Item 5.02 Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Executive Severance Pay Plan
On September 21, 2022, the Compensation Committee (the "Committee" or the
"Compensation Committee") of the Board of Directors of Callon Petroleum Company
(the "Company") adopted the Executive Severance Pay Plan (the "Severance Pay
Plan"), to be effective as of September 21, 2022, pursuant to which eligible
participants thereunder, including each of our named executive officers, will be
eligible to receive certain severance payments and benefits upon an "Involuntary
Termination" (as defined below), subject to the terms and conditions of the
Severance Pay Plan. Eligible participants under the Severance Pay Plan are
determined in the sole discretion and authority of the Committee, which acts as
the administrator of the Severance Pay Plan, and will include each of the
Company's named executive officers as well as other Company employees holding
the title of senior vice president or vice president, and any other title as may
be determined by the Committee.
In the event of a participant's Involuntary Termination, subject to the
participant's (1) execution of a release of claims against the Company and (2)
continued employment with the Company through the ultimate date established by
the Company as the employee's termination date, the participant is entitled to
receive: (i) the Accrued Obligations (as defined in the Severance Pay Plan),
(ii) an amount equal to the sum of (x) the Applicable Multiplier times the sum
of the participant's (A) annual base salary and (B) target annual bonus, (y) any
earned but unpaid annual bonus for the calendar year prior to the year of the
Involuntary Termination, based on the Company's actual performance during such
calendar year and (z) an amount equal to a pro rata portion of the participant's
annual bonus for the calendar year of the Involuntary Termination, with the
amount subject to proration to be calculated as follows based on the number of
days in the calendar year the participant remained employed through the date of
the Involuntary Termination (as applicable, the "Pro-Rata Bonus"): (1) if the
Involuntary Termination occurs prior to July 1st, the participant's Target
Annual bonus (as defined in the Severance Pay Plan) or (2) if the Involuntary
Termination occurs on or after July 1st, the participant's actual annual bonus
for the year in which the Involuntary Termination occurs, as determined by the
Compensation Committee (the severance benefits provided in this clause (ii),
collectively, the "Severance Pay") and (iii) continued health and welfare
benefits coverage for the participant and the participant's eligible dependents
for a period of 12 months after the date of the Involuntary Termination. For
purposes of the Severance Pay Plan, "Applicable Multiple" means 2x for the
Company's Chief Executive Officer and 1.5x for senior vice presidents and vice
presidents.
Except with respect to the pro rata bonus for any Involuntary Termination
occurring on or after July 1st, the Severance Pay (less all applicable
withholdings and deductions) will be paid in a lump sum as soon as practicable
following the date the release signed by the participant has become final and
irrevocable. In no event, however, will the Severance Pay be paid later than the
last day of the second taxable year following the taxable year in which occurs
the participant's Involuntary Termination.
As a condition to any participant's receipt of severance benefits under the
Severance Pay Plan, the participant must comply with non-competition and
non-solicitation covenants that apply for a period of one year after the date of
termination, as well as customary non-disparagement, non-disclosure,
confidentiality, and ownership covenants.
Callon Executive Change in Control Severance Compensation Plan
On September 21, 2022, the Committee approved the terms of the Callon Executive
Change in Control Severance Compensation Plan (the "Executive CIC Plan"), to be
effective as of September 21, 2022, to replace existing individual Change in
Control Severance Compensation Agreements ("CIC Severance Agreements"). Pursuant
to the Executive CIC Plan, eligible participants thereunder will be eligible to
receive certain severance payments and benefits upon an "Eligible Termination"
or "Deemed Eligible Termination" (as defined below), subject to the terms and
conditions of the Executive CIC Plan. Eligible participants under the Executive
CIC Plan are determined in the sole discretion and authority of the Committee,
which acts as the administrator of the Executive CIC Plan, and include each of
the Company's named executive officers as well as other employees holding the
title of senior vice president or vice president, and any other title as may be
determined by the Committee. The Executive CIC Plan is effective (i) for any
participant who immediately prior to September 21, 2022 was party to an
individual CIC Severance Agreement (x) if such participant agrees in writing to
the early termination of such CIC Severance Agreement, then as of the date of
such agreed early termination or (y) if such participant does not agree in
writing to the early termination of such CIC Severance Agreement, then as of
January 1, 2023, or (ii) for all other participants, as of September 21, 2022,
or such later date as may be specified by the Compensation Committee.
The Executive CIC Plan provides for severance payments and benefits to eligible
participants, including our named executive officers, of the Company as
described below which are generally consistent with the CIC Severance
Agreements. The Executive CIC Plan provides for severance payments and benefits
in the event that (i) there is a Change in Control (as defined in the Executive
CIC Plan), and the participant's employment is terminated within two years after
the date of such Change in Control either (a) by the Company other than for
Cause or due to the participant's Disability (each as defined in the Executive
CIC Plan) or (b) by the participant for Good Reason (as defined in the Executive
CIC Plan), or (ii) there is a Merger of Equals (as defined in the Executive CIC
Plan), and the participant's employment is terminated by the Company other than
for Cause or
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due to the participant's Disability within 12 months following the date of such
Merger of Equals (each an "Eligible Termination"). If the participant's
employment is terminated by the Company for reasons other than Cause or
Disability within six months prior to the date on which a Change in Control is
effective and it is reasonably demonstrated that such termination: (x) was at
the request of a third party who has taken steps reasonably calculated to
effectuate such Change in Control or (y) otherwise arose in connection with such
Change in Control, then for all purposes of the Executive CIC Plan, such
termination will be deemed to have occurred following such Change in Control
(for purposes of the Executive CIC Plan, a "Deemed Eligible Termination").
Upon an Eligible Termination or a Deemed Eligible Termination, and subject to
the participant's satisfaction of the conditions described below, participants
would be entitled to receive, subject to the participant's execution (without
revocation) of a release of claims against the Company: (i) a lump sum cash
payment, payable on the date that is six months following the date of the
participant's termination of employment, equal to the sum of: (x) the Applicable
Multiplier (as defined in the Executive CIC Plan) times the sum of (A) the
participant's annual base salary as in effect immediately prior to the Change in
Control or Merger of Equals, as applicable, or, if higher, in effect immediately
prior to the date of termination and (B) the greatest of (1) the average annual
bonus earned with respect to the three most recently completed full fiscal years
(provided that if the participant has not been employed for the entire duration
of each of the three most recently completed full fiscal years, the participant
will be deemed to have earned his or her target annual bonus for any year for
which he or she was not employed for the entire fiscal year for purposes of
calculating the average), (2) the target annual bonus for the fiscal year in
which the Change in Control or Merger of Equals, as applicable, occurs or (3)
the target annual bonus for the fiscal year in which the date of termination
occurs, (y) a Pro-Rata Bonus (as defined in the Executive CIC Plan) and (z) any
actual annual bonus for any completed calendar year that has been earned by but
not paid to the participant as of such participant's date of termination and
(ii) continued health and welfare benefits coverage for the participant and the
participant's eligible dependents for a period of 24 months. For purposes of the
Executive CIC Plan, "Applicable Multiplier" means 3x for the Company's Chief
Executive Officer and 2x for senior vice presidents and vice presidents.
As a condition to any participant's receipt of severance benefits under the
Executive CIC Plan, the participant must comply with non-competition and
non-solicitation covenants that apply for a period of one year after the date of
termination, as well as customary non-disparagement, non-disclosure,
confidentiality, and ownership covenants.
If the Total Payments (as defined in the Executive CIC Plan), were to cause the
participant to be subject to the excise tax provisions of Section 4999 of the
Internal Revenue Code of 1986, as amended, then the amount of the Total Payments
will either be reduced, such that the excise tax would not be applicable, or the
participant will be entitled to retain his or her full Total Payments, whichever
results in the better after-tax position to the participant.
Cash Incentive Award Agreement Amendments for Retirement-Eligible Employees
On September 21, 2022, the Compensation Committee of the Board of Directors of
the Company approved certain amendments (each, a "CPU Amendment") to the 2021
Long-Term Officer Cash Incentive Award Agreement (the "2021 CPU Award
Agreement"), the 2022 Long-Term Officer Cash Incentive Award Agreement (Returns
Program Cash Award) (the "2022 CPU Returns Award Agreement"), and the 2022
Long-Term Officer Cash Incentive Award Agreement (Business Sustainability Cash
Award) (the "2022 CPU Sustainability Award Agreement" and, together with the
2021 CPU Award Agreement and the 2022 CPU Returns Award Agreement, the "CPU
Award Agreements") for certain retirement-eligible employees, including Jeff
Balmer, the Company's Senior Vice President and Chief Operating Officer. Except
as amended pursuant to the CPU Amendments described herein, each of the CPU
Award Agreements otherwise remain in full force and effect.
Specifically, Section 4 of each of the CPU Award Agreements was amended and
restated to provide discretion to the Committee to make payment to the grantee
upon a termination of employment due to a Qualified Retirement prior to the
occurrence of a Change in Control or prior to the end of the Performance Period
(each as defined in the CPU Award Agreements). For purposes of each of the CPU
Amendments, "Qualified Retirement" mean the termination of the grantee's
employment with the Company, other than (x) for Cause or (y) due to death or
Disability (each as defined in the CPU Award agreements), on a date that is more
than six months following the effective date, provided that, as of the date of
such termination, the grantee (A) has attained a minimum of three years of
employment with the Company, (B) has attained the age of 55 and the sum of the
grantee's years of employment and the grantee's age totals at least 60, (C) has
provided the Company with notice of such intent to terminate at least six months
prior to the termination date and satisfactorily completed the duties of his
position up to the termination date, including any transition services
reasonably requested by the Company, (D) enters into an agreement not to compete
with, and not directly or indirectly induce any employee to leave the employment
of, the Company, any subsidiary or affiliate for a period of at least one year
following the grantee's termination of employment, which agreement, in both form
and substance, is provided by the Compensation Committee or is otherwise
satisfactory to the Compensation Committee, and (E) timely executes (and does
not revoke in any time provided to do so) a release of claims in favor of the
Company in a form reasonably acceptable to the Compensation Committee.
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Pursuant to the CPU Amendment of the 2021 CPU Award Agreement, the Compensation
Committee has discretion to determine that, in the event of a grantee's
termination of employment due to a Qualified Retirement prior to the occurrence
of a Change in Control or prior to the end of the Performance Period, grantee
will receive a pro-rated long-term cash incentive award in an amount equal to
the sum of: (i) for each performance year that ended prior to the date of such
Qualified Retirement, the Annual Accrued Amount (as defined in the 2021 CPU
Award Agreement) and (ii) for the performance year that includes the date of
such Qualified Retirement, the sum of (x) for each calendar quarter completed
for such performance year as of the date of the Qualified Retirement, one-fourth
of the Annual Target Amount (the "Quarterly Target Amount") multiplied by a
percentage based on the Company's attainment of Adjusted Free Cash Flow (as
defined in the 2021 CPU Award Agreement) targets for such quarter and (y) for
any calendar quarter that has not fully lapsed as of the date of the Qualified
Retirement, the Quarterly Target Amount prorated based on the number of days of
such calendar quarter that the grantee was employed by the Company, to be paid
as soon as reasonably practicable following the date of such termination of
employment and filing of the subsequent Quarterly Report on Form 10-Q (or Annual
Report on Form 10-K, as applicable).
Pursuant to the CPU Amendment of the 2022 CPU Returns Award Agreement, the
Compensation Committee has discretion to determine that, in the event of a
grantee's termination of employment due to a Qualified Retirement prior to the
occurrence of a Change in Control or prior to the end of the Performance Period,
grantee will receive a pro-rated long-term cash incentive award in an amount
equal to the sum of: (i) for each performance year that ended prior to the date
of such Qualified Retirement, the Target Award Amount multiplied by the ROCE
Multiplier (each as defined in the 2022 CPU Returns Award Agreement) and (ii)
for the performance year that includes the date of such Qualified Retirement,
the sum of (x) for each calendar quarter completed for such performance year as
of the date of the Qualified Retirement, one-fourth of the Target Award Amount
multiplied by the ROCE Multiplier and (y) for any calendar quarter that has not
fully lapsed as of the date of the Qualified Retirement, the Quarterly Target
Amount prorated based on the number of days of such calendar quarter that the
grantee was employed by the Company, to be paid as soon as reasonably
practicable following the date of such termination of employment and filing of
the subsequent Quarterly Report on Form 10-Q (or Annual Report on Form 10-K, as
applicable).
Pursuant to the CPU Amendment of the 2022 CPU Sustainability Award Agreement,
the Compensation Committee has discretion to determine that, in the event of a
grantee's termination of employment due to a Qualified Retirement prior to the
occurrence of a Change in Control or prior to the end of the Performance Period,
grantee will receive a pro-rated long-term cash incentive award in an amount
equal to the sum of: (i) for each performance year that ended prior to the date
of such Qualified Retirement, the Annual Accrued Amount (as defined in the 2022
CPU Sustainability Award Agreement) and (ii) for the performance year that
includes the date of such Qualified Retirement, the sum of (x) for each calendar
quarter completed for such performance year as of the date of the Qualified
Retirement, the Quarterly Target Amount multiplied by a percentage based on the
Company's attainment of Adjusted Free Cash Flow (as defined in the 2022 CPU
Sustainability Award Agreement) targets for such quarter and (y) for any
calendar quarter that has not fully lapsed as of the date of the Qualified
Retirement, the Quarterly Target Amount prorated based on the number of days of
such calendar quarter that the grantee was employed by the Company, to be paid
as soon as reasonably practicable following the date of such termination of
employment and filing of the subsequent Quarterly Report on Form 10-Q (or Annual
Report on Form 10-K, as applicable).
The foregoing descriptions of the Severance Pay Plan, Executive CIC Plan, and
CPU Amendments do not purport to be complete and are subject to, and qualified
in their entirety by, the full text of the Severance Pay Plan, Executive CIC
Plan, and form of CPU Amendment, which will be filed as exhibits to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ending September
30, 2022.
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