Item 1.01. Entry into a Material Definitive Agreement.
Indenture
On
October 3, 2016, Callon Petroleum Company (the Company) issued $400.0 million in aggregate principal amount of its 6.125% Senior Notes due 2024 (the Notes) to J.P. Morgan Securities LLC and the other initial purchasers (the
Initial Purchasers) for resale to certain qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the Securities Act), and to persons outside of the United States pursuant to
Regulation S under the Securities Act. Net proceeds to the Company, after deducting Initial Purchasers discounts and estimated offering expenses, were approximately $391 million. The Company is using the net proceeds of the offering
as follows:
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approximately $310 million to repay amounts borrowed (including principal, applicable prepayment premium and accrued and unpaid interest) under the Companys second lien term loan; and
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the remainder for general corporate purposes, including for a potential increase in drilling activity.
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The Notes are fully and unconditionally guaranteed on a senior unsecured basis (the Guarantee) by Callon Petroleum Operating
Company, a subsidiary of the Company (the Guarantor). The terms of the Notes are governed by the indenture, dated as of October 3, 2016 (the Indenture), by and among the Company, the Guarantor and U.S. Bank National
Association, as trustee (the Trustee).
The Notes will mature on October 1, 2024, and interest is payable on the Notes on each
April 1 and October 1, commencing on April 1, 2017. At any time prior to October 1, 2019, the Company may, from time to time, redeem up to 35% of the aggregate principal amount of the Notes in an amount of cash not greater than the net cash
proceeds from certain equity offerings at the redemption price of 106.125% of the principal amount, plus accrued and unpaid interest, if any, to the date of redemption, if at least 65% of the aggregate principal amount of the Notes remains
outstanding after such redemption and the redemption occurs within 180 days of the closing date of such equity offering. At any time prior to October 1, 2019, the Company may, on any one or more occasions, redeem all or part of the Notes for cash at
a redemption price equal to 100% of their principal amount of the Notes redeemed plus an applicable make-whole premium and accrued and unpaid interest, if any, to the date of redemption. Upon the occurrence of certain kinds of change of control,
each holder of the Notes may require the Company to repurchase all or a portion of the Notes for cash at a price equal to 101% of the aggregate principal amount of such Notes, plus accrued and unpaid interest, if any, to the date of
repurchase. On and after October 1, 2019, the Company may redeem the Notes, in whole or in part, at redemption prices (expressed as percentages of principal amount) equal to 104.594% for the twelve-month period beginning on October 1, 2019,
103.063% for the twelve-month period beginning October 1, 2020, 101.531% for the twelve-month period beginning on October 1, 2021 and 100.000% beginning on October 1, 2022, plus accrued and unpaid interest, if any, to the date of redemption.
The Notes are the Companys senior unsecured obligations and rank equally in right of payment with all of the Companys other senior
indebtedness and senior to any of the Companys subordinated indebtedness. The Guarantee ranks equally in right of payment with all of the other senior indebtedness of the Guarantor and senior to any subordinated indebtedness of the
Guarantor. The Notes and the Guarantee are effectively subordinate in right of payment to all of the Companys and the Guarantors secured indebtedness to the extent of the value of the collateral securing such indebtedness, and
structurally subordinate in right of payment to all indebtedness and other liabilities of any of the Companys existing and future subsidiaries that do not guarantee the notes.
The Indenture restricts the Companys ability and the ability of its Restricted Subsidiaries (as defined in the
Indenture), including the Guarantor, to: (i) incur or guarantee additional indebtedness or issue certain types of preferred stock; (ii) pay dividends on capital stock or redeem, repurchase or
retire its capital stock or subordinated indebtedness; (iii) transfer or sell assets; (iv) make investments; (v) create certain liens; (vi) enter into agreements that restrict dividends or other payments from its Restricted Subsidiaries to the
Company; (vii) consolidate, merge or transfer all or substantially all of its assets; (viii) engage in transactions with affiliates; (ix) require us to repay our Second Lien Credit Agreement (as defined in the Indenture); and (x) create unrestricted
subsidiaries. These covenants are subject to important exceptions and qualifications set forth in the Indenture. If the Notes achieve an investment grade rating from either Moodys Investors Service, Inc. or Standard & Poors Ratings
Services, many of these covenants will be suspended.
The Indenture contains customary events of default, including:
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default in any payment of interest on the Notes when due, continued for 30 days;
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default in the payment of principal of or premium, if any, on the Notes when due;
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failure by the Company to comply with its other obligations under the Indenture, in certain cases subject to notice and grace periods;
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payment defaults and accelerations with respect to other indebtedness of the Company and its Restricted Subsidiaries in the aggregate principal amount of $35.0 million or more;
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failure by the Company or Restricted Subsidiary to pay certain final judgments aggregating in excess of $35.0 million within 60 days;
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any guarantee of the Notes by a Guarantor ceases to be in full force and effect, is declared null and void in a judicial proceeding or is denied or disaffirmed by its maker; and
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certain events of bankruptcy, insolvency or reorganization of the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary (as defined in the Indenture) or group of Restricted Subsidiaries that,
taken together, would constitute a Significant Subsidiary.
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The foregoing description of the Indenture does not purport to
be complete and is qualified in its entirety by reference to the full text of the Indenture, a copy of which is filed as Exhibit 4.1 to this Form 8-K and incorporated by reference herein.
Registration Rights Agreement
In connection with the issuance and sale of the Notes, the Company and the Guarantor entered into a registration rights agreement (the
Registration Rights Agreement) with the Initial Purchasers, dated October 3, 2016. Pursuant to the Registration Rights Agreement, the Company and the Guarantor have agreed to file a registration statement with the Securities and Exchange
Commission so that holders of the Notes can exchange the Notes for registered notes (the Exchange Notes) that have substantially identical terms as the Notes. In addition, the Company and the Guarantor have agreed to exchange the
Guarantee for a registered guarantee having substantially the same terms as the Guarantee. The Company and the Guarantor will use commercially reasonable efforts to cause the registration statement for the exchange to be declared effective by the
Securities and Exchange Commission within 425 days after the issuance of the Notes and for the exchange to be consummated on or prior to 30 business days (or longer, if required by applicable securities laws) after the date on which the registration
statement is declared effective. The Company and the Guarantor are required to pay Special Interest (as defined in the Registration Rights Agreement) if they fail to comply with their obligations to register the Exchange Notes within the specified
time periods.
Certain of the Initial Purchasers and their affiliates have, from time to time, performed, and may in the future perform,
various commercial and investment banking and financial advisory services for the Company and its affiliates, for which they received or may in the future receive customary fees and expenses. In particular, affiliates
of certain of the Initial Purchasers are lenders under the Companys second lien term loan and will therefore receive their respective share of repayment by the Company from the
Companys net proceeds received from the sale of the Notes.
The foregoing description of the Registration Rights Agreement does not
purport to be complete and is qualified in its entirety by reference to the full text of the Registration Rights Agreement, a copy of which is filed as Exhibit 4.2 to this Form 8-K and incorporated by reference herein.