UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
Callon Petroleum Company
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(Name of Registrant as Specified In Its Charter)
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CALLON PETROLEUM COMPANY
200 NORTH CANAL STREET
NATCHEZ, MISSISSIPPI 39120
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, MAY 8, 2002
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
Wednesday, May 8, 2002, at 9:00 a.m., in the Le Grand Pre Ballroom of the
Natchez Eola Hotel, 110 North Pearl Street, Natchez, Mississippi 39120, for the
following purposes:
1. To elect three Class II directors to hold office until the
2005 Annual Meeting of Shareholders;
2. To transact such other business as may properly come before
the Annual Meeting or any adjournment or adjournments thereof.
Shareholders of record at the close of business on March 27, 2002 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 for their shares to
be 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
/s/ ROBERT A. MAYFIELD
Robert A. Mayfield
Corporate Secretary
Natchez, Mississippi
April 15, 2002
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
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CALLON PETROLEUM COMPANY
200 NORTH CANAL STREET
NATCHEZ, MISSISSIPPI 39120
(601) 442-1601
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ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, MAY 8, 2002
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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 Wednesday,
May 8, 2002, at 9:00 a.m., in the Le Grand Pre Ballroom of the Natchez Eola
Hotel, 110 North Pearl Street, Natchez, Mississippi 39120, and at any
adjournment or adjournments thereof (such meeting or adjournment thereof is
referred to herein as the "Annual Meeting"), for the purpose of considering and
voting upon the matters set forth in the accompanying Notice of Annual Meeting
of Shareholders ("Notice").
A proxy in the form accompanying this Proxy Statement (each a "Proxy"),
when properly executed and returned, will be voted in accordance with the
directions specified on the Proxy, and otherwise in accordance with the judgment
of the persons designated therein as proxies. Any Proxy which does not withhold
authority to vote or on which no other instructions are given will be voted for
the election of the nominees named herein to the Board of Directors. 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 April 15, 2002. The Annual Report for
the Company's fiscal year ended December 31, 2001 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 the
election of the three Class II director nominees to the Board of Directors named
herein.
The Board of Directors is not presently aware of other proposals that
may be brought before the Annual Meeting. In the event other proposals are
brought before the Annual Meeting, the persons named in the enclosed Proxy will
vote in accordance with what they consider to be in the best interests of the
Company and its Shareholders.
VOTING REQUIREMENTS
The Board of Directors has fixed the close of business on March 27,
2002 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. On the Record Date, the Company's outstanding voting securities
consisted of 13,424,216 shares of Common Stock. Holders of Common Stock will be
entitled to one vote per share of Common Stock held of record on the Record Date
for each proposal to be presented at the Annual Meeting.
QUORUM AND OTHER MATTERS
The holders of a majority of the total shares of Common Stock issued
and outstanding on the Record Date, whether present in person or represented by
proxy, will constitute a quorum for the transaction of business at the Annual
Meeting. For purposes of determining whether a quorum is present under Delaware
law, broker non-votes and abstentions count towards the establishment of a
quorum. The election of directors requires the favorable vote of the holders of
a plurality of shares of Common Stock present and voting, in person or by proxy,
at the Annual Meeting. Abstentions and broker non-votes have no effect on
determinations of plurality except to the extent that they affect the total
votes received by any particular candidate.
BENEFICIAL OWNERSHIP OF SECURITIES
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the Record Date, 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
----------------------------- ------------------------------
NAME AND ADDRESS OF BENEFICIAL BENEFICIAL
BENEFICIAL OWNER OWNERSHIP(a) PERCENT OWNERSHIP(a) PERCENT
------------------- ------------ ---------- ------------ ----------
Directors:
John S. Callon ................................... 201,187(b) 1.49% 0 --
Fred L. Callon ................................... 829,423(c) 6.05% 0 --
200 North Canal Street
Natchez, Mississippi 39120
Dennis W. Christian .............................. 298,235(d) 2.18% 0 --
Leif Dons ........................................ 25,000(e) * 0 --
Robert A. Stanger ................................ 70,856(f) * 0 --
John C. Wallace .................................. 1,964,138(g) 14.56% 0 --
65 Vincent Square
London, SW1P 2RX, England
B. F. Weatherly .................................. 71,288(h) * 0 --
Richard O. Wilson ................................ 104,737(i) * 1,000 *
Named Executive Officers:
John S. Weatherly ................................ 273,096(j) 2.00% 0 --
Stephen F. Woodcock .............................. 96,091(k) * 0 --
Kathy G. Tilley .................................. 197,224(l) 1.45% 0 --
Directors and Executive Officers:
as a Group (16 persons) .......................... 4,443,098(m) 29.27% 1,000 *
Certain Beneficial Owners:
Ganger Rolf ASA .................................. 1,839,386(n) 13.70% 0 --
Fred. Olsensgate 2
0152 Oslo, Norway
Bonheur ASA ...................................... 1,839,386(n) 13.70% 0 --
Fred. Olsensgate 2
0152 Oslo, Norway
State Street Research & Management Company ....... 894,400(o) 6.66% 0 --
One Financial Center, Thirtieth Floor
Boston, Massachusetts 02111-2690
Wellington Management Company, LLP ............... 765,300(p) 5.70% 0 --
75 State Street
Boston, Massachusetts 02109
NewSouth Capital Management, Inc. ................ 1,296,820(q) 9.66% 0 --
1000 Ridgeway Loop Rd., Suite 233
Memphis, Tennessee 38120
Dimensional Fund Advisors Inc. ................... 728,100(r) 5.42% 0 --
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Security Management Company, LLC ................. -- -- 101,000(s) 16.81%
700 SW Harrison Street
Topeka, Kansas 66636-0001
----------
* Less than 1%
2
(a) Unless otherwise indicated, each of the persons listed in the following
table may be deemed to have sole voting and dispositive power with
respect to such shares.
(b) Of the 201,187 shares beneficially owned by John S. Callon, 86,187 are
owned directly by him; 10,000 shares are owned in joint tenancy with
his wife; 90,000 shares are subject to options under the Company's 1994
Stock Incentive Plan ("1994 Plan") exercisable within 60 days; and
15,000 shares are subject to options under the Company's 1996 Stock
Incentive Plan ("1996 Plan") exercisable within 60 days. Shares
indicated as owned by John S. Callon do not include 43,501 shares of
Common Stock owned by his wife over which he disclaims beneficial
ownership.
(c) Of the 829,423 shares beneficially owned by Fred L. Callon, 231,737
shares are owned directly by him; 184,378 shares are held by him as
custodian for certain minor Callon Family members; 80,000 shares are
subject to options under the 1994 Plan exercisable within 60 days;
208,700 shares are subject to options under the 1996 Plan exercisable
within 60 days; and 124,608 shares are held by Fred L. Callon as
Trustee of shares held by the Callon Petroleum Company Employee Savings
and Protection Plan. Shares indicated as owned by Fred L. Callon do not
include 24,939 shares of Common Stock owned by his wife over which he
disclaims beneficial ownership.
(d) Of the 298,235 shares beneficially owned by Dennis W. Christian, 34,685
are owned directly by him; 60,000 shares are subject to options under
the 1994 Plan exercisable within 60 days; and 203,550 shares are
subject to options under the 1996 Plan exercisable within 60 days.
(e) Of the 25,000 shares beneficially owned by Leif Dons, 5,000 shares are
subject to options under the 1994 Plan exercisable in 60 days and
20,000 shares are subject to options under the 1996 Plan exercisable in
60 days.
(f) Of the 70,856 shares beneficially owned by Robert A. Stanger, 856 are
owned directly by him; 25,000 shares are subject to options under the
1994 Plan exercisable within 60 days; and 45,000 shares are subject to
options under the 1996 Plan exercisable within 60 days.
(g) Of the 1,964,138 shares beneficially owned by John C. Wallace, 37,781
shares are owned directly by him; 25,000 shares are subject to options
under the 1994 Plan exercisable within 60 days; 45,000 shares are
subject to options under the 1996 Plan exercisable within 60 days;
16,971 shares are owned by Fred. Olsen, Ltd.; and 1,839,386 shares are
owned by Ganger Rolf ASA ("Ganger Rolf") and Bonheur ASA ("Bonheur").
See note (n).
(h) Of the 71,288 shares beneficially owned by B. F. Weatherly, 1,288
shares are owned directly by him; 25,000 shares are subject to options
under the 1994 Plan exercisable within 60 days; and 45,000 shares are
subject to options under the 1996 Plan exercisable within 60 days.
(i) Of the 104,737 shares beneficially owned by Richard O. Wilson, 25,000
shares are subject to options under the 1994 Plan exercisable within 60
days; 45,000 shares are subject to options under the 1996 Plan
exercisable within 60 days; 32,464 shares are held in a family limited
partnership; and 2,273 shares are issuable upon conversion of 1,000
shares of Preferred Stock held in the family partnership.
(j) Of the 273,096 shares beneficially owned by John S. Weatherly, 33,018
are owned directly by him; 218 shares are held as custodian for his
minor children; 60,000 shares are subject to options under the 1994
Plan exercisable within 60 days; and 179,860 shares are subject to
options under the 1996 Plan exercisable within 60 days.
3
(k) Of the 96,091 shares beneficially owned by Stephen F. Woodcock, 6,611
are owned directly by him and 89,480 shares are subject to options
under the 1996 Plan exercisable within 60 days.
(l) Of the 197,224 shares beneficially owned by Kathy G. Tilley, 25,064 are
owned directly by her; 30,000 shares are subject to options under the
1994 Plan exercisable within 60 days; and 142,160 shares are subject to
options under the 1996 Plan exercisable within 60 days.
(m) Includes 500,000 shares subject to options under the 1994 Plan
exercisable within 60 days and 1,255,630 shares subject to options
under the 1996 Plan exercisable within 60 days.
(n) As disclosed on a Schedule 13D/A, filed with the Commission on March 6,
2002, by Ganger Rolf, Bonheur, AS Quatro ("Quatro"), and Invento AS
("Invento"). On August 28, 2000, Ganger Rolf and Bonheur jointly
purchased from Fred. Olsen Energy ASA ("F.O. Energy") an aggregate of
1,839,386 shares of Common Stock. Ganger Rolf and Bonheur are currently
registered as the joint record owner of, and both possess shared voting
and dispositive power with respect to, all of the 1,839,386 shares of
Common Stock formerly owned by F.O. Energy. F.O. Energy no longer owns
any Common Stock. Quatro is the owner of 21.3% of the outstanding
capital stock of Bonheur, and Invento is the owner of 20.8% of the
outstanding capital stock of Bonheur. Quatro and Invento disclaim
beneficial ownership of the shares of Common Stock owned by Ganger Rolf
and Bonheur. John C. Wallace, one of our directors, is a director of
Ganger Rolf and Bonheur, as well as other companies associated with
Ganger Rolf and Bonheur, and as a result, may be deemed to share the
power to vote and dispose of, and therefore be a beneficial owner of
the shares of common stock of Ganger Rolf and Bonheur. The principal
business address and principal executive offices of Quatro and Invento
are located at Fred. Olsengate 2, 0152 Oslo, Norway.
(o) Information is based upon a Schedule 13G provided to the Company dated
February 21, 2002, by State Street Research & Management Company
("State Street"). In this Schedule 13G, State Street represents that it
has sole voting power with respect to 859,400 shares and sole
dispositive power with respect to 894,400 shares.
(p) Information is based on a Schedule 13G, filed with the Commission on
February 12, 2002, by Wellington Management Company, LLP
("Wellington"). In this Schedule 13G, Wellington represents that they
possess shared voting with respect to 170,300 shares and shared
dispositive power with respect to 765,300 shares.
(q) Information is based upon a Schedule 13G, filed with the Commission on
February 14, 2002, by NewSouth Capital Management, Inc ("NewSouth"). In
this Schedule 13G, NewSouth represents that it has sole voting power
with respect to 955,620 shares, shared dispositive power with respect
to 52,700 shares and sole dispositive power with respect to 1,244,120
shares.
(r) Information is based upon a Schedule 13G, filed with the Commission on
February 12, 2002 by Dimensional Fund Advisors Inc. ("Dimensional"). In
this Schedule 13G, Dimensional represents that it has sole voting power
with respect to 728,100 shares and sole dispositive power with respect
to all of these shares.
(s) Information is based upon a Schedule 13G, filed with the Commission on
February 12, 2002, by Security Management Company, LLP ("Security"). In
this Schedule 13G, Security represents that it has sole voting power
with respect to 101,000 shares and sole dispositive power with respect
to all of these shares.
PROPOSAL I
ELECTION OF DIRECTORS
NOMINEES
The Company's Certificate of Incorporation provides for a classified
Board of Directors. The Board of Directors is divided into three classes of
nearly equal size, designated as Class I (currently with three directors), Class
II (currently with three directors) and Class III (currently with two
directors). Initially, directors in each class were elected to hold office for
terms of one year, two years and three years, respectively. Upon the date of
each annual meeting after such initial classification, directors elected to
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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 three Class II directors, Messrs. John S. Callon, Leif
Dons and B.F. Weatherly, will expire on the date of the Annual Meeting. Messrs.
John S. Callon, Leif Dons and B.F. Weatherly (the "Nominees") have been
nominated to serve as Class II directors until the 2005 Annual Meeting and until
their respective successors have been duly elected and qualified. Each of the
Nominees was nominated by the Board of Directors.
It is intended that all shares of Common Stock represented by the
Proxies will be voted for the election of the Nominees, except where authority
to vote in the election of directors has been withheld. Should the Nominees
become unable or unwilling to serve as directors at the time of the Annual
Meeting, the person or persons exercising the Proxies will vote for the election
of substitute Nominees designated by the Board of Directors, or the Board of
Directors may choose to reduce the number of members of the Board of Directors
to be elected at the Annual Meeting in order to eliminate the vacancy. The
Nominees 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 2003 Annual Meeting."
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information with respect to the Nominees
and all current directors whose terms will continue after the Annual Meeting and
present executive officers of the Company. Each executive officer has been
elected to serve until his or her successor is duly appointed or elected by the
Board of Directors or their earlier removal or resignation from office.
COMPANY
POSITION
NAME AGE SINCE PRESENT COMPANY POSITION
---- --- -------- ------------------------
CLASS I DIRECTORS:
(Term Expires in 2004)
Robert A. Stanger.................. 62 1995 Director
John C. Wallace.................... 63 1994 Director
Richard O. Wilson.................. 72 1995 Director
CLASS II DIRECTORS:
(Term Expires in 2002)
John S. Callon..................... 82 1994 Director; Chairman of the Board; Nominee
Leif Dons.......................... 52 1999 Director; Nominee
B. F. Weatherly.................... 57 1994 Director; Nominee
CLASS III DIRECTORS:
(Term Expires in 2003)
Fred L. Callon..................... 52 1994 Director; President; Chief Executive Officer
Dennis W. Christian................ 55 1994 Director; Senior Vice President; Chief
Operating Officer
OTHER EXECUTIVE OFFICERS:
James O. Bassi..................... 47 1997 Vice President; Controller
Robert A. Mayfield................. 51 2000 Corporate Secretary
Thomas E. Schwager................. 51 1997 Vice President
H. Clark Smith .................... 49 2001 Corporate Information Officer
Rodger W. Smith.................... 52 1999 Treasurer
Kathy G. Tilley.................... 56 1996 Vice President
John S. Weatherly.................. 50 1994 Senior Vice President; Chief Financial
Officer
Stephen F. Woodcock................ 50 1997 Vice President
The following is a brief description of the background and principal
occupation of each director (including each Nominee) and executive officer:
5
James O. Bassi is Vice President and Controller of the Company and
Callon Petroleum Operating Company ("Callon Petroleum Operating"). Prior to
being appointed Vice President in November 1997, he had been Controller since
June 1997. Prior to being appointed to his position as Controller, he had been
Manager of the Accounting Department for the Company and Callon Petroleum
Operating. Mr. Bassi has been employed by the Company and its predecessors for a
total of eleven years. Prior to his employment by the Company, he was employed
by Arthur Andersen LLP. He received his B.S. degree in accounting in 1976 from
Mississippi State University. He is a member of the American Institute of
Certified Public Accountants and the Mississippi Society of Certified Public
Accountants.
Fred L. Callon has been President and Chief Executive Officer of the
Company and Callon Petroleum Operating since January 1997. Prior to January
1997, he was President and Chief Operating Officer of the Company, positions he
had held with the Company or its predecessors since 1984. He has been employed
by the Company or its predecessors since 1976. Mr. Callon 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 the nephew of John S. Callon.
John S. Callon is Chairman of the Board of Directors of the Company and
Callon Petroleum Operating. Effective January 2, 1997, John S. Callon resigned
from his position as Chief Executive Officer of the Company, a position he had
held since 1980. Mr. Callon founded the Company's predecessors in 1950, and has
held an executive office with the Company or its predecessors since that time.
He has served as a director of the Mid-Continent Oil and Gas Association and as
the President of the Association's Mississippi-Alabama Division. He has also
served as Vice President for Mississippi of the Independent Petroleum
Association of America. He is a member of the American Petroleum Institute. Mr.
Callon is the uncle of Fred L. Callon.
Dennis W. Christian has been Senior Vice President and Chief Operating
Officer of the Company and Callon Petroleum Operating since January 1997. Prior
to January 1997, he was Senior Vice President of Operations and Acquisitions and
had held that or similar positions with the Company or its predecessors since
1981. Prior to joining Callon Petroleum Operating, he was resident manager in
Stavanger, Norway, for Texas Eastern Transmission Corporation. His previous
experience includes five years with Chevron U.S.A. Inc. Mr. Christian received
his B.S. degree in petroleum engineering in 1969 from Louisiana Polytechnic
Institute.
Leif Dons has since 1997 been Senior Vice President, Business
Development of Fred. Olsen Energy ASA, a publicly held Norwegian company engaged
in the offshore energy service industry. From 1992 until 1997, Mr. Dons was
employed by Kvaerner ASA in various positions, including the fields of
international operations and the commercialization of new technology, and as
resident country manager responsible for Israel and Palestine. From 1983 until
1991, he served as the Managing Director of Norwegian Oil Consortium A/S & Co.,
an oil company with producing properties in Norway. He negotiated the sale of
that company in 1991. From 1973 until 1983, Mr. Dons held various positions as
an analyst, staff engineer and economist at the Pulp and Paper Research
Institute, Norway and Saga Petroleum ASA. Mr. Dons received a Master of Science
degree in engineering from the Norwegian Institute of Technology in 1973.
Robert A. Mayfield is the Corporate Secretary and also oversees Tax
Services for the Company and Callon Petroleum Operating. He was appointed
Corporate Secretary in February 2000. Prior to this appointment as Corporate
Secretary, he had served as the Manager of Tax Services and Securities and
Exchange Commission Reporting since 1981. Prior to joining Callon, he was
employed by McCormick Oil and Gas Company in Houston, Texas, where he served as
an assistant to the tax manager. Mr. Mayfield received his B.S. degree in
accounting from Louisiana Tech University in 1972 and is a member of the
American Society of Corporate Secretaries.
Thomas E. Schwager has been Vice President of Engineering and
Operations for the Company and Callon Petroleum Operating since November 1997.
Mr. Schwager has held engineering positions with the Company and its
predecessors since 1981. Prior to joining the Company, Mr. Schwager held various
engineering positions with Exxon Company USA in Louisiana and Texas. He received
his B.S. degree in petroleum engineering from Louisiana State University in
1972. He is a registered professional engineer and a member of the Society of
Petroleum Engineers.
H. Clark Smith is Corporate Information Officer for the Company and
Callon Petroleum Operating. Prior to being appointed to that position in March
2001, he had served as Manager - Information Technology since January 1990 and
in other computer related positions with the Company and its predecessors since
1983. At Mississippi State University, he majored in Industrial Technology.
During his tenure with the Company, he has received extensive technical and
management training from the University
6
of Southern Mississippi, International Business Machines, Microsoft, Novell, and
Arthur Andersen & Company. He has also served as Manager - Information Services
with Jefferson Davis Regional Medical Center and as a principal of the
consulting firm, Mississippi Computing Consultants.
Rodger W. Smith is the Treasurer for the Company and Callon Petroleum
Operating. Prior to being appointed to that position in April 1999, he had
served as Manager of Budget and Analysis since 1994. Prior to 1994, Mr. Smith
was Manager of Exploration and Production Accounting and has been employed by
the Company and its predecessors since 1983. Prior to his employment with the
Company, he was employed by International Paper Company as a plant controller.
He received his B.S. degree in accounting from the University of Southern
Mississippi in 1973.
Robert A. Stanger has been the managing general partner since 1978 of
Robert A. Stanger & Company, Inc., a Shrewsbury, New Jersey-based firm engaged
in publishing financial material and providing investment banking services to
the real estate and oil and gas industries. He is a director of Citizens
Utilities, Stamford, Connecticut, a provider of telecommunications, electric,
natural gas, and water services and Electric Lightwaves, Inc., Seattle,
Washington, a regional fiber optic telephone company. Previously, Mr. Stanger
was Vice President of Merrill Lynch & Co. He received his B.A. degree in
economics from Princeton University in 1961. Mr. Stanger is a member of the
National Association of Securities Dealers and the New York Society of Security
Analysts.
Kathy G. Tilley is Vice President of Business Development for the
Company and Callon Petroleum Operating, a position she has held since April
1996. Ms. Tilley was employed by Callon Petroleum Operating in December 1989 as
Manager of Acquisitions and prior thereto, had held that or similar positions as
a consultant to the Company since 1981. Ms. Tilley received her B.A. degree in
economics from Louisiana State University in 1967.
John C. Wallace is a Chartered Accountant having qualified with
PricewaterhouseCoopers in Canada in 1963, after which he joined Baring Brothers
& Co., Limited in London, England. For over fifteen years, he has served as
Chairman of Fred. Olsen Ltd., a London-based corporation that he joined in 1968
and which specializes in the business of shipping and property development. Mr.
Wallace is a director of Fred. Olsen Energy ASA, a publicly held Norwegian
company engaged in the offshore energy service industry; Harland & Wolff PLC,
Belfast, a shipbuilding yard for the offshore oil and gas industry; and Ganger
Rolf ASA and Bonheur ASA, Oslo, both publicly-traded shipping companies.
B. F. Weatherly has been a principal of CapSource Financial, Houston,
Texas, an investment-banking firm, since 1989. He is also a general partner of
CapSource Fund, L.P., Jackson, Mississippi, an investment fund, and has held
that position since 1997. Mr. Weatherly received a Master of Accountancy degree
from the University of Mississippi in 1967. Mr. Weatherly has previously been
associated with Arthur Andersen LLP, and has served as a Senior Vice President
of Brown & Root, Inc. and Weatherford International, Inc. B. F. Weatherly and
John S. Weatherly are brothers.
John S. Weatherly is Senior Vice President and Chief Financial Officer
for the Company and Callon Petroleum Operating. Prior to April 1999, Mr.
Weatherly also held the position of Treasurer. Prior to April 1996, he was Vice
President, Chief Financial Officer and Treasurer of the Company and had held
these positions since 1983. Prior to joining Callon Petroleum Operating in 1980,
he had been employed by Arthur Andersen LLP since 1974. Mr. Weatherly received
his B.B.A. degree in accounting in 1973 and his M.B.A. degree in 1974 from the
University of Mississippi. Mr. Weatherly is a member of the American Institute
of Certified Public Accountants and the Mississippi Society of Certified Public
Accountants. John S. Weatherly and B. F. Weatherly are brothers.
Richard O. Wilson is an Offshore Consultant. In his 45 years of working
in offshore drilling and construction, he spent two years with Zapata Offshore
and 21 years with Brown & Root, Inc. working in various managerial capacities in
the Gulf of Mexico, Venezuela, Trinidad, Brazil, the Netherlands, the United
Kingdom and Mexico. Mr. Wilson was a director and Senior Group Vice President of
Brown & Root, Inc. and Senior Vice President of Halliburton, Inc. For 18 years
he was associated with Fred. Olsen Interests where he served as Chairman of OGC
International PLC, Dolphin A/S and Dolphin Drilling Ltd. Since the sale of OGC
International PLC to Halliburton, Inc. in 1997, Mr. Wilson has been a consultant
to Brown & Root, Inc. He holds a B.S. degree in civil engineering from Rice
University. Mr. Wilson is a Fellow in the American Society of Civil Engineers,
is a member of the Institute of Petroleum, London, England, and a Director of
the Museum of Printing History in Houston, Texas. In 2000 Mr. Wilson was elected
an Industry Pioneer by the Offshore Energy Center, Houston, Texas.
Stephen F. Woodcock is Vice President of Exploration for the Company
and Callon Petroleum Operating. Prior to being appointed to this position in
November 1997, Mr. Woodcock had served as Manager of Geology and Geophysics
since his initial employment by the Company and Callon Petroleum
7
Operating in 1995. Prior thereto, he was Manager of Geophysics for CNG Producing
Company and Division Geophysicist for Amoco Production Company. Mr. Woodcock
received a masters degree in geophysics from Oregon State University in 1975.
All officers and directors (including the Nominees) of the Company are
United States citizens, except Mr. Wallace, who is a citizen of Canada, and Mr.
Dons, who is a citizen of Norway.
STOCKHOLDERS' AGREEMENT
Pursuant to a Stockholders' Agreement ("Stockholders' Agreement") among
certain members of the Callon family ("Callon Family"), NOCO Enterprises, L.P.
("NOCO") and F.O. Energy dated September 16, 1994, the Callon Family, on the one
hand and NOCO and F.O. Energy on the other hand, each elected two directors to
the Company's Board of Directors. Specifically, the Stockholders' Agreement
provided that the Callon Family, NOCO and F.O. Energy would use their best
efforts, including voting the shares of Common Stock which they owned, to cause
the Company's Board of Directors to be composed of at least four members, two of
such members to be selected by the Callon Family and two of such members to be
selected by NOCO and F.O. Energy. Messrs. Wallace and Dons were elected to the
Board as representatives of NOCO and F.O. Energy, and Messrs. Fred and John
Callon were elected to the Board as representatives of the Callon Family. The
Stockholders' Agreement expired on September 16, 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the Commission and any exchange or other system on which such
securities are traded or quoted, initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten percent shareholders are required by
the Commission's regulations to furnish the Company and any exchange or other
system on which such securities are traded or quoted, with copies of all Section
16(a) forms they file with the Commission.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company during the fiscal year ended December 31,
2001, all of the Company's officers, directors and greater than ten percent
shareholders had complied with all Section 16(a) filing requirements.
INFORMATION CONCERNING THE OPERATION OF THE BOARD OF DIRECTORS
The business of the Company is managed under the direction of the Board
of Directors. The Board of Directors meets on a quarterly basis to review
significant developments affecting the Company and to act on matters requiring
Board approval. The Board of Directors may also hold special meetings when an
important matter requires Board action between regularly scheduled meetings.
Each non-employee director receives an annual fee of $10,000 for service on the
Board of Directors and is reimbursed for out-of-pocket expenses incurred to
attend the Board meetings. In addition, effective January 1, 2002, each
non-employee director will receive $2,000 for each meeting of the Board attended
in person and $1,000 for his participation in each telephonic Board meeting. On
the date he or she is initially elected or appointed to the Board, each
non-employee director receives an annual automatic grant of an option to
purchase 5,000 shares of Common Stock for an exercise price equal to the fair
market price on the date of grant and for a ten-year term. Thereafter, for each
subsequent year in which the non-employee director is still serving as director,
he or she shall automatically be granted an option to purchase an additional
5,000 shares on the same terms.
On August 23, 1996, the Compensation Committee authorized a one-time
grant to each non-employee director of an option to purchase 20,000 shares of
Common Stock under the 1996 Plan at a purchase price of $12.00 per share, the
fair market value of the Common Stock on such date. One-fourth of each option
vests at each succeeding annual meeting of directors following each annual
shareholders' meeting, beginning with the 1997 Annual Meeting. On July 25, 2000,
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 $10.50 per share, the fair market value of the
Common Stock on such date. One-fourth of each option vests on August 23, 2000
and the remaining vests equally at each succeeding annual meeting of directors
following each annual shareholders' meeting, beginning with the 2001 Annual
Meeting.
During 2001, the Board of Directors of the Company met formally four
times and executed eight unanimous written consents. All directors attended at
least 75% of the total number of meetings of the Board of Directors.
8
In order to facilitate the various functions of the Board of Directors,
the Board of Directors has created an Audit Committee and a Compensation
Committee. The Board of Directors does not have a nominating committee. The
functions customarily performed by a nominating committee are performed by the
entire Board of Directors. Committee members are not remunerated in addition to
their annual Board retainer.
AUDIT COMMITTEE. The Committee monitors the Company's internal
accounting controls, reviews quarterly and annual financial information and
reviews the services and fees of the independent auditors. The Board of
Directors adopted an Audit Committee Charter in 2000. Members are Messrs. Robert
A. Stanger, Chairman, Richard O. Wilson, and John C. Wallace. All of the members
of the Audit Committee meet the New York Stock Exchange's independence
requirements. The Audit Committee held two meetings during 2001, and all members
of the Audit Committee attended the 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, Robert A. Stanger, John C. Wallace and Richard O. Wilson.
The Compensation Committee held four meetings during 2001, and all members of
the Compensation Committee attended all meetings.
TRANSACTIONS WITH RELATED PERSONS
REGISTRATION RIGHTS. The Callon Family (including John S. Callon and
Fred L. Callon) is party to a Registration Rights Agreement dated September 16,
1994 (the "Registration Rights Agreement"), pursuant to which they are entitled
to require the Company to register Common Stock owned by them with the
Commission for sale to the public in a firm commitment public offering and
generally to include shares owned by them in registration statements filed by
the Company. NOCO and the Company have entered into a similar agreement, which
was subsequently amended to include F.O. Energy. The registration rights
agreement with F.O. Energy also covers Common Stock held by its assignees,
Ganger Rolf and Bonheur.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors assists the board in
overseeing the Company's accounting, auditing and financial reporting practices.
The Company's management has primary responsibility for preparing the Company's
financial statements and implementing its internal accounting controls. The
Audit Committee overseas these activities in order to ensure their quality and
integrity. The Audit Committee has reviewed the audited financial statements in
the Company's Annual Report for the year ended December 31, 2001 with
management. The Audit Committee's discussions with management included a review
of the quality, not just the acceptability, of the accounting principles used to
prepare, the reasonableness of significant judgements with respect to, and the
clarity of disclosures in the Company's financial statements.
The Audit Committee reviewed the quality of the accounting principles
used in preparing our financial statements with Arthur Andersen LLP, the
independent public accountants who are responsible for expressing an opinion on
the conformity of our audited financial statements with generally accepted
accounting principles. The Audit Committee also discussed with Arthur Andersen
LLP such other matters as are required to be discussed with its independent
auditors under generally accepted auditing standards, including Statement on
Auditing Standards No. 61, as amended by Statement on Auditing Standards No. 90.
FEES PAID TO AUDIT FIRM. Fees paid to auditor Arthur Andersen LLP for
the annual audit were $135,000. All other fees were $42,000 including
audit-related fees of $26,000 and other fees of $16,000. Audit-related fees
include accounting consultation, various attest services under professional
standards, assistance with registration statements, comfort letters and
consents. Other fees were primarily tax services. There were no financial
information systems design and implementation fees.
After reviewing the non-audit services provided by Arthur Andersen LLP
and engaging in discussions with Arthur Andersen LLP regarding their
independence, the Audit Committee determined that the non-audit services
provided to the Company by Arthur Andersen LLP were not inconsistent with Arthur
Andersen LLP's status as independent auditors. The Audit Committee has received
the letter from Arthur Andersen LLP required by Independence Standards Board
Standard No. 1.
Based on its reviews of the Company's audit financial statements and
the discussions with management and Arthur Andersen LLP discussed above, the
Audit Committee recommended to the Board of
9
Directors that the Company's audited financial statements be included in its
Annual Report on Form 10-K for the year ended December 31, 2001 for filing with
the Commission.
Robert A. Stanger, Chairman
Richard O. Wilson
John C. Wallace
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the Chief
Executive Officer of the Company and the four most highly compensated executive
officers of the Company for the years ended December 31, 2001, 2000 and 1999.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------------------- --------------------------
OTHER
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPEN- STOCK UNDERLYING COMPEN-
SALARY BONUS SATION AWARD(S) OPTIONS SATION
YEAR ($)(a) ($)(b) ($)(c) ($) (#) ($)(d)
---- ----------- ----------- ----------- ----------- ----------- -----------
Fred L. Callon ............. 2001 271,843 -- -- -- -- 31,117
President and Chief 2000 262,650 211,000 -- -- 110,000 30,189
Executive Officer 1999 264,616 174,000 -- -- -- 30,298
Dennis W. Christian ........ 2001 250,096 -- -- -- -- 29,181
Sr. Vice President 2000 241,638 195,000 -- -- 65,000 28,328
and Chief Operating 1999 243,446 169,000 -- -- 35,000 28,420
Officer
John S. Weatherly .......... 2001 217,474 -- -- -- -- 25,944
Sr. Vice President 2000 210,120 169,000 -- -- 58,000 25,201
and Chief Financial 1999 211,692 147,000 -- -- 31,000 25,270
Officer
Kathy G. Tilley ............ 2001 184,854 -- -- -- -- 20,216
Vice President 2000 178,602 135,000 -- -- 48,000 19,528
1999 179,939 133,000 -- -- 25,000 19,535
Stephen F. Woodcock ........ 2001 168,985 -- -- -- -- 18,479
Vice President 2000 151,497 100,000 -- -- 44,000 16,562
1999 152,630 105,000 -- -- 25,000 16,593
(a) The Company issues payroll checks every other Friday. For 1999, there
were twenty-seven payroll checks issued and for 2000 and 2001, there
were twenty-six payroll checks issued.
(b) There were no bonuses declared in 2002 for service during 2001. The
prior year amounts represent that portion of bonuses declared in
February 2001 and March 2000 and earned by service during 2000 and
1999, respectively. Generally, bonus compensation is not payable unless
the executive remains employed by the Company through the date bonus
compensation is declared, which is generally in March of the following
year. These amounts also include amounts deferred.
(c) None of the named executive officers received perquisites or other
personal benefits, securities or property, the aggregate annual amount
of which exceeded the lesser of $50,000 or 10% of the total of annual
salary and bonus reported for the named executive.
(d) Amounts reflect the Company's contribution in 2001, 2000, and 1999 of
$27,185, 26,265, and $26,462 to Fred L. Callon's 401(k) savings plan
and payment of $3,932, $3,924, and $3,836 term life insurance premiums;
$25,009, $24,164, and $24,344 to Mr. Christian's 401(k) savings plan
and payment of $4,172, $4,164, and $4,076 term life insurance premiums;
$21,747, $21,012, and $21,169 to Mr. Weatherly's 401(k) savings plan
and payment of $4,197, $4,189, and $4,101 term life insurance premiums;
$18,484, $17,860,
10
and $17,994 to Ms. Tilley's 401(k) savings plan and payment of $1,732,
$1,668, and $1,541 term life insurance premiums; and $16,898, $15,150,
and $15,283 to Mr. Woodcock's 401(k) savings plan and payments of
$1,581, $1,412, and $1,310 term life insurance premiums.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
SEVERANCE COMPENSATION AGREEMENTS. Effective January 1, 2002, the
Company entered into Severance Compensation Agreements (the "Agreements") with
Fred L. Callon, Dennis W. Christian and John S. Weatherly providing for certain
benefits to each of them in the event that a "change of control" occurs during
the three-year period after the execution of such Agreements. Each Agreement is
for a three-year term and is automatically extended for successive one year
periods unless either the Company or the executive notifies the other party
prior to such renewal that it has elected to terminate the Agreement; provided
that the term of each Agreement shall be until the later of two years following
the date of a change of control and the satisfaction of all obligations of the
Company under the Agreement. The Agreements terminate upon each executive's
death, disability termination for cause or voluntary resignation other than for
"good reason."
Pursuant to the Agreements, if either Messrs. Callon, Christian or
Weatherly's employment with the Company is terminated without cause by the
Company or for good reason by the executive within two years following a change
of control by the Company, the executive is entitled to a single lump sum cash
payment in an amount equal to three times the sum of (a) the annual base salary
of such executive in effect prior to such termination, and (b) the higher of the
average bonus earned by the executive during the three preceding years or the
target bonus that the executive is eligible to receive during the year of
termination. If the Messrs. Callon, Christian or Weatherly's employment is
terminated as a result of their death or disability, the Company is only
required to make such payments if the termination occurred within six months of
a change of control. "Good reason" is generally defined in the Agreements as a
change in the executive's compensation, benefits, position, responsibilities, or
location.
The Agreements also provide that, upon a change of control, all stock
options, restricted stock, stock appreciation rights and other similar rights
held by Messrs. Callon, Christian or Weatherly shall automatically become fully
exercisable notwithstanding any vesting or exercisability provisions.
If any payment to one of Messrs. Callon, Christian or Weatherly would
be subject to any excise tax under Section 4999 of the Internal Revenue Code of
1986, as amended, a "gross-up" payment will be made to place such executive in
the same net after-tax position as would have been the case if no excise tax had
been payable.
CONSULTING AGREEMENT. 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. The agreement was amended on February
18, 1999. 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. 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
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
restricted shares of Common Stock, 20% of which vests on each of the first five
anniversaries of the effective date of the agreement. On February 18, 1999, the
Board of Directors approved the Compensation Committee's recommendation that all
unvested restricted shares be vested as of such date.
On January 1, 2002, the Company and Mr. Callon agreed to terminate the
consulting agreement upon the financing or refinancing of $45 million of the
Company's indebtedness. As of April 1, 2002, the financing conditions to
termination have not been met.
Upon termination of the agreement, John S. Callon is entitled to
receive a termination payment of $1.5 million, adjusted for inflation, and the
Company will remain obligated to continue to provide medical and disability
coverage.
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
11
administrator may, in its discretion and without shareholder approval, declare
some or all options exercisable in full before or simultaneously with such
merger, consolidation or sale of assets without regard for prescribed waiting
periods. Alternatively, the Compensation Committee or other plan administrator
may cancel all outstanding options provided option holders are given notice and
a period of 30 days prior to the merger, consolidation or sale to exercise the
options in full.
STOCK-BASED PLANS
The Company currently maintains three Common Stock-based incentive
plans for employees: the Callon Petroleum Company 1994 Stock Incentive Plan, the
Callon Petroleum Company 1996 Stock Incentive Plan, and the 2002 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. The Compensation
Committee of the Board of Directors administers all three of the Stock Incentive
Plans. Members of the Compensation Committee currently are Messrs. Stanger,
Wallace, B. F. Weatherly, and Wilson.
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. During 1999, options to
purchase 25,000 shares were granted to non-employee directors pursuant to
automatic grants. In addition, during 1999 the Compensation Committee approved
option grants of 38,750 shares to certain officers and employees. No awards were
granted under the 1994 Plan during 2000 or 2001. As of March 27, 2002, there
were 370 shares of Common Stock available for grant under the 1994 Plan.
1996 PLAN. On August 23, 1996, the Board of Directors of the Company
approved and adopted the 1996 Plan and granted awards thereunder to various
employees. The 1996 Plan was approved by the shareholders of the Company at the
1997 Annual Meeting. Pursuant to the 1996 Plan, 900,000 shares of Common Stock
were reserved for issuance upon the exercise of options or for grants of
performance shares. On August 20, 1998, the Board of Directors amended the 1996
Plan, as permitted pursuant to the terms of the 1996 Plan, to increase the
number of shares of Common Stock reserved for issuance by 300,000 shares to
1,200,000 shares. During March 1999, the Compensation Committee approved option
grants of 206,750 shares to certain officers and employees. During March 2000,
the Compensation Committee approved option grants for 533,000 shares to certain
officers and employees. On May 4, 2001 the shareholders of the Company approved
an increase in the available number of shares of Common Stock reserved for
issuance under the 1996 Plan by 1,000,000 shares to 2,200,000 shares. Automatic
option grants to non-employee directors during 2001 were 30,000 shares. On
January 2, 2002, option grants totaling 15,000 shares were awarded to newly
hired employees. As of March 27, 2002, there were 190,123 shares of Common Stock
available for grant under the 1996 Plan.
2002 PLAN. On February 14, 2002, the Board of Directors of the Company
approved and adopted the 2002 Stock Incentive Plan (the "2002 Plan"). Pursuant
to the 2002 Plan, 350,000 shares of common stock shall be reserved for issuance
upon the exercise of options or for grants of stock options, stock appreciation
rights or units, bonus stock, or performance shares or units. This Plan
qualifies as a "broadly based" plan under the provisions of the New York Stock
Exchanges rules and regulations and therefore did not require shareholder
approval. Because the 2002 Plan is a broadly based plan, the aggregate number of
shares underlying awards granted to officers and directors cannot exceed 50% of
the total number of shares underlying the awards granted to all employees during
any three-year period. On February 14, 2002, the Board of Directors authorized
the grant of 300,000 shares pursuant to the 2002 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. Each year, the Compensation
Committee establishes target level bonuses as a percentage of base salary for
certain officers, managers and staff members. The Compensation Committee also
establishes financial and operating goals to be achieved by the Company during
the year and assigns a relative weighting percent to each goal. Cash bonus
awards for the year are then based upon the extent to which such goals were
achieved during the year. See "--Report on Executive Compensation."
1997 EMPLOYEE STOCK PURCHASE PLAN. In 1997, the Board of Directors
authorized the implementation of the Callon Petroleum Company 1997 Employee
Stock Purchase Plan (the "1997 Purchase Plan"), which was approved by the
Company's shareholders at the 1997 Annual Meeting. The Plan provides eligible
employees of the Company with the opportunity to acquire a proprietary interest
in the Company through participation in a payroll deduction-based employee stock
purchase plan. An
12
aggregate of 250,000 shares of Common Stock have been reserved for issuance over
the ten-year term of the 1997 Purchase Plan. The purchase price per share at
which Common Stock will be purchased on the participant's behalf on each
purchase date within an offering period is equal to eighty-five percent of the
fair market value per share of Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR
There were no options to purchase Common Stock or stock appreciation
rights granted during 2001 to the Chief Executive Officer and the four most
highly compensated executive officers named in the Summary Compensation Table.
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, 2001. No stock options were
exercised by such persons in 2001.
AGGREGATED OPTION EXERCISES IN 2001 AND OPTION
VALUES AT DECEMBER 31, 2001
UNEXERCISED OPTIONS AT DECEMBER 31, 2001
---------------------------------------------
VALUE OF
NUMBER OF UNDERLYING IN-THE-MONEY
VALUE SECURITIES OPTIONS
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE (a) UNEXERCISABLE ($)(b)
---- --------------- -------- ------------------- --------------------
Fred L. Callon................ -- -- 288,700 / 36,300 0 / 0
Dennis W. Christian........... -- -- 263,550 / 21,450 0 / 0
John S. Weatherly............. -- -- 239,860 / 19,140 0 / 0
Kathy G. Tilley............... -- -- 172,160 / 15,840 0 / 0
Stephen F. Woodcock........... -- -- 89,480 / 14,520 0 / 0
(a) Represents awards granted under the 1994 Plan and the 1996 Plan.
(b) On December 31, 2001, the closing price of the Common Stock on the New
York Stock Exchange was $6.85.
LONG-TERM INCENTIVE PLAN AWARDS
Other than the 1994 Plan, the 1996 Plan, and the 2002 Plan, the Company
does not have a long-term incentive plan for its employees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Messrs. B. F.
Weatherly, Robert A. Stanger, John C. Wallace, and Richard O. Wilson, none of
whom are or have been officers or employees of the Company.
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of four non-employee directors
who make recommendations to the Board with respect to the annual base and bonus
compensation of the executive officers of the Company. The Compensation
Committee also administers the Company's employee benefit plans.
COMPENSATION POLICY. The Company's goal with respect to its executive
compensation policy is to attract and retain executives who have the ability to
lead Callon in achieving its business objectives in a highly competitive
industry. To this end, the Company's compensation policy is comprised of three
elements: (1) base compensation, (2) bonus compensation, and (3) stock-based
compensation. Historically, the Company has provided for conservative base
salaries with more aggressive incentive compensation in order to emphasize pay
for performance. In addition, the Committee awards stock-based compensation to
encourage greater executive focus on stockholder value.
13
In the past, the Company had entered into employment agreements with
certain of its executive officers. These agreements established an initial base
salary subject to upward adjustment by the Board of Directors or the
Compensation Committee and provide that such officers are entitled to
participate in the Company's incentive compensation programs. All of these
agreements expired in early 2001, and the Committee has decided not to enter
into new employment agreements at this time. The Compensation Committee believes
that, in order to retain highly qualified executives, it must provide these
persons with some security against organizational and personnel changes in the
event of a change of control of the Company. In order to provide this security,
in early 2002, the Company entered into the Severance Compensations Agreement
described under "--Employment Agreements, Termination of Employment and Change
of Control Arrangements-- Severance Compensation Agreements." The Compensation
Committee believes that these agreements are necessary to provide fair treatment
to key executives in the event of a change of control. In the future, the
Committee may determine that employment or other agreements with its executive
officers, in addition to the Severance Compensation Agreements, are necessary in
order to retain key employees and achieve the Company's long-term growth
objectives.
Currently, the Committee does not intend to award levels of
compensation that would result in a limitation on the deductibility of a portion
of such compensation for federal income tax purposes pursuant to Section 162(m)
of the Internal Revenue Code of 1986, as amended; however, the Committee may
authorize compensation that results in such limitations in the future if it
determines that such compensation is in the best interest of the Company.
BASE COMPENSATION. The Compensation Committee reviews each executive
officer's salary annually. The Committee has applied the same principals to
establish base compensation since the Company was formed in 1994, taking into
account both competitive realities and subjective factors. The base compensation
decision has no specific relationship to Company performance. As its primary
consideration, the Committee evaluates compensation set for comparable positions
by the Company's competitors, targeting the median of such compensation. To
determine base salaries paid by such peer group companies, the Committee
analyzes published industry survey data and proxy and annual report information
among energy companies of similar size, complexity and activity. From time to
time, the Company also engages independent compensation consulting firms. With
input from management of the Company, the Committee also takes into account
certain subjective factors such as individual performance and contribution to
the Company's success, seniority, experience level, internal equities within the
Company and general economic and industry conditions. No specific weight,
however, is assigned to these factors if they are considered.
After reviewing the salary levels of the Company's peers, the Company
decided to increase the base salaries of the Company's executive officers for
2001 by 3.5%, representing a "cost of living" adjustment. In addition to
evaluating salary increases in the industry, the Committee also took into
account a subjective valuation of each individual officer's contributions to the
Company's performance in 2000, potential contributions during 2001, and general
inflationary considerations. This cost of living increase was intended to match
similar increases by the Company's competitors and reflects the Committee's
commitment to maintaining competitive salary levels.
BONUS COMPENSATION. In 1996, the Board of Directors established the
Bonus Plan in order to tie compensation to certain fiscal targets affecting
short and long-term share price performance. Since that time, bonus compensation
has been awarded under the Bonus Plan as administered by the Compensation
Committee. As prescribed by the Bonus Plan, the Committee adheres to a formal
decision process for determining annual bonus compensation. At the core of this
process are pre-set financial and operating goals established by the Committee
as determinants of share price over time. For 2001, these goals were set with
respect to cash flow, net income, net reserve additions, and finding costs. The
Committee assigns to each goal a relative weighting percent, which is multiplied
at year-end by the percentage by which each such goal was achieved in order to
determine the "Weighted Goal Achieved." The Committee then derives the "Total
Goal Achieved" by adding together each Weighted Goal Achieved. In addition, the
Committee establishes target level bonuses as a percentage of base salary for
officers and other employees. If the Total Goal Achieved at year-end is (i) less
than 80%, no bonuses will be awarded under the Bonus Plan; (ii) between 80% and
120%, bonuses will be awarded at 80% to 120% of the target level; and (iii) more
than 120%, additional bonuses will be awarded at the discretion of the
Committee. For the year ended December 31, 2001, the Total Goal Achieved was
less than the required minimum of 80% of the goals set for 2001. Accordingly, no
bonus compensation was awarded. The Compensation Committee anticipates following
a similar formula for determining cash bonuses for 2002, subject to adjustment
for 2002 performance goals.
STOCK-BASED COMPENSATION. The Company relies heavily upon stock options
to compensate executive officers. The Committee generally subjects option grants
to a vesting schedule and establishes
14
the exercise price as the fair market value (based on trading on the New York
Stock Exchange) of the Common Stock on the date of grant. The Committee believes
that these terms align the interests of the Company's executives with those of
its stockholders.
To determine the timing and amount of stock-based awards, the
Compensation Committee considers the factors set forth under "Base Compensation"
above as well as the employee's ability to influence the Company's future
performance. The Committee also takes into account the number of outstanding and
unvested options held by an executive officer as well as the size of previous
option awards to such executive officer. Based on the Company's operating
results and the market price of its Common Stock, the Committee decided not to
grant options in 2001 to executive officers.
In the past, the Committee has issued performance shares to executive
officers. There are no performance shares currently outstanding; however, the
Committee will continue to monitor the Company's stock-based compensation
program to determine if performance shares should be granted in the future.
COMPENSATION OF CHIEF EXECUTIVE OFFICER. Mr. Callon's base salary was
increased by the Committee to $271,843 for 2001 as compared to $262,650 for 2000
in order to keep Mr. Callon's salary level competitive with the chief executive
officer position at peer group companies as well as taking into account the
subjective factors described above under "Base Compensation." See "Executive
Compensation." In particular, the Committee considered Mr. Callon's leadership
role in overseeing the Company's drilling program, particularly in the Gulf of
Mexico deepwater region, and capital market financing activities.
Under the Bonus Plan formula set by the Compensation Committee, Fred L.
Callon did not earn a bonus during 2001. Mr. Callon was not granted any
additional stock options during 2001.
B. F. Weatherly, Chairman
Robert A. Stanger
John C. Wallace
Richard O. Wilson
15
PERFORMANCE GRAPH
The following graph compares the yearly percentage change for the five
years ended December 31, 2001, in the cumulative total shareholder return on the
Company's Common Stock against the cumulative total return for the (i) NYSE
Market Value Index and (ii) Media General Financial Services Industry and Market
Index of SIC Group 121 (the "Industry Group Index") consisting of oil and gas
companies.
[GRAPH]
12/31/96 12/31/97 12/31/98 12/31/99 12/29/00 12/31/01
Callon Petroleum Company (2) $ 100 $ 86 $ 61 $ 78 $ 88 $ 36
NYSE Market Value Index (2) $ 100 $ 132 $ 157 $ 171 $ 176 $ 160
Industry Group Index (2) $ 100 $ 93 $ 60 $ 84 $ 123 $ 100
(1) The comparison of total return on an investment for each of the periods
assumes that $100 was invested on December 31, 1996, in the Company,
the NYSE Market Index and the Industry Group Index, and that all
dividends were reinvested.
(2) The Company's Common Stock was traded on the Nasdaq NMS from September
19, 1994 until April 21, 1998. On April 22, 1998, the Company's Common
Stock began trading on the New York Stock Exchange.
16
INDEPENDENT PUBLIC ACCOUNTANTS
As of April 15, 2002, the Board of Directors has not selected an
independent public accounting firm for the examination of the accounts and audit
of the financial statements of the Company for the year ending December 31,
2002. This decision has been delayed due to the uncertainties surrounding the
availability of future services by Arthur Andersen LLP. It is anticipated that
the independent public accounting firm that will audit the Company's financial
statements for the year ended December 31, 2002 will be selected in the near
future.
Arthur Andersen LLP served as independent public accountants for the
examination of the accounts and audit of the financial statements of the Company
for the year ending December 31, 2001. A representative of Arthur Andersen LLP
will be present at the Annual Meeting and will have an opportunity to make a
statement, if he desires, and to respond to appropriate questions.
SHAREHOLDERS' PROPOSALS FOR 2003 ANNUAL MEETING
Shareholders who desire to present proposals at the 2003 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 December 16, 2002. If the date of the 2003 Annual Meeting of
Shareholders is changed by more than 30 days from the date of the 2002 Annual
Meeting of Shareholders, the deadline for submitting proposals is a reasonable
time before the Company begins to print and mail its proxy materials for its
2003 Annual Meeting of Shareholders.
The persons named in the Company's form of proxy for the 2003 Annual
Meeting will have discretionary authority to vote any proxies they hold at such
meeting on any matter for which the Company does not receive notice by March 3,
2003, unless the Company changes the date of its 2003 Annual Meeting of
Shareholders by more than 30 days from the date of the 2002 Annual Meeting of
Shareholders, in which case such persons will be able to exercise discretionary
authority if notice of the matter has not been received in a reasonable time
before the Company mails its proxy materials for the 2003 Annual Meeting of
Shareholders.
If the date of the 2003 Annual Meeting of Shareholders is advanced or
delayed by more than 30 calendar days from the date of the 2001 Annual Meeting
of Shareholders, the Company shall, in a timely manner, inform shareholders of
such change, by including a notice, under Item 5, in its earliest possible
quarterly report on Form 10-Q. The notice will include the new deadline for
submitting proposals to be included in the Company's proxy statement and the new
date for determining whether the Company may exercise discretionary voting
authority because it has not received timely notice of a matter.
In order to avoid controversy as to the date on which the Company
receives any such proposal, it is suggested that shareholders submit their
proposals by certified mail, return receipt requested, or other means that
permit them to prove the date of delivery.
FINANCIAL STATEMENTS
Financial statements of the Company for its most recent fiscal year are
contained in the 2001 Annual Report and the Company's Report on Form 10-K.
COPIES OF THE COMPANY'S ANNUAL REPORT AND THE COMPANY'S REPORT ON FORM 10-K ARE
AVAILABLE TO SHAREHOLDERS UPON WRITTEN REQUEST TO THE INVESTOR RELATIONS
DEPARTMENT, CALLON PETROLEUM COMPANY, 200 NORTH CANAL STREET, NATCHEZ,
MISSISSIPPI 39120.
OTHER BUSINESS
The Board of Directors does not know of any matter to be acted upon at
the Annual Meeting other than those described above. If other business comes
before the Annual Meeting, the persons named on the Proxy will vote the Proxy in
accordance with what they consider to be in the best interests of the Company
and its shareholders.
By order of the Board of Directors
/s/ FRED L. CALLON
Natchez, Mississippi Fred L. Callon
April 15, 2002 President and Chief Executive Officer
17
CALLON PETROLEUM COMPANY
200 NORTH CANAL STREET, NATCHEZ, MISSISSIPPI 39120
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY FOR THE ANNUAL MEETING ON MAY 8, 2002
The undersigned hereby constitutes and appoints John S. Callon and Fred L.
Callon and each of them, his true and lawful agents and proxies with full power
of substitution in each, to represent and to vote, as designated on the reverse,
all of the shares of Common Stock of Callon Petroleum Company, held of record by
the undersigned on March 27, 2002, at the Annual Meeting of Shareholders to be
held in the Le Grand Pre Ballroom of the Natchez Eola Hotel, 100 North Pearl
Street, Natchez, Mississippi 39120 on May 8, 2002, 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 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)
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF SHAREHOLDERS
CALLON PETROLEUM COMPANY
MAY 8, 2002
o Please Detach and Mail in the Envelope Provided o
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR WITHHOLD THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS.
authority for all
1. ELECTION Nominees 2. In their discretion, the Proxies are authorized
OF to vote upon such other business as may properly
DIRECTORS [ ] [ ] NOMINEES: John S. Callon come before the meeting or any adjournments thereof.
Leif Dons
To withhold authority to vote B. F. Weatherly THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN
for any specific nominee(s), THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE,
mark the "FOR" box and write THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF
the name of each such nominee, DIRECTORS.
on the line provided below.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY IN THE STAMPED, PRE-ADDRESSED ENVELOPE
------------------------------- ENCLOSED.
SIGNATURE DATE SIGNATURE DATE
------------------------- -------- -------------------------- ---------
Note: Please sign exactly as name appears hereon. Joint owners should each
sign. when signing as attorney, executor, administrator, trustee or as
guardian, please indicate your full title as such.