.
You are encouraged to specify your choice by marking the appropriate box (SEE REVERSE SIDE), but you need not mark any box if you wish to vote in favor. |
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| (CONTINUED AND TO BE SIGNED ON REVERSE SIDE) |
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| | PLEASE DETACH ALONG PERFORATED LINE AND MAIL IN THE ENVELOPE PROVIDED. | | |
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| IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUALSPECIAL MEETING OF SHAREHOLDERS TO BE HELD MAY 14,NOVEMBER 3, 2021. | |
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| THE PROXY STATEMENT IS AVAILABLE AT: | |
| HTTP:http://WWW.VIEWPROXY.COM/CALLONPETROLEUM/2021www.viewproxy.com/CallonPetroleum/2021SM | |
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| | | | | | | | | | | | | Please mark votes as in this example | ý |
| THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” PROPOSALS 1, 2, 3, and 4. |
| 1. | Election of Directors: | | 3 | The ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021. |
| | | | | | FOR ALL | | WITHHOLD
ALL | | FOR ALL
EXCEPT | |
| 01 | Barbara J. Faulkenberry | ¨
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| FOR | ¨
| AGAINST | ¨
| ABSTAIN |
| 02 | L. Richard Flury | | | | | | ¨ | 4. | The approval of an amendment to the Company’s certificate of incorporation in the form attached to the accompanying Proxy Statement as Appendix B to increase the number of authorized shares of our common stock. |
| 03 | Joseph C. Gatto, Jr. | | | | | | ¨ | |
| 04 | Frances Aldrich Sevilla-Sacasa | | | | ¨
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| 2. | The approval, by non-binding advisory vote, of the compensation of our named executive officers. | | | | ¨ | FOR | ¨ | AGAINST | ¨ | ABSTAIN |
| ¨ | FOR | ¨ | AGAINST | ¨ | ABSTAIN | | | | | | | | | |
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| | | | | | | | | | | MARK “X” HERE IF YOU PLAN TO ATTEND THE MEETING: | ¨ |
| | | | | | | | | | Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. |
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| | DO NOT PRINT IN THIS AREA
(Shareholder Name & Address Data)
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| | | Date: | |
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| | | Signature (if held jointly) | | | | | |
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Address Change/Comments: (If you noted any Address Changes and/or Comments above, please mark box.) ¨ | | | | | | | CONTROL NUMBER | |
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| | | PLEASE DETACH ALONG PERFORATED LINE AND MAIL IN THE ENVELOPE PROVIDED. | | |
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| | | | | | | | | | | | | Please mark votes like this | ý |
| THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ISSUANCE PROPOSAL. |
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| 1. | The approval of the issuance to Chambers Investments, LLC of 5,512,623 shares of common stock, par value $0.01, of the Company: | | | | | | | | | |
| ¨ | FOR | ¨ | AGAINST | ¨ | ABSTAIN | | | | | | | | | | | |
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| | | | | | | | | | | MARK “X” HERE IF YOU PLAN TO ATTEND THE MEETING: | ¨ |
| | | | | | | | | | Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. |
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| | DO NOT PRINT IN THIS AREA
(Shareholder Name & Address Data)
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| | | Date: | |
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| | | | Signature | | | | | | |
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| | | Signature (if held jointly) | | |
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Address Change/Comments: (If you noted any Address Changes and/or Comments above, please mark box.) ¨ | | | | | | | | | |
| | | CONTROL NUMBER | | | | | | |
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| PLEASE DETACH ALONG PERFORATED LINE AND MAIL IN THE ENVELOPE PROVIDED. | |
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| | | | | | | | CONTROL NUMBER | | | |
| | | SCAN TO VIEW MATERIALS & VOTE | | | | | | |
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| | | PROXY VOTING INSTRUCTIONS | | | |
| Please have your 11 digit control number ready when voting by Internet or Telephone. |
| If you vote by phone, fax or Internet, please DO NOT mail your proxy card. |
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| INTERNET | | TELEPHONE | | MAIL | |
| Vote Your Proxy on the Internet: | | Vote Your Proxy by Phone: | | Vote Your Proxy by Mail: | |
| Go to www.AALVote.com/CPE http://www.aalvote.com/CPESM | | Call 1 (866) 804-9616 | | | |
| Have your proxy card available when you access the above website. Follow the prompts to vote your shares. | | Use any touch-tone telephone to vote your proxy. Have your proxy card available when you call. Follow the voting instructions to vote your shares. | | Mark, sign, and date your proxy card, then detach it, and return it in the postage-paid envelope provided. | |
