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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by Rule
(14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
CALLON PETROLEUM COMPANY
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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CALLON PETROLEUM COMPANY
200 NORTH CANAL STREET
NATCHEZ, MISSISSIPPI 39120
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, JUNE 19, 1997
TO THE SHAREHOLDERS OF
CALLON PETROLEUM COMPANY (THE "COMPANY"):
Notice is hereby given that the Annual Meeting of Shareholders (the
"Annual Meeting") of the Company will be held in Natchez, Mississippi on
Thursday, June 19, 1997, at 10:00 a.m., at the headquarters of the Company, 200
North Canal Street, Natchez, Mississippi 39120, for the following purposes:
1. To elect two Class III directors to hold office until the 2000
Annual Meeting of Shareholders.
2. To consider and vote upon the Callon Petroleum Company 1996 Stock
Incentive Plan.
3. To consider and vote upon the Callon Petroleum Company 1997
Employee Stock Purchase Plan.
4. To ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the fiscal year ending December
31, 1997.
5. To transact such other business as may properly come before the
Annual Meeting or any adjournment or adjournments thereof.
Shareholders of record at the close of business on April 25, 1997 will be
entitled to notice of and to vote at the Annual Meeting, or any adjournment or
adjournments thereof.
Shareholders are cordially invited to attend the Annual Meeting in person.
Those individuals who will not attend and who wish their shares voted are
requested to sign, date and mail promptly the enclosed proxy for which a
postage-prepaid return envelope is provided.
By Order of the Board of Directors
H. Michael Tatum
SECRETARY
Natchez, Mississippi
May 21, 1996
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU CANNOT
ATTEND, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY
IN THE RETURN ENVELOPE ENCLOSED FOR YOUR USE. NO POSTAGE IS REQUIRED IF THE
ENVELOPE IS MAILED IN THE UNITED STATES.
PROXY STATEMENT
------------------------
CALLON PETROLEUM COMPANY
200 NORTH CANAL STREET
NATCHEZ, MISSISSIPPI 39120
(601) 442-1601
------------------------
ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, JUNE 19, 1997
------------------------
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Callon Petroleum Company, a
Delaware corporation (the "Company"), from holders ("Shareholders") of the
common stock, $.01 par value per share ("Common Stock"), of the Company for
use at the Annual Meeting of Shareholders of the Company to be held on Thursday,
June 19, 1997, at 10:00 a.m., at the Company's principal executive offices
located at 200 North Canal Street, Natchez, Mississippi 39120, and at any
adjournment or adjournments thereof (such meeting or adjournment thereof is
referred to herein as the "Annual Meeting"), for the purpose of considering
and voting upon the matters set forth in the accompanying Notice of Annual
Meeting of Shareholders ("Notice").
A proxy in the form accompanying this Proxy Statement (each a "Proxy"),
when properly executed and returned, will be voted in accordance with the
directions specified on the Proxy, and otherwise in accordance with the judgment
of the persons designated therein as proxies. Any Proxy which does not withhold
authority to vote or on which no other instructions are given will be voted for
the election of the nominees named herein to the Board of Directors and in favor
of the other proposals set forth in the Notice. Any Proxy may be revoked at any
time before it is exercised by delivering, to the Secretary of the Company,
written notice of revocation or by duly executing a Proxy bearing a later date,
or by voting in person at the Annual Meeting.
This Proxy Statement and the accompanying Notice and form of Proxy are
being mailed to Shareholders on or about May 21, 1997. The Annual Report to
Shareholders for the Company's fiscal year ended December 31, 1996 is also being
mailed to Shareholders contemporaneously with this Proxy Statement, although the
Annual Report does not form a part of the material for the solicitation of
Proxies.
Proxies will be solicited primarily by mail, but employees of the Company
may also solicit Proxies in person or by telephone. Arrangements may be made
with brokerage firms or other custodians, nominees, and fiduciaries to send
Proxy materials to the beneficial owners of the Common Stock of the Company. All
costs incurred in the solicitation of Proxies will be borne by the Company.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
Unless otherwise indicated, proxies in the form enclosed that are properly
executed, duly returned and not revoked will be voted in favor of:
(1) the election of the two Class III director nominees to the Board
of Directors named herein;
(2) the adoption of the Callon Petroleum Company 1996 Stock Incentive
Plan;
(3) the adoption of the Callon Petroleum Company 1997 Employee Stock
Purchase Plan; and
(4) the ratification of the appointment of Arthur Andersen LLP as the
Company's independent public accountants for the fiscal year ending
December 31, 1997.
The Board of Directors is not presently aware of other proposals that may
be brought before the Annual Meeting. In the event other proposals are brought
before the Annual Meeting, the persons named in the enclosed form of proxy will
vote in accordance with what they consider to be in the best interests of the
Company and its Shareholders.
VOTING REQUIREMENTS
The Board of Directors has fixed the close of business on April 25, 1997 as
the record date (the "Record Date") for the determination of Shareholders
entitled to notice of, and to vote at, the Annual Meeting. A complete list of
all Shareholders entitled to vote at the Annual Meeting will be open for
examination by any Shareholder during normal business hours for a period of ten
days prior to the Annual Meeting at the offices of the Company, 200 North Canal
Street, Natchez, Mississippi 39120. Such list will also be available at the
Annual Meeting and may be inspected by any Shareholder who is present. At the
Record Date, the Company's outstanding voting securities consisted of 5,763,407
shares of Common Stock. Holders of Common Stock will be entitled to one vote per
share of Common Stock held of record on the Record Date for each proposal to be
presented at the Annual Meeting.
QUORUM AND OTHER MATTERS
The holders of a majority of the total shares of Common Stock issued and
outstanding, whether present in person or represented by proxy, will constitute
a quorum for the transaction of business at the Annual Meeting. The election of
directors requires the favorable vote of the holders of a plurality of shares of
Common Stock present and voting, in person or by proxy, at the Annual Meeting.
Abstentions and broker non-votes have no effect on determinations of plurality
except to the extent that they affect the total votes received by any particular
candidate. A majority of the votes represented by the Shareholders present at
the Annual Meeting, in person or by proxy, is necessary for approval of the
Callon Petroleum Company 1996 Stock Incentive Plan (the "1996 Plan"), approval
of the Callon Petroleum Company 1997 Employee Stock Purchase Plan (the "1997
Purchase Plan") and ratification of the Company's independent public
accountants. With respect to abstentions and broker non-votes, the shares will
not be considered present at the Annual Meeting for this matter (except for
quorum purposes) so that abstentions and broker non-votes will have the
practical effect of reducing the number of affirmative votes required to achieve
a majority vote by reducing the total number of shares from which the majority
is calculated.
2
BENEFICIAL OWNERSHIP OF SECURITIES
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 25, 1997, certain information
with respect to the ownership of shares of Common Stock and the Company's $2.125
Convertible Exchangeable Preferred Stock ("Preferred Stock") as to (i) all
persons known by the Company to be the beneficial owners of 5% or more of the
outstanding Common Stock, (ii) each director, (iii) each nominee for director,
(iv) each of the executive officers named in the Summary Compensation Table, and
(v) all executive officers and directors of the Company as a group. Information
set forth in the table with respect to beneficial ownership of Common Stock and
Preferred Stock has been obtained from filings made by the named beneficial
owners with the Securities and Exchange Commission ("Commission") as of the
Record Date or, in the case of executive officers and directors of the Company,
has been provided to the Company by such individuals. Holders of Preferred Stock
are not entitled to vote at the Annual Meeting.
COMMON STOCK PREFERRED STOCK
----------------------- ---------------------
AMOUNT AND AMOUNT AND
NAME AND NATURE OF PERCENT NATURE OF PERCENT
ADDRESS OF BENEFICIAL OF BENEFICIAL OF
BENEFICIAL OWNER(a) OWNERSHIP CLASS OWNERSHIP CLASS
- ------------------------------------- ---------- ------- ---------- -------
DIRECTORS:
John S. Callon.................. 292,040(b) 4.99% -- --
Fred L. Callon.................. 664,416(c) 11.34% -- --
200 North Canal Street
P. O. Box 1287
Natchez, Mississippi 39120
Dennis W. Christian............. 74,000(d) 1.27% -- --
Robert A. Stanger............... 20,856(e) * -- --
John C. Wallace................. 2,007,883(f) 34.72% -- --
65 Vincent Square
London, SWI 2RX, England
B. F. Weatherly................. 2,005,125(g) 34.67% -- --
9603 Doliver Street
Houston, Texas 77063
Richard O. Wilson............... 2,008,531(h) 34.72% 1,000 *
674 Shartle Circle
Houston, Texas 77024
NAMED EXECUTIVE OFFICERS:
John S. Weatherly............... 73,896(i) 1.27% -- --
Kathy G. Tilley................. 41,147(j) * -- --
DIRECTORS AND EXECUTIVE
OFFICERS AS A GROUP (10 PERSONS)... 3,246,378(k) 51.97% 1,000 *
CERTAIN BENEFICIAL OWNERS:
NOCO Enterprises, L.P........... 1,984,758(l) 34.44% -- --
6814 Northampton Way
Houston, Texas 77055
Wellington Management
Company, LLP................. 607,704(m) 9.61% 247,690 18.83
75 State Street
Boston, Massachusetts 02109
(FOOTNOTES ON FOLLOWING PAGE)
3
- ------------
* less than 1%
(a) Unless otherwise indicated, each of the above persons may be deemed to have
sole voting and dispositive power with respect to such shares.
(b) Of the 292,040 shares beneficially owned by John S. Callon, 97,040 are
owned directly by him, and he has sole voting and dispositive power over
such shares, 105,000 shares are held in a family limited partnership, and
90,000 shares are subject to options under the Company's 1994 Stock
Incentive Plan ("1994 Plan") exercisable within 60 days. Shares indicated
as owned by John S. Callon do not include shares of Common Stock owned by
NOCO Enterprises, L.P. ("NOCO") and shares of Common Stock owned by
certain other members of the Callon Family, including 61,837 shares owned
by John S. Callon's wife and over which he disclaims beneficial ownership.
Under the terms of a Stockholders' Agreement among the Callon Family and
NOCO dated September 16, 1994 ("Stockholders' Agreement"), John S. Callon
and the other members of the Callon Family have the right of first refusal
to acquire shares of Common Stock proposed to be sold by NOCO under certain
circumstances and all parties to the Stockholders' Agreement have agreed to
support two directors nominated by the Callon Family and two directors
nominated by NOCO. John S. Callon disclaims beneficial ownership of the
NOCO shares.
(c) Of the 664,416 shares beneficially owned by Fred L. Callon, 201,556 shares
are owned directly by him; 268,016 shares are held by him as custodian for
certain minor Callon Family members; 78,430 shares are held by him as
trustee of certain Callon Family trusts; 80,000 shares are subject to
options under the 1994 Plan exercisable within 60 days; 15,000 shares are
subject to options under the 1996 Plan exercisable within 60 days; and
21,414 shares are held by Fred L. Callon as trustee of shares held by the
Callon Petroleum Company Employee Savings and Protection Plan. Shares
indicated as owned by Fred L. Callon do not include shares of Common Stock
owned by NOCO and shares of Common Stock owned by other members of the
Callon Family, including 25,009 shares owned by Fred L. Callon's wife over
which he disclaims beneficial ownership. Under the terms of the
Stockholders' Agreement, Fred L. Callon and the other members of the Callon
Family have the right of first refusal to acquire shares of Common Stock
proposed to be sold by NOCO under certain circumstances and all parties to
the Stockholders' Agreement have agreed to support two directors nominated
by the Callon Family and two directors nominated by NOCO. Fred L. Callon
disclaims beneficial ownership of these shares.
(d) Includes 60,000 shares subject to options under the 1994 Plan and 14,000
shares subject to options under the 1996 Plan, all of which are exercisable
within 60 days.
(e) Includes 15,000 shares subject to options under the 1994 Plan and 5,000
shares subject to options under the 1996 Plan, all of which are exercisable
within 60 days.
(f) Includes 15,000 shares subject to options under the 1994 Plan and 5,000
shares subject to options under the 1996 Plan, all of which are exercisable
within 60 days, and 1,984,758 shares owned by NOCO. See note (1) below.
(g) Includes 15,000 shares subject to options under the 1994 Plan and 5,000
shares subject to options under the 1996 Plan, all of which are exercisable
within 60 days, and 1,984,758 shares owned by NOCO. See note (1) below.
(h) Includes 15,000 shares subject to options under the 1994 Plan and 5,000
shares subject to options under the 1996 Plan, all of which are exercisable
within 60 days, 2,273 shares issuable upon conversion of 1,000 shares of
Preferred Stock and 1,984,758 shares owned by NOCO (see note (1) below).
(i) Includes 217 shares which are held by Mr. Weatherly as custodian for his
minor children and 60,000 shares which are subject to options under the
1994 Plan and 13,000 shares which are subject to options under the 1996
Plan, all of which are exercisable within 60 days.
(j) Includes 30,000 shares subject to options under the 1994 Plan and l1,000
shares subject to options under the 1996 Plan, all of which are exercisable
within 60 days.
(k) Includes 405,000 shares subject to options under the 1994 Plan and 76,000
shares subject to options under the 1996 Plan, all of which are exercisable
within 60 days.
(l) The sole limited partner of NOCO is NOCO Holdings, L.P., and the sole
general partner of NOCO is NOCO Properties Inc., a wholly-owned subsidiary
of NOCO Holdings, L.P. The general partner of NOCO Holdings, L.P. is NOCO
Management, Ltd., a limited liability company. The management of NOCO
Management, Ltd. is vested in its four members: John C. Wallace, Barry I.
Meade, B. F. Weatherly and Richard O. Wilson. The address of NOCO Holdings,
L.P. and NOCO Management, Ltd. is the same as that listed above for NOCO.
Mr. Wallace's address is 65 Vincent Square, London England SWIP 2RY. Mr.
Meade's address is 6814 Northampton Way, Houston, Texas 77055. Mr.
Weatherly's address is 9603 Doliver Street, Houston, Texas 77063. Mr.
Wilson's address is 674 Shartle Circle, Houston, Texas 77024. Messrs.
Wallace, Meade and Weatherly also serve as officers of NOCO Management,
Ltd. NOCO Properties Inc. and NOCO Management, Ltd. may be deemed to be the
beneficial owner of the Common Stock to be held by NOCO as a result of
their respective general partner interests in NOCO and NOCO Holdings, L.P.
As a result of their positions with NOCO Management, Ltd., Messrs. Wallace,
Meade, Weatherly and Wilson may be deemed to share the power to vote and
dispose of such Common Stock and thereby to be the beneficial owner of such
Common Stock. Under the terms of the Stockholders' Agreement, NOCO has the
right of first refusal to acquire shares of Common Stock proposed to be
sold by members of the Callon Family under certain circumstances and all
parties to the Stockholders' Agreement have agreed to support two directors
nominated by the Callon Family and two directors nominated by NOCO. NOCO
disclaims beneficial ownership of the shares owned by members of the Callon
Family. Because of the Stockholders' Agreement, NOCO and members of the
Callon Family may be deemed to be a "group" for purposes of beneficial
ownership under Commission regulations. If such a group were deemed to
exist, it would beneficially own over 60% of the Common Stock.
(m) Includes 563,000 shares issuable upon conversion of 247,690 shares of
Preferred Stock.
4
Pursuant to a consolidation in which certain of the Company's predecessor
entities were merged into the Company effective September 16, 1994
("Consolidation"), John S. Callon, Fred L. Callon and other non-employee
members of the Callon Family exchanged all of the outstanding stock of Callon
Petroleum Operating Company ("Callon Petroleum Operating") for an aggregate of
1,892,278 shares of Common Stock of the Company. Certain Callon Family members
also converted units of limited partnership interest ("Units") in Callon
Consolidated Partners, L.P. ("CCP") into an aggregate of 9,635 shares of
Common Stock, representing one-third of a share of Common Stock for each Unit.
Of the 1,796,827 shares owned by the Callon Family, 292,040 are owned by John S.
Callon (see note (b) above) and 664,416 are owned by Fred L. Callon (see note
(c) above). As a result of the Stockholders' Agreement, the Callon Family, and
the Callon Family and NOCO, may be deemed to from a "group" for purposes of
beneficial ownership under Commission regulations (see note (l) above). The
Callon Family disclaims beneficial ownership of the Common Stock owned by NOCO.
In addition, each Callon Family Shareholder disclaims beneficial ownership of
all shares of Common Stock owned by the other Callon Family Shareholders and the
existence of a group comprised of the Callon Family Shareholders. If such a
group were deemed to exist, it would beneficially own 30.21% of the Common
Stock.
PROPOSAL I
ELECTION OF DIRECTORS
NOMINEES
The Company's Certificate of Incorporation provides for a classified Board
of Directors. The Board of Directors is divided into three classes of nearly
equal size, designated as Class I (currently with three directors), Class II
(currently with two directors) and Class III (currently with two directors).
Initially, directors in each class were elected to hold office for terms of one
year, two years and three years, respectively. Upon the date of each annual
meeting after such initial classification, directors elected to succeed those
directors whose terms expire serve for a term which expires on the date of the
third succeeding annual meeting of shareholders after their election.
The terms of the two Class III directors, Messrs. Fred L. Callon and Dennis
W. Christian, will expire on the date of the Annual Meeting. Messrs. Fred L.
Callon and Dennis W. Christian (the "Nominees") have been nominated to serve
as Class III directors until the 2000 Annual Meeting and until their respective
successors have been duly elected and qualified. Mr. Fred L. Callon, who is
currently serving as a Class III director as described above, was nominated to
be elected director by the Callon Family, and to serve as representative of such
party under the terms of the Stockholders' Agreement which entitles each of the
Callon Family and NOCO to designate two directors. See "Stockholders'
Agreement." Mr. Christian was nominated by the Board of Directors.
It is intended that all shares of Common Stock represented by the Proxies
will be voted for the election of the Nominees, except where authority to vote
in the election of directors has been withheld. Should the Nominees become
unable or unwilling to serve as directors at the time of the Annual Meeting, the
person or persons exercising the Proxies will vote for the election of
substitute Nominees designated by the Board of Directors, or the Board of
Directors may choose to reduce the number of members of the Board of Directors
to be elected at the Annual Meeting in order to eliminate the vacancy. The
Nominees have consented to be nominated and have expressed their intention to
serve if elected. The Board of Directors has no reason to believe that the
Nominees will be unable or unwilling to serve if elected. Only the Nominees or
substitute Nominees designated by the Board of Directors will be eligible to
stand for election as directors at the Annual Meeting. See "Shareholders'
Proposals for 1998 Annual Meeting."
5
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information with respect to the Nominees and
all current directors whose terms will continue after the Annual Meeting and
present executive officers of the Company. Each executive officer has been
elected to serve until his or her successor is duly appointed or elected by the
Board of Directors or their earlier removal or resignation from office.
COMPANY
NAME AGE POSITION SINCE PRESENT COMPANY POSITION
---- --- -------------- ------------------------
CLASS I DIRECTORS
(TERM EXPIRES IN 1998):
- -----------------------
Robert A. Stanger 57 1995 Director
John C. Wallace 58 1994 Director
Richard O. Wilson 67 1995 Director
CLASS II DIRECTORS
(TERM EXPIRES IN 1999):
- -----------------------
John S. Callon 77 1994 Director; Chairman of the Board
B. F. Weatherly 52 1994 Director
CLASS III DIRECTORS
(TERM EXPIRES IN 1997):
- -----------------------
Fred L. Callon 47 1994 Director; President; Chief Executive Officer
Dennis W. Christian 50 1994 Director; Senior Vice President; Chief Operating
Officer
OTHER EXECUTIVE OFFICERS:
H. Michael Tatum 68 1994 Vice President; Secretary
Kathy G. Tilley 51 1996 Vice President
John S. Weatherly 45 1994 Senior Vice President; Chief Financial Officer;
Treasurer
The following is a brief description of the background and principal
occupation of each director (including each Nominee) and executive officer:
John S. Callon, 77, is Chairman of the Board of Directors of the Company
and Callon Petroleum Operating. Effective January 2, 1997, John S. Callon
retired from his position as Chief Executive Officer of the Company. Mr. Callon
founded the Company's predecessors in 1950, and has held an executive office
with the Company or its predecessors since that time. He has served as a
director of the Mid-Continent Oil and Gas Association and as the President of
the Association's Mississippi-Alabama Division. He has also served as Vice
President for Mississippi of the Independent Petroleum Association of America.
He is a member of the American Petroleum Institute. Mr. Callon is the uncle of
Fred L. Callon.
Fred L. Callon, 47, is President and Chief Executive Officer of the Company
and Callon Petroleum Operating. Prior to January 1997, he was President and
Chief Operating Officer of the Company and had held that position with the
Company or its predecessors since 1984. He has been employed by the Company or
its predecessors since 1976. He graduated from Millsaps College in 1972 and
received his M.B.A. degree from the Wharton School of Finance in 1974. Following
graduation and until his employment by Callon Petroleum Operating, he was
employed by Peat, Marwick, Mitchell & Co., certified public accountants. He is a
certified public accountant and is a member of the American Institute of
Certified Public Accountants and the Mississippi Society of Certified Public
Accountants. He is the nephew of John S. Callon.
Dennis W. Christian, 50, is Senior Vice President and Chief Operating
Officer of the Company and Callon Petroleum Operating. Prior to January 1997, he
was Senior Vice President of Operations and Acquisitions and had held that or
similar positions with the Company or its predecessors since 1981. Prior to
joining Callon Petroleum Operating, he was resident manager in Stavanger,
Norway, for
6
Texas Eastern Transmission Corporation. Mr. Christian received his B.S. degree
in petroleum engineering in 1969 from Louisiana Polytechnic Institute. His
previous experience includes five years with Chevron U.S.A. Inc.
Robert A. Stanger, 57, has been the managing general partner since 1978 of
Robert A. Stanger & Company, Inc., a Shrewsbury, New Jersey-based firm engaged
in publishing financial material and providing investment banking services to
the real estate and oil and gas industries. He is a director of Citizens
Utilities, Stamford, Connecticut, a provider of telecommunications, electric,
natural gas, and water services. Previously, Mr. Stanger was Vice President of
Merrill Lynch & Co. He received his B.A. degree in economics from Princeton
University in 1961. Mr. Stanger is a member of the National Association of
Securities Dealers, the New York Society of Security Analysts, the International
Association of Financial Planners, and the Investment Program Association.
H. Michael Tatum, 68, is Vice President and Secretary for the Company and
Callon Petroleum Operating and is responsible for management of administrative
matters. Mr. Tatum has held this position with the Company or its predecessors
since 1976, and has been employed by Callon Petroleum Operating since 1969. He
graduated from Southern Methodist University in 1967 and is a member of the
American Society of Corporate Secretaries and the Society for Human Resource
Management.
Kathy G. Tilley, 51, is Vice President of Acquisitions and New Ventures for
the Company and Callon Petroleum Operating and has held that position since
April 1996. She was employed by Callon Petroleum Operating in December 1989 as
manager of acquisitions and prior thereto, held that or similar positions as a
consultant from 1981. Ms. Tilley received her B.A. degree in economics from
Louisiana State University in 1967.
John C. Wallace, 58, is an executive officer of NOCO Management Ltd., the
general partner of the general partner of NOCO. He is a Chartered Accountant
having qualified with Coopers and Lybrand in Canada in 1963 following which he
joined Baring Brothers & Co., Limited in London. For more than the last ten
years, he has served as Chairman of Fred. Olsen Ltd., a London-based corporation
which he joined in 1968, where he has specialized in the business of shipping
and property development. He is a director of Harland & Wolff PLC, Belfast, A/S
Ganger Rolf and A/S Bonheur, Oslo, publicly traded shipping companies, and
O.G.C. International P.L.C., a Scottish public company engaged in the offshore
oil and gas maintenance and construction business. He is also director of
Belmont Constructors; Inc., a Houston, Texas-based industrial contractor
associated with Fred. Olsen Interests, and other companies associated with Fred.
Olsen Interests.
B. F. Weatherly, 53, is a principal of Amerimark Capital Group, Houston,
Texas, an investment banking firm. He is an executive officer of NOCO Management
Ltd., the general partner of the general partner of NOCO. Prior to September
1996, he was Executive Vice President, Chief Financial Officer and a director of
Belmont Constructors, Inc., a Houston, Texas-based industrial contractor
associated with Fred. Olsen Interests. From 1989 to 1991, he was a partner in
Amerimark Capital Corp., a Dallas investment banking firm. He holds a Master of
Accountancy degree from University of Mississippi. He has previously been
associated with Arthur Andersen LLP, and has served as a Senior Vice President
of Weatherford International, Inc. B. F. Weatherly and John S. Weatherly are
brothers.
John S. Weatherly, 45, is Senior Vice President, Chief Financial Officer
and Treasurer for the Company and Callon Petroleum Operating. Prior to April
1996, he was Vice President, Chief Financial Officer and Treasurer of the
Company and had held that position since 1983. Prior to joining Callon Petroleum
Operating in August 1980, he was employed by Arthur Andersen LLP as audit
manager in the Jackson, Mississippi office. He received his B.B.A. degree in
accounting in 1973 and his M.B.A. degree in 1974 from the University of
Mississippi. He is a certified public accountant and a member of the American
Institute of Certified Public Accountants and the Mississippi Society of
Certified Public Accountants. John S. Weatherly and B. F. Weatherly are
brothers.
Richard O. Wilson, 67, for the past ten years has been Chairman of O.G.C.
International P.L.C., a Scottish public company engaged in the offshore oil and
gas maintenance and construction business headquartered in Aberdeen, Scotland.
He is also Chairman of Belmont Constructors, Inc., a Houston,
7
Texas-based industrial contractor associated with Fred. Olsen Interests. In
September 1996, after 12 years, Mr. Wilson retired as Chairman of Dolphin AS,
Stavanger, Norway, and Dolphin Drilling Ltd., Aberdeen, Scotland, both offshore
drilling companies owned by Fred. Olsen Interests. He holds a B.S. degree in
civil engineering from Rice University. Mr. Wilson is a Fellow in the American
Society of Civil Engineers, a member of the Institute of Petroleum, London,
England, and the Cosmos Club, Washington, D.C.
All officers and directors (including the Nominees) of the Company are
United States citizens, except Mr. Wallace, who is a citizen of Canada.
STOCKHOLDERS' AGREEMENT
Pursuant to the Stockholders' Agreement among the Callon Family and NOCO
dated September 16, 1994, the Callon Family and NOCO each elect two directors to
the Company's Board of Directors. Specifically, the Stockholders' Agreement
provides that the Callon Family and NOCO shall use their best efforts, including
voting the shares of Common Stock which they own, to cause the Company's Board
of Directors to be composed of at least four members, two of such members to be
selected by the Callon Family and two of such members to be selected by NOCO.
The current directors of the Company are John S. Callon, Fred L. Callon, Dennis
W. Christian, Robert A. Stanger, John C. Wallace, B. F. Weatherly, and Richard
O. Wilson. Prior to the Consolidation, the Company's sole shareholder appointed
John S. Callon and Fred L. Callon to the Board of Directors and John C. Wallace
and B. F. Weatherly, affiliates of NOCO, were appointed to the Board of
Directors subsequent to the Consolidation. Thus, although not elected pursuant
to the Stockholders' Agreement, Messrs. John and Fred Callon were appointed to
represent the Callon Family and Messrs. Wallace and B. F. Weatherly were
appointed to represent NOCO.
Mr. Wallace was nominated and re-elected to the Board of Directors as one
of the representatives of NOCO at the 1995 Annual Meeting and Mr. B. F.
Weatherly was nominated and elected to the Board of Directors at the 1996 Annual
Meeting as the other representative of NOCO. Mr. John S. Callon was nominated
and re-elected to the Board of Directors at the 1996 Annual Meeting as a
representative of the Callon Family and Mr. Fred L. Callon has been nominated
for re-election as director at the Annual Meeting as the other representative of
the Callon Family. Because the Callon Family and NOCO own more than 60% of the
outstanding shares of Common Stock, the election of Mr. Fred L. Callon as
director at the Annual Meeting is assured under the terms of the Stockholders'
Agreement.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
with the Commission and the National Association of Securities Dealer's Inc.
National Market System ("Nasdaq NMS"), initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Officers, directors and greater than ten percent shareholders are
required by the Commission's regulations to furnish the Company with copies of
all Section 16(a) forms they filed with the Commission.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1996, the
Company's officers, directors and greater than ten percent shareholders had
complied with all Section 16(a) filing requirements.
INFORMATION CONCERNING THE OPERATION OF THE BOARD OF DIRECTORS
The business of the Company is managed under the direction of the Board of
Directors. The Board of Directors meets on a quarterly basis to review
significant developments affecting the Company and to act on matters requiring
Board approval. The Board of Directors may also hold special meetings when an
important matter requires Board action between regularly scheduled meetings.
Each non-employee director receives an annual fee of $10,000 for service on the
Board of
8
Directors. Under the 1994 Plan, each non-employee director received an annual
automatic grant of an option to purchase 5,000 shares of Common Stock. Subject
to Shareholder approval of the 1996 Plan, non-employee directors will be granted
options to purchase Common Stock under the Company's 1996 Plan. Pursuant to the
1996 Plan, an option to purchase 5,000 shares of Common Stock will be granted to
each non-employee director on the date he or she is initially elected or
appointed to the Board for an exercise price equal to the fair market price on
the date of grant and for a ten-year term. Thereafter, for each subsequent year
in which the non-employee director is still serving as director, he or she shall
automatically be granted an option to purchase an additional 5,000 shares on the
same terms. On August 23, 1996, the Compensation Committee authorized a one-time
grant to each non-employee director of an option to purchase 20,000 shares of
Common Stock under the 1996 Plan at a purchase price of $12.00 per share, the
fair market value of the Common Stock on such date, subject to approval of the
1996 Plan by the Company's Shareholders at the Annual Meeting. Upon such
approval, one-fourth of each option will vest at each succeeding annual meeting
of directors following each annual Shareholders' meeting, beginning with the
Annual Meeting.
In order to facilitate the various functions of the Board of Directors, the
Board of Directors has created an Audit Committee and a Compensation Committee.
The Board of Directors does not have a nominating committee. The functions
customarily performed by a nominating committee are performed by the entire
Board of Directors. Committee members are not remunerated in addition to their
annual Board retainer.
AUDIT COMMITTEE. The Audit Committee monitors the Company's internal
accounting controls, reviews quarterly and annual financial information and
reviews the services and fees of the independent auditors. Members are Messrs.
John C. Wallace, CHAIRMAN, and Robert A. Stanger, B. F. Weatherly and Richard O.
Wilson. The Audit Committee held two meetings during 1996, and all members of
the Audit Committee attended all meetings.
COMPENSATION COMMITTEE. The Compensation Committee establishes and
approves the terms of employment of senior executive officers and reviews and
approves management's recommendations concerning compensation of the other
executive officers and certain other employees. Members are Messrs. B. F.
Weatherly, CHAIRMAN, and Robert A. Stanger, John C. Wallace and Richard O.
Wilson. The Compensation Committee held four meetings during 1996, and all
members of the Compensation Committee attended all meetings.
During 1996, the Board of Directors of the Company met formally four times
and executed 13 unanimous consents. All directors attended all of the meetings.
TRANSACTIONS WITH RELATED PERSONS
STOCKHOLDERS' AGREEMENT. In connection with the Consolidation, the
Company, the Callon Family (including John S. Callon and Fred L. Callon) and
NOCO entered into the Stockholders' Agreement which (a) provides that the Callon
Family shall vote for two directors to the Company's Board of Directors as
directed by NOCO and NOCO will vote for two directors to the Company's Board of
Directors as directed by the Callon Family, (b) contains certain restrictions on
transfer of the Common Stock owned by the Callon Family and NOCO, and (c)
provides that neither the Callon Family nor NOCO can transfer shares of Common
Stock in connection with, or vote for, consent to or otherwise approve, a
transaction which would result in certain changes of control or fundamental
changes without the prior written consent of the other party. The Callon Family
and NOCO own over 60% of the Company's Common Stock. See "Stockholders'
Agreement."
REGISTRATION RIGHTS. The Callon Family (including John S. Callon and Fred
L. Callon) is party to a Registration Rights Agreement dated September 16, 1994,
pursuant to which they are entitled to require the Company to register Common
Stock owned by them with the Commission for sale to the public in a firm
commitment public offering and generally to include shares owned by them in
registration statements filed by the Company. NOCO and the Company have entered
into a similar agreement.
9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the Chief
Executive Officer of the Company and the four most highly compensated executive
officers of the Company as to whom the total salary and bonus for the years
ended December 31, 1996, 1995 and 1994 exceeded $100,000. Such amounts include
compensation from the predecessor entities for the year ended December 31, 1994.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS
----------------------------------- -------------------------- PAYOUTS ALL
OTHER RESTRICTED SECURITIES -------- OTHER
ANNUAL STOCK UNDERLYING LTIP COMPEN-
NAME AND SALARY BONUS COMPENSATION AWARD(S) OPTIONS PAYOUTS SATION
PRINCIPAL POSITIONS(a) YEAR ($) ($)(b) ($)(c) ($) (#) ($) ($)(e)
- ------------------------------- ---- ------- --------- ------------- ----------- ----------- -------- --------
John S. Callon................. 1996 195,670 172,500 -- -- -- -- 12,715
Chairman 1995 190,000 161,500 -- -- -- -- 10,393
1994 168,000 95,000 -- -- 90,000 -- 9,565
Fred L. Callon................. 1996 182,761 152,500 -- (d) 75,000 -- 12,928
President and Chief 1995 170,000 144,500 -- -- -- -- 10,288
Executive Officer 1994 150,000 85,000 -- -- 80,000 -- 9,096
Dennis W. Christian............ 1996 160,808 141,000 -- (d) 70,000 -- 11,362
Senior Vice 1995 150,000 127,500 -- -- -- -- 9,080
President and 1994 118,450 140,000 -- -- 60,000 -- 7,186
Chief Operating Officer
John S. Weatherly.............. 1996 143,469 131,000 -- (d) 65,000 -- 10,234
Senior Vice 1995 130,000 110,500 -- -- -- -- 7,873
President, 1994 100,000 107,500 -- -- 60,000 -- 6,068
Chief Financial Officer and
Treasurer
Kathy G. Tilley................ 1996 119,032 105,500 -- (d) 55,000 -- 8,475
Vice President 1995 100,008 85,000 -- -- -- -- 5,933
1994 96,626 78,000 -- -- 30,000 -- 5,739
- ------------
(a) John S. Callon retired as Chief Executive Officer of the Company on January
2, 1997. Fred L. Callon was appointed Chief Executive Officer of the Company
and Dennis W. Christian was appointed Chief Operating Officer of the Company
(a position previously held by Fred L. Callon) on January 2, 1997.
(b) The amount for 1996 represents that portion of bonuses declared in March
1996 and earned by service during 1996. Bonuses were declared in March 1997,
a portion of which were attributable to 1996, and such portions are
reflected herein. These amounts also include amounts deferred.
(c) Amounts in the column do not include perquisites and other personal
benefits, securities or property, unless the annual amount of such
compensation exceeds the lesser of $50,000 or 10% of the total of annual
salary and bonus reported for the named executive.
(d) On August 23, 1996, the Board of Directors authorized the following
performance share awards upon approval of the 1996 Plan by the Company's
Shareholders at the Annual Meeting: Fred L. Callon, 60,000 shares; Dennis W.
Christian, 55,000 shares; John S. Weatherly, 50,000 shares; Kathy G. Tilley,
45,000 shares. If the 1996 Plan is approved at the Annual Meeting, such
shares will be awarded as of the date of the Annual Meeting. On April 25,
1997, the closing price of the Common Stock on the Nasdaq NMS was $13.375
per share. The Company cannot predict the closing price of the Common Stock
on the date of the Annual Meeting. If awarded, the performance shares will
vest on January 1, 2001 and are subject to forfeiture upon certain
termination of employment events. See "Proposal II-Approval of the Callon
Petroleum Company 1996 Stock Incentive Plan -- Awards and Grants."
(e) Amounts reflect the Company's contribution in 1996, 1995 and 1994 of
$12,043, $9,500 and $8,400 to John S. Callon's 401(k) savings plan and
payment of $672, $893 and $1,165 term life insurance premiums; $11,446,
$8,500 and $7,500 to Fred L. Callon's 401(k) savings plan and payment of
$1,482, $1,788 and $1,596 term life insurance premiums; $10,060, $7,500 and
$5,923 to Mr. Christian's 401(k) savings plan and payment of $1,302, $1,580
and $1,263 term life insurance premiums; $9,077, $6,500 and $5,000 to Mr.
Weatherly's 401(k) savings plan and payment of $1,157, $1,373 and $1,068
term life insurance premiums; and $7,509, $5,000 and $4,831 to Ms. Tilley's
401(k) savings plan and payment of $966, $933 and $908 term life insurance
premiums.
10
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Fred L. Callon, Dennis W. Christian and John S. Weatherly have entered into
employment agreements with the Company effective September 1, 1996 and ending
January 1, 2001. The agreements provide that Mr. Callon, Mr. Christian and Mr.
Weatherly will receive an annual base salary of at least $200,000, $175,000 and
$165,000, respectively, and that they will be entitled to participate in any
incentive compensation program established by the Company for its executive
officers. Each agreement terminates upon death or disability or for cause. If
the agreement is terminated because of disability, compensation payments
continue for a period of two years from the date of termination, reduced by the
amount of disability insurance paid. If the agreement is terminated for cause,
the Company is not required to make any additional payments. "Cause" is
defined generally as any of the following: intentional or continual neglect of
duties, conviction of a felony, or failure or refusal to perform duties in
accordance with the employment agreement.
The employment agreements further provide that the employee may terminate
the agreement for "good reason," which is defined generally to include (a)
failure to be re-elected to office, (b) significant change in duties, (c)
reduction or failure to provide typical increases in salary following a change
in control of the Company, (d) relocation to an office outside the Natchez,
Mississippi area, or (e) failure to maintain the level of participation in the
compensation and benefit plans of the Company following a change in control. If
the employee terminates his employment for good reason (other than following a
change in control), or if the Company breaches the agreement, compensation shall
continue for a period of two years. Pursuant to the agreements, a "change in
control" occurs if: (i) any person or group of persons acting in concert
(within the meaning of Section 13(d) of the Exchange Act) shall have become the
beneficial owner of a majority of the outstanding common stock of the Company
(other than pursuant to the Stockholders' Agreement), (ii) the stockholders of
the Company cause a change in a majority of the members of the Board within a
twelve-month period, or (iii) the Company or its stockholders enter into an
agreement to dispose of all or substantially all of the assets or outstanding
capital stock of the Company. If the compensation to be paid upon a change in
control would constitute a "parachute" payment under the Internal Revenue
Code, the amount otherwise payable will be grossed up to an amount such that the
employee will receive the amount he would have received if no portion of such
compensation had been subject to the excise tax imposed by the Internal Revenue
Code, and the Company will be responsible for the amount of the excise tax.
The Company entered into a consulting agreement with John S. Callon,
effective as of January 2, 1997, the day he retired as Chief Executive Officer
of the Company. Pursuant to the agreement, John S. Callon provides consulting
services to the Company on matters pertaining to corporate or financial
strategy, investor relations and public/private financing opportunities for no
more than 20 hours per month, ten months a year. The agreement remains in effect
from the effective date until December 31, 2001, subject to renewal for
succeeding five year periods unless earlier terminated. As compensation for his
services under the agreement, John S. Callon is paid a fee ("Consultation
Fee") of not less than $190,000 per year increased annually based upon the
change in the Consumer Price Index, as adjusted for inflation. In addition, he
will remain eligible to participate in the Company's major medical and
disability coverage, and will be entitled to participate in all other employee
benefit plans (other than a cash bonus program) provided to full-time executives
of the Company. As an inducement for entering into the agreement, John S. Callon
was granted 25,000 performance shares of Common Stock, 20% of which vests on
each of the first five anniversaries of the effective date of the agreement.
Upon termination of the agreement other than for cause, John S. Callon or
his spouse shall be entitled to receive a termination payment equal to the
Consultation Fee, as adjusted for inflation, to be paid annually until the later
of the death of John S. Callon (if applicable) or his spouse. In lieu of the
termination payment, John S. Callon or his spouse may elect to receive, subject
to the approval of the Board of Directors, a lump sum payment of $1.5 million.
In addition, if the agreement terminates due to the Company's breach, John S.
Callon and his spouse shall be entitled to liquidated damages. The Company may
terminate the agreement for cause. "Cause" is defined generally in the
agreement as
11
willful misconduct or intentional and continual neglect of duties which has
materially and adversely affected the Company.
Pursuant to the 1994 Plan and the 1996 Plan, in the case of a merger or
consolidation where the Company is not the surviving entity, or if the Company
is about to sell or otherwise dispose of substantially all of its assets while
unvested options remain outstanding, the Compensation Committee or other plan
administrator may, in its discretion and without shareholder approval, declare
some or all options exercisable in full before or simultaneously with such
merger, consolidation or sale of assets without regard for prescribed waiting
periods. Alternatively, the Compensation Committee or other plan administrator
may cancel all outstanding options provided option holders are given notice and
a period of 30 days prior to the merger, consolidation or sale to exercise the
options in full.
INCENTIVE PLANS
The Company currently maintains two Common Stock-based incentive plans for
employees: the Callon Petroleum Company 1994 Stock Incentive Plan and the Callon
Petroleum Company 1996 Stock Incentive Plan. The Company in the past has used
and will continue to use, stock options and performance share grants to attract
and retain key employees in the belief that employee stock ownership and stock
related compensation devices encourage a community of interest between employees
and shareholders.
1994 PLAN. The 1994 Plan was adopted on June 30, 1994. Pursuant to the
1994 Plan, 600,000 shares of Common Stock were reserved for issuance upon the
exercise of options or for grants of performance shares. The 1994 Plan is
administered by the Compensation Committee of the Board of Directors. Members of
the Compensation Committee currently are Messrs. Stanger, Wallace, B. F.
Weatherly and Wilson. No awards were granted under the 1994 Plan during 1995 and
1996, other than automatic grants to non-employee directors and the grant of
performance shares to John S. Callon in connection with his Consulting
Agreement. See "-- Employment Agreements, Termination of Employment and Change
in Control Arrangements." No additional awards may be granted under the 1994
Plan.
1996 PLAN. On August 23, 1996, the Board of Directors of the Company
approved and adopted the 1996 Plan, and granted awards thereunder to various
employees, in each case subject to approval by the Shareholders of the Company
at the Annual Meeting. As of April 25, 1997, there were 145,000 shares available
for grant under the 1996 Plan. Individual awards under the 1996 Plan may take
the form of one or more of (i) incentive stock options; (ii) non-qualified stock
options; or (iii) performance shares. For a description of the 1996 Plan, see
"Proposal II -- Approval of the Callon Petroleum Company 1996 Stock Incentive
Plan." The 1996 Plan, if approved by the Shareholders at the Annual Meeting,
will replace the 1994 Plan.
BONUS PLAN. In 1996, the Board of Directors authorized the establishment
of a cash bonus program (the "Bonus Plan") to be administered by the
Compensation Committee in accordance with formulas or procedures determined by
the Compensation Committee on an annual basis. For 1996, the Compensation
Committee established target level bonuses as a percentage of base salary for
certain officers, managers and staff members. The Committee also established
financial and operating goals to be achieved by the Company during 1996 and
assigned a relative weighting percent to each goal. Cash bonus awards for 1996
were then based upon the extent to which such goals were achieved during 1996.
See "Executive Compensation -- Report on Executive Compensation." Cash
compensation paid pursuant to the Bonus Plan to Fred L. Callon, Dennis W.
Christian, John S. Weatherly and Kathy G. Tilley is set forth in the summary
compensation table appearing under "Executive Compensation".
OPTION GRANTS IN LAST FISCAL YEAR
There were no individual grants of stock options under the 1994 Plan made
during the year ended December 31, 1996 to the Chief Executive Officer of the
Company or any of the four most highly compensated executive officers of the
Company named in the Summary Compensation Table. There
12
were grants of stock options under the 1996 Plan during the year ended December
31, 1996 to the Chief Executive Officer and the four most highly compensated
executive officers of the Company. The following table sets forth information
concerning individual grants of stock options under the 1996 Plan to the Chief
Executive Officer of the Company, the four most highly compensated executive
officers of the Company ("Named Executive Officers"), all current executive
officers as a group ("Executive Group"), all current directors who are not
executive officers as a group ("Director Group"), and all employees, including
all current officers who are not executive officers, as a group ("Employee
Group").
OPTION GRANTS IN YEAR ENDING DECEMBER 31, 1996
INDIVIDUAL GRANTS
-----------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED
NUMBER OF GRANTED ANNUAL RATES OF
SECURITIES TO EXERCISE STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES OR BASE FOR OPTION TERM(c)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------------
NAME GRANTED YEAR(a) ($/SH)(b) DATE 5%($) 10%($)
- ------------------------------------- ----------- ----------- --------- --------------- ------------- --------------
John S. Callon....................... -- -- -- -- $ -- $ --
Fred L. Callon....................... 75,000 17% $ 12.00 August 23, 2006 566,005 1,434,368
Dennis W. Christian.................. 70,000 16% $ 12.00 August 23, 2006 528,271 1,338,744
John S. Weatherly.................... 65,000 14% $ 12.00 August 23, 2006 490,538 1,243,119
Kathy G. Tilley...................... 55,000 12% $ 12.00 August 23, 2006 415,070 1,051,870
Executive Group (6 persons).......... 280,000 62% $ 12.00 August 23, 2006 2,113,086 5,354,975
Director Group (4 persons)........... 80,000 18% $ 12.00 August 23, 2006 603,739 1,529,993
Employee Group (8 persons)........... 170,000 38% $ 12.00 August 23, 2006 1,282,945 3,251,235
All Shareholders(d).................. 5,758,667 N/A N/A N/A 43,459,137 110,133,985
- ------------
(a) The Company granted a total of 450,000 options to employees under the 1996
Plan for the year ended December 31, 1996.
(b) The options were granted on August 23, 1996. The fair market value of the
Common Stock at the date of grant was $12.00. Options are not exercisable
prior to six months from the date of grant and, unless a shorter period is
provided by the 1996 Plan or the plan administrator, are for a term of ten
years, subject to vesting as provided by the plan administrator. Further,
options are subject to forfeiture and/or time limitations in the event of a
termination of employment. The options are subject to approval of the 1996
Plan by the Company's Shareholders at the Annual Meeting. No stock
appreciation rights have been granted by the Company since its inception.
(c) Potential realizable values are net of exercise price, but before taxes
associated with exercise. Amounts represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. The assumed 5% and 10% rates of stock price appreciation are provided
in accordance with rules of the Commission and do not represent the
Company's estimate or projection of the future Common Stock price. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall market conditions. There can be
no assurance that the amounts reflected will be achieved.
(d) All Shareholders are shown for comparison purposes only.
13
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth certain information concerning the number
and value of unexercised options to purchase Common Stock by the Chief Executive
Officer and the four most highly compensated executive officers named in the
Summary Compensation Table at December 31, 1996. No stock options were exercised
by such persons in 1996.
AGGREGATED OPTION EXERCISES IN 1996 AND OPTION
VALUES AT DECEMBER 31, 1996
UNEXERCISED OPTIONS AT DECEMBER 31, 1996
------------------------------------------
NUMBER OF VALUE OF
UNDERLYING IN-THE-MONEY
SECURITIES OPTIONS
------------------ ------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE(a) UNEXERCISABLE(b)
- ------------------------------------- --------------- ----------- ------------------ ------------------
John S. Callon....................... -- -- 90,000/ -- $815,625/ --
Fred L. Callon....................... -- -- 95,000/60,000 830,938/423,750
Dennis W. Christian.................. -- -- 74,000/56,000 642,625/395,500
John S. Weatherly.................... -- -- 73,000/52,000 635,563/367,250
Kathy G. Tilley...................... -- -- 41,000/44,000 349,563/310,750
- ------------
(a) Represents awards granted under the 1994 Plan and the 1996 Plan.
(b) As of December 31, 1996, the fair market value of the Common Stock was
$19.0625.
LONG-TERM INCENTIVE PLAN AWARDS
At this time, the Company does not have a long-term incentive plan for its
employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Messrs. Robert A.
Stanger, John C. Wallace, B. F. Weatherly and Richard O. Wilson, none of whom
are or have been officers or employees of the Company.
STOCKHOLDERS' AGREEMENT. In connection with the Consolidation, the
Company, the Callon Family and NOCO entered into the Stockholders' Agreement
which contains certain voting requirements and transfer restrictions. Messrs.
Wallace, Weatherly and Wilson are affiliates of NOCO. See "Transactions with
Related Persons."
REGISTRATION RIGHTS. NOCO is party to a Registration Rights Agreement
dated September 16, 1994. Messrs. Wallace, Weatherly and Wilson are affiliates
of NOCO. See "Transactions with Related Persons."
REPORT ON EXECUTIVE COMPENSATION
OVERVIEW
The Compensation Committee, currently composed of four non-employee
directors, makes recommendations to the Board with respect to the annual base
and bonus compensation of the executive officers of the Company. The
Compensation Committee also administers the Company's employee benefit plans,
and, if the 1996 Plan and the 1997 Purchase Plan are approved by the Company's
Shareholders at the Annual Meeting, the Compensation Committee will continue to
serve as a plan administrator under such Plans.
The Company's compensation policy has been comprised of three elements: (1)
base compensation; (2) bonus compensation; and (3) stock options. The Company
has recently broadened its compensation package by awarding performance shares
under the 1996 Plan and authorizing the establishment of the 1997 Purchase Plan.
In addition, in order to promote the Company's goal of
14
retaining key employees and promoting the long-term growth of the Company,
during 1996 the Company entered into several employment agreements with certain
executive officers. These agreements establish an initial base salary subject to
upward adjustment by the Board of Directors or the Compensation Committee and
provide that such officers shall be entitled to participate in the Company's
incentive compensation programs. See "Executive Compensation -- Employment
Agreements, Termination of Employment and Change-in-Control Arrangements."
BASE COMPENSATION. The analysis used by the Compensation Committee to
establish base compensation has remained relatively constant since the Company
was formed in 1994. The Committee continues to review individual factors such as
performance and contribution to the Company's success, years of service to the
Company, experience level, position and internal equities within the Company and
general economic and industry conditions. However, no specific weight is
assigned to these factors. As its primary consideration, the Committee studies
compensation set for comparable positions by the Company's competitors and
targets the median of base salaries among peer group companies in the industry
of similar size, complexity and activity. The Compensation Committee analyzes
published industry survey data and proxy information to determine base salaries
paid by such peer group companies and consults with independent compensation
consulting firms from time to time. In addition, the Committee considered the
base salary provisions set forth in certain of the executive officers'
employment agreements. The increase in base salaries for 1996 was reflective of
individual contributions to the Company's performance in 1996 as well as general
inflationary considerations.
BONUS COMPENSATION. Since the Company's inception, the Compensation
Committee has established a philosophy of allocating a significant portion of
the total compensation paid to the Company's executive officers as "at risk"
compensation in order to emphasize pay-for-performance. Bonus compensation has
typically been determined by the Committee based upon operating, fiscal and
strategic goals as well as more subjective criteria such as individual
initiative, business judgment, technical expertise and management skills.
In September 1996, the Board of Directors of the Company established the
Bonus Plan to be administered by the Compensation Committee. Pursuant to the
Bonus Plan, the Committee established a more formal mechanism for determining
1996 bonus compensation based upon pre-set fiscal and operating goals. Each such
goal was assigned a relative weighting percent, which was multiplied at year end
by the percentage by which each such goal was achieved in order to determine the
"Weighted Goal Achieved." The Committee derived the "Total Goal Achieved" by
adding together each Weighted Goal Achieved. In addition, the Committee
established target level bonuses as a percentage of base salary for officers and
other employees. If the Total Goal Achieved at year end was (i) less than 80%,
no bonuses would be awarded under the Bonus Plan; (ii) between 80% and 120%,
bonuses would be awarded at 80% to 120% of the target level; and (iii) more than
120%, additional bonuses could be awarded at the discretion of the Committee.
For the year ended December 31, 1996, the Total Goal Achieved was 153% of
the goals set for 1996 regarding cash flow per common share, net income per
common share, net reserve additions, finding costs and net asset value per
common share. Accordingly, the Compensation Committee awarded bonus compensation
that was 120% of the target level set for officers, managers and staff, plus the
Committee awarded an additional $150,000 for having achieved 153% of target
levels. For the fiscal year ended December 31, 1997, the Compensation Committee
intends to follow a similar formula to determine cash bonuses for 1997, subject
to adjustment for 1997 performance goals.
STOCK-BASED COMPENSATION. The Compensation Committee analyses the factors
set forth under "Base Compensation" above to determine the timing and amount
of stock option awards. The Committee considers the number of outstanding
unvested options held by an employee as well as the size of previous option
awards to the employee. In addition, the Committee surveys the same peer group
companies it studies to award base compensation. Based on its studies of
comparable industry competitors, the Committee determined that the Company's
executive officers were below the median with respect to stock-based
compensation. Accordingly, the Committee granted options under the 1996
15
Plan to executive officers and employees of the Company to equalize their
position vis-a-vis their counterparts in the industry. Options are granted at
the prevailing market price and will therefore have value only if the price of
the Company's stock increases. As an alternate form of incentive and in order to
motivate executives to improve the Company's position over the long-term, the
Committee authorized the grant of performance shares which will not vest until
2001 or until certain material increases in the Company's stock price. To
further focus executive attention on the Company's stock market performance, the
Company has established the 1997 Purchase Plan.
COMPENSATION OF CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER
John S. Callon served as Chief Executive Officer of the Company until his
retirement on January 2, 1997. His base salary for 1996 was $195,670,
representing an increase of three percent over his 1995 base compensation of
$190,000. This increased salary represented Mr. Callon's experience in the oil
and gas industry, his leadership position within the Company and general
inflationary considerations. Pursuant to the employment agreement between Fred
L. Callon and the Company, Fred Callon's annual base salary is set at a floor of
$170,000, subject to increase by the Board of Directors or the Compensation
Committee. Fred Callon's base salary was increased by the Committee to $182,761
for 1996 as compared to $170,000 for 1995 in order to reflect his growing
leadership role within the Company, his experience level, his management role
and general inflationary considerations.
John S. Callon and Fred L. Callon earned bonuses in 1996 of $172,500 and
$152,500, respectively, reflecting their contributions to certain 1996 goals set
by the Compensation Committee pursuant to the Bonus Plan. Fred L. Callon was
granted options to purchase 75,000 shares of Common Stock and will be awarded
60,000 performance shares pursuant to the 1996 Plan (subject to approval of the
1996 Plan) in order to provide a stock-based compensation package on par with
other top executives of the Company's peer-group companies.
B. F. Weatherly, Chairman
Robert A. Stanger
John C. Wallace
Richard O. Wilson
16
PERFORMANCE GRAPH
The following graph compares the yearly percentage change for the five
years ended December 31, 1996, in the cumulative total shareholder return on the
Company's Common Stock against the cumulative total return (i) for the Nasdaq
Stock Market (US) Index (the "Nasdaq Index") and (ii) Media General Financial
Services Industry and Market Index of SIC Group 353 (the "MG Industry Group
Index") consisting of oil and gas companies.
COMPARISON OF CUMULATIVE TOTAL RETURN(1)
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
12/31/91 12/31/92 12/31/93 12/31/94 12/30/95 12/29/96
-------- -------- -------- -------- -------- --------
Callon Petroleum
Company(2) ....... $100 $132 $253 $358 $330 $626
Nasdaq Index ...... $100 $116 $134 $131 $185 $227
MG Industry Group
Index ............ $100 $ 88 $105 $106 $124 $169
- ------------
(1) The comparison of total return on an investment for each of the periods
assumes that $100 was invested on December 31, 1991, in each of the Company,
the Nasdaq Index and the MG Industry Group Index, and that all dividends
were reinvested.
(2) The Company's Common Stock did not begin trading on the Nasdaq NMS until
September 19, 1994. The Company was formed in March 1994 to participate in a
Consolidation consummated on September 16, 1994, to which the Company
succeeded to the assets, liabilities, operations and management of CCP,
formerly a publicly-held limited partnership, and certain affiliated
companies. As a result of the Consolidation, one share of the Company's
Common Stock was issued for each three Units of limited partnership interest
in CCP whose depository units were traded on the Nasdaq NMS from February
1989 through September 1994. The equivalent closing price per share of the
Company's Common Stock before September 16, 1994 was determined by
multiplying the Nasdaq NMS quoted price per CCP Unit by three.
17
PROPOSAL II
APPROVAL OF THE
CALLON PETROLEUM COMPANY
1996 STOCK INCENTIVE PLAN
The Board of Directors of the Company adopted the Callon Petroleum Company
1996 Stock Incentive Plan, to be effective on August 23, 1996, and to continue
until all awards under the 1996 Plan have been satisfied or terminated, subject
to the approval and ratification of the 1996 Plan at the Annual Meeting by the
holders of a majority of the Common Shares present or represented and entitled
to vote at the Annual Meeting.
In the opinion of the Board of Directors of the Company, the 1996 Plan will
promote the interests of the Company and its Shareholders by (i) associating the
interests of the Company's management and it subsidiaries and affiliates closely
with the Shareholders to generate an increased incentive to contribute to the
Company's future success and prosperity, thus enhancing the value of the Company
for the benefit of its Shareholders; (ii) providing management of the Company
with a proprietary ownership interest in the Company commensurate with Company
performance, as reflected in increased Shareholder value; (iii) maintaining
competitive compensation levels thereby attracting and retaining highly
competent and talented directors, employees and consultants; and (iv) providing
an incentive to management for continuous employment with the Company.
The full text of the 1996 Plan is set forth in Exhibit A to this proxy
statement and the following description of the 1996 Plan is qualified by
reference to the text thereof.
ADMINISTRATION. The 1996 Plan will be administered by a plan administrator
(the "1996 Plan Administrator") which may be either (i) the Board of Directors
of the Company; (ii) any duly constituted committee of the Board of Directors
consisting of at least two non-employee directors; or (iii) any other duly
constituted committee of the Board of Directors. The 1996 Plan Administrator has
sole authority to make regulations and guidelines for and to interpret the 1996
Plan. The 1996 Plan Administrator also has sole power to make awards under the
1996 Plan, to designate participants in the 1996 Plan and to impose limitations
upon awards under the 1996 Plan.
ELIGIBILITY. All directors, executive officers, key employees and
consultants of the Company and certain of its subsidiaries who have the
capability of making a substantial contribution to the success of the Company
are eligible to participate in the 1996 Plan. As of April 15, 1997, there were
approximately 17 directors, executive officers, key employees and consultants
eligible to participate in the 1996 Plan.
SHARES SUBJECT TO 1996 PLAN. Not more than 900,000 shares of the Common
Stock may be distributed in accordance with the terms of the 1996 Plan, subject
to increase by the Board of Directors. In addition, the number of shares is
subject to adjustment in the event of certain dilutive changes in the number of
outstanding shares. The Company will issue authorized but unissued shares under
the 1996 Plan. Any shares subject to an award which are not used because the
terms and conditions of the award are not met may again be used for an award
under the 1996 Plan.
TRANSFERABILITY. Rights under any award may not be transferred except by
will or the laws of descent and distribution.
AMENDMENT OF THE 1996 PLAN. The 1996 Plan may be amended by the Board of
Directors without the consent of the shareholders except that any amendment,
though effective when made, will be subject to shareholder approval if required
by any federal or state law or regulation or by the rules of any stock exchange
or automated quotation system on which the Common Stock may then be listed or
quoted. In addition, no modification of an award can impair the rights of a
holder of an outstanding award under the 1996 Plan without such holder's
consent.
CHANGE IN CONTROL. In the event of certain changes in control of the
Company, the 1996 Plan Administrator may at its discretion do any or all of the
following (i) accelerate any time periods relating to exercise or realization of
the award; (ii) cause the awards to be assumed by the successor
18
corporation; or (iii) cancel all outstanding options as of the effective date of
the change in control, provided that each holder has the right to exercise such
option in full for at least 30 days prior to the change in control.
STOCK OPTIONS. A grant of a stock option entitles a participant to
purchase from the Company a specified number of shares of Common Stock at a
specified price per share. In the discretion of the 1996 Plan Administrator,
stock options may be granted as non-qualified stock options or incentive stock
options, but incentive stock options may only be granted to executive officers
and other employees of the Company or a subsidiary. In addition, incentive stock
options may not be granted to any owner of 10% or more of the total combined
voting power of the Company and its subsidiaries. Incentive stock options shall
be subject to any terms and conditions as the 1996 Plan Administrator deems
necessary or desirable in order to qualify as an incentive stock option within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). No incentive stock options shall be awarded after the tenth
anniversary of the effective date of the 1996 Plan.
The purchase price per share of shares subject to an option shall be 100%
of the fair market value of a share of Common Stock at the time such option is
granted or, in the case of non-qualified stock options, as otherwise fixed by
the 1996 Plan Administrator. On April 25, 1997, the closing price of the Common
Stock on the Nasdaq NMS was $13.375 per share. Upon exercise, payment for shares
of Common Stock acquired on exercise of a stock option may be made in cash, in
shares of the Common Stock, or a combination thereof, as the 1996 Plan
Administrator may determine.
Stock options will be subject to such vesting schedule as determined by the
1996 Plan Administrator and are not exercisable prior to six months from the
date of grant unless, in the case of non-qualified stock options, a shorter
period is provided by the 1996 Plan Administrator or other section of the 1996
Plan. No incentive stock option may be exercised later than ten years after the
date of grant. Generally, options are exercisable only while the participant is
an employee of the Company or during the remaining term of the stock option and
thirty days from the date of termination of employment, unless such termination
is for cause. In the event of a termination of employment, outstanding options
may be subject to forfeiture and/or time limitations.
AUTOMATIC GRANTS. On the date on which a director who is not an employee
of the Company is first elected or appointed to the Board of Directors, he or
she shall be granted a stock option to purchase 5,000 shares of Common Stock at
the fair market price on the date of such grant for a term of ten years. An
additional grant of 5,000 shares of Common Stock shall be awarded to such person
for each subsequent year he or she is still serving as a director under the same
terms. Upon the death of such person, the option remains exercisable until the
earlier of the expiration of the remaining term of the option or one year. In
the case of permanent disability, retirement or failure to be re-elected, all
options previously granted remain exercisable in accordance with the terms of
the award agreement.
PERFORMANCE SHARES. Performance shares entitle the participant to receive
shares of Common Stock based upon the degree of achievement of pre-established
performance goals over a pre-established performance cycle as determined by the
1996 Plan Administrator in its discretion or as otherwise determined by the Plan
Administrator. Performance goals are fixed by the 1996 Plan Administrator in its
discretion and may relate to corporate, group, unit or individual performance
using standards established in terms of market price of common stock, cash flow
or cash flow per share, reserve value or reserve value per share, net asset
value or net asset value per share, earnings or other criteria determined by the
1996 Plan Administrator. The 1996 Plan Administrator has sole discretion to
determine the employees eligible for performance shares, the duration of each
performance cycle and the number of shares earned on the basis of the Company's
performance relative to the established goals.
At the end of the performance cycle, the 1996 Plan Administrator shall
determine the number of performance shares which have been earned on the basis
of the Company's performance in relation to the performance goals. Unless
otherwise provided by the 1996 Plan Administrator in an award agreement, if a
participant dies, retires, becomes disabled or otherwise ceases to be an
employee, all outstanding and unvested awards of performance shares to such
participant will be canceled. Shares of
19
Common Stock awarded to any person who, at the time of grant, is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, cannot be
resold for a period of six months from the date of grant of such shares.
FEDERAL INCOME TAX CONSEQUENCES. The federal income tax consequences, in
general, of the 1996 Plan are as follows:
(1) With respect to non-qualified stock options granted under the 1996
Plan: A participant receiving a grant will not recognize income and the Company
will not be allowed a deduction at the time such an option is granted. When a
participant exercises a non-qualified stock option, the difference between the
option price and any higher market value of the stock on the date of exercise
will be ordinary income to the participant and will be allowed as a deduction
for federal income tax purposes to the Company or its subsidiary or affiliate.
When a participant disposes of shares acquired by the exercise of the option,
any amount received in excess of the fair market value of the shares on the date
of exercise will be treated as short-term or long-term capital gain, depending
upon the holding period of the shares. If the amount received is less than the
fair market value of the shares on the date of exercise, the loss will be
treated as short-term or long-term capital loss, depending upon the holding
period of the shares.
(2) With respect to incentive stock options granted under the 1996 Plan: A
participant receiving a grant will not recognize income and the Company will not
be allowed a deduction at the time such an option is granted. When a participant
exercises an incentive stock option while employed by the Company or its
subsidiary or within the three-month (one year for disability or retirement)
period after termination of employment, no ordinary income will be recognized by
the participant at that time (and no deduction will be allowed to the Company)
but the excess of the fair market value of the shares acquired by such exercise
over the option price will be taken into account in determining the
participant's alternative minimum taxable income for purposes of the federal
alternative minimum tax applicable to individuals. If the shares acquired upon
exercise are not disposed of until more than two years after the date of grant
and one year after the date of transfer of the shares to the participant
(statutory holding periods), the excess of the sale proceeds over the aggregate
option price of such shares will be long-term capital gain, and the Company will
not be entitled to any federal income tax deduction. Except in the event of
death, if the shares are disposed of prior to the expiration of the statutory
holding periods (a "Disqualifying Disposition"), the excess of the fair market
value of such shares at the time of exercise over the aggregate option price
(but not more than the gain on the disposition if the disposition is a
transaction on which a loss, if sustained, would be recognized) will be ordinary
income at the time of such Disqualifying Disposition (and the Company or its
subsidiary will be entitled to a federal tax deduction in a like amount), and
the balance of the gain, if any, will be capital gain (short-term or long-term
depending on the holding period).
(3) Special rule if option price is paid for in shares: If a participant
pays the exercise price of a non-qualified or incentive stock option with
previously-owned shares of the Company's Common Stock and the transaction is not
a Disqualifying Disposition, the shares received equal to the number of shares
surrendered are treated as having been received in a tax-free exchange. The
shares received in excess of the number surrendered will not be taxable if an
incentive stock option is being exercised, but will be taxable as ordinary
income to the extent of their fair market value if a non-qualified stock option
is being exercised. The participant does not recognize income and the Company
receives no deduction as a result of the tax-free portion of the exchange
transaction. If the use of previous acquired incentive stock option shares to
pay the exercise price of another incentive stock option constitutes a
Disqualifying Disposition, the tax results are as described in (2) above. The
income treatment will apply to the shares disposed of but will not affect the
favorable tax treatment of the shares received.
(4) With respect to performance shares granted under the 1996 Plan: Unless
a participant makes the election described below, a participant receiving a
grant will not recognize income and the Company will not be allowed a deduction
at the time such performance shares are granted. While the shares remain subject
to a substantial risk of forfeiture, a participant will recognize compensation
income equal to the amount of the dividends received and the Company will be
allowed a deduction in
20
a like amount. When the shares cease to be subject to a substantial risk of
forfeiture, the excess of the fair market value of the shares on the date the
substantial risk of forfeiture ceases over the amount paid, if any, by the
participant for the shares will be ordinary income to the participant and will
be allowed as a deduction for federal income tax purposes to the Company. Upon
disposition of the shares, the gain or loss recognized by the participant will
be treated as capital gain or loss, and the capital gain or loss will be
short-term or long-term depending upon the period of time the shares are held by
the participant following cessation of the substantial risk of forfeiture.
However, by filing a Section 83(b) election with the Internal Revenue Service
within 30 days after the date of grant, a participant's ordinary income and
commencement of holding period and the deduction will be determined as of the
date of grant. In such a case, the amount of ordinary income recognized by such
a participant and deductible by the Company will be equal to the excess of the
fair market value of the shares as of the date of grant over the amount paid, if
any, by the participant for the shares. If such election is made and a
participant thereafter forfeits his or her stock, no refund or deduction will be
allowed for the amount previously included in such participant's income.
AWARDS AND GRANTS. On August 23, 1996, the Compensation Committee granted
stock options to the Company's executive officers and other members of
management under the 1996 Plan, subject to shareholder approval of the 1996
Plan. Pursuant to the awards, Fred L. Callon was granted an option to purchase
75,000 shares of Common Stock; Dennis W. Christian was granted an option to
purchase 70,000 shares of Common Stock; John S. Weatherly was granted an option
to purchase 65,000 shares of Common Stock; Kathy G. Tilley was granted an option
to purchase 55,000 shares of Common Stock; and H. Michael Tatum was granted an
option to purchase 15,000 shares of Common Stock. All of such options were
granted at an exercise price of $12.00 per share, the fair market value of the
Common Stock on the date of grant, and 20% of each option vests on January 1 of
each succeeding year, beginning January 1, 1997. Unvested options are subject to
forfeiture upon certain termination of employment events.
The Compensation Committee also awarded performance shares under the 1996
Plan to the Company's executive officers on August 23, 1996, subject to
Shareholder approval of the 1996 Plan. Contingent upon such Shareholder
approval, Fred L. Callon will be awarded 60,000 performance shares; Dennis W.
Christian will be awarded 55,000 performance shares; John S. Weatherly will be
awarded 50,000 performance shares; Kathy G. Tilley will be awarded 45,000
performance shares; and H. Michael Tatum will be awarded 15,000 performance
shares. All of the performance shares granted will vest in whole on January 1,
2001 and will be subject to forfeiture upon certain termination of employment
events.
NEW PLAN BENEFITS. The number and value of options granted under the 1996
Plan to each Named Executive Officer, the Executive Group, the Director Group
and the Employee Group is included in the table under "Executive
Compensation -- Option Grants in Year Ending December 31, 1996." Information
regarding performance share awards under the 1996 Plan to each Named Executive
Officer is included in the table under "Executive Compensation -- Summary
Compensation Table." The following table sets forth certain information
concerning performance shares granted, subject to approval of the 1996 Plan by
the Shareholders, to the Executive Group, the Director Group and the Employee
Group.
1996 PLAN
----------------------------------
PERFORMANCE SHARES
----------------------------------
DOLLAR VALUE($) NUMBER OF UNITS
--------------- ---------------
Executive Group (6 persons).......... (a) 225,000
Director Group (4 persons)........... -- --
Employee Group (8 persons)........... -- --
- ------------
(a) If the 1996 Plan is approved at the Annual Meeting, such shares will be
awarded as of the date of the Annual Meeting. On April 25, 1997, the closing
price of the Common Stock on the Nasdaq NMS was $13.375 per share.
21
VOTE REQUIRED. The affirmative vote of the holders of a majority of the
shares of the Common Stock of the Company present or represented and entitled to
vote is required to approve the adoption of the 1996 Plan. As of the record
date, directors and officers of the Company had the power to vote approximately
47.94% of the outstanding shares of Common Stock. All the directors and officers
have expressed the intent to vote in favor of the adoption of the 1996 Plan and
the Board of Directors recommends that the Shareholders vote for the adoption of
the 1996 Plan.
PROPOSAL III
APPROVAL OF THE
CALLON PETROLEUM COMPANY
1997 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors has authorized the implementation of the 1997
Employee Stock Purchase Plan (the "1997 Purchase Plan"). The 1997 Purchase
Plan is intended to provide eligible employees of the Company and its
participating affiliates with the continuing opportunity to acquire a propriety
interest in the Company through participation in a payroll-deduction based
employee stock purchase plan designed to operate in compliance with Section 423
of the Code. The 1997 Purchase Plan was adopted by the Board on September 26,
1996 and the initial purchase period under the 1997 Purchase Plan will begin on
July 1, 1997. However, no purchase rights under the 1997 Purchase Plan will be
exercised, and no shares of Common Stock will be issued under the 1997 Purchase
Plan unless it is approved by the Company's Shareholders at the Annual Meeting.
The following is a summary of the principal features of the 1997 Purchase
Plan. The summary, however, does not purport to be a complete description of all
the provisions of the 1997 Purchase Plan. The full text of the 1997 Purchase
Plan is set forth in Exhibit B to this proxy statement and the following
description of the 1997 Purchase Plan is qualified by reference to the text
thereof.
SHARE RESERVE. An aggregate of 250,000 shares of Common Stock have been
reserved for issuance over the ten-year term of the 1997 Purchase Plan. This
share reserve will be drawn from either newly-issued shares of Common Stock or
shares of Common Stock repurchased by the Company, including shares repurchased
on the open market.
In the event any change is made to the outstanding shares of Common Stock
by reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to (i) the class and maximum number of securities issuable under the 1997
Purchase Plan, including the class and number of securities issuable per
participant on any one purchase date, and (ii) the class and maximum number of
securities subject to each outstanding purchase right and the purchase price
payable per share thereunder.
ADMINISTRATION. The 1997 Purchase Plan will be administered by the
Compensation Committee of the Company's Board of Directors or such other duly
constituted committee of the Company's Board of Directors (the "1997 Plan
Administrator"). The 1997 Plan Administrator will have full authority to adopt
such rules and procedures as it may deem necessary for proper plan
administration and to interpret the provisions of the 1997 Purchase Plan. All
costs and expenses incurred in plan administration will be paid by the Company
without charge to participants.
OFFERING PERIODS AND PURCHASE PERIODS. The 1997 Purchase Plan will be
implemented in a series of successive offering periods, each with a maximum
duration (not to exceed twenty-four (24) months) designated by the 1997 Plan
Administrator prior to the start date. The initial offering period will begin on
July 1, 1997 and will continue through June 30, 1999. The next offering period
will start on the first business day in July 1999 and terminate on the last
business day in June 2001. Any subsequent offering periods will begin as
designated by the 1997 Plan Administrator.
22
Each offering period will be comprised of a series of successive
semi-annual purchase periods. Purchase periods will run from the first business
day in January to the last business day in June each year and from the first
business day in July each year to the last business day in December in each
year. Accordingly, there will be a maximum of four (4) semi-annual purchase
periods within each offering period. Shares of Common Stock will be purchased on
behalf of participants on the last day of each such semi-annual period. The
initial purchase period will begin on the July 1, 1997 start date of the initial
offering period under the 1997 Purchase Plan and will end on December 31, 1997.
Should the fair market value per share of Common Stock on any purchase date
within an offering period be less than the fair market value per share of Common
Stock on the start date of that offering period, then that offering period will
automatically terminate immediately after the purchase of shares of Common Stock
on that purchase date, and a new offering period will begin on the next business
day. The new offering period will have a duration of twenty-four (24) months,
unless the 1997 Plan Administrator establishes a shorter duration within five
(5) business days following the start date of that offering period.
ELIGIBILITY. Any individual who is employed on a basis under which he or
she is regularly expected to work for more than 20 hours per week for more than
five months per calendar year in the employ of the Company or any participating
parent or subsidiary corporation (including any corporation which subsequently
becomes such at any time during the term of the 1997 Purchase Plan) will be
eligible to participate in the 1997 Purchase Plan.
An individual who is an eligible employee on the start date of any offering
period may join that offering period at that time or on any subsequent quarterly
entry date (the first business day in January, April, July or October each year)
within that offering period. An individual who first becomes an eligible
employee after such start date may join the offering period on any quarterly
entry date within that offering period on which he or she is an eligible
employee.
The participant will be granted a separate purchase right for each offering
period in which he or she participates. The purchase right will be granted at
the time the participant joins the offering period and will allow such
individual to purchase shares of Common Stock at semi-annual intervals over the
remainder of that offering period with his or her accumulated payroll
deductions.
As of March 31, 1997, approximately 141 employees, including six executive
officers, were eligible to participate in the 1997 Purchase Plan.
PAYROLL DEDUCTIONS AND STOCK PURCHASES. Each participant may authorize
periodic payroll deductions in any multiple of 1% (up to a maximum of 15%) of
his or her base salary each offering period to be applied to the acquisition of
Common Stock on each semi-annual purchase date. On each semi-annual purchase
date (the last business day in June and December of each year), the payroll
deductions of each participant will automatically be applied to the purchase of
whole shares of Common Stock at the purchase price in effect for the participant
for that purchase date.
PURCHASE PRICE. The purchase price per share at which Common Stock will be
purchased on the participant's behalf on each purchase date within the offering
period will be equal to eighty-five percent (85%) of the lower of (i) the fair
market value per share of Common Stock on the participant's entry date into that
offering period or (ii) the fair market value per share of Common Stock on that
purchase date.
VALUATION. The fair market value per share of Common Stock on any relevant
date will be the closing selling price per share on such date on the Nasdaq NMS.
On April 25, 1997, the fair market value per share of Common Stock was $13.375
per share.
23
SPECIAL LIMITATIONS. The 1997 Purchase Plan imposes certain limitations
upon a participant's rights to acquire Common Stock, including the following
limitations:
(i) No purchase right may be granted to any individual who owns stock
(including stock purchasable under any outstanding purchase rights)
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company of any of its affiliates.
(ii) No purchase right granted to a participant may permit such
individual to purchase Common Stock at a rate greater than $25,000 worth of
such Common Stock (valued at the time such purchase right is granted) for
each calendar year the purchase right remains outstanding at any time.
(iii) No participant may purchase more than 1,000 shares of Common
Stock on any semi-annual purchase date.
TERMINATION OF PURCHASE RIGHTS. The purchase right will immediately
terminate upon the participant's termination of employment or loss of eligible
employee status or upon his or her affirmative withdrawal from the offering
period. The payroll deductions collected for the purchase period in which the
purchase right terminates will be refunded.
ASSIGNABILITY. No purchase right will be assignable or transferable and
will be exercisable only by the participant.
STOCKHOLDER RIGHTS. No participant will have any stockholder rights with
respect to the shares of Common Stock covered by his or her purchase right until
the shares are actually purchased on the participant's behalf.
ACQUISITION. Should the Company be acquired by merger or asset sale during
an offering period, all outstanding purchase rights will automatically be
exercised immediately prior to the effective date of such acquisition. The
purchase price for each participant will be 85% of the lower of (i) the fair
market value per share of Common Stock on the participant's entry date into the
offering period in which such acquisition occurs or (ii) the fair market value
per share of Common Stock immediately prior to such acquisition.
PRORATION OF SHARES. Should the total number of shares of Common Stock to
be purchased pursuant to outstanding purchase rights on any particular date
exceed the number of shares then available for issuance under the 1997 Purchase
Plan, then the 1997 Plan Administrator will make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, will
be refunded.
AMENDMENT AND TERMINATION. The 1997 Purchase Plan will terminate upon the
earliest to occur of (i) the last business day in June 2007, (ii) the date on
which all available shares are issued or (iii) the date on which all outstanding
purchase rights are exercised in connection with an acquisition of the Company.
The Board may at any time alter, suspend or discontinue the 1997 Purchase
Plan as of the close of any purchase period. However, the Board may not, without
Shareholder approval, materially increase the number of shares issuable under
the 1997 Purchase Plan, and certain other amendments may require stockholder
approval pursuant to applicable laws or regulations.
FEDERAL TAX CONSEQUENCES. The 1997 Purchase Plan is intended to be an
"employee stock purchase plan" within the meaning of Section 423 of the
Internal Revenue Code. Under a plan which so qualifies, no taxable income will
be recognized by a participant, and no deductions will be allowable to the
Company, in connection with the grant or the exercise of an outstanding purchase
right. Taxable income will not be recognized until there is a sale or other
disposition of the shares acquired under the 1997 Purchase Plan or in the event
the participant should die while still owning the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after his or her entry date into the offering period in
which such shares were acquired or within one (1) one year
24
after the actual purchase date of those shares, then the participant will
recognize ordinary income in the year of sale or disposition equal to the amount
by which the fair market value of the shares on the purchase date exceeded the
purchase price paid for those shares, and the Company will be entitled to an
income tax deduction, for the taxable year in which such sale or disposition
occurs, equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than two
(2) years after his or her entry date into the offering period in which such
shares were acquired and more than one (1) one year after the actual purchase
date of those shares, then the participant will recognize ordinary income in the
year of sale or disposition equal to the lesser of (i) the amount by which the
fair market value of the shares on the sale or disposition date exceeded the
purchase price paid for those shares or (ii) 15% of the fair market value of the
shares on his or her entry date into the offering period, and any additional
gain upon the disposition will be taxed as a long-term capital gain. The Company
will not be entitled to any income tax deduction with respect to such sale or
disposition.
If the participant still owns the purchased shares at the time of death,
the lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) 15% of the fair market value of
the shares on his or her entry date into the offering period in which those
shares were acquired will constitute ordinary income in the year of death.
ACCOUNTING TREATMENT. Under current accounting rules, the issuance of
shares of Common Stock under the 1997 Purchase Plan will not result in a
compensation expense chargeable against the Company's reported earnings.
However, the Company must disclose, in pro-forma statements to the Company's
financial statements, the impact the purchase rights granted under the 1997
Purchase Plan would have upon the Company's reported earnings were the value of
those purchase rights treated as compensation expense.
NEW PLAN BENEFITS. Each participant in the 1997 Purchase Plan will have
the right to purchase a maximum of 1,000 shares of Common Stock on each purchase
date within the initial offering period beginning July 1, 1997. However, it is
not possible to determine at this time how many eligible employees will
participate in the 1997 Purchase Plan, the actual number of shares of Common
Stock which may be issued per participant on each such purchase date or the
actual purchase price to be paid per share.
VOTE REQUIRED. The affirmative vote of the holders of a majority of the
shares of the Common Stock of the Company present or represented and entitled to
vote is required to approve the adoption of the 1997 Purchase Plan. As of the
record date, directors and officers of the Company had the power to vote
approximately 47.94% of the outstanding shares of Common Stock. All the
directors and officers have expressed the intent to vote in favor of the
adoption of the 1997 Purchase Plan and the Board of Directors recommends that
the Shareholders vote for the adoption of the 1997 Purchase Plan.
PROPOSAL IV
RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Arthur Andersen LLP, independent
public accountants, for the examination of the accounts and audit of the
financial statements of the Company for the year ending December 31, 1997. At
the Annual Meeting, the Board of Directors will present a proposal to the
Shareholders to approve and ratify the engagement of Arthur Andersen LLP. A
representative of Arthur Andersen LLP will be present at the Annual Meeting and
will have the opportunity to make a statement, if he desires, and to respond to
appropriate questions.
Management recommends that the Shareholders approve and ratify the
appointment of Arthur Andersen LLP as independent public accountants of the
Company for the fiscal year ending December 31, 1997. Unless otherwise
indicated, all properly executed Proxies received by management will be
25
voted for such ratification at the Annual Meeting. An adverse vote will be
considered as a direction to the Audit Committee of the Board of Directors to
select other auditors in the following year.
SHAREHOLDERS' PROPOSALS FOR 1998 ANNUAL MEETING
No person other than nominees selected by the Board of Directors shall be
eligible for election as a director unless written notice of a nomination is
received from a Shareholder of record by the Secretary of the Company not less
than 120 days prior to the anniversary date of the release of the Proxy
Statement in connection with the immediately preceding Annual Meeting of
Shareholders, accompanied by the written consent of the nominee to serve and the
name, age, business and residence address and principal occupation of the
nominee, the number of shares beneficially owned by the nominee and any other
information which would be required to be furnished by law with respect to any
nominee of the Board of Directors of the Company. Shareholders who desire to
nominate persons for election as a director at the 1998 Annual Meeting of
Shareholders must submit nominations to the Company at its principal executive
offices not later than January 20, 1998.
Shareholders who desire to present proposals other than nominees for the
election of directors to Shareholders at the 1998 Annual Meeting of Shareholders
and to have proposals included in the Company's proxy materials must submit
their proposals to the Company at its principal executive offices not later than
January 20, 1998.
In order to avoid controversy as to the date on which any such proposal is
received by the Company, it is suggested that Shareholders submit their
proposals by certified mail, return receipt requested.
FINANCIAL STATEMENTS
Financial statements of the Company for its most recent fiscal year are
contained in the 1996 Annual Report. Copies of such Annual Report are available
to Shareholders upon written request to the Investor Relations Department,
Callon Petroleum Company, 200 North Canal Street, Natchez, Mississippi 39120.
OTHER BUSINESS
The Board of Directors does not know of any matter to be acted upon at the
Annual Meeting other than those described above. If other business comes before
the Annual Meeting, the persons named on the Proxy will vote the Proxy in
accordance with what they consider to be in the best interests of the Company
and its Shareholders.
By order of the Board of Directors
Fred L. Callon
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Natchez, Mississippi
May 21, 1997
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EXHIBIT A
CALLON PETROLEUM COMPANY
1996 STOCK INCENTIVE PLAN
ARTICLE I. GENERAL
SECTION 1.1. PURPOSE. The purposes of this Stock Incentive Plan (the
"Plan") are to: (1) associate the interests of the management of CALLON
PETROLEUM COMPANY and its subsidiaries and affiliates (collectively referred to
as the "Company") closely with the stockholders to generate an increased
incentive to contribute to the Company's future success and prosperity, thus
enhancing the value of the Company for the benefit of its stockholders; (2)
provide management with a proprietary ownership interest in the Company
commensurate with Company performance, as reflected in increased stockholder
value; (3) maintain competitive compensation levels thereby attracting and
retaining highly competent and talented directors, employees and consultants;
and (4) provide an incentive to management for continuous employment with the
Company. Certain capitalized terms are defined in Section 6.7.
SECTION 1.2. ADMINISTRATION.
(a) The Plan shall be administered by (i) the Board of Directors of
the Company, (ii) any duly constituted committee of the Board of Directors
consisting of at least two members of the Board of Directors, all of whom
shall be Non-Employee Directors, or (iii) any other duly constituted
committee of the Board of Directors. Such administrating party shall be
referred to herein as the "Plan Administrator".
(b) The Plan Administrator shall have the authority, in its sole
discretion and from time to time to:
(i) designate the officers, key employees and consultants of the
Company and its Subsidiaries eligible to participate in the Plan;
(ii) grant Awards provided in the Plan in such form and amount as
the Plan Administrator shall determine;
(iii) impose such limitations, restrictions and conditions, not
inconsistent with this Plan, upon any such Award as the Plan
Administrator shall deem appropriate; and
(iv) interpret the Plan and any agreement, instrument or other
document executed in connection with the Plan, adopt, amend and rescind
rules and regulations relating to the Plan, and make all other
determinations and take all other action necessary or advisable for the
implementation and administration of the Plan.
(c) Decisions and determinations of the Plan Administrator on all
matters relating to the Plan shall be in its sole discretion and shall be
final, conclusive and binding upon all persons, including the Company, any
participant, any stockholder of the Company, any employee and any
consultant. No member of any committee acting as Plan Administrator shall
be liable for any action taken or decision made relating to the Plan or any
Award thereunder.
SECTION 1.3. ELIGIBILITY FOR PARTICIPATION. Participants in the Plan
shall be selected by the Plan Administrator from the directors, executive
officers and other key employees and consultants of the Company and executive
officers and key employees and consultants of any Subsidiary of the Company who
have the capability of making a substantial contribution to the success of the
Company. In making this selection and in determining the form and amount of
awards, the Plan Administrator shall consider any factors deemed relevant,
including the individual's functions, responsibilities, value of services to the
Company and past and potential contributions to the Company's profitability and
growth. For the purposes of this Plan, the term "Subsidiary" means any
corporation or other entity of which at least 50% of the voting securities are
owned by the Company directly or through one or more other corpora-
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tions, each of which is also a Subsidiary. With respect to non-corporate
entities, Subsidiary shall mean an entity managed or controlled by the Company
or any Subsidiary and with respect to which the Company or any Subsidiary is
allocated more than half of the profits and losses thereof.
SECTION 1.4. TYPES OF AWARDS UNDER PLAN. Awards under the Plan may be in
the form of any or more of the following:
(i) Stock Options, as described in Article II;
(ii) Incentive Stock Options, as described in Article III; and/or
(iii) Performance Shares, as described in Article IV.
Awards under the Plan shall be evidenced by an Award Agreement between the
Company and the recipient of the Award, in form and substance satisfactory to
the Plan Administrator, and not inconsistent with this Plan. Award Agreements
may provide such vesting schedules for Stock Options, Incentive Stock Options
and Performance Shares, and such other terms, conditions and provisions as are
not inconsistent with the terms of this Plan. Subject to the express provisions
of the Plan, and within the limitations of the Plan, the Plan Administrator may
modify, extend or renew outstanding Award Agreements, or accept the surrender of
outstanding Awards and authorize the granting of new Awards in substitution
therefor. However, except as provided in Sections 6.1(i), 6.1(ii) and 6.11(d)(3)
of this Plan, no modification of an Award shall impair the rights of the holder
thereof without his consent.
SECTION 1.5. AGGREGATE LIMITATION ON AWARDS.
(a) Shares of stock which may be issued under the Plan shall be
authorized and unissued or treasury shares of Common Stock of the Company
("Common Stock"). The maximum number of shares of Common Stock which may
be issued pursuant to Awards issued under the Plan shall be 900,000, which
may be increased by the Board of Directors pursuant to Section 6.12.
(b) For purposes of calculating the maximum number of shares of
Common Stock which may be issued under the Plan at any time:
(i) all the shares issued (including the shares, if any, withheld
for tax withholding requirements) under the Plan shall be counted when
issued upon exercise of a Stock Option or Incentive Stock Option; and
(ii) only the net shares issued as Performance Shares shall be
counted (shares reacquired by the Company because of failure to achieve
a performance target or failure to become fully vested for any other
reason shall again be available for issuance under the Plan).
(c) Shares tendered by a participant as payment for shares issued
upon exercise of a Stock Option or Incentive Stock Option shall be
available for issuance under the Plan. Any shares of Common Stock subject
to a Stock Option or Incentive Stock Option which for any reason is
terminated unexercised or expires shall again be available for issuance
under the Plan.
SECTION 1.6. EFFECTIVE DATE AND TERM OF PLAN
(a) The Plan shall become effective on the date adopted by the Board
of Directors, subject to approval by the holders of a majority of the
shares of Common Stock at a meeting or by written consent.
(b) The Plan and all Awards made under the Plan shall remain in
effect until such Awards have been satisfied or terminated in accordance
with the Plan and the terms of such Awards.
ARTICLE II. STOCK OPTIONS
SECTION 2.1. AWARD OF STOCK OPTIONS. The Plan Administrator may from time
to time, and subject to the provisions of the Plan and such other terms and
conditions as the Plan Administrator may prescribe, grant to any participant in
the Plan one or more options to purchase for cash or shares the
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number of shares of Common Stock ("Stock Options") allotted by the Plan
Administrator. The date a Stock Option is granted shall mean the date selected
by the Plan Administrator as of which the Plan Administrator allots a specific
number of shares to a participant pursuant to the Plan.
SECTION 2.2. STOCK OPTION AGREEMENTS. The grant of a Stock Option shall
be evidenced by a written Award Agreement, executed by the Company and the
holder of a Stock Option (the "Optionee"), stating the number of shares of
Common Stock subject to the Stock Option evidenced thereby, and in such form as
the Plan Administrator may from time to time determine.
SECTION 2.3. STOCK OPTION PRICE. The option price per share of Common
Stock deliverable upon the exercise of a Stock Option shall be 100% of the fair
market value of a share of Common Stock on the date the Stock Option is granted
unless otherwise determined by the Plan Administrator.
SECTION 2.4. TERM AND EXERCISE. A Stock Option shall not be exercisable
prior to six months from the date of its grant, unless a shorter period is
provided by the Plan Administrator or by another Section of this Plan, and may
be subject to such vesting scheduling and term ("Option Term") as the Plan
Administrator may provide in an Award Agreement. No Stock Option shall be
exercisable after the expiration of its Option Term.
SECTION 2.5. MANNER OF PAYMENT. Each Award Agreement providing for Stock
Options shall set forth the procedure governing the exercise of the Stock Option
granted thereunder, and shall provide that, upon such exercise in respect of any
shares of Common Stock subject thereto, the Optionee shall pay to the Company,
in full, the option price for such shares with cash or, if duly authorized by
the Plan Administrator, Common Stock.
SECTION 2.6. ISSUANCE OF CERTIFICATES. As soon as practicable after
receipt of payment, the Company shall deliver to the Optionee a certificate or
certificates for such shares of Common Stock. The Optionee shall become a
stockholder of the Company with respect to Common Stock represented by share
certificates so issued and as such shall be fully entitled to receive dividends,
to vote and to exercise all other rights of a stockholder.
SECTION 2.7. DEATH, RETIREMENT AND TERMINATION OF EMPLOYMENT OF
OPTIONEE. Unless otherwise provided in an Award Agreement or otherwise agreed
to by the Plan Administrator:
(a) Upon the death of the Optionee, any rights to the extent
exercisable on the date of death may be exercised by the Optionee's estate,
or by a person who acquires the right to exercise such Stock Option by
bequest or inheritance or by reason of the death of the Optionee, provided
that such exercise occurs within both (i) the remaining Option Term of the
Stock Option and (ii) one year. The provisions of this Section shall apply
notwithstanding the fact that the Optionee's employment may have terminated
prior to death, but only to the extent of any rights exercisable on the
date of death.
(b) Upon termination of the Optionee's employment by reason of
retirement or permanent disability (as each is determined by the Plan
Administrator), the Optionee may exercise any Stock Options, provided such
option exercise occurs within both (i) the remaining Option Term of the
Stock Option and (ii) six months (in the case of permanent disability) or
three months (in the case of retirement).
(c) Upon termination of the Optionee's employment by reason other
than death, retirement, disability or cause (as each is determined by the
Plan Administrator), the Optionee may exercise any Stock Options, provided
such option exercise occurs within both (i) the remaining Option Term of
the Stock Option and (ii) 30 days of the date of termination.
(d) Except as provided in Subsections (a), (b) and (c) of this
Section 2.7, all Stock Options shall terminate immediately upon the
termination of the Optionee's employment.
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ARTICLE III. INCENTIVE STOCK OPTIONS
SECTION 3.1. AWARD OF INCENTIVE STOCK OPTIONS. The Plan Administrator
may, from time to time and subject to the provisions of the Plan and such other
terms and conditions as the Plan Administrator may prescribe, grant to any
officer or key employee who is a participant in the Plan one or more "incentive
stock options" (intended to qualify as such under the provisions of Section 422
of the Internal Revenue Code of 1986, as amended ("Incentive Stock Options"))
to purchase for cash or shares the number of shares of Common Stock allotted by
the Plan Administrator. No Incentive Stock Options shall be made under the Plan
after the tenth anniversary of the effective date of the Plan. The date an
Incentive Stock Option is granted shall mean the date selected by the Plan
Administrator as of which the Plan Administrator allots a specific number of
shares to a participant pursuant to the Plan. Notwithstanding the foregoing,
Incentive Stock Options shall not be granted to any owner of 10% or more of the
total combined voting power of the Company and its subsidiaries.
SECTION 3.2. INCENTIVE STOCK OPTION AGREEMENTS. The grant of an Incentive
Stock Option shall be evidenced by a written Award Agreement, executed by the
Company and the holder of an Incentive Stock Option (the "Optionee"), stating
the number of shares of Common Stock subject to the Incentive Stock Option
evidenced thereby, and in such form as the Plan Administrator may from time to
time determine.
SECTION 3.3. INCENTIVE STOCK OPTION PRICE. The option price per share of
Common Stock deliverable upon the exercise of an Incentive Stock Option shall be
100% of the fair market value of a share of Common Stock on the date the
Incentive Stock Option is granted.
SECTION 3.4. TERM AND EXERCISE. Each Incentive Stock Option shall not be
exercisable prior to six months from the date of its grant and unless a shorter
period is provided by the Plan Administrator or another Section of this Plan,
may be exercised during a period of ten years from the date of grant thereof
(the "Option Term") and may be subject to such vesting scheduling as the Plan
Administrator may provide in an Award Agreement. No Incentive Stock Option shall
be exercisable after the expiration of its Option Term.
SECTION 3.5. MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT. The
aggregate fair market value (determined on the date the Incentive Stock Option
is granted) of Common Stock with respect to which Incentive Stock Options first
become exercisable by an Optionee during in any calendar year (under all plans
of the Optionee's employer corporations and their parent and subsidiary
corporations) shall not exceed $100,000.
SECTION 3.6. DEATH OF OPTIONEE.
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's estate
or by a person who acquires the right to exercise such Incentive Stock
Option by bequest or inheritance or by reason of the death of the Optionee,
provided that such exercise occurs within both the remaining Option Term of
the Incentive Stock Option and one year after the Optionee's death.
(b) The provisions of this Section shall apply notwithstanding the
fact that the Optionee's employment may have terminated prior to death, but
only to the extent of any Incentive Stock Options exercisable on the date
of death.
SECTION 3.7. RETIREMENT OR DISABILITY. Unless otherwise provided in an
Award Agreement or otherwise agreed to by the Plan Administrator, upon the
termination of the Optionee's employment by reason of permanent disability or
retirement (as each is determined by the Plan Administrator), the Optionee may
exercise any Incentive Stock Options, provided such option exercise occurs
within both (i) the remaining Option Term of the Incentive Stock Option and (ii)
one year (in the case of permanent disability) or three months (in the case of
retirement). Notwithstanding the terms of an Award Agreement, the tax treatment
available pursuant to Section 422 of the Internal Revenue Code of 1986 (the
"Code") upon the exercise of an Incentive Stock Option shall not be available
to an Optionee who exercises any Incentive Stock Options more than (i) one year
after the date of termination of
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employment due to permanent disability or (ii) three months after the date of
termination of employment due to retirement.
SECTION 3.8. TERMINATION FOR OTHER REASONS. Unless otherwise provided in
an Award Agreement or otherwise agreed to by the Plan Administrator, except as
provided in Sections 3.6 and 3.7, upon termination of the Optionee's employment
by reason other than cause (as determined by the Plan Administrator), the
Optionee may exercise any Incentive Stock Options, provided such option exercise
occurs within both (i) the remaining Incentive Option Term of the Stock Option
and (ii) 30 days of the date of termination.
SECTION 3.9. TERMINATION FOR CAUSE. Unless otherwise provided in an Award
Agreement or otherwise agreed to by the Plan Administrator, except as provided
in Sections 3.6, 3.7 and 3.8, all Incentive Stock Options shall terminate
immediately upon the termination of the Optionee's employment.
SECTION 3.10. CODE REQUIREMENTS. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of Code
Section 422. Anything in the Plan to the contrary notwithstanding, no term of
the Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Code Section 422, unless the participant has first requested the change
that will result in such disqualification.
ARTICLE IV. PERFORMANCE SHARE AWARDS
SECTION 4.1. AWARDS GRANTED BY PLAN ADMINISTRATOR. Coincident with or
following designation for participation in the Plan, a participant may be
granted Performance Shares. Certificates representing Performance Shares shall
be issued to the participant effective as of the date of the Award. Holders of
Performance Shares shall have all of the voting, dividend and other rights of
stockholders of the Company, subject to the terms of any Award Agreement.
SECTION 4.2. AMOUNT OF AWARD. The Plan Administrator shall establish a
maximum amount of a participant's Award, which amount shall be denominated in
shares of Common Stock.
SECTION 4.3. COMMUNICATION OF AWARD. Written notice of the maximum amount
of a participant's Award and the Performance Cycle determined by the Plan
Administrator, if any, shall be given to a participant as soon as practicable
after approval of the Award by the Plan Administrator. The grant of Performance
Shares shall be evidenced by a written Award Agreement, executed by the Company
and the recipient of Performance Shares, in such form as the Plan Administrator
may from time to time determine, providing for the terms of such grant.
SECTION 4.4. AMOUNT OF AWARD PAYABLE. Performance Shares may be granted
based upon past performance or future performance. In addition to any other
restrictions the Plan Administrator may place on Performance Shares, the Plan
Administrator may, in its discretion, provide that Performance Shares shall vest
upon the satisfaction of performance targets to be achieved during an applicable
"Performance Cycle." Failure to satisfy the performance targets may result, in
the Plan Administrator's discretion as set forth in an Award Agreement, in the
forfeiture of the Performance Shares by the participant and the return of such
shares to the Company, or have any other consequence as determined by the Plan
Administrator. Performance targets established by the Plan Administrator may
relate to corporate, group, unit or individual performance and may be
established in terms of market price of common stock, cash flow or cash flow per
share, reserve value or reserve value per share, net asset value or net asset
value per share, earnings, or such other measures or standards determined by the
Plan Administrator. Multiple performance targets may be used and the components
of multiple performance targets may be given the same or different weight in
determining the amount of an Award earned, and may relate to absolute
performance or relative performance measured against other groups, units,
individuals or entities. The Plan Administrator may also establish that none, a
portion or all of a
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participant's Award will vest (subject to Section 4.5) for performance which
falls below the performance target applicable to such Award. Certificates
representing Performance Shares shall bear a legend restricting their transfer
and requiring the forfeiture of the shares to the Company if any performance
targets or other conditions to vesting are not met. The Plan Administrator may
also require a participant to deliver certificates representing unvested
Performance Shares to the Company in escrow until the Performance Shares vest.
SECTION 4.5. PAYMENTS OF AWARDS. Following the conclusion of each
Performance Cycle, the Plan Administrator shall determine the extent to which
performance targets have been attained, and the satisfaction of any other terms
and conditions with respect to vesting an Award relating to such Performance
Cycle. Subject to the provisions of Section 6.3, to the extent the Plan
Administrator determines Performance Shares have vested, the Company shall issue
to the participant certificates representing vested shares free of any legend
regarding performance targets or forfeiture in exchange for such participant's
legended certificates.
SECTION 4.6. TERMINATION OF EMPLOYMENT. Unless the Award Agreement
provides for vesting upon death, disability, retirement or termination of
employment, upon any such termination of employment of a participant prior to
vesting of Performance Shares, all outstanding and unvested Awards of
Performance Shares to such participant shall be canceled, shall not vest and
shall be returned to the Company.
SECTION 4.7. TRANSFER RESTRICTION. Unless otherwise provided in an Award
Agreement or otherwise agreed to by the Plan Administrator, any Award Agreement
providing for the issuance of Performance Shares to any person who, at the time
of grant, is subject to the restrictions of Section 16(b) of the Exchange Act,
shall provide that such Common Stock cannot be resold for a period of six months
following the grant of such Performance Shares.
ARTICLE V. AUTOMATIC GRANTS
SECTION 5.1. GRANT. Each director who is not an employee of the Company,
its subsidiaries, affiliates and managers shall on the date on which he or she
is initially elected or appointed a director of the Company, be granted a Stock
Option to purchase 5,000 shares of Common Stock for the fair market price on the
date of such grant, for an Option Term of ten years. Thereafter, on the first
business day following the Annual Meeting of Stockholders of each subsequent
year in which such person is still serving as a director (whether or not such
director's term has been continuous), he or she shall automatically be granted a
Stock Option to purchase an additional 5,000 shares of Common Stock for the fair
market price on the date of such grant for an Option Term of ten years.
SECTION 5.2. APPLICABLE PROVISIONS. The provisions of Section 2.7(a)
relating to the death of a director shall apply to options granted under Section
5.1 and the Plan Administrator may not agree to the contrary in an Award
Agreement or otherwise. The provisions of Subsections 2.7(b), (c) and (d)
relating to disability and other termination of employment shall not apply to
options granted under Section 5.1, and the failure to be reelected as a director
of the Company shall not effect the Stock Options granted under this Section.
ARTICLE VI. MISCELLANEOUS
SECTION 6.1. GENERAL RESTRICTION. Each Award under the Plan shall be
subject to the requirement that, if at any time the Plan Administrator shall
determine that (i) the listing, registration or qualification of the shares of
Common Stock which is the subject of such Award is necessary under the rules and
regulations of any securities exchange or under any state or Federal law, or
(ii) the consent or approval of any government regulatory body is necessary as a
condition of, or in connection with, the granting of such Award or the issue or
purchase of shares of Common Stock thereunder, such Award may not be consummated
in whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained.
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SECTION 6.2. NON-ASSIGNABILITY. No Award under the Plan shall be
assignable or transferable by the recipient thereof, except by will or by the
laws of descent and distribution. During the life of the recipient, such Award
shall be exercisable only by such person or by such person's guardian or legal
representative.
SECTION 6.3. WITHHOLDING TAXES. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the Company
shall have the right to require the grantee to remit to the Company an amount
sufficient to satisfy any Federal, state and/or local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares. Alternatively, the Company may issue, transfer or vest only such number
of shares of the Company net of the number of shares sufficient to satisfy the
withholding tax requirements. For withholding tax purposes, the shares of Common
Stock shall be valued on the date the withholding obligation is incurred.
SECTION 6.4. RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any participant
the right to continue in the employment of the Company or affect any right which
the Company may have to terminate the employment of such participant.
SECTION 6.5. NON-UNIFORM DETERMINATIONS. The Plan Administrator's
determinations under the Plan (including without limitation determinations of
the persons to receive Awards, the form, amount and timing of such Awards, the
terms and provisions of such Awards and the agreements evidencing same) need not
be uniform and may be made by it selectively among persons who receive, or are
eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
SECTION 6.6. RIGHTS AS A STOCKHOLDER. The recipient of any Award under
the Plan shall have no rights as a stockholder with respect thereto unless and
until certificates for shares of Common Stock are issued to him.
SECTION 6.7. DEFINITIONS. In this Plan the following definitions shall
apply:
(a) "Award" shall mean a grant of Stock Options, Incentive Stock
Options or Performance Shares under the Plan.
(b) "Fair market value" as of any date and in respect of any share
of Common Stock means the average of the high and low sales price on such
date or on the next business day, if such date is not a business day, of a
share of Common Stock reflected in the consolidated trading tables of THE
WALL STREET JOURNAL provided that, if shares of Common Stock shall not have
been traded on the National Association of Securities Dealers, Inc.
Automated Quotation System/National Market System or other public
securities market for more than 10 days immediately preceding such date,
the fair market value of shares of Common Stock shall be as determined by
the Plan Administrator in such other manner as it may deem appropriate. In
no event shall the fair market value of any share of Common Stock be less
than its par value.
(c) "Non-Employee Director" shall mean a director who (i) is not an
officer of the Company or a parent or subsidiary of the Company, or
otherwise employed by the Company or parent or subsidiary of the Company;
(ii) does not receive compensation, either directly or indirectly, from the
Company or a parent or subsidiary of the Company, for services rendered as
a consultant or in any capacity other than as a director, except for an
amount not exceeding $60,000; (iii) does not possess an interest in any
transaction for which disclosure would be required under Item 404(a) of
Regulation S-K of the Securities Act of 1933, as amended ("Securities
Act"); or (iv) is not engaged in a business relationship for which
disclosure would be required pursuant to Item 404(b) of Regulation S-K of
the Securities Act.
(d) "Option" means a Stock Option or Incentive Stock Option.
(e) "Option price" means the purchase price per share of Common
Stock deliverable upon the exercise of a Stock Option or Incentive Stock
Option.
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(f) "Performance Cycle" means the period of time, if any, as
specified by the Plan Administrator over which Performance Shares are to be
vested.
SECTION 6.8. LEAVES OF ABSENCE. The Plan Administrator shall be entitled
to make such rules, regulations and determinations as it deems appropriate under
the Plan in respect of any leave of absence taken by the recipient of any Award.
Without limiting the generality of the foregoing, the Plan Administrator shall
be entitled to determine (i) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of the Plan and (ii)
the impact, if any, of any such leave of absence on Awards under the Plan
theretofore made to any recipient who takes such leave of absence.
SECTION 6.9. NEWLY ELIGIBLE EMPLOYEES. The Plan Administrator shall be
entitled to make such rules, regulations, determinations and Awards as it deems
appropriate in respect of any employee who becomes eligible to participate in
the Plan or any portion thereof after the commencement of an Award or incentive
period.
SECTION 6.10. ADJUSTMENTS. In the event of any change in the outstanding
Common Stock by reason of a stock dividend or distribution, recapitalization,
merger, consolidation, split-up, combination, exchange of shares or the like,
the Plan Administrator may appropriately adjust the number of shares of Common
Stock which may be issued under the Plan, the number of shares of Common Stock
subject to Options or Performance Shares theretofore granted under the Plan, and
any and all other matters deemed appropriate by the Plan Administrator.
SECTION 6.11. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
(a) The existence of outstanding Options or Performance Shares shall
not affect in any way the right or power of the Company or its stockholders
to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of
bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceeding, whether
of a similar character or otherwise.
(b) If, while there are outstanding Options, the Company shall effect
a subdivision or consolidation of shares or other increase or reduction in
the number of shares of the Common Stock outstanding without receiving
compensation therefor in money, services or property, then, subject to the
provisions, if any, in the Award Agreement (a) in the event of an increase
in the number of such shares outstanding, the number of shares of Common
Stock then subject to Options hereunder shall be proportionately increased;
and (b) in the event of a decrease in the number of such shares outstanding
the number of shares then available for Option hereunder shall be
proportionately decreased.
(c) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more corporations in which
the Company shall be the surviving corporation, (i) each holder of an
outstanding Option shall, at no additional cost, be entitled upon exercise
of such Option to receive (subject to any required action by stockholders)
in lieu of the number of shares as to which such Option shall then be so
exercisable, the number and class of shares of stock, other securities or
consideration to which such holder would have been entitled to receive
pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, such holder had been the
holder of record of a number of shares of the Company equal to the number
of shares as to which such Option had been exercisable and (ii) unless
otherwise provided by the Plan Administrator, the number of shares of
Common Stock, other securities or consideration to be received with respect
to unvested Performance Shares shall continue to be subject to the Award
Agreement, including any vesting provisions thereof.
A-8
(d) If the Company is about to be merged into or consolidated with
another corporation or other entity under circumstances where the Company
is not the surviving corporation, or if the Company is about to sell or
otherwise dispose of substantially all of its assets to another corporation
or other entity while unvested Performance Shares or unexercised Options
remain outstanding, then the Plan Administrator may direct that any of the
following shall occur:
(i) If the successor entity is willing to assume the obligation
to deliver shares of stock or other securities after the effective date
of the merger, consolidation or sale of assets, as the case may be, each
holder of an outstanding Option shall be entitled to receive, upon the
exercise of such Option and payment of the option price, in lieu of
shares of Common Stock, such shares of stock or other securities as the
holder of such Option would have been entitled to receive had such
Option been exercised immediately prior to the consummation of such
merger, consolidation or sale, and the terms of such Option shall apply
as nearly as practicable to the shares of stock or other securities
purchasable upon exercise of the Option following such merger,
consolidation or sale of assets;
(ii) The Plan Administrator may waive any limitations set forth
in or imposed pursuant to this Plan or any Award Agreement with respect
to such Option or Performance Share such that (A) such Option shall
become exercisable prior to the record or effective date of such merger,
consolidation or sale of assets or (B) the vesting of such Performance
Share shall occur upon such merger, consolidation or sale of assets;
and/or
(iii) The Plan Administrator may cancel all outstanding Options as
of the effective date of any such merger, consolidation or sale of
assets provided that prior notice of such cancellation shall be given to
each holder of an Option at least 30 days prior to the effective date of
such merger, consolidation or sale of assets, and each holder of an
Option shall have the right to exercise such Option in full during a
period of not less than 30 days prior to the effective date of such
merger, consolidation or sale of assets.
(e) Except as herein provided, the issuance by the Company of Common
Stock or any other shares of capital stock or securities convertible into
shares of capital stock, for cash, property, labor done or other
consideration, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to outstanding Options.
SECTION 6.12. AMENDMENT OF THE PLAN. Subject to Section 3.10, the Board
of Directors may, without further approval by the stockholders and without
receiving further consideration from the participants, amend this Plan or
condition or modify Awards under this Plan, including increases to the number of
shares which may be covered by Awards under this Plan.
SECTION 6.13. NO LOSS OF RIGHTS OF GRANTEE OF AN AWARD. Nothing in this
Plan shall give the Plan Administrator or any other person the right, power or
authority to change, amend, alter or repeal the terms of any Award granted under
this Plan, except as otherwise expressly set forth in the grant of such Award,
without the prior written consent of the grantee of such Award.
A-9
EXHIBIT B
CALLON PETROLEUM COMPANY
1997 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests of
Callon Petroleum Company and its Corporate Affiliates (the "Corporation") by
providing eligible employees with the opportunity to acquire a proprietary
interest in the Corporation through participation in a payroll-deduction based
employee stock purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Compensation Committee of the Board, or any other duly constituted
committee of the Board, in its capacity as Plan Administrator shall have full
authority to interpret and construe any provision of the Plan and to adopt such
rules and regulations for proper administration of the Plan as it may deem
necessary or appropriate. Decisions of the Plan Administrator shall be final and
binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares of Common Stock purchased
on the open market. The maximum number of shares of Common Stock which may be
issued over the term of the Plan shall not exceed 250,000 shares.
B. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and class of securities issuable under the Plan,
(ii) the maximum number and class of securities purchasable per Participant on
any one Purchase Date and (iii) the number and class of securities and the price
per share in effect under each outstanding purchase right in order to prevent
the dilution or enlargement of benefits thereunder.
IV. OFFERINGS AND OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive offerings until such time as (i) the maximum
number of shares of Common Stock available for issuance under the Plan shall
have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering shall be of such duration (not to exceed twenty-four (24)
months) as determined by the Plan Administrator prior to the start date (each,
an "offering period"). The initial offering period shall commence on July 1,
1997 and terminate on the last business day in June 1999. The next offering
period shall begin on the first business day in July 1999 and terminate on the
last business day in June 2001. Subsequent offerings shall begin as designated
by the Plan Administrator.
C. Each offering period shall be comprised of a series of successive
semi-annual Purchase Intervals. Purchase Intervals shall run from the first
business day in July to the last business day in December each year and from the
first business day in January each year to the last business day in June in such
year. Accordingly, there shall be a maximum of four (4) semi-annual Purchase
Intervals within each offering period. However, the first Purchase Interval in
effect for the initial offering period under the Plan shall begin on July 1,
1997 and continue through December 31, 1997.
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D. Should the Fair Market Value per share of Common Stock on any Purchase
Date within an offering period be less than the Fair Market Value per share of
Common Stock on the start date of that offering period, then that offering shall
automatically terminate immediately after the purchase of shares of Common Stock
on such Purchase Date, and a new offering shall commence on the next business
day following such Purchase Date. The new offering shall have a duration of
twenty-four (24) months, unless the Plan Administrator establishes a shorter
duration within five (5) business days following the start date of that offering
period.
E. Under no circumstances shall any shares of Common Stock be issued under
the Plan until such time as (i) the Plan shall have been approved by the
Corporation's shareholders and (ii) the Corporation shall have complied with all
applicable requirements of the Securities Act, all applicable listing
requirements of any securities exchange (or the Nasdaq National Market if
applicable) on which shares of the Common Stock are listed for trading and all
other applicable statutory and regulatory requirements.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee prior to the start date of
any offering may participate in the Plan, provided such individual remains an
Eligible Employee.
B. An individual who first becomes an Eligible Employee after the start
date of any offering may participate in the Plan on any Quarterly Entry Date
within that offering period on which he or she remains an Eligible Employee.
C. The date an Eligible Employee becomes a participant in the Plan shall
be designated his or her Entry Date for purposes of that offering.
D. To participate in the Plan for a particular offering, the Eligible
Employee must complete the enrollment forms prescribed by the Plan Administrator
(including a stock purchase agreement and payroll deduction authorization) and
file such forms with the Plan Administrator (or its designate) prior to his or
her scheduled Entry Date with respect to that offering. However, each individual
who is a Participant in an offering on the date such offering terminates
pursuant to Paragraph IV.D shall automatically be enrolled in the new offering
which commences immediately after such termination date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock in an offering may be any multiple of one
percent (1%) of the Base Salary paid to the Participant during each Purchase
Interval within the offering period for that offering, up to a maximum of
fifteen percent (15%). The deduction rate so authorized shall continue in effect
for the remainder of the offering period, except to the extent such rate is
changed in accordance with the following guidelines:
The Participant may, not less than ten (10) days prior to any
Quarterly Adjustment Date within the offering period, file the appropriate
form with the Plan Administrator to increase or decrease the rate of his or
her payroll deduction for the remainder of that offering period. The new
rate (which may not exceed the fifteen percent (15%) maximum) shall become
effective on the first Quarterly Adjustment Date following the filing of
such form.
B. Payroll deductions shall begin on the first pay day following the start
date of the offering period for each offering and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of that offering period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be held in
any segregated account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate purposes.
B-2
C. Payroll deductions shall automatically cease upon the termination of
the Participant's purchase right in accordance with the provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
VII. PURCHASE RIGHTS
A. A Participant shall be granted a separate purchase right for each
offering in which he or she participates. The purchase right shall be granted on
the Participant's Entry Date for an offering and shall provide the Participant
with the right to purchase shares of Common Stock, in a series of successive
installments during the remainder of such offering, upon the terms set forth
below. The Participant shall execute a stock purchase agreement embodying such
terms and such other provisions (not inconsistent with the Plan) as the Plan
Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan to
any Eligible Employee if such employee would, immediately after the grant, own
(within the meaning of Code Section 424(d)) or hold outstanding options or other
rights to purchase, stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Corporation or any
Corporate Affiliate.
B. Each purchase right shall be automatically exercised in installments on
each Purchase Date within the offering period, and shares of Common Stock shall
accordingly be purchased on behalf of each Participant (other than any
Participant whose payroll deductions have previously been refunded in accordance
with the Termination of Purchase Right provisions below) on each such Purchase
Date. The purchase shall be effected by applying the Participant's payroll
deductions for the Purchase Interval ending on such Purchase Date to the
purchase of whole shares of Common Stock at the purchase price in effect for the
Participant for that Purchase Date.
C. The purchase price per share at which Common Stock will be purchased on
the Participant's behalf on each Purchase Date within the offering period shall
be equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value
per share of Common Stock on the Participant's Entry Date for that offering or
(ii) the Fair Market Value per share of Common Stock on any Purchase Date for
that offering.
D. The number of shares of Common Stock purchasable by a Participant on
each Purchase Date during the offering period shall be the number of whole
shares obtained by dividing the amount collected from the Participant through
payroll deductions during the Purchase Interval ending with that Purchase Date
by the purchase price in effect for the Participant for that Purchase Date.
However, the maximum number of shares of Common Stock purchasable per
Participant on any one Purchase Date shall not exceed 1,000 shares, subject to
periodic adjustments in the event of certain changes in the Corporation's
capitalization.
E. Any payroll deductions not applied to the purchase of whole shares of
Common Stock on any Purchase Date because they are not sufficient to purchase a
whole share of Common Stock shall be held for the purchase of Common Stock on
the next Purchase Date. However, any payroll deductions not applied to the
purchase of Common Stock by reason of the limitation on the maximum number of
shares purchasable by the Participant on the Purchase Date shall be promptly
refunded.
F. The following provisions shall govern the termination of outstanding
purchase rights:
(i) A Participant may, not later than ten (10) days prior to the next
Purchase Date in the offering period for any offering, terminate his or her
outstanding purchase right for that offering by filing the appropriate form
with the Plan Administrator (or its designate), and no further payroll
deductions shall be collected from the Participant with respect to the
terminated purchase right. Any payroll deductions collected during the
Purchase Interval in which such termination occurs shall be refunded as
soon as possible.
B-3
(ii) The termination of such purchase right shall be irrevocable, and
the Participant may not subsequently participate in the offering for which
the terminated purchase right was granted. In order to resume participation
in any subsequent offering, such individual must re-enroll in the Plan (by
making a timely filing of the prescribed enrollment forms) prior to his or
her Entry Date for that offering.
(iii) Should the Participant cease to remain an Eligible Employee for
any reason (including death, disability or change in status), then his or
her outstanding purchase right shall immediately terminate, and the
Participant's payroll deductions for the Purchase Interval in which such
purchase right so terminates shall be immediately refunded. However, should
the Participant cease to remain in active service by reason of an approved
unpaid leave of absence, then the Participant shall have the right,
exercisable up until the last business day of the Purchase Interval in
which such leave commences, to (a) withdraw all the payroll deductions
collected to date on his or her behalf for that Purchase Interval or (b)
have such funds held for the purchase of shares on his or her behalf on the
next scheduled Purchase Date. In no event, however, shall any further
payroll deductions be collected in any subsequent Purchase Interval on the
Participant's behalf during such leave. Upon the Participant's return to
active service, his or her payroll deductions under the Plan shall
automatically resume at the rate in effect at the time the leave began.
G. The Participant's outstanding purchase right shall automatically be
exercised, immediately prior to the effective date of any Corporate Transaction,
by applying the payroll deductions of such Participant for the Purchase Interval
in which such Corporate Transaction occurs to the purchase of whole shares of
Common Stock at a purchase price per share equal to eighty-five percent (85%) of
the lower of (i) the Fair Market Value per share of Common Stock on his or her
Entry Date into the offering period in which such Corporate Transaction occurs
or (ii) the Fair Market Value per share of Common Stock immediately prior to the
effective date of such Corporate Transaction. However, the applicable limitation
on the number of shares purchasable per Participant shall continue to apply to
any such purchase.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Corporate Transaction,
and each Participant shall, following the receipt of such notice, have the right
to terminate his or her outstanding purchase right prior to the effective date
of the Corporate Transaction.
H. Should the total number of shares of Common Stock which are to be
purchased pursuant to outstanding purchase rights on any particular date exceed
the number of shares then available for issuance under the Plan, the Plan
Administrator shall make a pro-rata allocation of the available shares on a
uniform and nondiscriminatory basis, and the payroll deductions of each
Participant, to the extent in excess of the aggregate purchase price payable for
the Common Stock pro-rated to such individual, shall be refunded.
I. The purchase right shall be exercisable only by the Participant and
shall not be assignable or transferable by the Participant other than by the
laws of inheritance.
J. A Participant shall have no stockholder rights with respect to the
shares subject to his or her outstanding purchase right until the shares are
purchased on the Participant's behalf in accordance with the provisions of the
Plan and the Participant has become a holder of record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to purchase rights under this Plan if
and to the extent such purchase rights, when aggregated with (i) any other
purchase rights granted under this Plan and (ii) similar rights granted under
other employee stock purchase plans (within the meaning of Code Section 423) of
the Corporation or any Corporate Affiliate, would otherwise permit such
Participant's rights to accrue at a rate of more than Twenty-Five Thousand
Dollars ($25,000) worth of stock of the Corporation or any Corporate Affiliate
(determined on the basis of the Fair Market Value of such stock
B-4
on the date or dates such rights are granted) for each calendar year such rights
are at any time outstanding.
B. For purposes of applying such accrual limitations to the purchase
rights granted under this Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding purchase
right shall accrue in a series of installments on each successive Purchase
Date during the offering period for which such right is granted.
(ii) No right to acquire Common Stock under any outstanding purchase
right shall accrue to the extent the Participant has already accrued in the
same calendar year the right to acquire Common Stock under one or more
other purchase rights at a rate equal to Twenty-Five Thousand Dollars
($25,000) worth of Common Stock (determined on the basis of the Fair Market
Value per share on the date or dates of grant) for each calendar year such
rights were at any time outstanding.
C. If by reason of such accrual limitations, the purchase right of a
Participant does not accrue for a particular Purchase Interval, then the payroll
deductions which the Participant made during that Purchase Interval with respect
to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on September 26, 1996 and shall
become effective on July 1, 1997. The initial purchase rights under the Plan
shall be granted on such effective date. However, no such purchase right shall
be exercised, and no shares of Common Stock shall be issued under the Plan
unless the Plan is approved by the Corporation's shareholders at the 1997 Annual
Meeting.
B. Unless sooner terminated by the Board, the Plan shall terminate upon
the earliest of (i) the last business day in June 2007, (ii) the date on which
all shares available for issuance under the Plan shall have been sold pursuant
to purchase rights exercised under the Plan or (iii) the date on which all
purchase rights are exercised in connection with a Corporate Transaction. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
X. AMENDMENT OF THE PLAN
The Board may alter, amend, suspend or discontinue the Plan at any time to
become effective immediately following the close of any Purchase Interval.
However, the Board may not, without the approval of the Corporation's
shareholders, (i) materially increase the number of shares of Common Stock
issuable under the Plan or the maximum number of shares purchasable per
Participant on any one Purchase Date, except for permissible adjustments in the
event of certain changes in the Corporation's capitalization, (ii) alter the
purchase price formula so as to reduce the purchase price payable for the shares
of Common Stock purchasable under the Plan, or (iii) materially increase the
benefits accruing to Participants under the Plan or materially modify the
requirements for eligibility to participate in the Plan.
B-5
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan shall
be paid by the Corporation.
B. The provisions of the Plan shall be governed by the laws of the State
of California without resort to that State's conflict-of-laws rules.
C. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
B-6
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE DATE
CALLON PETROLEUM COMPANY
CALLON PETROLEUM OPERATING COMPANY
CALLON OFFSHORE PRODUCTION, INC.
B-7
APPENDIX
The following definitions shall be in effect under the Plan:
A. BASE SALARY shall mean the regular base salary paid to a Participant by
one or more Participating Companies during such individual's period of
participation in one or more offering periods under the Plan, plus any pre-tax
contributions made by the Participant to any Code Section 401(k) salary deferral
plan or any Code Section 125 cafeteria benefit program now or hereafter
established by the Corporation or any Corporate Affiliate. The following items
of compensation shall NOT be included in Base Salary: (i) all overtime payments,
bonuses, commissions (other than those functioning as base salary equivalents),
profit-sharing distributions and other incentive-type payments and (ii) any and
all contributions (other than Code Section 401(k) or Code Section 125
contributions) made on the Participant's behalf by the Corporation or any
Corporate Affiliate under any employee benefit or welfare plan now or hereafter
established.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE AFFILIATE shall mean any parent or subsidiary corporation of
the Corporation (as determined in accordance with Code Section 424), whether now
existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Corporation in complete liquidation or dissolution
of the Corporation.
G. CORPORATION shall mean Callon Petroleum Company, a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Callon Petroleum Company which shall by appropriate
action adopt the Plan.
H. ELIGIBLE EMPLOYEE shall mean any person who is engaged, on a
regularly-scheduled basis of more than twenty (20) hours per week for more than
five (5) months per calendar year, in the rendition of personal services to any
Participating Corporation as an employee for earnings considered wages under
Code Section 3401(a).
I. ENTRY DATE shall mean any of the Quarterly Entry Dates in effect for an
offering period on which an Eligible Employee becomes a participant in the Plan
in accordance with the provisions of Article V. The earliest Entry Date under
the Plan shall be July 1, 1997.
J. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by
the Plan Administrator to be the primary market for the Common
B-8
Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
K. PARTICIPANT shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
L. PARTICIPATING CORPORATION shall mean the Corporation and such Corporate
Affiliate or Affiliates as may be authorized from time to time by the Board to
extend the benefits of the Plan to their Eligible Employees. The Participating
Corporations in the Plan as of the initial offering period are listed in
attached Schedule A.
M. PLAN shall mean the Corporation's 1997 Employee Stock Purchase Plan, as
set forth in this document.
N. PLAN ADMINISTRATOR shall mean the Compensation Committee of the Board
or other duly constituted committee of the Board, in its capacity as
administrator of the Plan.
O. PURCHASE INTERVAL shall mean each successive period within the offering
period at the end of which there shall be purchased shares of Common Stock on
behalf of each Participant. The initial Purchase Interval under the Plan shall
run from July 1, 1997 to December 31, 1997.
P. PURCHASE DATE shall mean the last business day of each Purchase
Interval. The initial Purchase Date shall be December 31, 1997.
Q. QUARTERLY ADJUSTMENT DATE shall mean the quarterly date in each
offering period as of which a Participant may increase or decrease his or her
rate of payroll deduction under the Plan for the remainder of that offering
period. The Quarterly Adjustment Dates for each offering period shall be the
first business day in January, April, July and October each year.
R. QUARTERLY ENTRY DATE shall mean any quarterly date within an offering
period on which an Eligible Employee may commence participation in the Plan. The
Quarterly Entry Dates for each offering period shall be the first business day
in January, April, July and October each year. However, the earliest Quarterly
Entry Date under the Plan shall be the July 1, 1997 start date of the initial
offering period under the Plan.
S. SECURITIES ACT shall mean the Securities Act of 1933, as amended.
T. STOCK EXCHANGE shall mean either the American Stock Exchange or the New
York Stock Exchange.
B-9
CALLON PETROLEUM COMPANY
200 NORTH CANAL STREET, NATCHEZ, MISSISSIPPI 39120
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING ON JUNE 19, 1997
The undersigned hereby constitutes and appoints John S. Callon and Fred L.
Callon and each of them, his true and lawful agents and proxies with full power
of substitution in each, to represent and to vote, as designated on the reverse,
all of the shares of common stock of Callon Petroleum Company, held of record by
the undersigned on April 25, 1997, at the Annual Meeting of Shareholders to be
held at the offices of Callon Petroleum Company, 200 North Canal Street,
Natchez, Mississippi 39120 on June 19, 1997, and at any adjournments thereof, on
all matters coming before said meeting.
IF NO DIRECTION AS TO THE MANNER OF VOTING THIS PROXY IS MADE, THIS PROXY
WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS AND "FOR" ITEMS 2, 3 AND 4 AS
INDICATED ON THE REVERSE SIDE HEREOF.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE
BOXES (SEE REVERSE SIDE) BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE
YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
(To be signed on reverse side)
A [X] Please mark your votes as in this example.
WITHHOLD
authority
for all
FOR Nominees
1. ELECTION [ ] [ ] NOMINEES: Fred L. Callon
OF Dennis W. Christian
DIRECTORS.
To withhold authority to vote for any specific nominee(s), mark the "FOR" box
and write the name of each such nominee, on the line provided below.
- --------------------------------------------------------------------------------
2. To approve the FOR AGAINST ABSTAIN THIS PROXY WHEN PROPERLY
Callon Petroleum [ ] [ ] [ ] EXECUTED, WILL BE VOTED IN THE
Company 1996 MANNER DIRECTED HEREIN. IF NO
Stock Incentive DIRECTION IS MADE, THIS PROXY
Plan. WILL BE VOTED "FOR" THE ELECTION
OF DIRECTORS AND "FOR" PROPOSALS
2, 3 AND 4.
3. To approve the FOR AGAINST ABSTAIN PLEASE MARK, SIGN, DATE AND
Callon Petroleum [ ] [ ] [ ] RETURN THE PROXY CARD PROMPTLY
Company 1997 IN THE STAMPED, PRE-ADDRESSED
Employee Stock ENVELOPE ENCLOSED.
Purchase Plan.
The Board of Directors recommends a vote FOR the election of directors and FOR
proposals 2, 3 and 4.
4. To ratify the FOR AGAINST ABSTAIN
appointment of [ ] [ ] [ ]
Arthur Andersen
LLP as independent
public accountants.
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments thereof.
__________________ ________ _____________________ __________
SIGNATURE DATE SIGNATURE DATE
Note: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or as
guardian, please indicate your full title as such.