S-4/A 1 d772167ds4a.htm S-4/A S-4/A
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As filed with the Securities and Exchange Commission on October 4, 2019

Registration No. 333-233366

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

FORM S-4

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

 

 

CALLON PETROLEUM COMPANY

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   1311   64-0844345
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

2000 W. Sam Houston Parkway S., Suite 2000

Houston, Texas 77042

(281) 589-5200

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Michol L. Ecklund

Senior Vice President, General Counsel and Corporate Secretary

2000 W. Sam Houston Parkway S., Suite 2000

Houston, Texas 77042

(281) 589-5200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With a copy to:

 

Sean T. Wheeler, P.C.

Douglas A. Bacon, P.C.

Lanchi D. Huynh

Kirkland & Ellis LLP

609 Main Street

Houston, Texas 77002

(713) 836-3600

 

Gerry Morton

General Counsel & Vice President
of Business Development

Carrizo Oil & Gas, Inc.

500 Dallas Street, Suite 2300

Houston, Texas 77002

(713) 328-1000

 

Gene J. Oshman

James B. Marshall

Baker Botts L.L.P.

910 Louisiana Street

Houston, Texas 77002

(713) 229-1234

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement is declared effective and upon completion of the merger described in the joint proxy statement/prospectus contained herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer       Accelerated filer  
Non-accelerated filer       Smaller reporting company  
      Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ☐

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 


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Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This joint proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

 

PRELIMINARY—SUBJECT TO COMPLETION, DATED OCTOBER 4, 2019

 

LOGO    LOGO

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Shareholders of Callon Petroleum Company and Carrizo Oil & Gas, Inc.:

On July 14, 2019, Callon Petroleum Company, a Delaware corporation (“Callon”), and Carrizo Oil & Gas, Inc., a Texas corporation (“Carrizo”), entered into an Agreement and Plan of Merger (as amended from time to time, the “merger agreement”), providing for Callon’s acquisition of Carrizo, pursuant to a merger between Callon and Carrizo, with Callon as the surviving corporation (the “merger”).

Callon and Carrizo will each hold special meetings of their respective shareholders in connection with the proposed merger (respectively, the “Callon special meeting” and “Carrizo special meeting”).

At the Callon special meeting, holders of Callon common stock (as defined below) (the “Callon shareholders”) will be asked to vote on proposals to (i) approve and adopt the merger agreement and the merger (the “Callon merger proposal”), (ii) approve the issuance of shares of common stock, par value $0.01 per share, of Callon (“Callon common stock”) to the holders of Carrizo common stock (as defined below) (the “Carrizo shareholders”) in connection with the merger (the “share issuance proposal”), (iii) approve and adopt an amendment to Callon’s certificate of incorporation to increase the authorized number of shares of Callon common stock (the “charter amendment proposal”), (iv) approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Callon’s named executive officers that is based on or otherwise relates to the merger (the “Callon compensation proposal”), and (v) approve the adjournment of the Callon special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to approve the Callon merger proposal, the share issuance proposal, or the charter amendment proposal (the “Callon adjournment proposal” and, together with the Callon merger proposal, share issuance proposal, the charter amendment proposal, and the Callon compensation proposal, the “Callon shareholder proposals”). Approval of each of the Callon merger proposal and charter amendment proposal requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Callon common stock entitled to vote at the Callon special meeting. Approval of the share issuance proposal requires the affirmative vote of a majority of votes cast by Callon shareholders entitled to vote thereon and present or represented by proxy at the Callon special meeting. Approval of each of the Callon compensation proposal and the Callon adjournment proposal requires the affirmative vote of the holders of a majority of the shares of Callon common stock entitled to vote thereon and present or represented by proxy at the Callon special meeting.

The Callon special meeting will be held on November 14, 2019 in the Advice & Counsel meeting room of the Hotel ZaZa, 9787 Katy Freeway, Houston, Texas, at 9:00 a.m. Central Time. Callon’s board of directors (the “Callon board”) unanimously recommends that Callon shareholders vote “FOR” the Callon merger proposal, “FOR” the share issuance proposal, “FOR” the charter amendment proposal, “FOR” the Callon compensation proposal, and “FOR” the Callon adjournment proposal.

At the Carrizo special meeting, Carrizo shareholders will be asked to vote on proposals to (i) approve the merger agreement (the “Carrizo merger proposal”), (ii) approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Carrizo’s named executive officers that is based on or otherwise relates to the merger (the “Carrizo compensation proposal”), and (iii) approve the adjournment of the Carrizo special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to approve the Carrizo merger proposal (the “Carrizo adjournment proposal”). Approval of the Carrizo merger proposal requires the affirmative vote of the holders of at least two-thirds of the outstanding shares of common stock, par value $0.01 per share, of Carrizo (“Carrizo common stock”) entitled to vote on the proposal. Approval of each of the Carrizo compensation proposal and Carrizo adjournment proposal requires the affirmative vote of the holders of a majority of the Carrizo common stock entitled to vote on such proposal and that voted for or against or expressly abstained with respect to such proposal at the Carrizo special meeting. Approval of the merger agreement will also require approval by the holders


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of a majority of the outstanding shares of Carrizo’s 8.875% redeemable preferred stock, par value $0.01 per share (“Carrizo preferred stock”), entitled to vote thereon, unless each issued and outstanding share of Carrizo preferred stock has been redeemed prior to the consummation of the merger, as contemplated by the merger agreement.

Concurrently with the execution and delivery of the merger agreement, each member of Carrizo’s board of directors (the “Carrizo board”), in his or her capacity as a shareholder, entered into a voting and support agreement with Callon, pursuant to which such individuals agreed, subject to the terms and conditions thereof, to vote all shares of Carrizo common stock beneficially owned by such individual in favor of the approval of the merger agreement.

The Carrizo special meeting will be held on November 14, 2019 in the B. Jordan II Ballroom of the C. Baldwin Hotel, 400 Dallas Street, Houston, Texas, at 9:00 a.m. Central Time. The Carrizo board unanimously recommends that Carrizo shareholders vote “FOR” the Carrizo merger proposal, “FOR” the Carrizo compensation proposal, and “FOR” the Carrizo adjournment proposal.

If the merger is completed, each issued and outstanding share of Carrizo common stock will convert into the right to receive 2.05 shares of Callon common stock (the “exchange ratio”), with cash paid in lieu of the issuance of fractional shares, if any. Although the number of shares of Callon common stock that Carrizo shareholders will receive is fixed, the market value of the merger consideration will fluctuate with the market price of Callon common stock and will not be known at the time Carrizo shareholders vote to approve the merger agreement or at the time Callon shareholders vote to approve the Callon shareholder proposals. Based on the closing price of Callon common stock on the New York Stock Exchange (“NYSE”) on July 12, 2019, the last trading day before the public announcement of the parties entering into the merger agreement, the 2.05 exchange ratio represented approximately $13.12 in value for each share of Carrizo common stock. Based on the closing price of Callon common stock on the NYSE on                 , 2019, the last practicable trading day before the date of this joint proxy statement/prospectus, the 2.05 exchange ratio represented approximately $        in value for each share of Carrizo common stock. Based on the estimated number of shares of Callon common stock and shares of Carrizo common stock as well as the outstanding equity of the parties that will be outstanding immediately prior to the consummation of the merger, we estimate that, upon consummation of the merger, existing Callon shareholders will hold approximately 54% and former Carrizo shareholders will hold approximately 46% of the issued and outstanding shares of Callon common stock. We urge you to obtain current market quotations for Callon common stock (trading symbol “CPE”) and Carrizo common stock (trading symbol “CRZO”).

The obligations of Callon and Carrizo to complete the merger are subject to the satisfaction or waiver of a number of conditions set forth in the merger agreement, a copy of which is included as Annex A to the attached joint proxy statement/prospectus. The attached joint proxy statement/prospectus describes the Callon special meeting and the proposals to be considered thereat, the Carrizo special meeting and the proposals to be considered thereat, the merger, and the documents and agreements related to the merger. It also contains or references information about Callon and Carrizo and certain related agreements and matters. Please carefully read this entire joint proxy statement/prospectus, including “Risk Factors,” beginning on page 34, for a discussion of the risks relating to the proposed merger. You also can obtain information about Callon and Carrizo from documents that each has filed with the Securities and Exchange Commission (the “SEC”).

Sincerely,

 

LOGO    LOGO
Joseph C. Gatto, Jr.
President, Chief Executive Officer and Director
Callon Petroleum Company
   S.P. Johnson IV
President, Chief Executive Officer and Director
Carrizo Oil & Gas, Inc.

Neither the SEC nor any state securities commission has approved or disapproved of the securities to be issued in connection with the merger described in this joint proxy statement/prospectus or determined if this joint proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated                 , 2019 and is first being mailed to Callon shareholders of record and Carrizo shareholders of record on or about                 , 2019.


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LOGO

CALLON PETROLEUM COMPANY

2000 W. Sam Houston Parkway S., Suite 2000

Houston, Texas 77042

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON NOVEMBER 14, 2019

Dear Shareholder:

You are cordially invited to attend the special meeting (the “Callon special meeting”) of Callon Petroleum Company (“Callon”) to be held at 9:00 a.m. Central Time, on November 14, 2019, in the Advice & Counsel meeting room of the Hotel ZaZa, 9787 Katy Freeway, Houston, Texas. The items of business for this meeting are as follows:

 

  1.

Approve and adopt the Agreement and Plan of Merger, dated as of July 14, 2019 (as amended from time to time, the “merger agreement”), by and between Callon and Carrizo Oil & Gas, Inc., a Texas corporation (“Carrizo”) (the “Callon merger proposal”);

 

  2.

Approve the issuance of shares of Callon common stock, par value $0.01 per share, to shareholders of Carrizo in connection with the merger contemplated by the merger agreement (the “share issuance” and such proposal, the “share issuance proposal”);

 

  3.

Approve and adopt an amendment to Callon’s certificate of incorporation to increase Callon’s authorized shares of common stock from 300 million shares to 750 million shares (the “charter amendment proposal”);

 

  4.

Approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Callon’s named executive officers that is based on or otherwise relates to the merger (the “Callon compensation proposal”); and

 

  5.

Approve any motion to adjourn the Callon special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to approve the Callon merger proposal, the share issuance proposal, or the charter amendment proposal (the “Callon adjournment proposal” and together with the Callon merger proposal, the share issuance proposal, the charter amendment proposal, and the Callon compensation proposal, the “Callon shareholder proposals”).

Callon will transact no other business at the Callon special meeting, except such business as may properly be brought before the Callon special meeting or any adjournments or postponements thereof by or at the direction of the Callon board of directors (the “Callon board”) in accordance with Callon’s bylaws. The accompanying joint proxy statement/prospectus describes the proposals listed above in more detail. Please refer to the attached document, including the merger agreement and all other annexes and any documents incorporated by reference, for further information with respect to the business to be transacted at the Callon special meeting. You are encouraged to read the entire document carefully before voting. In particular, please see “The Merger” beginning on page 68 for a description of the transactions contemplated by the merger agreement, including the share issuance, and “Risk Factors” beginning on page 34 for an explanation of the risks associated with the merger and the other transactions contemplated by the merger agreement, including the share issuance.

Approval of the Callon merger proposal and approval of the charter amendment proposal by the affirmative vote of the holders of a majority of the issued and outstanding shares of Callon common stock entitled to vote at the Callon special meeting, and approval of the share issuance proposal by the affirmative vote of a majority of votes cast by the holders of shares of Callon common stock entitled to vote thereon and present or represented by


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proxy at the Callon special meeting, are required to complete the merger, as contemplated under the merger agreement (the “merger”). Holders of Callon common stock (the “Callon shareholders”) will also be asked to approve the Callon compensation proposal and the Callon adjournment proposal.

The Callon board has fixed the close of business on October 7, 2019 as the record date for the determination of the Callon shareholders entitled to receive notice of, and to vote at, the Callon special meeting or any adjournments or postponements thereof. Only Callon shareholders of record on the record date are entitled to receive notice of, and to vote at, the Callon special meeting or any adjournments or postponements thereof, so long as such shares remain outstanding on the date of the Callon special meeting. For additional information regarding the Callon special meeting, please see “Callon Special Meeting” of the accompanying joint proxy statement/prospectus.

The Callon board has (i) unanimously declared advisable and approved the merger agreement and the execution, delivery, and performance thereof and the transactions contemplated thereby, including the merger, the share issuance, and the charter amendment, (ii) unanimously resolved to recommend that the Callon shareholders approve and adopt the merger agreement and the transactions contemplated thereby, including the merger, the share issuance, and the charter amendment, and (iii) unanimously directed that the approval and adoption of the merger agreement, approval of the share issuance, approval of the charter amendment proposal, approval of the Callon compensation proposal, and approval of the Callon adjournment proposal be submitted to Callon shareholders at the Callon special meeting. The Callon board unanimously recommends that Callon shareholders vote “FOR” the Callon merger proposal, “FOR” the share issuance proposal, “FOR” the charter amendment proposal, “FOR” the Callon compensation proposal, and “FOR” the Callon adjournment proposal.

As a Callon shareholder, you play an important role in our company by considering and taking action on these matters. We appreciate the time and attention you invest in making thoughtful decisions.

Please vote as promptly as possible, whether or not you plan to attend the Callon special meeting. If your shares are held in the name of a broker, bank, or other nominee, please vote by following the instructions on the voting instruction form furnished by the broker, bank, or other nominee. If you hold your shares in your own name, please submit a proxy to vote your shares as promptly as possible by (i) visiting the internet site listed on the proxy card, (ii) calling the toll-free number listed on the proxy card, or (iii) signing and returning your proxy card by mail by using the provided self-addressed, stamped envelope. Submitting a proxy will not prevent you from voting in person, but it will help to secure a quorum and avoid added solicitation costs. Any eligible holder of Callon common stock who is present at the Callon special meeting may vote in person, thereby revoking any previous proxy. In addition, a proxy may also be revoked in writing before the Callon special meeting in the manner described in the accompanying joint proxy statement/prospectus.

If you have any questions concerning the Callon shareholder proposals, the merger, or the accompanying joint proxy statement/prospectus, would like additional copies, or need help voting your shares of Callon common stock, please contact Callon’s proxy solicitors:

Innisfree M&A Incorporated

501 Madison Ave, 20th Floor

New York, New York 10022

Shareholders may call toll-free: (888) 750-5834

Banks and Brokers may call collect: (212) 750-5833


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Your vote is very important. The merger between Callon and Carrizo cannot be completed without the approval of the Callon merger proposal and the charter amendment proposal by the affirmative vote of the holders of a majority of the issued and outstanding shares of Callon common stock entitled to vote at the Callon special meeting, and approval of the share issuance proposal by the affirmative vote of a majority of votes cast by Callon shareholders entitled to vote thereon and present or represented by proxy at the Callon special meeting. Abstentions, broker non-votes, and failures to submit a proxy or vote in person at the Callon special meeting will have the same effect as a vote “AGAINST” the Callon merger proposal and the charter amendment proposal. Abstentions will have the same effect as a vote “AGAINST” the share issuance proposal, and broker non-votes and failures to submit a proxy or vote in person at the Callon special meeting will have no effect on the share issuance proposal.

By order of the Board of Directors,

 

LOGO

Michol L. Ecklund

Senior Vice President, General Counsel and Corporate Secretary


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LOGO

CARRIZO OIL & GAS, INC.

500 Dallas Street, Suite 2300

Houston, Texas 77002

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON NOVEMBER 14, 2019

Dear Shareholder:

You are cordially invited to attend the special meeting of shareholders (the “Carrizo special meeting”) of Carrizo Oil & Gas, Inc. (“Carrizo”) to be held at 9:00 a.m. Central Time, on November 14, 2019, in the B. Jordan II Ballroom of the C. Baldwin Hotel, 400 Dallas Street, Houston, Texas. The items of business for this meeting are as follows:

 

  1.

Approve the Agreement and Plan of Merger, dated as of July 14, 2019 (as amended from time to time, the “merger agreement”), by and between Callon Petroleum Company, a Delaware corporation (“Callon”), and Carrizo (the “Carrizo merger proposal”);

 

  2.

Approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Carrizo’s named executive officers that is based on or otherwise relates to the merger (as defined below) (the “Carrizo compensation proposal”); and

 

  3.

Approve any motion to adjourn the special meeting, if necessary to solicit additional proxies if there are not sufficient votes of holders of our common stock to approve the Carrizo merger proposal at the time of the Carrizo special meeting (the “Carrizo adjournment proposal”).

Carrizo will transact no other business at the Carrizo special meeting, except such business as may properly be brought before the Carrizo special meeting or any adjournments or postponements thereof by or at the direction of the Carrizo board of directors (the “Carrizo board”) in accordance with Carrizo’s bylaws. The accompanying joint proxy statement/prospectus describes the proposals listed above in more detail. Please refer to the attached document, including the merger agreement and all other annexes and any documents incorporated by reference, for further information with respect to the business to be transacted at the Carrizo special meeting. You are encouraged to read the entire document carefully before voting. In particular, please see “The Merger” beginning on page 68 for a description of the transactions contemplated by the merger agreement and “Risk Factors” beginning on page 34 for an explanation of the risks associated with the merger and the other transactions contemplated by the merger agreement.

Approval of the Carrizo merger proposal by the affirmative vote of the holders of at least two-thirds of the outstanding shares of Carrizo common stock entitled to vote on the proposal is required to complete the merger between Carrizo and Callon, as contemplated under the merger agreement (the “merger”). Holders of Carrizo common stock (“Carrizo shareholders”) will also be asked to approve the Carrizo compensation proposal and the Carrizo adjournment proposal.

The Carrizo board has fixed the close of business on October 7, 2019 as the record date for the determination of the Carrizo shareholders entitled to receive notice of, and to vote at, the Carrizo special meeting or any adjournments or postponements thereof. The Carrizo shareholders of record as of the close of business on the record date are the only Carrizo shareholders that are entitled to receive notice of, and to vote at, the Carrizo special meeting or any adjournments or postponements thereof, so long as such shares remain outstanding on the date of the Carrizo special meeting. For additional information regarding the Carrizo special meeting, please see “Carrizo Special Meeting” of the accompanying joint proxy statement/prospectus.


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The Carrizo board has (i) unanimously approved the merger agreement and the execution, delivery, and performance of the merger agreement and the consummation of the transactions contemplated thereby, including the merger, (ii) resolved to submit the merger agreement to a vote of Carrizo shareholders, and (iii) recommended approval of the merger agreement by the Carrizo shareholders. The Carrizo board unanimously recommends that holders of Carrizo common stock vote “FOR” the Carrizo merger proposal, “FOR” the Carrizo compensation proposal, and “FOR” the Carrizo adjournment proposal.

As a Carrizo shareholder, you play an important role in our company by considering and taking action on these matters. We appreciate the time and attention you invest in making thoughtful decisions.

Please vote as promptly as possible, whether or not you plan to attend the Carrizo special meeting. If your shares are held in the name of a broker, bank, or other nominee, please vote by following the instructions on the voting instruction form furnished by the broker, bank, or other nominee. If you hold your shares in your own name, submit a proxy to vote your shares as promptly as possible by (i) visiting the internet site listed on the proxy card, (ii) calling the toll-free number listed on the proxy card, or (iii) submitting your proxy card by mail by using the provided self-addressed, stamped envelope. Submitting a proxy will not prevent you from voting in person, but it will help to secure a quorum and avoid added solicitation costs. Any eligible holder of Carrizo common stock who is present at the Carrizo special meeting may vote in person, thereby revoking any previous proxy. In addition, a proxy may also be revoked in writing before the Carrizo special meeting in the manner described in the accompanying joint proxy statement/prospectus.

If you have any questions concerning the merger or the accompanying joint proxy statement/prospectus, would like additional copies, or need help voting your shares of Carrizo common stock, please contact Carrizo’s proxy solicitor:

MacKenzie Partners, Inc.

1407 Broadway, 27th Floor

New York, New York 10018

Carrizo@mackenziepartners.com

(212) 929-5500

Toll-Free: (800) 322-2885

 

Your vote is very important. Approval of the Carrizo merger proposal by holders of Carrizo common stock is a condition to the merger and requires the affirmative vote of the holders of at least two-thirds of the outstanding shares of Carrizo common stock entitled to vote on the proposal. Abstentions, broker non-votes, and failures to submit a proxy or vote in person at the Carrizo special meeting will have the same effect as a vote “AGAINST” the Carrizo merger proposal.

By Order of the Board of Directors,

 

LOGO

L. Michael Kennington

Corporate Secretary


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ADDITIONAL INFORMATION

Both Callon and Carrizo file annual, quarterly, and current reports, proxy statements, and other business and financial information with the Securities and Exchange Commission (the “SEC”) electronically, and the SEC maintains a website located at www.sec.gov containing this information. You can also obtain these documents, free of charge, from Callon at ir.callon.com and from Carrizo at ir.carrizo.com, as applicable. The information contained on, or that may be accessed through, Callon’s and Carrizo’s websites is not incorporated by reference into, and is not a part of, this joint proxy statement/prospectus.

Callon has filed a registration statement on Form S-4 with respect to the shares of Callon common stock issuable in the merger, of which this joint proxy statement/prospectus forms a part. This joint proxy statement/prospectus constitutes the prospectus of Callon filed as part of the registration statement. As permitted by SEC rules, this joint proxy statement/prospectus does not contain all of the information included in the registration statement or in the exhibits or schedules to the registration statement. You may read and copy the registration statement, including any amendments, schedules, and exhibits at the SEC’s website mentioned above. Statements contained in this joint proxy statement/prospectus as to the contents of any contract or other documents referred to in this joint proxy statement/prospectus are not necessarily complete. In each case, you should refer to the copy of the applicable agreement or other document filed as an exhibit to the registration statement.

This joint proxy statement/prospectus incorporates important business and financial information about Callon and Carrizo from documents that are not attached to this joint proxy statement/prospectus. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference into this joint proxy statement/prospectus, including copies of financial statements and management’s discussion and analysis, free of charge by requesting them in writing or by telephone from the appropriate company or its proxy solicitors at the following addresses and telephone numbers:

 

For Callon shareholders:    For Carrizo shareholders:

Callon Petroleum Company
2000 W. Sam Houston Parkway S., Suite 2000

Houston, Texas 77042
Attention: Investor Relations
(281) 589-5200

IR@callon.com

  

Carrizo Oil & Gas, Inc.
500 Dallas Street, Suite 2300
Houston, Texas 77002
Attention: Investor Relations
(713) 328-1055

IR@carrizo.com

Innisfree M&A Incorporated
501 Madison Ave, 20th Floor
New York, New York 10022
Shareholders may call toll-free: (888) 750-5834

Banks and Brokers may call collect: (212) 750-5833

  

MacKenzie Partners, Inc.

1407 Broadway, 27th Floor

New York, New York 10018

Carrizo@mackenziepartners.com

(212) 929-5500

Toll-Free: (800) 322-2885

If you would like to request any documents, please do so by November 6, 2019, which is five business days prior to the date of the Callon special meeting and the Carrizo special meeting, in order to receive them before the applicable meeting.

For a more detailed description of the information incorporated by reference into this joint proxy statement/prospectus and how you may obtain it, please see “Where You Can Find More Information.”


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ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

This joint proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed with the SEC by Callon, constitutes a prospectus of Callon under the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Callon common stock issuable to Carrizo shareholders in connection with the merger. This joint proxy statement/prospectus also constitutes a joint proxy statement for both Carrizo and Callon under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This joint proxy statement/prospectus also constitutes a notice of meeting with respect to the Callon special meeting and a notice of meeting with respect to the Carrizo special meeting.

You should rely only on the information contained in or incorporated by reference into this joint proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated                 , 2019, and you should assume that the information contained in this joint proxy statement/prospectus is accurate only as of such date. You should also assume that the information incorporated by reference into this joint proxy statement/prospectus is only accurate as of the date of such information. Neither the mailing of this joint proxy statement/prospectus to Callon shareholders or Carrizo shareholders nor the issuance by Callon of shares of Callon common stock pursuant to the merger agreement will create any implication to the contrary.

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Information contained in this joint proxy statement/prospectus regarding Callon has been provided by Callon and information contained in this joint proxy statement/prospectus regarding Carrizo has been provided by Carrizo.

All references in this joint proxy statement/prospectus to (i) “Callon” refer to Callon Petroleum Company, a Delaware corporation; (ii) “Carrizo” refer to Carrizo Oil & Gas, Inc., a Texas corporation; (iii) “Callon common stock” refer to the common stock of Callon, par value $0.01 per share; (iv) “Carrizo common stock” refer to the common stock of Carrizo, par value $0.01 per share; (v) “Callon shareholders” refer to holders of Callon common stock; (vi) “Carrizo shareholders” refer to holders of Carrizo common stock; (vii) “Carrizo preferred stock” refer to the 8.875% redeemable preferred stock of Carrizo, par value $0.01 per share; (viii) “merger agreement” refer to the Agreement and Plan of Merger, dated as of July 14, 2019, by and between Callon and Carrizo, as amended; (ix) “merger” refer to the merger pursuant to the merger agreement, (x) the “exchange ratio” refer to the ratio of 2.05 shares of Callon common stock per outstanding share of Carrizo common stock that will be issued to Carrizo shareholders in connection with the merger; (xi) the “Callon special meeting” refer to the meeting of the Callon shareholders in connection with the merger, as may be adjourned or postponed from time to time; and (xii) “Carrizo special meeting” refer to the meeting of the Carrizo shareholders in connection with the merger, as may be adjourned or postponed from time to time. All currency amounts referenced in this joint proxy statement/prospectus are in U.S. dollars.


Table of Contents

TABLE OF CONTENTS

 

    Page

QUESTIONS AND ANSWERS

    1  

SUMMARY

    13  

The Parties

    13  

The Merger

    13  

Callon Special Meeting

    14  

Carrizo Special Meeting

    15  

Recommendation of the Callon Board and Reasons for the Merger

    16  

Recommendation of the Carrizo Board and Reasons for the Merger

    16  

Opinion of Callon’s Financial Advisor

    16  

Opinions of Carrizo’s Financial Advisors

    17  

Interests of Certain Callon Directors and Executive Officers in the Merger

    18  

Interests of Certain Carrizo Directors and Executive Officers in the Merger

    18  

Board of Directors and Management of Callon Following Completion of the Merger

    19  

Appraisal Rights or Dissenters’ Rights

    19  

Material U.S. Federal Income Tax Consequences of the Merger

    19  

Accounting Treatment

    19  

Regulatory Approvals

    20  

Treatment of Carrizo Equity Awards and Warrants in the Merger

    20  

Listing of Callon Common Stock; Delisting and Deregistration of Carrizo Common Stock

    21  

No Solicitation of Alternative Proposals

    21  

Conditions to Completion of the Merger

    21  

Termination of the Merger Agreement

    23  

Expenses and Termination Fees Relating to the Termination of the Merger Agreement

    24  

Specific Performance

    25  

Completion of the Merger

    25  

Comparison of Rights of Callon Shareholders and Carrizo Shareholders

    25  

Litigation Related to the Merger

    25  

Risk Factors

    25  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CALLON

    26  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CARRIZO

    27  

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

    28  

PRO FORMA COMBINED OIL AND NATURAL GAS RESERVE AND PRODUCTION DATA

    29  

UNAUDITED COMPARATIVE PER SHARE DATA

    30  

MARKET PRICE INFORMATION

    31  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

    32  

RISK FACTORS

    34  

Risks Relating to the Merger

    34  

Risks Relating to Callon after Completion of the Merger

    39  

Risk Relating to Callon’s and Carrizo’s Businesses

    43  

INFORMATION ABOUT CALLON

    44  

INFORMATION ABOUT CARRIZO

    45  

CALLON SPECIAL MEETING

    46  

General

    46  

Date, Time and Place of the Callon Special Meeting

    46  

Purposes of the Callon Special Meeting

    46  

Recommendation of the Callon Board

    46  

The Non-binding Compensation Advisory Proposal and Interests of Directors

    47  

Voting by Directors and Executive Officers

    47  

 

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Attendance at the Callon Special Meeting

    47  

Record Date

    48  

Outstanding Shares as of Record Date and Voting Rights of Callon Shareholders

    48  

Quorum

    48  

Adjournment

    48  

Vote Required

    49  

How to Vote

    50  

Proxies and Revocation

    51  

Solicitation of Proxies

    51  

No Dissenters’ Rights

    52  

Other Matters

    52  

Householding of Special Meeting Materials

    52  

Questions and Additional Information

    52  

CALLON PROPOSAL 1—MERGER AGREEMENT

    53  

CALLON PROPOSAL 2—SHARE ISSUANCE

    54  

CALLON PROPOSAL 3—CHARTER AMENDMENT

    55  

CALLON PROPOSAL 4—NON-BINDING ADVISORY VOTE ON MERGER-RELATED COMPENSATION FOR NAMED EXECUTIVE OFFICERS

    56  

CALLON PROPOSAL 5—ADJOURNMENT OF THE CALLON SPECIAL MEETING

    57  

CARRIZO SPECIAL MEETING

    58  

General

    58  

Date, Time and Place of the Carrizo Special Meeting

    58  

Purposes of the Carrizo Special Meeting

    58  

Recommendation of the Carrizo Board

    58  

The Non-binding Compensation Advisory Proposal and Interests of Directors

    58  

Voting by Directors and Executive Officers

    59  

Agreements with Directors

    59  

Attendance at the Carrizo Special Meeting

    60  

Record Date

    60  

Outstanding Common Shares as of Record Date and Voting Rights

    61  

Quorum

    61  

Adjournment

    61  

Vote Required

    61  

How to Vote

    62  

Proxies and Revocation

    63  

Solicitation of Proxies

    63  

No Dissenter or Appraisal Rights for Common Shareholders

    63  

Vote by Holders of Carrizo Preferred Stock

    64  

Other Matters

    64  

Householding of Special Meeting Materials

    64  

Questions and Additional Information

    64  

CARRIZO PROPOSAL 1—MERGER AGREEMENT

    65  

CARRIZO PROPOSAL 2—NON-BINDING ADVISORY VOTE ON MERGER-RELATED COMPENSATION FOR NAMED EXECUTIVE OFFICERS

    66  

CARRIZO PROPOSAL 3—ADJOURNMENT OF THE CARRIZO SPECIAL MEETING

    67  

THE MERGER

    68  

Effects of the Merger

    68  

Background of the Merger

    68  

Recommendation of the Callon Board and Reasons for the Merger

    86  

Recommendation of the Carrizo Board and Reasons for the Merger

    89  

Certain Callon Unaudited Prospective Financial and Operating Information

    94  

Certain Carrizo Unaudited Prospective Financial and Operating Information

    98  

 

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Opinion of Callon’s Financial Advisor

    105  

Opinions of Carrizo’s Financial Advisors

    113  

Interests of Certain Callon Directors and Executive Officers in the Merger

    133  

Interests of Certain Carrizo Directors and Executive Officers in the Merger

    135  

Board of Directors and Management of Callon Following Completion of the Merger

    141  

Material U.S. Federal Income Tax Consequences of the Merger

    142  

Accounting Treatment of the Merger

    144  

Regulatory Approvals

    144  

Exchange of Shares

    145  

Treatment of Indebtedness

    145  

Treatment of Carrizo Equity Awards in the Merger

    146  

Dividend Policy

    147  

Listing of Callon Common Stock; Delisting and Deregistration of Carrizo Common Stock

    148  

Appraisal Rights and Dissenters’ Rights

    148  

Litigation Related to the Merger

    148  

THE MERGER AGREEMENT

    150  

Explanatory Note Regarding the Merger Agreement

    150  

Terms of the Merger; Merger Consideration

    150  

Completion of the Merger

    151  

Exchange and Payment Procedures

    151  

The Callon Board Following the Merger

    152  

Representations and Warranties

    152  

Conduct of Business

    155  

Employee Matters

    162  

No Solicitation of Alternative Proposals

    163  

Change in Board Recommendation

    165  

Efforts to Close the Merger

    167  

Efforts to Hold the Callon and Carrizo Special Meetings

    168  

Indemnification and Insurance

    168  

Other Covenants and Agreements

    169  

Conditions to Completion of the Merger

    170  

Termination of the Merger Agreement

    171  

Expenses and Termination Fees Relating to the Termination of the Merger Agreement

    172  

Amendments and Waivers

    173  

Specific Performance

    173  

Governing Law

    174  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

    175  

COMPARISON OF SHAREHOLDER RIGHTS

    187  

CERTAIN BENEFICIAL OWNERS OF CALLON COMMON STOCK

    204  

CERTAIN BENEFICIAL OWNERS OF CARRIZO COMMON STOCK

    207  

LEGAL MATTERS

    210  

EXPERTS

    210  

SHAREHOLDER PROPOSALS

    211  

HOUSEHOLDING OF JOINT PROXY STATEMENT/PROSPECTUS

    213  

WHERE YOU CAN FIND MORE INFORMATION

    214  

ANNEX A: MERGER AGREEMENT AND AMENDMENT NO. 1 TO MERGER AGREEMENT

    A-1  

ANNEX B: PROPOSED AMENDMENT TO CALLON’S CERTIFICATE OF INCORPORATION

    B-1  

ANNEX C: OPINION OF J.P. MORGAN SECURITIES LLC

    C-1  

ANNEX D: OPINION OF RBC CAPITAL MARKETS, LLC

    D-1  

ANNEX E: OPINION OF LAZARD FRÈRES & CO.

    E-1  

 

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QUESTIONS AND ANSWERS

The following are some questions that you may have regarding the merger, the issuance of shares of Callon common stock to Carrizo shareholders in connection with the merger, and other matters being considered at the Callon special meeting and Carrizo special meeting and the answers to those questions. Callon and Carrizo urge you to carefully read the entirety of this joint proxy statement/prospectus, including the annexes hereto and the information incorporated herein, because the information in this section does not provide all the information that might be important to you with respect to the merger, the issuance of shares of Callon common stock in connection with the merger, and the other matters being considered at the Callon special meeting and the Carrizo special meeting.

 

Q:

Why am I receiving this joint proxy statement/prospectus?

 

A:

You are receiving this joint proxy statement/prospectus because Callon and Carrizo have entered into the merger agreement, providing for Callon’s acquisition of Carrizo through a merger between the parties, with Callon as the surviving corporation.

In order to complete the merger, Callon shareholders must (i) approve and adopt the merger agreement and the merger (the “Callon merger proposal”), (ii) approve the issuance of shares of Callon common stock to Carrizo shareholders in connection with the merger (the “share issuance” and such proposal, the “share issuance proposal”), and (iii) approve and adopt an amendment to Callon’s certificate of incorporation to increase the authorized number of shares of Callon common stock (the “charter amendment proposal”). Approval of each of the Callon merger proposal and charter amendment proposal requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Callon common stock entitled to vote at the Callon special meeting. Approval of the share issuance proposal requires the affirmative vote of a majority of votes cast by Callon shareholders entitled to vote thereon and present or represented by proxy at the Callon special meeting.

Also, in order to complete the merger, Carrizo shareholders must approve the merger agreement (the “Carrizo merger proposal”). Approval of the Carrizo merger proposal requires the affirmative vote of the holders of at least two-thirds of the outstanding shares of Carrizo common stock entitled to vote on the proposal.

This joint proxy statement/prospectus, which you should read carefully, contains important information about the merger, the share issuance, and other matters being considered at the Callon special meeting and the Carrizo special meeting.

 

Q:

When and where is the Callon special meeting?

 

A:

The Callon special meeting will be held on November 14, 2019 at 9:00 a.m. Central Time, in the Advice & Counsel meeting room of the Hotel ZaZa, 9787 Katy Freeway, Houston, Texas.

 

Q:

When and where is the Carrizo special meeting?

 

A:

The Carrizo special meeting will be held on November 14, 2019 at 9:00 a.m. Central Time, in the B. Jordan II Ballroom of the C. Baldwin Hotel, 400 Dallas Street, Houston, Texas.

 

Q:

What will Carrizo shareholders receive for their shares of Carrizo common stock in the merger?

 

A:

At the effective time of the merger (the “effective time” and the date of the effective time, the “closing date”), each share of Carrizo common stock issued and outstanding immediately prior to the effective time will be cancelled and converted automatically into the right to receive 2.05 shares of Callon common stock, with cash paid in lieu of the issuance of fractional shares, if any (the “merger consideration”).

 

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In addition, Carrizo will take all actions as may be necessary so that at the effective time, each of Carrizo’s outstanding shares of restricted stock, restricted stock units, stock appreciation rights, and performance-based stock awards will be treated as described in “The Merger—Treatment of Carrizo Equity Awards in the Merger.”

For additional information regarding the consideration to be received in the merger, please see “The Merger—Effects of the Merger.”

 

Q:

If I am a Carrizo shareholder, how will I receive the merger consideration to which I am entitled?

 

A:

As soon as reasonably practicable after the effective time, an exchange agent will mail to each holder of record of shares of Carrizo common stock (whose shares were cancelled and converted into the right to receive the merger consideration) a letter of transmittal and instructions for use in effecting the surrender of certificates of Carrizo common stock (“Carrizo stock certificates”) and book-entry shares representing Carrizo common stock (“Carrizo book-entry shares”) in exchange for the merger consideration. Upon receipt by the exchange agent of (i) either Carrizo stock certificates (or affidavits of loss in lieu thereof) or Carrizo book-entry shares and (ii) a signed letter of transmittal and such other documents as may customarily be required by the exchange agent, the holder of such certificates or shares will be entitled to receive the merger consideration in exchange therefor, together with the fractional share cash amount and any dividends or other distributions to which such Carrizo stock certificates or book-entry shares become entitled in accordance with the merger agreement.

 

Q:

What will holders of Carrizo equity awards receive in the merger?

 

A:

Pursuant to the merger agreement, the following will occur at the effective time:

Carrizo Restricted Stock Awards: Each share of Carrizo restricted stock that is outstanding as of immediately prior to the effective time shall, as of the effective time, vest and convert into 2.05 shares of Callon common stock, subject to any applicable withholding taxes.

Carrizo Restricted Stock Units: Subject to limited exceptions, described below under “The Merger—Treatment of Carrizo Equity Awards in the Merger,” each Carrizo restricted stock unit that is outstanding as of immediately prior to the effective time shall, as of the effective time, automatically, without any action on the part of the holder thereof, be cancelled and converted into a vested right to receive a number of shares of Callon common stock that is equal to the product of (a) the number of shares of Carrizo common stock subject to such Carrizo restricted stock unit as of immediately prior to the effective time, multiplied by (b) the exchange ratio, rounded up to the nearest whole share, subject to any applicable withholding taxes.

Carrizo Performance Shares: Each award of Carrizo performance shares that is outstanding as of immediately prior to the effective time shall, as of the effective time, automatically be cancelled and converted into a vested right to receive a number of shares of Callon common stock that is equal to the product of (a) the greater of (1) the target number of shares of Carrizo common stock subject to such Carrizo performance share award as of immediately prior to the effective time and (2) the number of shares of Carrizo common stock to be earned based on actual achievement of the performance criteria set forth in the applicable award agreement, measured based on a shortened performance period that ends as of the close of the business day prior to the effective time (if such performance is determinable, and as determined by the Carrizo board of directors (the “Carrizo board”) immediately prior to the effective time), multiplied by (b) the exchange ratio, rounded up to the nearest whole share, subject to any applicable withholding taxes.

Carrizo Stock Appreciation Rights: Each Carrizo stock appreciation right (“Carrizo SAR”) that is outstanding as of immediately prior to the effective time shall, as of the effective time, automatically,

 

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without any action on the part of the holder thereof, be cancelled and converted into and thereafter evidence a stock appreciation right covering shares of Callon common stock (“converted Callon SAR”) with respect to that number of shares of Callon common stock that is equal to the product of (a) the number of shares of Carrizo common stock subject to such Carrizo SAR as of immediately prior to the effective time, multiplied by (b) the exchange ratio, rounded down to the nearest whole share. The exercise price per share of the converted Callon SAR shall be equal to the exercise price per share of the Carrizo SAR divided by the exchange ratio, rounded up to the nearest whole cent. Following the effective time, the converted Callon SAR shall be subject to such other terms and conditions as applied to the corresponding Carrizo SAR immediately prior to the effective time, provided that the converted Callon SAR will be vested and exercisable in full and will remain exercisable for its full original term without regard to any continuing service requirement.

For additional information regarding the treatment of Carrizo equity awards, please see “The Merger—Treatment of Carrizo Equity Awards in the Merger.”

 

Q:

What will holders of Carrizo preferred stock receive?

 

A:

In connection with the merger, if holders of a majority of outstanding shares of Carrizo preferred stock entitled to vote thereon approve or consent in writing to the merger agreement (the “preferred stock approval”) prior to the approval of the Carrizo merger proposal, then each share of Carrizo preferred stock will be converted automatically into and shall represent one share of 8.875% redeemable preferred stock, par value $0.01 per share, of Callon (“Callon new preferred stock”); if the preferred stock approval is not obtained at or prior to the approval of the Carrizo merger proposal, then each issued and outstanding share of Carrizo preferred stock would be redeemed prior to the consummation of the merger (the “preferred stock redemption”).

 

Q:

Who will own Callon immediately following the merger?

 

A:

Callon and Carrizo estimate that, upon completion of the merger, Callon shareholders as of immediately prior to the merger will hold approximately 54% and Carrizo shareholders as of immediately prior to the merger will hold approximately 46% of the outstanding shares of Callon common stock (without giving effect to any shares of Callon common stock held by Carrizo shareholders prior to the merger). The exact equity stake of Carrizo shareholders in Callon immediately following the effective time will depend on the number of shares of Callon common stock and shares of Carrizo common stock issued and outstanding immediately prior to the effective time.

 

Q:

How important is my vote?

 

A:

Your vote “FOR” each proposal presented at the Callon special meeting and Carrizo special meeting is very important and you are encouraged to submit a proxy as soon as possible. The merger cannot be completed without, among other things, the (i) approval of the Callon merger proposal and charter amendment proposal by the affirmative vote of the holders of a majority of the issued and outstanding shares of Callon common stock entitled to vote at the Callon special meeting, (ii) approval of the share issuance proposal by the affirmative vote of a majority of votes cast by Callon shareholders entitled to vote thereon and present or represented by proxy at the Callon special meeting, and (iii) approval of the Carrizo merger proposal by the affirmative vote of the holders of at least two-thirds of the outstanding shares of Carrizo common stock entitled to vote on the proposal.

Callon. Approval of each of the Callon merger proposal and charter amendment proposal requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Callon common stock entitled to vote at the Callon special meeting. Accordingly, a Callon shareholder’s abstention from voting, a broker non-vote, or the failure of a Callon shareholder to vote will have the same effect as a

 

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vote “against” the Callon merger proposal and charter amendment proposal. Approval of the share issuance proposal requires the affirmative vote of a majority of votes cast by Callon shareholders entitled to vote thereon and present or represented by proxy at the Callon special meeting, and approval of each of the Callon compensation proposal and the Callon adjournment proposal requires the affirmative vote of the holders of a majority of the shares of Callon common stock entitled to vote thereon and present or represented by proxy at the Callon special meeting. Accordingly, a Callon shareholder’s abstention from voting will have the same effect as a vote “against” the share issuance proposal, the Callon compensation proposal, and the Callon adjournment proposal, while a broker non-vote or the failure of a Callon shareholder to vote will have no effect on the outcome of the share issuance proposal, the Callon compensation proposal, or the Callon adjournment proposal.

Carrizo. Approval of the Carrizo merger proposal requires the affirmative vote of the holders of at least two-thirds of the outstanding shares of Carrizo common stock entitled to vote on the proposal. Accordingly, a Carrizo shareholder’s abstention from voting, a broker non-vote, or the failure of a Carrizo shareholder to vote will have the same effect as a vote “against” the Carrizo merger proposal. Approval of the Carrizo compensation proposal requires the affirmative vote of the holders of a majority of the shares of Carrizo common stock entitled to vote on such proposal and that voted for or against or expressly abstained with respect to such proposal. Accordingly, abstentions will have the same effect as a vote “against” the Carrizo compensation proposal, while a broker non-vote or the failure of a Carrizo shareholder to vote will have no effect on the Carrizo compensation proposal. The Carrizo adjournment proposal requires the affirmative vote of the holders of a majority of the outstanding shares of Carrizo common stock entitled to vote on such proposal and that voted for or against or expressly abstained with respect to such proposal at the Carrizo special meeting. Accordingly, a Carrizo shareholder’s abstention from voting will have the same effect as a vote “against” the Carrizo adjournment proposal, while a broker non-vote or the failure of a Carrizo shareholder to vote will have no effect on the outcome of the Carrizo adjournment proposal.

 

Q:

How do the Callon board and the Carrizo board recommend that I vote?

 

A:

The Callon board of directors (the “Callon board”) unanimously recommends that Callon shareholders vote “FOR” the Callon merger proposal, “FOR” the share issuance proposal, “FOR” the charter amendment proposal, “FOR” the Callon compensation proposal, and “FOR” the Callon adjournment proposal. For additional information regarding how the Callon board recommends that Callon shareholders vote, see the section entitled “The Merger—Recommendation of the Callon Board and Reasons for the Merger.”

The Carrizo board unanimously recommends that Carrizo shareholders vote “FOR” the Carrizo merger proposal, “FOR” the Carrizo compensation proposal, and “FOR” the Carrizo adjournment proposal. For additional information regarding how the Carrizo board recommends that Carrizo shareholders vote, see the section entitled “The Merger—Recommendation of the Carrizo Board and Reasons for the Merger.”

 

Q:

Will the shares of Callon common stock received at the time of completion of the merger be traded on an exchange?

 

A:

Yes. It is a condition to the consummation of the merger that the shares of Callon common stock issuable to Carrizo shareholders in connection with the merger be authorized for listing on the New York Stock Exchange (the “NYSE”), subject to official notice of issuance. The Carrizo common stock currently trades on the NASDAQ Global Select Market (the “NASDAQ”) under the stock symbol “CRZO.” When the merger is completed, the Carrizo common stock will cease to be traded on the NASDAQ and will be deregistered under the Exchange Act.

 

Q:

How will Callon shareholders be affected by the merger?

 

A:

Upon completion of the merger, each Callon shareholder will hold the same number of shares of Callon common stock that such shareholder held immediately prior to completion of the merger. As a result of

 

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  the merger, Callon shareholders will own shares in a larger company with more assets. However, because Callon will be issuing additional shares of Callon common stock to Carrizo shareholders in exchange for their shares of Carrizo common stock in connection with the merger, each outstanding share of Callon common stock issued and outstanding immediately prior to the merger will represent a smaller percentage of the aggregate number of shares of Callon common stock issued and outstanding after the merger.

 

Q:

What are the material U.S. federal income tax consequences of the merger to holders of Carrizo common stock?

 

A:

Assuming that the merger is completed as currently contemplated, Callon and Carrizo intend for the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, as amended (the “Code”). The obligation of Callon to complete the merger is conditioned upon the receipt of an opinion from Kirkland & Ellis LLP (“Kirkland”), counsel to Callon, or such other reputable law firm of national standing, reasonably acceptable to Callon (or if any such counsel is unable to deliver such opinion, Baker Botts L.L.P. (“Baker Botts”)) to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code based upon facts, representations, assumptions, and exclusions set forth or described in such opinion. The obligation of Carrizo to complete the merger is conditioned upon the receipt of an opinion from Baker Botts, counsel to Carrizo, or such other reputable law firm of national standing, reasonably acceptable to Carrizo (or if any such counsel is unable to deliver such opinion, Kirkland) to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code based upon facts, representations, assumptions, and exclusions set forth or described in such opinion. Provided that the merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, a U.S. holder (as defined in “The Merger—Material U.S. Federal Income Tax Consequences of the Merger”) of Carrizo common stock will not recognize any gain or loss for U.S. federal income tax purposes upon the exchange of Carrizo common stock for shares of Callon common stock in the merger (other than gain or loss with respect to any cash received in lieu of a fractional share of Callon common stock). Please see “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” for a more detailed discussion of the U.S. federal income tax consequences of the merger to U.S. holders of Carrizo common stock.

 

Q:

When do Callon and Carrizo expect to complete the merger?

 

A:

Callon and Carrizo currently expect to complete the merger in the fourth quarter of 2019. However, neither Callon nor Carrizo can predict the actual date on which the merger will be completed, nor can the parties ensure that the merger will be completed, because completion is subject to conditions beyond the control of either company. Please see “The Merger—Regulatory Approvals” and “The Merger Agreement—Conditions to Completion of the Merger.”

 

Q:

What happens if the merger is not completed?

 

A:

If the merger agreement is not approved and adopted by Callon shareholders or approved by Carrizo shareholders, the share issuance proposal or the charter amendment proposal is not approved by Callon shareholders, or the merger is not completed for any other reason, Carrizo shareholders will not receive any payment for shares of Carrizo common stock they own. Instead, Carrizo will remain an independent public company, Carrizo common stock will continue to be listed and traded on the NASDAQ and registered under the Exchange Act, and Carrizo will continue to file periodic reports with the SEC.

Under specified circumstances, Carrizo or Callon may be required to reimburse the other party’s expenses or pay a termination fee upon or subsequent to termination of the merger agreement, as described in “The Merger Agreement—Expenses and Termination Fees Relating to the Termination of the Merger Agreement.”

 

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Q:

Who can vote at, and what are the record dates of, each of the Callon special meeting and the Carrizo special meeting?

 

A:

All Callon shareholders who hold shares of Callon common stock of record at the close of business on October 7, 2019, the record date for the Callon special meeting (the “Callon record date”), are entitled to receive notice of and to vote at the Callon special meeting.

All Carrizo shareholders who hold shares of Carrizo common stock of record at the close of business on October 7, 2019, the record date for the Carrizo special meeting (the “Carrizo record date”), are entitled to receive notice of and to vote at the Carrizo special meeting.

 

Q:

How many votes may I cast?

 

A:

Each outstanding share of Callon common stock entitles its holder of record to one vote on each matter to be considered at the Callon special meeting. The Callon shareholders of record on the Callon record date are the only Callon shareholders that are entitled to receive notice of, and to vote at, the Callon special meeting and any adjournments or postponements thereof, so long as such shares remain outstanding on the date of the Callon special meeting.

Each outstanding share of Carrizo common stock entitles its holder of record to one vote on each matter to be considered at the Carrizo special meeting. The Carrizo shareholders of record on the Carrizo record date are the only Carrizo shareholders that are entitled to receive notice of, and to vote at, the Carrizo special meeting or any adjournments or postponements thereof, so long as such shares remain outstanding on the date of the Carrizo special meeting.

 

Q:

What constitutes a quorum at each of the Callon special meeting and the Carrizo special meeting?

 

A:

In order for business to be conducted at the Callon and Carrizo special meetings, a quorum must be present.

A quorum at the Callon special meeting requires the presence of the holders of a majority of the issued and outstanding shares of Callon common stock entitled to vote at the Callon special meeting, represented in person or by proxy. Abstentions and broker non-votes will be counted for purposes of determining whether there is a quorum at the Callon special meeting.

A quorum at the Carrizo special meeting requires the presence of the holders of a majority of shares of Carrizo common stock entitled to vote at the Carrizo special meeting, represented in person or by proxy. Abstentions and broker non-votes will be counted for purposes of determining whether there is a quorum at the Carrizo special meeting.

 

Q:

What do I need to do now?

 

A:

After you have carefully read and considered the information contained in or incorporated by reference into this joint proxy statement/prospectus, please submit your proxy via the internet or by telephone in accordance with the instructions set forth on the applicable enclosed proxy card, or complete, sign, date, and return the applicable enclosed proxy card in the postage-prepaid envelope provided as soon as possible so that your shares will be represented and voted at the Callon special meeting and/or the Carrizo special meeting, as applicable.

For additional information on voting procedures, please see “Callon Special Meeting” and “Carrizo Special Meeting.”

 

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Q:

How will my proxy be voted?

 

A:

If you submit your proxy via the internet, by telephone, or by completing, signing, dating, and returning the enclosed proxy card, your proxy will be voted in accordance with your instructions.

For additional information on voting procedures, please see “Callon Special Meeting” and “Carrizo Special Meeting.”

 

Q:

Who will count the votes?

 

A:

The votes at the Callon special meeting will be counted by an independent party, which will act as the Callon inspector of election.

The votes at the Carrizo special meeting will be counted by an independent party, which will act as the Carrizo inspector of election.

 

Q:

May I vote in person?

 

A:

Yes. If you are a Callon shareholder of record on the Callon record date, or a Carrizo shareholder of record on the Carrizo record date, you may attend the Callon special meeting or Carrizo special meeting, respectively, and vote your shares in person, in lieu of submitting your proxy by internet, by telephone, or by completing, signing, dating, and returning the applicable enclosed proxy card. Please note attendance alone at the Callon special meeting or the Carrizo special meeting, as applicable, will not cause the voting of your shares; you must affirmatively vote the proxy card or meeting ballot provided.

If you are a beneficial owner of shares of Callon common stock or Carrizo common stock, you are also invited to attend the Callon special meeting or the Carrizo special meeting, respectively. However, because you are not the Callon shareholder of record or Carrizo shareholder of record, you may not vote your shares in person at the Callon special meeting or the Carrizo special meeting, respectively, unless you request and obtain a “legal proxy” issued in your own name from your bank, broker or nominee.

If you appoint a non-management proxyholder, please make sure they are aware and ensure they will attend and submit a vote on your behalf at the applicable special meeting, with the proper authority from you, for your vote to count.

 

Q:

What must I bring to attend my special meeting?

 

A:

Only Callon shareholders of record and beneficial owners of shares of Callon common stock on the Callon record date, holders of valid proxies for the Callon special meeting, and invited guests of Callon may attend the Callon special meeting. Only Carrizo shareholders of record and beneficial owners of Carrizo common stock on the Carrizo record date, record and beneficial owners of Carrizo preferred stock on the Carrizo record date, holders of valid proxies for the Carrizo special meeting, and invited guests of Carrizo may attend the Carrizo special meeting. All attendees should be prepared to present government-issued photo identification (such as a drivers’ license or passport) for admittance. The additional items, if any, that attendees must bring depend on whether they are Callon shareholders or Carrizo shareholders of record, beneficial owners of shares of Callon common stock or Carrizo common stock, or proxy holders.

For additional information on attending the Callon special meeting and the Carrizo special meeting, please see “Callon Special Meeting” and “Carrizo Special Meeting.”

 

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Q:

What should I do if I receive more than one set of voting materials for the Callon special meeting or the Carrizo special meeting?

 

A:

You may receive more than one set of voting materials for the Callon special meeting, the Carrizo special meeting, or both, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction forms. For example, if you hold your shares of Callon common stock or your shares of Carrizo common stock in more than one brokerage account, you will receive a separate voting instruction form for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please submit each separate proxy or voting instruction form that you receive by following the instructions set forth in each separate proxy or voting instruction form.

 

Q:

What’s the difference between holding shares of record and holding shares as a beneficial owner of shares of Callon common stock or Carrizo common stock?

 

A:

If your shares of Callon common stock are registered directly in your name with Callon’s registrar and transfer agent, American Stock Transfer & Trust Company, LLC, or your shares of Carrizo common stock are registered directly in your name with Carrizo’s transfer agent, EQ Shareowner Services, you are considered, with respect to those shares, to be the shareholder of record. If you are a shareholder of record, then this joint proxy statement and your proxy card have been sent directly to you by Callon or Carrizo, as applicable.

If your shares of Callon common stock or Carrizo common stock are held through a bank, broker, or other nominee, you are considered, with respect to those shares, the beneficial owner, and those shares are held in “street name” by your bank, broker, or other nominee. In that case, this proxy statement has been forwarded to you by your bank, broker, or other nominee. As the beneficial owner, you have the right to direct your bank, broker, or other nominee how to vote your shares by following their instructions for voting, and you are also invited to attend in person the Callon special meeting or the Carrizo special meeting, as applicable. However, because you are not the shareholder of record, you may not vote your shares of Callon common stock or Carrizo common stock, as applicable, in person at the applicable special meeting unless you request and obtain a “legal proxy” issued in your own name from your bank, broker, or other nominee.

 

Q:

If my shares of Callon common stock or Carrizo common stock are held in “street name” by my broker, bank, or other nominee, will my broker, bank, or other nominee automatically vote my shares for me?

 

A:

No. If your shares of Callon common stock or Carrizo common stock are held in the name of a broker, bank, or other nominee, you will receive separate instructions from your broker, bank, or other nominee describing how to vote your shares. The availability of internet or telephonic voting will depend on the nominee’s voting process. Please check with your broker, bank, or other nominee and follow the voting procedures provided by your broker, bank, or other nominee on your voting instruction form.

You should instruct your broker, bank, or other nominee how to vote your shares of Callon common stock or Carrizo common stock, as applicable. Under the rules applicable to broker-dealers, your broker, bank, or other nominee does not have discretionary authority to vote your shares on any of the proposals scheduled to be voted on at the Callon special meeting or the Carrizo special meeting. A so-called “broker non-vote” results when banks, brokers and other nominees return a valid proxy voting upon a matter or matters for which the applicable rules provide discretionary authority but do not vote on a particular proposal because they do not have discretionary authority to vote on the matter and have not received specific voting instructions from the beneficial owner of such shares. Callon and Carrizo do not

 

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expect any broker non-votes at the Callon special meeting or Carrizo special meeting because the rules applicable to banks, brokers and other nominees only provide brokers with discretionary authority to vote on proposals that are considered routine, whereas each of the proposals to be presented at the Callon special meeting and Carrizo special meeting are considered non-routine. As a result, no broker will be permitted to vote your shares of Callon common stock or Carrizo common stock at the applicable special meeting without receiving instructions. Failure to instruct your broker on how to vote your shares will have the same effect as a vote “against” the Callon merger proposal and the charter amendment proposal, for Callon shareholders, and the Carrizo merger proposal, for Carrizo shareholders.

For additional information on voting procedures, please see “Callon Special Meeting” and “Carrizo Special Meeting.”

 

Q:

How do I vote shares of Callon common stock held in Callon’s 401(k) plan?

 

A.

If your shares of Callon common stock are held in Callon’s Employee Savings and Protection Plan (“Callon’s 401(k) plan”), you will receive a separate voting direction card. The trustee of Callon’s 401(k) plan will vote your shares of Callon common stock in accordance with the instructions on your returned direction card.

If you do not timely return a direction card or if you return a direction card with no instructions, the trustee of Callon’s 401(k) plan will vote your shares of Callon common stock in proportion to the voting directions received from all plan participants who properly vote. Please note that the direction cards have an earlier return date than the proxy cards. Please review your direction card for the date by which your instructions must be received in order for your shares of Callon common stock to be voted as you instruct.

In the case of internet or telephone voting, you should have your direction card in hand and retain the card until you have completed the voting process. If you vote by internet or telephone, you do not need to return the direction card by mail.

Please note that no votes will be accepted at the Callon special meeting in respect of shares of Callon common stock held in Callon’s 401(k) plan and that all such votes must be voted prior to the Callon special meeting.

 

Q:

What do I do if I am a Callon shareholder and I want to revoke my proxy?

 

A:

Callon shareholders may revoke or change a previously delivered proxy at any time before the meeting by delivering another proxy with a later date, by voting again via the internet or by telephone, or by delivering written notice of revocation of the proxy to Callon’s corporate secretary at Callon’s principal executive offices in Houston, Texas before the beginning of the Callon special meeting. Callon shareholders may also revoke their proxies by attending the Callon special meeting and voting in person, although attendance at the Callon special meeting will not, in and of itself, revoke a valid proxy that was previously delivered. If a Callon shareholder holds shares through a broker, bank, or other nominee, such shareholder must contact that nominee to revoke any prior voting instructions. Callon shareholders also may revoke any prior voting instructions by voting in person at the meeting if they obtain a “legal proxy” as described above.

For additional information, please see “Callon Special Meeting.”

 

Q:

What do I do if I am a Carrizo shareholder and I want to revoke my proxy?

 

A:

Carrizo shareholders may revoke or change a previously delivered proxy at any time before the meeting by delivering another proxy with a later date, by voting again via the internet or by telephone, or by

 

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  delivering written notice of revocation of the proxy to Carrizo’s corporate secretary at Carrizo’s principal executive offices in Houston, Texas before the beginning of the Carrizo special meeting. Carrizo shareholders may also revoke their proxies by attending the Carrizo special meeting and voting in person, although attendance at the Carrizo special meeting will not, in and of itself, revoke a valid proxy that was previously delivered. If a Carrizo shareholder holds shares through a broker, bank, or other nominee, such shareholder must contact that nominee to revoke any prior voting instructions. Carrizo shareholders also may revoke any prior voting instructions by voting in person at the meeting if they obtain a “legal proxy” as described above.

For additional information, please see “Carrizo Special Meeting.”

 

Q:

Are there any risks that I should consider as a Callon shareholder or Carrizo shareholder in deciding how to vote?

 

A:

Yes. You should read and carefully consider the risks set forth in “Risk Factors.” You also should read and carefully consider the risk factors of Callon and Carrizo contained in the documents that are incorporated by reference into this joint proxy statement/prospectus.

 

Q:

What happens if I sell or otherwise transfer my shares of Callon common stock before the Callon special meeting?

 

A:

The Callon record date is prior to the date of the Callon special meeting. If you sell or otherwise transfer your shares of Callon common stock after the Callon record date but before the Callon special meeting, unless special arrangements are made between you and the person to whom you transfer your shares of Callon common stock (such as provision of a proxy), you will retain your right to vote such shares at the Callon special meeting but will otherwise transfer ownership of and the economic interest in your shares of Callon common stock.

 

Q:

What happens if I sell or otherwise transfer my shares of Carrizo common stock before the Carrizo special meeting?

 

A:

The Carrizo record date is prior to the date of the Carrizo special meeting. If you sell or otherwise transfer your shares of Carrizo common stock after the Carrizo record date but before the Carrizo special meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you transfer your shares of Carrizo common stock, you will retain your right to vote such shares at the Carrizo special meeting but will otherwise transfer ownership of and the economic interest in your shares of Carrizo common stock.

 

Q:

What happens if I sell or otherwise transfer my shares of Carrizo common stock before the completion of the merger?

 

A:

Only Carrizo shareholders at the effective time will become entitled to receive the merger consideration. If you sell your shares of Carrizo common stock prior to the completion of the merger, you will not become entitled to receive the merger consideration by virtue of the merger.

 

Q:

Do any of the officers or directors of Callon have interests in the merger that may differ from or be in addition to my interests as a Callon shareholder?

 

A:

In considering the recommendation of the Callon board that Callon shareholders vote to approve the Callon shareholder proposals, Callon shareholders should be aware that, aside from their interests as shareholders of Callon, some of Callon’s executive officers have interests in the merger that may be different from, or in addition to, the interests of Callon shareholders generally. The Callon board was

 

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  aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the transactions contemplated therein, in approving the merger, and in recommending the approval of the Callon shareholder proposals.

For more information and quantification of these interests, please see “The Merger—Interests of Certain Callon Directors and Executive Officers in the Merger.”

 

Q:

Do any of the officers or directors of Carrizo have interests in the merger that may differ from or be in addition to my interests as a Carrizo shareholder?

 

A:

In considering the recommendation of the Carrizo board that Carrizo shareholders vote to approve the Carrizo merger proposal, Carrizo compensation proposal, and Carrizo adjournment proposal, Carrizo shareholders should be aware that, aside from their interests as shareholders of Carrizo, some of Carrizo’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of Carrizo shareholders generally. The Carrizo board was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the transactions contemplated therein, in approving the merger, and in recommending the approval of the Carrizo merger proposal, Carrizo compensation proposal, and Carrizo adjournment proposal.

For more information and quantification of these interests, please see “The Merger—Interests of Certain Carrizo Directors and Executive Officers in the Merger.”

 

Q:

If I am a Callon shareholder and I oppose the Callon merger proposal, charter amendment proposal, and/or the share issuance proposal or if I am a Carrizo shareholder and I oppose the Carrizo merger proposal, but all such proposals are approved, what are my rights?

 

A:

Callon shareholders may vote against the Callon merger proposal, share issuance proposal, or charter amendment proposal if they do not favor such proposals. However, if the Callon merger proposal, share issuance proposal, and charter amendment proposal are approved, Callon shareholders who oppose such proposals are not entitled to appraisal or dissenters’ rights under Delaware law.

Carrizo shareholders may vote against the Carrizo merger proposal if they do not favor the merger. However, if the Carrizo merger proposal is approved, holders of Carrizo common stock who oppose the merger are not entitled to exercise appraisal or dissenters’ rights under Texas law.

 

Q:

Where can I find voting results of the Callon special meeting and the Carrizo special meeting?

 

A:

Callon and Carrizo intend to announce their respective preliminary voting results at each of the Callon and Carrizo special meetings and disclose their respective final voting results in Current Reports on Form 8-K that will be filed with the SEC following the Callon and Carrizo special meetings. All reports that Callon and Carrizo file with the SEC are publicly available when filed. Please see “Where You Can Find More Information.”

 

Q:

How can I find more information about Callon and Carrizo?

 

A:

You can find more information about Callon and Carrizo from various sources described in “Where You Can Find More Information.”

 

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Q:

Who can answer any questions I may have about the Callon special meeting, the Carrizo special meeting, the merger, or the transactions contemplated by the merger agreement, including the share issuance?

 

A:

If you have any questions about the Callon special meeting, the Carrizo special meeting, the merger, the share issuance proposal, the charter amendment proposal, how to submit your proxy, or if you need additional copies of this joint proxy statement/prospectus or documents incorporated by reference herein, the enclosed proxy card or voting instructions, you should contact:

 

For Callon shareholders:    For Carrizo shareholders:

Callon Petroleum Company
2000 W. Sam Houston Parkway S., Suite 2000

Houston, Texas 77042
Attention: Investor Relations
(281) 589-5200

IR@callon.com

  

Carrizo Oil & Gas, Inc.
500 Dallas Street, Suite 2300
Houston, Texas 77002
Attention: Investor Relations
(713) 328-1055

IR@carrizo.com

Innisfree M&A Incorporated
501 Madison Ave, 20th Floor
New York, New York 10022
Shareholders may call toll-free: (888) 750-5834

Banks and Brokers may call collect: (212) 750-5833

   MacKenzie Partners, Inc.
1407 Broadway, 27th Floor
New York, New York 10018
Carrizo@mackenziepartners.com
(212) 929-5500
Toll-Free: (800) 322-2885

 

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SUMMARY

The following summary highlights selected information described in more detail elsewhere in this joint proxy statement/prospectus and the documents incorporated by reference into this joint proxy statement/prospectus and may not contain all the information that may be important to you. To understand the merger and the matters being voted on by Callon and Carrizo shareholders at their respective special meetings more fully, and to obtain a more complete description of the legal terms of the merger agreement and the agreements related thereto, you should carefully read this entire document, including the annexes and the documents incorporated herein and to which Callon and Carrizo refer you. Each item in this summary includes a page reference directing you to a more complete description of that topic. See “Where You Can Find More Information.”

The Parties (see pages 44 and 45)

Callon Petroleum Company

Callon Petroleum Company has been engaged in the development, acquisition, and production of oil and natural gas properties since 1950. Callon is focused on the acquisition and development of unconventional onshore oil and natural gas reserves in the Permian Basin. The Permian Basin is located in West Texas and southeastern New Mexico and is comprised of three primary sub-basins: the Midland Basin, the Delaware Basin, and the Central Basin Platform. For more than a decade, Callon has been focused on the Midland Basin and entered the Delaware Basin through an acquisition completed in February 2017 and has further expanded its presence in the Delaware Basin through acquisitions in 2018. Shares of Callon’s common stock are traded on the NYSE under the symbol “CPE.” The principal executive offices of Callon are located at 2000 W. Sam Houston Parkway S., Suite 2000, Houston, Texas 77042 and its telephone number is (281) 589-5200.

Carrizo Oil & Gas, Inc.

Carrizo is a Houston-based energy company which, together with its subsidiaries, is actively engaged in the exploration, development, and production of crude oil, natural gas liquids (“NGLs”), and natural gas from resource plays located in the United States. Carrizo’s current operations are principally focused in proven, producing oil and gas plays in the Eagle Ford Shale in South Texas and the Permian Basin in West Texas. Carrizo was incorporated in the State of Texas in 1993. Shares of Carrizo’s common stock are traded on the NASDAQ under the symbol “CRZO.” The principal executive offices of Carrizo are located at 500 Dallas Street, Suite 2300, Houston, Texas 77002 and its telephone number is (713) 328-1000.

The Merger (see page 68)

Upon satisfaction or waiver of the conditions to closing in the merger agreement, at the effective time, Carrizo will merge with and into Callon, Carrizo’s separate corporate existence will cease, and Callon will be the surviving company in the merger. At the effective time, each share of Carrizo common stock issued and outstanding immediately prior to the effective time will be canceled and converted automatically into the right to receive 2.05 shares of Callon common stock with cash paid in lieu of the issuance of any fractional shares of Callon common stock. In addition, Carrizo will take all actions as may be necessary so that at the effective time, each outstanding share of restricted stock, restricted stock unit, Special RSU Award (as defined below), performance share unit award and stock appreciation right in respect of Carrizo common stock will be treated as described in “The Merger—Treatment of Carrizo Equity Awards in the Merger.”



 

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Callon Special Meeting (see page 46)

The Callon special meeting will be held on November 14, 2019 in the Advice & Counsel meeting room of the Hotel ZaZa, 9787 Katy Freeway, Houston, Texas, at 9:00 a.m. Central Time. The Callon special meeting is being held to consider and vote on the following proposals:

 

   

Proposal 1: to approve and adopt the merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus, which is referred to as the Callon merger proposal;

 

   

Proposal 2: to approve the issuance of shares of Callon common stock to Carrizo shareholders in connection with the merger, which is referred to as the share issuance proposal;

 

   

Proposal 3: to approve and adopt an amendment to Callon’s certificate of incorporation to increase Callon’s authorized shares of common stock from 300 million shares to 750 million shares, which is referred to as the charter amendment proposal;

 

   

Proposal 4: to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Callon’s named executive officers that is based on or otherwise relates to the merger, as described in “The Merger— Interests of Certain Callon Directors and Executive Officers in the Merger,” which is referred to as the Callon compensation proposal; and

 

   

Proposal 5: to approve the adjournment of the Callon special meeting to solicit additional proxies if there are not sufficient votes to approve the Callon merger proposal, the share issuance proposal, or the charter amendment proposal.

The record date for the determination of Callon shareholders entitled to notice of and to vote at the Callon special meeting is the close of business on October 7, 2019. Only Callon shareholders who held Callon common stock of record on the Callon record date are entitled to vote at the Callon special meeting and any adjournments or postponements of the Callon special meeting, so long as such shares remain outstanding on the date of the Callon special meeting. Each issued and outstanding share of Callon common stock entitles its holder of record to one vote on each matter to be considered at the Callon special meeting.

In order for business to be conducted at the Callon special meeting, a quorum must be present. A quorum at the Callon special meeting requires the presence, in person or by proxy, of holders of a majority of the total issued and outstanding shares of Callon common stock entitled to vote at the Callon special meeting. For purposes of determining whether there is a quorum, all shares that are present, including abstentions, will be counted.

Approval of each of the Callon merger proposal and charter amendment proposal requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Callon common stock entitled to vote at the Callon special meeting. Accordingly, a Callon shareholder’s abstention from voting, a broker non-vote, or the failure of a Callon shareholder to vote will have the same effect as a vote “against” the Callon merger proposal and charter amendment proposal.

Approval of the share issuance proposal requires the affirmative vote of a majority of votes cast by Callon shareholders entitled to vote on such proposal and present or represented by proxy at the Callon special meeting. Approval of each of the Callon compensation proposal and the Callon adjournment proposal requires the affirmative vote of the holders of a majority of the shares of Callon common stock entitled to vote thereon and present or represented by proxy at the Callon special meeting. Accordingly, a Callon shareholder’s abstention from voting will have the same effect as a vote “against” the share issuance proposal, the Callon compensation proposal, and the Callon adjournment proposal, while a broker non-vote or the failure of a Callon shareholder to vote will have no effect on the outcome of the share issuance proposal, the Callon compensation proposal, and the Callon adjournment proposal.



 

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As of the Callon record date, there were                  shares of Callon common stock outstanding. As of the Callon record date, Callon directors and executive officers, as a group, beneficially owned and were entitled to vote                  shares of Callon common stock, or approximately     % of the issued and outstanding shares of Callon common stock.

Carrizo Special Meeting (see page 58)

The Carrizo special meeting will be held on November 14, 2019 in the B. Jordan II Ballroom of the C. Baldwin Hotel, 400 Dallas Street, Houston, Texas, at 9:00 a.m. Central Time. The Carrizo special meeting is being held to consider and vote on the following proposals:

 

   

Proposal 1: to approve the merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus, pursuant to which each outstanding share of Carrizo common stock will be cancelled and converted automatically into the right to receive from Callon 2.05 shares of Callon common stock with cash paid in lieu of any fractional Callon common stock, if any, which is referred to as the Carrizo merger proposal;

 

   

Proposal 2: to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Carrizo’s named executive officers that is based on or otherwise relates to the merger, which is referred to as the Carrizo compensation proposal, discussed under the heading “The Merger—Interests of Certain Carrizo Directors and Executive Officers in the Merger”; and

 

   

Proposal 3: to approve any motion to adjourn the Carrizo special meeting, if necessary to solicit additional proxies if there are not sufficient votes of holders of Carrizo common stock to approve the Carrizo merger proposal at the time of the Carrizo special meeting, which is referred to as the Carrizo adjournment proposal.

The record date for the determination of Carrizo shareholders entitled to notice of and to vote at the Carrizo special meeting is the close of business on October 7, 2019. The Carrizo shareholders of record on the Carrizo record date are the only Carrizo shareholders that are entitled to receive notice of, and to vote at, the Carrizo special meeting and any adjournments or postponements of the Carrizo special meeting, so long as such shares remain outstanding on the date of the Carrizo special meeting. Each outstanding share of Carrizo common stock entitles its holder of record to one vote on each matter to be considered at the Carrizo special meeting.

In order for business to be conducted at the Carrizo special meeting, a quorum must be present. A quorum at the Carrizo special meeting requires the presence of the holders of a majority of shares of Carrizo common stock entitled to vote at the Carrizo special meeting, represented in person or by proxy. Abstentions and broker non-votes will be counted for purposes of determining whether there is a quorum at the Carrizo special meeting. If a quorum is not present or represented, a majority in interest of those present or represented may adjourn the Carrizo special meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified.

Approval of the Carrizo merger proposal requires the affirmative vote of the holders of at least two-thirds of the outstanding shares of Carrizo common stock entitled to vote on the proposal. Accordingly, a Carrizo shareholder’s abstention from voting, a broker non-vote or the failure of a Carrizo shareholder to vote will have the same effect as a vote “against” the Carrizo merger proposal.

Approval of each of the Carrizo compensation proposal and Carrizo adjournment proposal requires the affirmative vote of the holders of a majority of the Carrizo common stock entitled to vote thereon and that voted for or against or expressly abstained with respect to such proposal at the Carrizo special meeting. Accordingly, a



 

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Carrizo shareholder’s abstention from voting will have the same effect as a vote “against” the Carrizo compensation proposal and Carrizo adjournment proposal, while a broker non-vote or the failure of a Carrizo shareholder to vote will have no effect on the outcome of the Carrizo compensation proposal and Carrizo adjournment proposal.

As of the Carrizo record date, there were                  shares of Carrizo common stock outstanding. As of the record date, Carrizo directors and executive officers, as a group, beneficially owned and were entitled to vote                  shares of Carrizo common stock or approximately     % of the issued and outstanding shares of Carrizo common stock.

Concurrently with the execution of the merger agreement, Callon entered into voting and support agreements (each, a “Support Agreement” and, collectively, the “Support Agreements”) with each director of Carrizo in that director’s capacity as a shareholder, pursuant to which each such individual has agreed, among other matters and upon the terms and subject to the conditions set forth in the Support Agreements, to vote all of their shares of Carrizo common stock (i) in favor of the approval of the merger agreement and (ii) against specified actions that would adversely affect, discourage, or delay the merger, including specified actions that contemplate alternative transactions. Each such individual also granted to Callon an irrevocable proxy to vote such Carrizo common stock as provided above. The form of Support Agreement is attached as Exhibit 10.1 to Callon’s Current Report on Form 8-K filed July 15, 2019. Please see the section entitled “Carrizo Special Meeting—Agreements with Directors.”

Recommendation of the Callon Board and Reasons for the Merger (see page 86)

The Callon board unanimously recommends that the Callon shareholders vote “FOR” the Callon merger proposal, “FOR” the share issuance proposal, “FOR” the charter amendment proposal, “FOR” the Callon compensation proposal, and “FOR” the Callon adjournment proposal.

In the course of reaching its decision to approve the merger agreement and the transactions contemplated by the merger agreement, including the share issuance, the Callon board considered a number of factors in its deliberations. For a more complete discussion of these factors, please see “The Merger—Recommendation of the Callon Board and Reasons for the Merger.”

Recommendation of the Carrizo Board and Reasons for the Merger (see page 89)

The Carrizo board unanimously recommends that the Carrizo shareholders vote “FOR” the Carrizo merger proposal, “FOR” the Carrizo compensation proposal, and “FOR” the Carrizo adjournment proposal.

In the course of reaching its decision to approve the merger agreement and the transactions contemplated by the merger agreement, including the merger, the Carrizo board considered a number of factors in its deliberations. For a more complete discussion of these factors, please see “The Merger—Recommendation of the Carrizo Board and Reasons for the Merger.”

Opinion of Callons Financial Advisor (see page 105 and Annex C)

On July 14, 2019, J.P. Morgan Securities LLC (“J.P. Morgan”) rendered its oral opinion to the Callon board, subsequently confirmed by delivery of a written opinion dated the same date, that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to Callon shareholders.



 

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The full text of the written opinion of J.P. Morgan dated July 14, 2019, which sets forth the assumptions made, matters considered and limits on the review undertaken, is attached as Annex C to this joint proxy statement/prospectus and is incorporated herein by reference. The summary of the opinion of J.P. Morgan set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion. Callon shareholders are urged to read the opinion in its entirety. J.P. Morgan’s written opinion was addressed to the Callon board (in its capacity as such) in connection with and for the purposes of its evaluation of the proposed merger, was directed only to the exchange ratio in the proposed merger and did not address any other aspect of the proposed merger. J.P. Morgan expressed no opinion as to the fairness of the exchange ratio to the holders of any other class of securities, creditors or other constituencies of Callon or as to the underlying decision by Callon to engage in the proposed merger. The issuance of J.P. Morgan’s opinion was approved by a fairness committee of J.P. Morgan. The opinion does not constitute a recommendation to any Callon shareholders as to how such shareholder should vote with respect to the proposed merger or any other matter.

For further information, please see “The Merger—Opinion of Callon’s Financial Advisor” and Annex C to this joint proxy statement/prospectus.

Opinions of Carrizo’s Financial Advisors

RBC Capital Markets, LLC (see page 113 and Annex D)

Carrizo retained RBC Capital Markets, LLC (“RBCCM”) to provide its opinion as to the fairness, from a financial point of view, to holders of Carrizo common stock of the exchange ratio provided for pursuant to the terms and subject to the conditions set forth in the merger agreement. RBCCM has delivered a written opinion to the Carrizo board to the effect that, as of July 13, 2019, based on and subject to the assumptions, qualifications, limitations, and other matters set forth therein, the exchange ratio was fair, from a financial point of view, to holders of Carrizo common stock.

RBCCM’s advice (written or oral) and opinion was provided for the benefit, information, and assistance of the Carrizo board (in its capacity as such) in connection with its evaluation of the merger. RBCCM’s opinion did not address the underlying business decision of Carrizo to engage in the merger or the relative merits of the merger compared to any alternative business strategy or transaction that may be available to Carrizo or in which Carrizo might engage. RBCCM’s opinion does not constitute an opinion or recommendation to any holder of Carrizo common stock as to how any such holder should vote or act with respect to the merger or any proposal to be voted upon in connection with the merger or otherwise.

The full text of RBCCM’s written opinion, dated July 13, 2019, is attached to this joint proxy statement/prospectus as Annex D, and constitutes part of this joint proxy statement/prospectus. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered, and limitations and qualifications of the review undertaken by RBCCM in rendering its opinion.

For a further discussion of RBCCM’s opinion, Carrizo’s relationship with RBCCM, and the terms of RBCCM’s engagement, please see “The Merger—Opinions of Carrizo’s Financial Advisors—RBC Capital Markets, LLC.”

Lazard Frères & Co. (see page 123 and Annex E)

The Carrizo board engaged Lazard Frères & Co. LLC (“Lazard”) to act as its financial advisor in connection with the transactions contemplated by the merger agreement. On July 13, 2019, at a meeting of the Carrizo board, Lazard rendered its oral opinion to the Carrizo board, subsequently confirmed in writing by delivery of Lazard’s



 

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opinion letter dated July 13, 2019, to the effect that, as of such date, and based upon and subject to the assumptions, procedures, factors, qualifications, and limitations set forth in Lazard’s written opinion, the exchange ratio was fair, from a financial point of view, to the holders of Carrizo common stock, other than holders of excluded shares (as defined below in “The Merger—Opinions of Carrizo’s Financial Advisors—Opinion of Lazard”).

Lazard’s opinion was provided for the use and benefit of the Carrizo board (in its capacity as such) in its evaluation of the merger, and addressed only the fairness of the exchange ratio, as of the date of the opinion, from a financial point of view, to the holders of Carrizo common stock (other than holders of excluded shares). Lazard’s opinion is not intended to and does not constitute a recommendation to any shareholder as to how such shareholder should vote or act with respect to the merger or any matter relating thereto. The full text of the written opinion of Lazard dated July 13, 2019, which sets forth the assumptions made, procedures followed, factors considered, and qualifications and limitations on the review undertaken by Lazard, is attached as Annex E to this joint proxy statement/prospectus and is incorporated herein by reference. The summary of the opinion of Lazard set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion. Carrizo shareholders are urged to read the opinion letter in its entirety.

For a further discussion of Lazard’s opinion, Carrizo’s relationship with Lazard, and the terms of Lazard’s engagement, see “The Merger—Opinions of Carrizo’s Financial Advisors—Lazard.”

Interests of Certain Callon Directors and Executive Officers in the Merger (see page 133)

In considering the recommendation of the Callon board that Callon shareholders vote to approve the Callon merger proposal, the share issuance proposal, the charter amendment proposal, the Callon compensation proposal, and the Callon adjournment proposal, Callon shareholders should be aware that aside from their interests as shareholders of Callon, Callon’s executive officers have interests in the merger that may be different from, or in addition to, the interests of Callon shareholders generally. The Callon board was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the transactions contemplated therein, in approving the merger, and in recommending the approval of the Callon shareholder proposals. See “The Merger—Background of the Merger” and “The Merger—Recommendation of the Callon Board and Reasons for the Merger.” Callon shareholders should take these interests into account in deciding whether to vote “FOR” the Callon shareholder proposals. These interests are described in more detail below, and certain of them are quantified in the narrative and the tables below.

Interests of Certain Carrizo Directors and Executive Officers in the Merger (see page 135)

In considering the recommendation of the Carrizo board that Carrizo shareholders vote to approve the Carrizo merger proposal, the Carrizo compensation proposal, and the Carrizo adjournment proposal, Carrizo shareholders should be aware that aside from their interests as shareholders of Carrizo, Carrizo’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of Carrizo shareholders generally. The Carrizo board was aware of and considered these potential interests, among other matters, in evaluating and negotiating the merger agreement and the transactions contemplated therein, in approving the merger and in recommending the approval of the Carrizo merger proposal, the Carrizo compensation proposal, and the Carrizo adjournment proposal. See “The Merger—Background of the Merger” and “The Merger—Recommendation of the Carrizo Board and Reasons for the Merger.” Carrizo shareholders should take these interests into account in deciding whether to vote “FOR” the Carrizo merger proposal and the other proposals. These interests are described in more detail below, and certain of them are quantified in the narrative and the tables below. For the purposes of the plans and agreements described herein, to the extent applicable, the completion of the merger will constitute a change of control, change in control, or term of similar meaning.



 

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Board of Directors and Management of Callon Following Completion of the Merger (see page 141)

In connection with the merger, Callon and Carrizo have agreed that three members of the Carrizo board, two chosen by Carrizo (the “Carrizo designees”) and one chosen by Callon (the “Callon designee” and, collectively with the Carrizo designees, the “Director Designees”), will be appointed to the Callon board immediately after the effective time, with the Callon designee being appointed as a Class III director, with a term ending at the 2021 annual meeting of the shareholders of Callon, and the Carrizo designees being appointed as Class I directors, each with a term ending at the 2022 annual meeting of the shareholders of Callon. Callon and Carrizo expect that the Callon designee will be Frances Aldrich Sevilla-Sacasa and the Carrizo designees will be S.P. Johnson IV and Steven A. Webster.

The merger agreement further provides that the executive officers of Callon immediately prior to the effective time will continue in their current positions after the effective time.

Appraisal Rights or Dissenters Rights (see page 148)

No appraisal rights or dissenters’ rights will be available with respect to the merger for Callon shareholders or Carrizo shareholders.

Material U.S. Federal Income Tax Consequences of the Merger (see page 142)

Assuming that the merger is completed as currently contemplated, Callon and Carrizo intend for the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. The obligation of Callon to complete the merger is conditioned upon the receipt of an opinion from Kirkland, counsel to Callon, or such other reputable law firm of national standing, reasonably acceptable to Callon (or if any such counsel is unable to deliver such opinion, Baker Botts) to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code based upon facts, representations, assumptions, and exclusions set forth or described in such opinion. The obligation of Carrizo to complete the merger is conditioned upon the receipt of an opinion from Baker Botts, counsel to Carrizo, or such other reputable law firm of national standing, reasonably acceptable to Carrizo (or if any such counsel is unable to deliver such opinion, Kirkland) to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code based upon facts, representations, assumptions, and exclusions set forth or described in such opinion. Provided that the merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, a U.S. holder (as defined in “The Merger—Material U.S. Federal Income Tax Consequences of the Merger”) of Carrizo common stock will not recognize any gain or loss for U.S. federal income tax purposes upon the exchange of Carrizo common stock for shares of Callon common stock in the merger (other than gain or loss with respect to any cash received in lieu of a fractional share of Callon common stock). Please see “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” for a more detailed discussion of the U.S. federal income tax consequences of the merger to U.S. holders of Carrizo common stock.

Accounting Treatment (see page 144)

Callon prepares its financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). The merger will be accounted for using the acquisition method of accounting with Callon being considered the acquirer of Carrizo for accounting purposes. This means that Callon will record all assets acquired and liabilities assumed from Carrizo at their acquisition date fair values at the effective date of the merger. Any excess of the consideration transferred over the fair value amounts of the identifiable assets acquired net of liabilities assumed is recorded as goodwill. Any goodwill would be assessed for impairment at least annually and if impairment indicators exist.



 

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Regulatory Approvals (see page 144)

The completion of the merger is subject to antitrust review in the United States. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the rules promulgated thereunder, the merger cannot be completed until the parties to the merger agreement have given notification and furnished information to the Federal Trade Commission (the “FTC”) and the United States Department of Justice (the “DOJ”), and until the applicable waiting period has expired or has been terminated. On August 6, 2019, Callon and Carrizo received early termination of the HSR Act waiting period.

In connection with the share issuance proposal, Callon has filed a registration statement with the SEC under the Exchange Act that must be declared effective by the SEC and pursuant to which the issuance of shares of Callon common stock issuable upon the effective time will be registered with the SEC.

In addition, the completion of the merger is subject to approval for listing of the shares of Callon common stock issuable in the merger on the NYSE, subject to official notice of issuance.

Treatment of Carrizo Equity Awards and Warrants in the Merger (see page 146)

Pursuant to the merger agreement, the following will occur:

Restricted Stock Awards. Each share of Carrizo restricted stock that is outstanding as of immediately prior to the effective time will, as of the effective time, vest and convert into the right to receive the merger consideration, subject to any applicable withholding taxes.

Carrizo Restricted Stock Units. Subject to limited exceptions as described in “The Merger—Treatment of Carrizo Equity Awards in the Merger,” each Carrizo restricted stock unit that is outstanding as of immediately prior to the effective time will, as of the effective time, automatically, without any action on the part of the holder thereof, be cancelled and converted into a vested right to receive a number of shares of Callon common stock that is equal to the product of (a) the number of shares of Carrizo common stock subject to such Carrizo restricted stock unit as of immediately prior to the effective time, multiplied by (b) the exchange ratio, rounded up to the nearest whole share, subject to any applicable withholding taxes.

Carrizo Performance Shares. Each award of Carrizo performance shares that is outstanding as of immediately prior to the effective time will, as of the effective time, automatically be cancelled and converted into a vested right to receive a number of shares of Callon common stock that is equal to the product of (a) the greater of (1) the target number of shares of Carrizo common stock subject to such Carrizo performance share award as of immediately prior to the effective time and (2) the number of shares of Carrizo common stock to be earned based on actual achievement of the performance criteria set forth in the applicable award agreement, measured based on a shortened performance period that ends as of the close of the business day prior to the effective time (if such performance is determinable, and as determined by the Carrizo board immediately prior to the effective time), multiplied by (b) the exchange ratio, rounded up to the nearest whole share, subject to any applicable withholding taxes.

Carrizo Stock Appreciation Rights. Each Carrizo stock appreciation right (“Carrizo SAR”) (representing the right to receive a cash payment based on the appreciation in the value of Carrizo common stock between the grant date and the exercise date) that is outstanding as of immediately prior to the effective time will, as of the effective time, automatically, without any action on the part of the holder thereof, be cancelled and converted into and thereafter evidence a stock appreciation right covering shares of Callon common stock (“converted Callon SAR”) with respect to that number of shares of Callon common stock that is equal to the product of (a) the number of shares of Carrizo common stock subject to such Carrizo SAR as of immediately prior to the



 

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effective time, multiplied by (b) the exchange ratio, rounded down to the nearest whole share. The exercise price per share of the converted Callon SAR will be equal to the exercise price per share of the Carrizo SAR divided by the exchange ratio, rounded up to the nearest whole cent. Following the effective time, the converted Callon SAR will be subject to such other terms and conditions as applied to the corresponding Carrizo SAR immediately prior to the effective time, provided that the converted Callon SAR will be vested and exercisable in full and will remain exercisable for its full original term without regard to any continuing service requirement.

For additional information regarding the treatment of Carrizo equity awards, please see “The Merger—Treatment of Carrizo Equity Awards in the Merger.”

Carrizo Warrants. The right of a holder of Carrizo’s warrants outstanding as of the effective time to acquire shares of Carrizo common stock will, in accordance with the applicable warrant agreement, be converted into the right to acquire the number of shares of Callon common stock that such holder would have received if such holder had exercised such warrants immediately prior to the effective time.

Listing of Callon Common Stock; Delisting and Deregistration of Carrizo Common Stock (see page 148)

It is a condition to the consummation of the merger that the shares of Callon common stock issuable to Carrizo shareholders in connection with the merger be approved for listing on the NYSE, subject to official notice of issuance.

Shares of Carrizo common stock currently trade on the NASDAQ under the stock symbol “CRZO.” When the merger is completed, Carrizo will cease to exist and the Carrizo common stock will cease to be traded on the NASDAQ and will be deregistered under the Exchange Act.

No Solicitation of Alternative Proposals (see page 163)

The merger agreement precludes Callon and Carrizo from soliciting, knowingly encouraging (including by way of providing information or taking any other action) or discussing or negotiating with any person with respect to a takeover proposal (as defined herein). However, if prior to the receipt of the requisite Callon shareholder approval or Carrizo shareholder approval, as applicable, Callon or Carrizo receives a bona fide, unsolicited written takeover proposal from any person that did not result from a material breach of the non-solicitation obligations under the merger agreement and that the Callon board or the Carrizo board, as applicable, among other things, determines in good faith (after consultation with its outside financial advisors and outside legal counsel) constitutes or could reasonably be expected to result in a proposal that is a superior proposal (as defined herein), then Callon or Carrizo, as applicable, may furnish non-public information to and enter into discussions with that person and its representatives about such takeover proposal.

For a more detailed discussion on Callon and Carrizo and the ability of their boards of directors to consider other proposals, please see “The Merger Agreement—No Solicitation of Alternative Proposals.”

Conditions to Completion of the Merger (see page 170)

The obligations of Callon and Carrizo to consummate the merger are subject to the fulfillment (or waiver by all parties, to the extent permissible under applicable laws) of the following mutual conditions:

 

   

approval of the Callon merger proposal, the share issuance proposal, and the charter amendment proposal by the Callon shareholders and approval of the Carrizo merger proposal by the Carrizo shareholders shall have been obtained;



 

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no order of a governmental entity of competent jurisdiction shall have been entered or shall continue to be in effect and no law shall have been adopted or be effective, in each case that prohibits the consummation of the merger;

 

   

the registration statement on Form S-4 filed by Callon in connection with the issuance of shares of Callon common stock in the merger shall have been declared effective by the SEC under the Securities Act and shall not be the subject of any stop order or proceeding seeking a stop order;

 

   

the shares of Callon common stock issuable in the merger shall have been approved for listing on the NYSE, subject to official notice of issuance;

 

   

any waiting period (and extensions thereof) applicable to the merger under the HSR Act shall have been terminated or expired; and

 

   

either (i) the preferred stock approval shall have been obtained or (ii) the preferred stock redemption shall have been made as contemplated by the merger agreement, such that all of the Carrizo preferred stock is deemed to no longer be outstanding in accordance with the statement of resolutions applicable thereto.

The obligation of Carrizo to effect the merger is also subject to the fulfillment, or waiver by Carrizo, of the following additional conditions:

 

   

the accuracy of the representations and warranties of Callon set forth in the merger agreement, subject to the materiality standards set forth in the merger agreement, as of the date of the merger agreement and as of the closing date of the merger (except to the extent such representations and warranties are expressly made as of a particular date or period, in which case such representations and warranties will be true and correct as of such particular date or period only), and Carrizo’s receipt of an officer’s certificate from Callon to that effect;

 

   

performance of, or compliance with, in all material respects all obligations, covenants, and agreements required to be performed or complied with under the merger agreement by Callon prior to the effective time, and Carrizo’s receipt of an officer’s certificate from Callon to that effect; and

 

   

receipt of an opinion from Baker Botts, counsel to Carrizo, or such other reputable law firm of national standing reasonably acceptable to Carrizo (or if any such counsel is unable to deliver such opinion, Kirkland) to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code.

The obligation of Callon to effect the merger is also subject to the fulfillment, or waiver by Callon, of the following additional conditions:

 

   

the accuracy of the representations and warranties of Carrizo set forth in the merger agreement, subject to the materiality standards set forth in the merger agreement, as of the date of the merger agreement and as of the closing date of the merger (except to the extent such representations and warranties are expressly made as of a particular date or period, in which case such representations and warranties will be true and correct as of such particular date or period only), and Callon’s receipt of an officer’s certificate from Carrizo to that effect;

 

   

performance of, or compliance with, in all material respects all obligations, covenants and agreements required to be performed or complied with under the merger agreement by Carrizo prior to the effective time, and Callon’s receipt of an officer’s certificate from Carrizo to that effect; and

 

   

receipt of an opinion from Kirkland, counsel to Callon, or such other reputable law firm of national standing reasonably acceptable to Callon (or if any such counsel is unable to deliver such opinion, Baker



 

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Botts) to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code.

As further discussed under the section entitled “Risk Factors,” neither Callon nor Carrizo can be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed.

Termination of the Merger Agreement (see page 171)

Callon and Carrizo may mutually agree to terminate the merger agreement before consummating the merger, even after approval of the merger by Callon shareholders and Carrizo shareholders has been obtained.

In addition, either Callon or Carrizo may terminate the merger agreement if:

 

   

the consummation of the merger has not occurred on or before the outside date (i.e., February 14, 2020); provided that if all the conditions to closing other than certain specified conditions, including the regulatory condition and the condition with respect to the treatment of the Carrizo preferred stock, have been satisfied or are capable of being satisfied by the outside date, the outside date may be extended by either Callon or Carrizo by written notice up to a date not beyond April 14, 2020, and provided further that the right to terminate the merger agreement under this clause shall not be available to any party if the failure of the closing to occur by such date is due to the material breach by such party of any representation, warranty, covenant or other agreement of such party set forth in the merger agreement;

 

   

a law is enacted, issued, promulgated, or enforced or an order is entered, either of which permanently restrains, enjoins, or otherwise prohibits the consummation of the merger, and such law or order shall have become final and nonappealable, provided that the right to terminate the merger agreement under this clause shall not be available to any party if any such order was due to the material breach by such party to perform its obligations under the merger agreement;

 

   

the Callon special meeting (including any adjournments or postponements thereof) shall have concluded and the Callon shareholders have not approved the Callon merger proposal, the share issuance proposal, or the charter amendment proposal or if the Carrizo special meeting (including any adjournments or postponements thereof) shall have concluded and the Carrizo shareholders have not approved the Carrizo merger proposal; or

 

   

the other party has breached or failed to perform any of its representations, warranties, covenants, or other agreements contained in the merger agreement, which (i) breach or failure to perform if it occurred or was continuing to occur on the closing date would result in the failure of the satisfaction of a condition to effect the merger and (ii) by its nature cannot be cured prior to the outside date or, if such breach or failure is capable of being cured by the outside date, such other party does not diligently attempt or ceases to diligently attempt to cure such breach or failure after receiving written notice thereof from the party seeking to terminate, provided that the party seeking to terminate is not then in material breach of any representation, warranty, covenant, or other agreement contained in the merger agreement which would itself result in a failure of the satisfaction of a condition to effect the merger.

In addition, the merger agreement may be terminated under the following circumstances:

 

   

by Callon, prior to the time the Carrizo shareholder approval is obtained, if (i) the Carrizo board has effected a change of recommendation or (ii) Carrizo has willfully breached its non-solicitation obligations under the merger agreement, other than in a case where (A) such willful breach is a result of an isolated action by a person that is a representative of Carrizo, (B) Carrizo uses reasonable best efforts to remedy such willful breach, and (C) Callon is not significantly harmed as a result;



 

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by Carrizo, prior to the time the Callon shareholder approval is obtained, if (i) the Callon board has effected a change of recommendation or (ii) Callon has willfully breached its non-solicitation obligations under the merger agreement, other than in a case where (A) such willful breach is a result of an isolated action by a person that is a representative of Callon, (B) Callon uses reasonable best efforts to remedy such willful breach, and (C) Carrizo is not significantly harmed as a result; or

 

   

by Carrizo, prior to the time the Carrizo shareholder approval is obtained and if Carrizo has not willfully breached its non-solicitation obligations under the merger agreement, in order to enter into a definitive agreement with respect to a superior proposal concurrently with or promptly after such termination; provided that any such termination by Carrizo pursuant to this clause shall be void and of no force and effect unless Carrizo pays to Callon a termination fee of $47.4 million.

Expenses and Termination Fees Relating to the Termination of the Merger Agreement (see page 172)

If the merger agreement is terminated by Callon due to a change of recommendation by the board of directors of Carrizo with respect to the transactions contemplated by the merger agreement or due to a willful breach by Carrizo of its non-solicitation obligations under the merger agreement, or terminated by Carrizo in order to enter into a definitive agreement with respect to a superior proposal concurrently with or promptly after such termination, then Carrizo shall be required to pay Callon a termination fee of $47.4 million (the “Carrizo termination fee”). In addition, if the merger agreement is terminated by (a) either party due to the failure to obtain the Carrizo shareholder approval, (b) Callon due to a terminable breach by Carrizo, or (c) either party due to the merger having not been consummated by the outside date, then Carrizo shall be required to pay Callon the Carrizo termination fee, if after the date of the merger agreement, a takeover proposal for Carrizo has been publicly announced or has become publicly known and not withdrawn in a timely manner, and Carrizo, among other things, enters into a definitive agreement for a takeover proposal or consummates such transaction within 12 months after termination of the merger agreement. Further, if the merger agreement is terminated by Carrizo due to the merger having not been consummated by the outside date, and at the time of such termination the Carrizo shareholder approval was not yet obtained and Callon would have been permitted to terminate the merger agreement due to a change of recommendation by the board of directors of Carrizo with respect to the transactions contemplated by the merger agreement or due to a willful breach by Carrizo of its non-solicitation obligations under the merger agreement, then Carrizo shall be required to pay Callon the Carrizo termination fee.

If the merger agreement is terminated by Carrizo due to a change of recommendation by the board of directors of Callon with respect to the transactions contemplated by the merger agreement or due to a willful breach by Callon of its non-solicitation obligations under the merger agreement, then Callon shall be required to pay Carrizo a termination fee of $57.0 million (the “Callon termination fee”). In addition, if the merger agreement is terminated by (a) either party due to the failure to obtain the Callon shareholder approval, (b) Carrizo due to a terminable breach by Callon, or (c) either party due to the merger having not been consummated by the outside date, then Callon shall be required to pay Carrizo the Callon termination fee, if after the date of the merger agreement, a takeover proposal for Callon has been publicly announced or has become publicly known and not withdrawn in a timely manner, and Callon, among other things, enters into a definitive agreement for a takeover proposal or consummates such transaction within 12 months after termination of the merger agreement. Further, if the merger agreement is terminated by Callon due to the merger having not been consummated by the outside date, and at the time of such termination the Callon shareholder approval was not yet obtained and Carrizo would have been permitted to terminate the merger agreement due to a change of recommendation by the board of directors of Callon with respect to the transactions contemplated by the merger agreement or due to a willful breach by Callon of its non-solicitation obligations under the merger agreement, then Callon shall be required to pay Carrizo the Callon termination fee.

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In addition, unless otherwise entitled to a termination fee, either Callon or Carrizo will be obligated to reimburse the other party up to $7.5 million for costs, fees, and expenses incurred by the other party in connection with a termination under certain circumstances related to the failure to obtain Carrizo shareholder approval or Callon shareholder approval, as applicable.

In no event will either party be required to pay an expense reimbursement fee on more than one occasion. If either party pays a termination fee, then such party will not be required to also pay an expense reimbursement fee. Further, any payment of an expense reimbursement fee may be deducted from any subsequent payment of a termination fee.

Specific Performance (see page 173)

In addition to any other remedy that may be available to each party, including monetary damages, prior to the valid termination of the merger agreement, each of the parties will be entitled to an injunction or injunctions to prevent breaches of the merger agreement and to specifically enforce the terms and provisions of the merger agreement.

Completion of the Merger (see page 151)

The merger is expected to be completed in the fourth quarter of 2019. However, neither Callon nor Carrizo can predict the actual date on which the merger will be completed, nor can the parties ensure that the merger will be completed, because completion is subject to conditions beyond each party’s control.

Comparison of Rights of Callon Shareholders and Carrizo Shareholders (see page 187)

Carrizo shareholders receiving Callon common stock in connection with the merger will have different rights once they become shareholders of Callon due to differences between laws of the State of Texas and the State of Delaware and the governing corporate documents of Callon and Carrizo. These differences are described in more detail in “Comparison of Shareholder Rights.”

Litigation Related to the Merger (See page 148)

Following the public announcement of the merger, five purported shareholders of Carrizo filed five individual complaints against Carrizo and the directors of Carrizo and three purported shareholders of Carrizo filed three putative federal class action complaints on behalf of themselves and all owners of Carrizo common stock (other than defendants and related or affiliated persons) against Carrizo and the directors of Carrizo. These complaints allege that, among other things, the preliminary joint proxy statement/prospectus, filed with the SEC on August 20, 2019, omits material information with respect to the merger, rendering it false and misleading and thus that Carrizo and the directors of Carrizo violated Section 14(a) of the Exchange Act as well as Rule 14a-9 under the Exchange Act. Another purported shareholder of Carrizo filed an individual complaint against Carrizo, Callon, and the directors of Carrizo and two purported shareholders of Carrizo filed two putative federal class action complaints on behalf of themselves and all owners of Carrizo common stock (other than defendants and related or affiliated persons) against Carrizo, Callon, and the directors of Carrizo. These complaints contain allegations that, among other things, the registration statement on Form S-4, of which this joint proxy statement/prospectus forms a part, fails to disclose certain allegedly material information in violation of federal securities laws. The complaints seek injunctive relief enjoining the merger, damages, and costs, among other remedies. The defendants believe that these complaints are without merit and intend to vigorously defend them.

Risk Factors (see page 34)

Before voting at the Carrizo special meeting or the Callon special meeting, you should carefully consider all of the information contained in or incorporated by reference into this joint proxy statement/prospectus, including the specific factors under the heading “Risk Factors.”



 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CALLON

The following table sets forth selected historical consolidated financial data that has been derived from Callon’s audited consolidated financial statements as of and for each of the five years in the period ended December 31, 2018, as well as from Callon’s unaudited consolidated financial statements as of and for the six months ended June 30, 2019 and 2018, and the related notes thereto. This disclosure does not include the effects of the merger. The information set forth below is only a summary and is not necessarily indicative of the results of future operations of Callon or the combined company, and the following information should be read in conjunction with, and is qualified in its entirety by, Callon’s consolidated financial statements, the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Callon’s Annual Report on Form 10-K for the year ended December 31, 2018 and Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2019 and June 30, 2019, each of which are incorporated by reference into this joint proxy statement/prospectus. The selected statement of operations data for the years ended December 31, 2015 and 2014 and selected balance sheet data as of December 31, 2016, 2015 and 2014 have been derived from Callon’s audited consolidated financial statements for such years, which have not been included or incorporated by reference into this joint proxy statement/prospectus. The selected balance sheet data as of June 30, 2018 has been derived from Callon’s unaudited consolidated financial statements as of June 30, 2018, which have not been included or incorporated by reference into this joint proxy statement/prospectus. For more information, please see “Where You Can Find More Information.”

 

(in thousands, except per share
amounts)
  Six Months Ended June 30,     Year Ended December 31,  
          2019                     2018             2018     2017     2016     2015     2014  

Statement of Operations Data:

             

Operating revenues

             

Oil and natural gas sales

  $ 320,099     $ 264,515     $ 587,624     $ 366,474     $ 200,851     $ 137,512     $ 151,862  

Operating expenses

             

Total operating expenses

  $ 218,365     $ 136,128     $ 328,094     $ 225,028     $ 248,328     $ 346,622     $ 113,592  

Income (loss) from operations

    101,734       128,387       259,530       141,446       (47,477     (209,110     38,270  

Net income (loss)(1)

    35,637       106,236       300,360       120,424       (91,813     (240,139     37,766  

Per Share Data:

             

Income (loss) available to common stockholders per share (“EPS”)

             

Basic

  $ 0.14     $ 0.50     $ 1.35     $ 0.56     $ (0.78   $ (3.77   $ 0.67  

Diluted

  $ 0.14     $ 0.50     $ 1.35     $ 0.56     $ (0.78   $ (3.77   $ 0.65  

Weighted average shares outstanding for EPS

             

Basic

    227,917       206,309       216,941       201,526       126,258       65,708       44,848  

Diluted

    228,599       207,027       217,596       202,102       126,258       65,708       45,961  

Statement of Cash Flows Data:

             

Net cash provided by operating activities

  $ 225,046     $ 199,979     $ 467,654     $ 229,891     $ 120,774     $ 89,319     $ 94,387  

Net cash used in investing activities

    (124,504     (368,285     (1,324,057     (1,072,532     (866,287     (259,160     (452,501

Net cash provided by (used in) financing activities

    (100,541     649,457       844,459       217,643       1,397,282       170,097       356,070  

Balance Sheet Data (end of period):

             

Total oil and natural gas properties

  $ 3,695,499     $ 2,800,155     $ 3,718,858     $ 2,513,491     $ 1,475,401     $ 711,386     $ 742,155  

Total assets

    3,915,497       3,507,326       3,979,173       2,693,296       2,267,587       788,594       863,346  

Long-term debt

    1,095,260       988,459       1,189,473       620,196       390,219       328,565       321,576  

Preferred stock(2)

    15       15       15       15       15       16       16  

Stockholders’ equity

    2,483,872       2,249,608       2,445,208       1,855,966       1,733,402       362,758       433,735  

 

 

(1)

Net loss for 2016 included the recognition of a write-down of oil and natural gas properties of $95,788 as a result of the ceiling test limitation. Net loss for 2015 included the recognition of a write-down of oil and natural gas properties of $208,435 as a result of the ceiling test limitation and $108,843 of income tax expense related to the recognition of a valuation allowance.

 

(2)

On July 18, 2019, Callon redeemed all outstanding shares of its 10.00% Series A Cumulative Preferred Stock at a redemption price of $50.00 per share, plus an amount equal to all accrued and unpaid dividends, for a total redemption price of $50.24 per share.



 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CARRIZO

The following table sets forth selected historical consolidated financial data that has been derived from Carrizo’s audited consolidated financial statements as of and for each of the five years in the period ended December 31, 2018, as well as from Carrizo’s unaudited consolidated financial statements as of and for the six months ended June 30, 2019 and 2018, and the related notes thereto. This disclosure does not include the effects of the merger. The information set forth below is only a summary and is not necessarily indicative of the results of future operations of Carrizo or the combined company, and the following information should be read in conjunction with, and is qualified in its entirety by, Carrizo’s consolidated financial statements, the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Carrizo’s Annual Report on Form 10-K for the year ended December 31, 2018 and Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2019 and June 30, 2019, each of which are incorporated by reference into this joint proxy statement/prospectus. The selected statement of operations data for the years ended December 31, 2015 and 2014 and selected balance sheet data as of December 31, 2016, 2015 and 2014 have been derived from Carrizo’s audited consolidated financial statements for such years, which have not been included or incorporated by reference into this joint proxy statement/prospectus. The selected balance sheet data as of June 30, 2018 has been derived from Carrizo’s unaudited consolidated financial statements as of June 30, 2018, which have not been included or incorporated by reference into this joint proxy statement/prospectus. For more information, please see “Where You Can Find More Information.”

 

(in thousands, except per share
amounts)
  Six Months Ended June 30,     Year Ended December 31,  
          2019                     2018             2018     2017     2016     2015     2014  

Statement of Operations Data:

             

Total revenues

  $ 498,007     $ 489,253     $ 1,065,942     $ 745,888     $ 443,594     $ 429,203     $ 710,187  

Total costs and expenses

    416,255       425,650       656,342       654,748       1,119,068       1,727,963       359,977  

Income (loss) from continuing operations(1)

    258,848       62,801       404,427       87,110       (675,474     (1,157,885     222,283  

Net income (loss) attributable to common shareholders(1)

    248,402       44,838       376,076       78,467       (675,474     (1,155,154     226,343  

Per Share Data:

             

Income (loss) from continuing operations per common share:

             

Basic

  $ 2.81     $ 0.77     $ 4.73     $ 1.19     ($ 11.27   ($ 22.50   $ 4.90  

Diluted

  $ 2.80     $ 0.75     $ 4.64     $ 1.18     ($ 11.27   ($ 22.50   $ 4.81  

Net income (loss) attributable to common shareholders per common share:

             

Basic

  $ 2.70     $ 0.55     $ 4.40     $ 1.07     ($ 11.27   ($ 22.45   $ 4.99  

Diluted

  $ 2.69     $ 0.54     $ 4.32     $ 1.06     ($ 11.27   ($ 22.45   $ 4.90  

Weighted average common shares outstanding:

             

Basic

    92,121       81,802       85,509       73,421       59,932       51,457       45,372  

Diluted

    92,479       83,240       87,143       73,993       59,932       51,457       46,194  

Statement of Cash Flows Data:

             

Net cash provided by operating activities from continuing operations

  $ 301,796     $ 275,872     $ 653,555     $ 422,981     $ 272,768     $ 378,735     $ 502,275  

Net cash used in investing activities from continuing operations

    (348,260     (85,946     (795,968     (1,159,452     (619,832     (673,376     (940,676

Net cash provided by (used in) financing activities from continuing operations

    46,464       (197,367     135,155       741,817       308,340       330,767       300,290  

Balance Sheet Data (at end of period):

             

Total assets

    3,635,328       2,721,839       3,185,100       2,778,304       1,626,327       2,007,246       2,962,305  

Long-term debt

    1,731,418       1,502,307       1,633,591       1,629,209       1,325,418       1,236,017       1,332,175  

Preferred stock

    176,056       172,858       174,422       214,262                    

Total stockholders’ equity

    1,240,358       426,468       980,904       370,897       23,458       444,054       1,103,441  

 

 

(1)

For the years ended December 31, 2016 and 2015, Carrizo recognized non-cash impairments of proved oil and gas properties of $576.5 million and $1.2 billion, respectively.



 

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The following selected unaudited pro forma condensed combined consolidated statements of earnings data for the six months ended June 30, 2019 and year ended December 31, 2018 have been prepared to give effect to the merger as if the merger had been completed on January 1, 2018. The unaudited pro forma condensed combined consolidated balance sheet data at June 30, 2019 have been prepared to give effect to the merger as if the merger was completed on June 30, 2019. The following selected unaudited pro forma condensed combined consolidated financial information should be read in conjunction with “Unaudited Pro Forma Condensed Combined Financial Statements” and related notes included in this joint proxy statement/prospectus.

The pro forma financial statements have been prepared using the acquisition method of accounting for business combinations under GAAP, with Callon treated as the acquirer. Under the acquisition method of accounting, Callon will record all assets acquired and liabilities assumed at their respective acquisition date fair values at the effective time of closing of the merger. The acquisition method of accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measure. The sources and amounts of merger transaction expenses may also differ from that assumed in the following pro forma adjustments. Accordingly, the pro forma adjustments are preliminary, have been made solely for the purpose of providing pro forma financial statements, and are subject to revision based on a final determination of fair values as of the date of acquisition. Differences between these preliminary estimates and the final acquisition accounting may have a material impact on the accompanying pro forma financial statements and the combined company’s future results of operations and financial position.

The unaudited pro forma condensed combined financial statements are provided for illustrative purposes only and are not intended to represent or be indicative of the results of operations or financial position of the combined company that would have been recorded had the merger been completed as of the dates presented and should not be taken as representative of future results of operations or financial position of the combined company. The unaudited pro forma condensed combined financial statements do not reflect the impacts of any potential operational efficiencies, asset dispositions, cost savings or economies of scale that the combined company may achieve with respect to the combined operations. Future results may vary significantly from the results reflected because of various factors, including those described in “Risk Factors,” in Item 1A Risk Factors of Callon’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 incorporated by reference in this joint proxy statement/prospectus, in Item 1A Risk Factors of Callon’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2019 and June 30, 2019 incorporated by reference in this joint proxy statement/prospectus, in Item 1A Risk Factors of Carrizo’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 incorporated by reference in this joint proxy statement/prospectus and in Item 1A Risk Factors of Carrizo’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2019 and June 30, 2019 incorporated by reference in this joint proxy statement/prospectus.

 

(in thousands, except per share amounts)    Six Months Ended
June 30, 2019
     For The Year Ended
December 31, 2018
 
     (unaudited)  
Pro Forma Condensed Combined Statement of Operations Data:      

Revenue

   $ 797,804      $ 1,661,171  

Net income (loss) available to common shareholders

   $ 301,315      $ 690,610  

Net income (loss) per share, basic

   $ 0.71      $ 1.67  

Net income (loss) per share, diluted

   $ 0.71      $ 1.67  

 

(in thousands)    As of
June 30, 2019
 
     (unaudited)  

Pro Forma Condensed Combined Balance Sheet Data:

  

Cash and cash equivalents

   $ 18,334  

Total assets

   $ 7,362,266  

Total liabilities

   $ 3,713,215  

Total stockholders’ equity

   $ 3,449,051  


 

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PRO FORMA COMBINED OIL AND NATURAL GAS RESERVE AND PRODUCTION DATA

The following tables present the estimated pro forma combined net proved developed and undeveloped oil, natural gas and NGL reserves as of December 31, 2018. The pro forma reserve information set forth below gives effect to the merger as if the merger had been completed on January 1, 2018. The following summary pro forma reserve information has been prepared for illustrative purposes only and is not intended to be a projection of future results of the combined company. Future results may vary significantly from the results reflected because of various factors, including those discussed in “Risk Factors.” The summary pro forma reserve information should be read in conjunction with “Unaudited Pro Forma Condensed Combined Financial Statements” and the related notes included in this joint proxy statement/prospectus.

 

                    
     Year Ended December 31, 2018  
     Callon
    Historical    
     Carrizo
    Historical    
     Pro Forma
     Combined    
 

Proved reserves:

        

Natural Gas (Bcf)

     350        483        833  

NGLs (MMBbls)

            69        69  

Oil (MMBbls)

     180        180        360  

Oil equivalents (MMBoe)

     239        329        568  

Proved developed reserves:

        

Natural Gas (Bcf)

     218        179        397  

NGLs (MMBbls)

            26        26  

Oil (MMBbls)

     92        75        167  

Oil equivalents (MMBoe)

     129        131        260  

 

                    
     Year Ended December 31, 2018  
     Callon
    Historical    
     Carrizo
    Historical    
     Pro Forma
     Combined    
 

Production:

        

Natural Gas (Bcf)

     15        25        40  

NGLs (MMBbls)

            4        4  

Oil (MMBbls)

     9        14        23  

Oil equivalents (MMBoe)

     12        22        34  

 

     Six Months Ended June 30, 2019  
     Callon
    Historical    
     Carrizo
    Historical    
     Pro Forma
    Combined    
 

Production:

        

Natural Gas (Bcf)

     10        12        22  

NGLs (MMBbls)

            2        2  

Oil (MMBbls)

     6        8        14  

Oil equivalents (MMBoe)

     7        12        19  


 

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UNAUDITED COMPARATIVE PER SHARE DATA

The following tables present Callon’s and Carrizo’s historical and pro forma per share data for the year ended December 31, 2018 and for the six months ended June 30, 2019. The pro forma per share data for the year ended December 31, 2018 and as of and for the six months ended June 30, 2019 is presented as if the merger had been completed on January 1, 2018.

Historical per share data of Callon for the year ended December 31, 2018 and the six months ended June 30, 2019 was derived from Callon’s historical financial statements for the respective periods. Historical per share data of Carrizo for the year ended December 31, 2018 and the six months ended June 30, 2019 was derived from Carrizo’s historical financial statements for the respective periods. This information should be read together with the historical consolidated financial statements and related notes of Callon and Carrizo filed by each with the SEC, and that are incorporated into this joint proxy statement/prospectus by reference. Please see “Where You Can Find More Information.”

Unaudited pro forma combined per share data for the year ended December 31, 2018 and the six months ended June 30, 2019 was derived and should be read in conjunction with the unaudited pro forma condensed combined financial data included in “Unaudited Pro Forma Condensed Combined Financial Statements.” The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the merger had been completed as of the beginning of the period.

 

     Six Months Ended June 30, 2019  
     Callon
    Historical    
     Carrizo
    Historical    
         Pro Forma    
    Combined    
     Pro Forma
    Equivalent    
Carrizo(2)
 

Net Earnings (Loss) Attributable to Common Shareholders Per Common Share:

           

Basic

   $ 0.14      $ 2.70      $ 0.71      $ 1.45  

Diluted

   $ 0.14      $ 2.69      $ 0.71      $ 1.45  

Book Value Per Share

   $ 10.88      $ 13.40      $ 8.11      $ 16.62  

Cash Dividends Per Share(1)

                           
     Year Ended December 31, 2018  
     Callon
    Historical    
     Carrizo
    Historical    
         Pro Forma    
    Combined    
     Pro Forma
    Equivalent    

Carrizo(2)
 

Net Earnings (Loss) Attributable to Common Shareholders Per Common Share:

           

Basic

   $ 1.35      $ 4.40      $ 1.67      $ 3.42  

Diluted

   $ 1.35      $ 4.32      $ 1.67      $ 3.41  

Book Value Per Share

   $ 10.74      $ 10.71        

Cash Dividends Per Share(1)

                           

 

 

(1)

Callon and Carrizo have not paid any cash dividends on their common stock and do not intend to do so in the foreseeable future. Subject to limited exceptions, the merger agreement prohibits Callon and Carrizo (unless consented to in advance by the other, which consent may not be unreasonably withheld, conditioned or delayed) from paying dividends to their respective shareholders until the earlier of the effective time and the termination of the merger agreement in accordance with its terms. Please see “The Merger—Dividend Policy.”

 

(2)

Determined using the pro forma combined per share data multiplied by 2.05 (the exchange ratio).



 

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MARKET PRICE INFORMATION

Callon’s common stock is listed on the NYSE under the symbol “CPE.” Carrizo’s common stock is listed on the NASDAQ under the symbol “CRZO.”

The high and low trading prices for the Callon common stock as of July 12, 2019, the last trading day immediately before the public announcement of the merger were $6.59 and $6.40, respectively. The high and low trading prices for the Carrizo common stock as of July 12, 2019, the last trading day immediately before the public announcement of the merger, were $10.63 and $10.22, respectively.

As of                 , 2019, the last date before the date of this joint proxy statement/prospectus for which it was practicable to obtain this information, there were                  shares of Callon common stock outstanding and                  shares of Carrizo common stock outstanding.

Because the exchange ratio will not be adjusted for changes in the market price of either Callon common stock or Carrizo common stock, the market value of Callon common stock that Carrizo shareholders will have the right to receive on the date the merger is completed may vary significantly from the market value of the Callon common stock that Carrizo shareholders would receive if the merger were completed on the date of this joint proxy statement/prospectus. As a result, you should obtain recent market prices of Callon common stock and Carrizo common stock prior to voting your shares. Please see “Risk Factors—Risks Relating to the Merger.”

The following table sets forth the closing sale price per share of Callon common stock as reported on the NYSE and the closing sale price per share of Carrizo common stock as reported on the NASDAQ, in each case on July 12, 2019, the last trading day before the public announcement of the parties entering into the merger agreement, and on                 , 2019, the last practicable trading day prior to the mailing of this joint proxy statement/prospectus. The table also shows the estimated implied value of the merger consideration proposed for each share of Carrizo common stock as of the same two dates. The implied value was calculated by multiplying the NYSE closing price of a share of Callon common stock on the relevant date by the exchange ratio of 2.05 shares of Callon common stock for each share of Carrizo common stock.

 

       Callon Common Stock  
  Closing Price  
       Carrizo Common Stock  
  Closing Price  
           Exchange Ratio            Implied Per Share Value
  of Merger Consideration  
 

July 12, 2019

   $         6.40      $         10.50        2.05      $         13.12  

            , 2019

   $                       $                           2.05      $                     

Callon shareholders and Carrizo shareholders are encouraged to obtain current market quotations for Callon common stock and Carrizo common stock and to review carefully the other information contained in this joint proxy statement/prospectus or incorporated by reference herein. No assurance can be given concerning the market price of Callon common stock before or after the effective date of the merger. Please see “Where You Can Find More Information” for the location of information incorporated by reference into this joint proxy statement/prospectus.



 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus, and the documents to which Callon and Carrizo refer you within this joint proxy statement/prospectus, as well as oral statements made or to be made by Callon and Carrizo, include “forward-looking statements” within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the United States Private Securities Litigation Reform Act of 1995, as amended. All statements, other than statements of historical fact, included in this joint proxy statement/prospectus, including those that address activities, events, or developments that Callon or Carrizo expects, believes, or anticipates will or may occur in the future, are forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding the merger, the expected timetable for completing the merger, pro forma descriptions of the combined company and its operations, integration and transition plans, synergies, opportunities, and anticipated future performance and any other statements regarding Carrizo’s or Callon’s future expectations, beliefs, plans, objectives, financial conditions, assumptions, or future events or performance that are not historical facts. Words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “create,” “intend,” “should,” “could,” “would,” “may,” “might,” “foresee,” “plan,” “will,” “guidance,” “outlook,” “future,” “assume,” “forecast,” “focus,” “target,” “continue,” or the negative of such terms or other variations thereof and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking.

Callon and Carrizo caution investors that any forward-looking statements are subject to known and unknown risks and uncertainties, many of which are outside Callon’s and Carrizo’s control, and which may cause actual results and future trends to differ materially from those matters expressed in, or implied or projected by, such forward-looking statements, which speak only as of the date of this joint proxy statement/prospectus. Investors are cautioned not to place undue reliance on these forward-looking statements. Risks and uncertainties that could cause actual results to differ from those described in forward-looking statements include the following:

 

   

the merger agreement may be terminated in accordance with its terms and the merger may not be completed;

 

   

Callon shareholders may not approve the Callon shareholder proposals;

 

   

Carrizo shareholders may not approve the Carrizo merger proposal;

 

   

redemption of the Carrizo preferred stock would be necessary to complete the merger if the preferred stock approval is not obtained;

 

   

the parties may not be able to satisfy the conditions to the completion of the merger in a timely manner or at all;

 

   

the merger may not be accretive, and may be dilutive, to Callon’s earnings per share, which may negatively affect the market price of Callon common stock;

 

   

Callon and Carrizo may incur significant transaction and other costs in connection with the merger in excess of those anticipated by Callon or Carrizo;

 

   

the combined company may fail to realize anticipated synergies or other benefits expected from the merger in the timeframe expected or at all;

 

   

the ultimate timing, outcome, and results of integrating the operations of Carrizo and Callon;

 

   

the merger and its announcement and/or completion could have an adverse effect on business or employee relationships;

 

   

the risk related to disruption of management time from ongoing business operations due to the merger;

 

   

the merger may disrupt current plans and operations that may harm Callon’s or Carrizo’s respective businesses;

 

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the effects of the business combination of Carrizo and Callon, including the combined company’s future financial condition, results of operations, strategy, and plans;

 

   

changes in capital markets and the ability of the combined company to finance operations in the manner expected;

 

   

regulatory approval of the transaction;

 

   

any litigation relating to the merger; and

 

   

risks to Callon’s and Carrizo’s operating results and businesses generally, including the volatility of oil and natural gas prices and the uncertainty of estimates of oil and natural gas reserves.

The foregoing list of factors is not exhaustive. For further discussion of these and other risks, contingencies, and uncertainties applicable to Callon and Carrizo, please see “Risk Factors” in this joint proxy statement/prospectus, “Item 1A. Risk Factors” in Callon’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, and “Item 1A. Risk Factors” in Carrizo’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as well as Callon’s and Carrizo’s other filings with the SEC incorporated herein by reference. Please see “Where You Can Find More Information” for more information about the SEC filings incorporated by reference into this joint proxy statement/prospectus.

All subsequent written or oral forward-looking statements attributable to Callon, Carrizo, or any person acting on its or their behalf are expressly qualified in their entirety by the cautionary statements contained in this section. Neither Callon nor Carrizo is under any obligation, and each expressly disclaims any obligation, to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise, except as may be required by law.

 

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RISK FACTORS

In addition to the other information contained in or incorporated by reference into this joint proxy statement/prospectus, including the matters addressed in “Cautionary Statement Regarding Forward-Looking Statements,” Callon shareholders should carefully consider the following risk factors before deciding whether to vote for the Callon shareholder proposals and Carrizo shareholders should carefully consider the following risk factors before deciding whether to vote for the Carrizo merger proposal.

Risks Relating to the Merger

Because the exchange ratio is fixed and because the market price of Callon common stock may fluctuate, the value of the shares of Callon common stock that Carrizo shareholders will receive in the merger is uncertain.

At the effective time, each share of Carrizo common stock will be cancelled and converted into the right to receive 2.05 shares of Callon common stock, with cash paid in lieu of the issuance of fractional shares, if any. If applicable, the exchange ratio will be adjusted appropriately to fully reflect the effect of any stock dividend, subdivision, reorganization, reclassification, stock split, or other similar change with respect to the shares of Callon common stock or Carrizo common stock prior to the completion of the merger. The exchange ratio will not, however, be adjusted for changes in the market price of either Callon or Carrizo common stock between the date on which the merger agreement was signed and the effective time. The market value of Callon common stock has fluctuated in the past, and may fluctuate during and after such period, as a result of a variety of factors, including general market and economic conditions, changes in Callon’s business, operations, prospects, financial condition, and regulatory considerations. Such factors are difficult to predict and in many cases may be beyond Callon’s control. Consequently, at the time Carrizo shareholders must decide whether to approve the Carrizo merger proposal and at the time Callon shareholders must decide whether to approve the Callon shareholder proposals, they will not know, or be able to determine, the actual market value of the shares of Callon common stock that Carrizo shareholders will receive when the merger is completed. The actual value of such shares at the completion of the merger will depend on the market value of the shares of Callon common stock at that time. This market value may differ, possibly materially, from the market value of such shares at the time the merger agreement was entered into or at the time of the Callon special meeting or Carrizo special meeting. Callon and Carrizo shareholders should obtain current stock quotations for Callon and Carrizo common stock before voting on the Callon shareholder proposals and the Carrizo merger proposal, respectively.

The transactions contemplated by the merger agreement are subject to conditions, including certain conditions that may not be satisfied or completed on a timely basis or at all. Failure to complete the transactions contemplated by the merger agreement, including the merger, could have material and adverse effects on Callon and Carrizo.

Completion of the merger is subject to a number of conditions, including, among other things, (i) obtaining the approval of the Callon shareholder proposals by the Callon shareholders, (ii) obtaining the approval of the Carrizo merger proposal by the Carrizo shareholders, (iii) obtaining the preferred stock approval, unless the preferred stock redemption has occurred prior to the consummation of the merger, (iv) the absence of any order or law prohibiting the consummation of the merger, (v) the effectiveness of the registration statement on Form S-4 pursuant to which the shares of Callon common stock issuable in the merger are registered with the SEC, (vi) the approval for listing of the shares of Callon common stock issuable in the merger on the NYSE, (vii) the termination or expiration of the applicable waiting periods under the HSR Act, and (viii) delivery of opinions of counsel to Callon and to Carrizo to the effect that the merger will qualify as a reorganization within the meaning of Section 368(a) of the Code. Such conditions, some of which are beyond our control, may not be satisfied or waived in a timely manner or at all and therefore make the completion and timing of the completion of the merger uncertain. The parties received early termination of the HSR Act waiting period on August 6, 2019. Please see “The Merger Agreement—Conditions to Completion of the Merger” for a more detailed discussion of the conditions to the completion of the merger. In addition, the merger agreement contains certain termination

 

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rights for both Callon and Carrizo, which if exercised, will also result in the merger not being consummated. Furthermore, the governmental authorities from which the regulatory approvals are required may impose conditions on the completion of the merger or require changes to the terms of the merger or merger agreement. For additional information about the regulatory approvals process, see “The Merger—Regulatory Approvals.”

If the merger is not completed, Callon’s and Carrizo’s respective ongoing businesses may be adversely affected and, without realizing any of the benefits of having completed the merger, Callon and Carrizo will be subject to a number of risks, including the following:

 

   

Callon and Carrizo will be required to pay their respective costs relating to the merger, such as legal, accounting, financial advisory, and printing fees, whether or not the merger is completed;

 

   

time and resources committed by Callon’s and Carrizo’s management to matters relating to the merger could otherwise have been devoted to pursuing other beneficial opportunities; and

 

   

the market price of Callon or Carrizo common stock could be impacted to the extent that the current market price reflects a market assumption that the merger will be completed.

In addition to the above risks, if the merger agreement is terminated and the Callon board seeks another acquisition, Callon shareholders cannot be certain that Callon will be able to find a party willing to enter into a transaction as attractive to Callon as the acquisition of Carrizo; and if the merger agreement is terminated and the Carrizo board seeks another acquisition, Carrizo shareholders cannot be certain that Carrizo will be able to find a party willing to enter into a transaction on terms equivalent to or more attractive than the terms agreed to in the merger agreement.

The merger agreement contains provisions that limit Callon’s and Carrizo’s abilities to pursue alternatives to the merger, could discourage a potential competing acquiror of Callon or Carrizo from making a favorable alternative transaction proposal and, in specified circumstances, Callon may be required to pay Carrizo a termination fee of $57.0 million, or Carrizo may be required to pay Callon a termination fee of $47.4 million.

The merger agreement contains certain provisions that restrict Callon’s and Carrizo’s ability to solicit, initiate, or knowingly facilitate or knowingly encourage, among other things, any inquiries regarding, or the making of any proposal or offer that constitutes, or would reasonably be expected to lead to, a takeover proposal, engage in, continue, or otherwise participate in any discussions or negotiations regarding, or furnish to any other person any non-public information regarding Callon or Carrizo, as applicable, in connection with or for the purpose of encouraging or facilitating, a takeover proposal. Further, even if the Callon board or Carrizo board changes its recommendation with respect to the Callon shareholder proposals or the Carrizo merger proposal, respectively, unless the merger agreement has been terminated in accordance with its terms, Callon and Carrizo will still be required to submit the Callon shareholder proposals and the Carrizo merger proposal, respectively, to a vote at its special meeting. In addition, the other party generally has an opportunity to offer to modify the terms of the merger in response to any takeover proposal before a party’s board of directors may change its recommendation with respect to such proposals.

If the merger agreement is terminated under certain specified circumstances, including the following, Callon would be required to pay Carrizo a termination fee of $57.0 million: (i) the Callon board changes its recommendation with respect to the transactions contemplated by the merger agreement, or Callon willfully breaches its non-solicitation obligations under the merger agreement, or (ii) Callon enters into a definitive agreement for a takeover proposal or consummates such transaction within 12 months after termination of the merger agreement and prior to that either (a) the Callon shareholder approval was not obtained, (b) Callon breached or failed to perform any of its representations, warranties, covenants, or other agreements in the merger agreement that could not be or was not cured in accordance with the terms of the merger agreement and such breach or failure to perform would cause applicable closing conditions not to be satisfied, or (c) the merger was

 

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not consummated by February 14, 2020 (with a possible extension to April 14, 2020 if all of the conditions to closing other than certain specified conditions have been satisfied). If the merger agreement is terminated under certain specified circumstances, including the following, Carrizo would be required to pay Callon a termination fee of $47.4 million: (1) the Carrizo board changes its recommendation with respect to the transactions contemplated by the merger agreement, or Carrizo willfully breaches its non-solicitation obligations under the merger agreement, or (2) Carrizo enters into a definitive agreement for a takeover proposal or consummates such transaction within 12 months after termination of the merger agreement and prior to that either (A) the Carrizo shareholder approval was not obtained, (B) Carrizo breached or failed to perform any of its representations, warranties, covenants, or other agreements in the merger agreement that could not be or was not cured in accordance with the terms of the merger agreement and such breach or failure to perform would cause applicable closing conditions not to be satisfied, or (C) the merger was not consummated by February 14, 2020 (with a possible extension to April 14, 2020 if all of the conditions to closing other than certain specified conditions have been satisfied). In certain other circumstances, upon termination of the merger agreement, either Callon or Carrizo could be required to pay the other party up to $7.5 million for costs, fees, and expenses incurred by such other party. Please see “The Merger Agreement—No Solicitation of Alternative Proposals,” “The Merger Agreement—Termination of the Merger Agreement,” and “The Merger Agreement—Expenses and Termination Fees Relating to the Termination of the Merger Agreement.”

These provisions could discourage a potential third-party acquirer or merger partner that might have an interest in acquiring all or a significant portion of Callon or Carrizo in pursuing an alternative transaction with either from considering or proposing such a transaction, even if, in the case of an acquisition of Carrizo, it were prepared to pay consideration with a higher per share price than the per share price proposed to be received in the merger or might result in a potential third-party acquiror or merger partner proposing to pay a lower price to the Callon or Carrizo shareholders than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

Carrizo’s executive officers and directors have interests in the merger that may be different from, or in addition to, the interests of Carrizo shareholders generally.

When considering the recommendation of the Carrizo board with respect to the merger, you should be aware that Carrizo’s executive officers and directors may have interests in the merger that are different from, or in addition to, those of Carrizo shareholders more generally. The Carrizo board was aware of these interests during its deliberations on the merits of the merger and in deciding to recommend that Carrizo shareholders vote for the approval of the Carrizo merger proposal at the Carrizo special meeting. These interests include, among others, the potential for enhanced severance payments on involuntary terminations of employment following the transaction, as well as the treatment of outstanding restricted stock, restricted stock units, performance shares, and stock appreciation rights that are unvested. Upon completion of the merger, each outstanding restricted stock award, restricted stock unit, performance shares and stock appreciation rights that are unvested will be treated as described in “The Merger—Treatment of Carrizo Equity Awards in the Merger.” Please see “The Merger—Interests of Certain Carrizo Directors and Executive Officers in the Merger” for a more detailed description of the interests of Carrizo’s executive officers and directors.

Callon and Carrizo will be subject to business uncertainties while the merger is pending, which could adversely affect their respective businesses.

It is possible that certain persons with whom Callon or Carrizo has a business relationship may delay certain business decisions relating to Callon or Carrizo in connection with the pendency of the merger or they might decide to seek to terminate, change, or renegotiate their relationships with Callon or Carrizo as a result of the merger, which could negatively affect Callon’s or Carrizo’s revenues, earnings, and cash flows, as well as the market price of Callon or Carrizo common stock, regardless of whether the merger is completed. Also, Callon’s and Carrizo’s ability to attract, retain, and motivate employees may be impaired until the merger is completed, and Callon’s ability to do so may be impaired for a period of time thereafter, as current and prospective employees may experience uncertainty about their roles within the combined company following the merger.

 

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In addition, under the terms of the merger agreement, each of Callon and Carrizo are subject to certain restrictions on the conduct of its business prior to the completion of the merger, which may adversely affect its ability to execute certain of its business strategies, including the ability in certain cases to modify or enter into certain contracts, acquire or dispose of assets, incur or pre-pay certain indebtedness, incur encumbrances, make capital expenditures, issue shares, or settle claims. Such limitations could negatively affect Callon’s and Carrizo’s businesses and operations prior to the completion of the merger.

The unaudited pro forma condensed combined financial statements in this joint proxy statement/prospectus are presented for illustrative purposes only and may not be reflective of Callon’s operating results and financial condition following the occurrence of the pro forma events.

The unaudited pro forma condensed combined financial statements in this joint proxy statement/prospectus are presented for illustrative purposes only, have been prepared based on available information and certain assumptions and estimates that Callon and Carrizo believe are reasonable, and are not necessarily indicative of what Callon’s actual financial position or results of operations would have been had the pro forma events been completed on the dates indicated. Further, Callon’s actual results and financial position after the pro forma events occur may differ materially and adversely from the unaudited pro forma condensed combined financial statements that are included in this joint proxy statement/prospectus. The unaudited pro forma condensed combined financial statements have been prepared with the assumption that Callon will be identified as the acquirer under GAAP and reflect adjustments based upon preliminary estimates of the fair value of assets to be acquired and liabilities to be assumed.

Current Callon shareholders and current Carrizo shareholders will have reduced ownership in the combined company.

Based on the number of issued and outstanding shares of Carrizo common stock as of                 , 2019 and the number of outstanding Carrizo equity awards currently estimated to be payable in shares of Callon common stock in connection with the merger, Callon anticipates issuing up to approximately                 million shares of Callon common stock pursuant to the merger agreement. The actual number of shares of Callon common stock to be issued pursuant to the merger agreement will be determined at the completion of the merger based on the number of shares of Carrizo common stock outstanding immediately prior to such time. The issuance of these new shares could have the effect of depressing the market price of Callon common stock, through dilution of earnings per share or otherwise. Any dilution of, or delay of any accretion to, Callon’s earnings per share could cause the price of Callon common stock to decline or increase at a reduced rate.

Immediately after the completion of the merger, it is expected that current Callon shareholders will own approximately 54%, and Carrizo shareholders will own approximately 46%, of the combined company’s outstanding common stock. As a result, Callon’s current shareholders and Carrizo’s current shareholders will have less influence on the policies of the combined company than they currently have on the policies of Callon and Carrizo, respectively.

Completion of the merger may trigger change in control or other provisions in certain agreements to which Carrizo is a party.

The completion of the merger may trigger change in control or other provisions in certain agreements to which Carrizo is a party. If Callon and Carrizo are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements, or seeking monetary damages. Even if Callon and Carrizo are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to Carrizo.

 

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Callon and Carrizo are expected to incur significant transaction costs in connection with the merger, which may be in excess of those anticipated by them.

Callon and Carrizo have incurred and are expected to continue to incur a number of non-recurring costs associated with negotiating and completing the merger, combining the operations of the two companies and achieving desired synergies. These costs have been, and will continue to be, substantial and, in many cases, will be borne by Callon and Carrizo whether or not the merger is completed. A substantial majority of non-recurring expenses will consist of transaction costs and include, among others, fees paid to financial, legal, accounting, and other advisors, employee retention, severance, and benefit costs, and filing fees. Callon will also incur costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and other employment-related costs. Callon and Carrizo will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in connection with the merger and the integration of the two companies’ businesses. While Callon and Carrizo have assumed that a certain level of expenses would be incurred, there are many factors beyond their control that could affect the total amount or the timing of the expenses. The elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may not offset integration-related costs and achieve a net benefit in the near term, or at all. The costs described above and any unanticipated costs and expenses, many of which will be borne by Callon or Carrizo even if the merger is not completed, could have an adverse effect on Callon’s or Carrizo’s financial condition and operating results.

Callon and Carrizo may be targets of securities class action and derivative lawsuits, which could result in substantial costs and may delay or prevent the merger from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger, or other business combination agreements. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on Callon’s and Carrizo’s respective liquidity and financial condition.

Lawsuits that may be brought against Callon, Carrizo or their respective directors could also seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the merger agreement already implemented and to otherwise enjoin the parties from consummating the merger. One of the conditions to the closing of the merger is that no injunction by any court or other tribunal of competent jurisdiction has been entered and continues to be in effect and no law has been adopted or is effective, in either case that prohibits or makes illegal the closing of the merger. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the merger, that injunction may delay or prevent the merger from being completed within the expected timeframe or at all, which may adversely affect Callon’s and Carrizo’s respective business, financial position and results of operation.

The opinions rendered to Callon and Carrizo from their respective financial advisors will not reflect changes in circumstances between the dates of such opinions and the completion of the merger.

On July 14, 2019, at a meeting of the Callon board, J.P. Morgan rendered its oral opinion to the Callon board, subsequently confirmed by delivery of a written opinion dated the same date, that, as of such date and based upon and subject to the factors and assumptions set forth in its opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to Callon shareholders. On July 13, 2019, at a meeting of the Carrizo board, RBCCM rendered its oral opinion to the Carrizo board, subsequently confirmed by delivery of a written opinion dated the same date, that, as of such date and based upon and subject to the assumptions, qualifications, limitations, and other matters set forth in its opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to the holders of Carrizo common stock. On July 13, 2019, at a meeting of the Carrizo board, Lazard rendered its oral opinion to the Carrizo board, subsequently confirmed in writing by delivery of Lazard’s opinion letter dated July 13, 2019, to the effect that, as of such date, and based upon and

 

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subject to the assumptions, procedures, factors, qualifications, and limitations set forth in Lazard’s written opinion, the exchange ratio was fair, from a financial point of view, to the holders of Carrizo common stock (other than holders of excluded shares).

Neither Callon nor Carrizo has obtained, nor will obtain, updated opinions regarding the fairness, from a financial point of view, of the exchange ratio as of the date of this joint proxy statement/prospectus or prior to the completion of the merger from J.P. Morgan, RBCCM, or Lazard. None of J.P. Morgan, RBCCM, and Lazard assumed any obligation to update, revise, or reaffirm their respective opinions. Each of J.P. Morgan’s opinion, RBCCM’s opinion, and Lazard’s opinion was necessarily based on economic, monetary, market, and other conditions as in effect on, and the information made available to each of J.P. Morgan, RBCCM, and Lazard, as applicable, only as of the dates of the respective opinions of J.P. Morgan, RBCCM, and Lazard and does not address the fairness of the exchange ratio, from a financial point of view, at the time the merger is completed. Changes in the business, operations, prospects, or financial condition of Callon or Carrizo, general economic, monetary, market, and other conditions, commodity prices, and other factors that may be beyond the control of Callon and Carrizo, and on which J.P. Morgan’s opinion, RBCCM’s opinion, and Lazard’s opinion was based, may alter the value of Carrizo or Callon or the prices of shares of Callon or Carrizo common stock by the time the merger is completed. The opinions of J.P. Morgan, RBCCM, and Lazard do not speak as of any date other than the respective dates of such opinions. For a description of the opinions that each of the Callon board and the Carrizo board received from their respective financial advisors, please see “The Merger—Opinion of Callon’s Financial Advisor” and “The Merger—Opinions of Carrizo’s Financial Advisors.”

Risks Relating to Callon after Completion of the Merger

Following the merger, the market price of Callon common stock may be volatile, and Callon shareholders could lose a significant portion of their investment due to drops in the market price of Callon common stock following completion of the merger.

Following their receipt of shares of Callon common stock in the merger, former Carrizo shareholders may seek to sell the shares of Callon common stock delivered to them, and the merger agreement contains no restriction on the ability of former Carrizo shareholders to sell such shares of Callon common stock following completion of the merger. Other shareholders may also seek to sell shares of Callon common stock held by them following, or in anticipation of, completion of the merger. These sales (or the perception that these sales may occur), coupled with the increase in the outstanding number of shares of Callon common stock, may affect the market for, and the market price of, shares of Callon common stock in an adverse manner.

The market price of Callon common stock may be volatile, and following completion of the merger, shareholders may not be able to resell shares of Callon common stock at or above the price at which they acquired such shares pursuant to the merger agreement or otherwise due to fluctuations in its market price, including changes in price caused by factors unrelated to Callon’s performance or prospects. Specific factors that may have a significant effect on the market price of Callon common stock include, among others, the following:

 

   

changes in stock market analyst recommendations or earnings estimates regarding Callon or other comparable companies;

 

   

actual or anticipated fluctuations in Callon’s revenue stream or future prospects;

 

   

reaction to public announcements by Callon following the merger;

 

   

strategic actions taken by Callon or its competitors, such as acquisitions and dispositions;

 

   

failure of Callon to achieve the perceived benefits of the merger, including financial results, as rapidly as or to the extent anticipated by financial or industry analysts;

 

   

Callon’s financial condition following the merger, including its credit rating or liquidity;

 

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new laws or regulations or new interpretations of existing laws or regulations applicable to Callon’s business and operations;

 

   

changes in tax or accounting standards, policies, guidance, interpretations, or principles;

 

   

adverse conditions in the financial markets or general U.S. or international economic conditions, including those resulting from war, incidents of terrorism, and responses to such events; and

 

   

sales of shares of Callon common stock by significant shareholders.

If the merger is completed, Callon may not achieve the anticipated benefits and the merger may disrupt its current plans or operations.

The success of the merger will depend, in part, on Callon’s ability to realize the anticipated benefits and cost savings from combining Callon’s and Carrizo’s businesses, and there can be no assurance that Callon will be able to successfully integrate Carrizo or otherwise realize the anticipated benefits of the merger. Difficulties in integrating Carrizo into Callon may result in the combined company performing differently than expected, in operational challenges, or in the failure to realize anticipated expense-related efficiencies. Potential difficulties that may be encountered in the integration process include, among others:

 

   

the inability to successfully integrate Carrizo in a manner that permits Callon to achieve the full revenue and cost savings anticipated from the merger;

 

   

complexities associated with managing a larger, more complex, integrated business;

 

   

not realizing anticipated operating synergies;

 

   

integrating personnel from the two companies and the loss of key employees;

 

   

potential unknown liabilities and unforeseen expenses, delays, or regulatory conditions associated with and following completion of the merger;

 

   

integrating relationships with customers, vendors, and business partners;

 

   

performance shortfalls as a result of the diversion of management’s attention caused by completing the merger and integrating Carrizo’s operations into Callon; and

 

   

the disruption of, or the loss of momentum in, each company’s ongoing business or inconsistencies in standards, controls, procedures, and policies.

Callon’s significant indebtedness following the merger may limit its financial flexibility and could lead to other adverse consequences.

As of June 30, 2019, Callon had approximately $1.1 billion of outstanding indebtedness, consisting of amounts outstanding under its existing credit facility and its senior notes, and Carrizo had outstanding $1.7 billion of outstanding indebtedness, consisting of amounts outstanding under its existing credit facility and its senior notes. In addition, if the Carrizo preferred stock is redeemed in connection with the merger, Callon is expected to incur additional indebtedness to fund the redemption. In connection with the consummation of the merger, Callon and Carrizo expect to repay in full the outstanding borrowings under Callon’s and Carrizo’s existing credit facilities with borrowings under a new credit facility and terminate Callon’s and Carrizo’s existing credit facilities. See “The Merger—Treatment of Indebtedness” for more details.

Callon’s increased indebtedness following the completion of the merger could have adverse consequences, including, but not limited to:

 

   

increasing the difficulty of satisfying its obligations with respect to its debt obligations, including any repurchase obligations that may arise thereunder;

 

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diverting a significant portion of its cash flow to service its indebtedness, which reduces the amount Callon has available to fund its operations and other business activities;

 

   

placing it at a competitive disadvantage compared to its competitors that are less leveraged and, therefore, may be able to take advantage of opportunities that Callon would be unable to pursue due to its level of indebtedness;

 

   

increasing its vulnerability to adverse changes in general economic and industry conditions and adverse developments in its business;

 

   

limiting its ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate, or other purposes;

 

   

limiting its flexibility in planning for, or reacting to, challenges, opportunities, and changes in its business and the industry in which it operates;

 

   

negatively impacting its credit rating, which may affect its borrowing capacity and borrowing terms; and

 

   

increasing its exposure to a rise in interest rates.

Callon cannot assure you that its business will generate sufficient cash flow from operations, or that future borrowings will be available to Callon under its new credit facility or from other debt financing, in an amount sufficient to enable Callon to service its indebtedness or to fund its other liquidity needs. If Callon does not generate sufficient cash flow from operations to service its indebtedness, Callon may have to undertake alternative financing plans, such as refinancing or restructuring its indebtedness, selling assets, or raising additional capital. Callon’s ability to restructure or refinance its indebtedness will depend on the capital markets and its financial condition at such time. Any refinancing of Callon’s indebtedness could be at higher interest rates and may require Callon to comply with more onerous covenants, which could further restrict its business operations. Callon’s inability to generate sufficient cash flow to service its indebtedness, or to refinance its obligations on commercially reasonable terms, would have an adverse effect, which could be material, on its business, financial position, and operating results. To the extent that Callon will incur additional indebtedness, the risks associated with Callon’s leverage, including its possible inability to service its debt, would increase.

Adverse changes in Callon’s credit rating may affect Callon’s borrowing capacity and borrowing terms.

Callon’s outstanding debt is periodically rated by nationally recognized credit rating agencies. The credit ratings are based on Callon’s operating performance, liquidity and leverage ratios, overall financial position, and other factors viewed by the credit rating agencies as relevant to Callon’s industry and the economic outlook. Callon’s credit rating may affect the amount of capital Callon can access, as well as the terms of any financing Callon obtains. Because Callon relies in part on debt financing to fund growth, adverse changes in Callon’s credit rating may have a negative effect on Callon’s future growth.

After the merger is completed, Carrizo shareholders will become shareholders of a Delaware corporation and have their rights as shareholders governed by Callon’s organizational documents and Delaware law.

Upon consummation of the merger, Carrizo shareholders will receive shares of Callon common stock that will be governed by Callon’s organizational documents and Delaware law. For a detailed discussion of the differences between rights as a Callon shareholder and rights as a Carrizo shareholder, see “Comparison of Shareholder Rights.”

The transactions in connection with the merger could trigger a limitation on the utilization of the historic U.S. net operating loss carryforwards of Callon and Carrizo.

Callon’s ability to utilize U.S. net operating loss carryforwards (including any historic loss carryforwards of Carrizo and Callon) to reduce future taxable income following the consummation of the merger is subject to

 

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various limitations under the Code. Section 382 of the Code imposes such a limitation upon the occurrence of ownership changes resulting from issuances of a company’s stock or the sale or exchange of such company’s stock by certain shareholders if, as a result, there is an aggregate change of more than 50% in the beneficial ownership of such company’s stock by such shareholders during any three-year period. Callon and Carrizo believe that the transactions in connection with the merger, if consummated, will result in an ownership change with respect to Carrizo and may result in an ownership change with respect to Callon, which could trigger a limitation on Callon’s ability to utilize any historic loss carryforwards of Carrizo and Callon following the consummation of the merger, based on information currently available. The limitation with respect to such loss carryforwards of each company generally would be equal to (i) the fair market value of such company’s equity multiplied by (ii) a percentage approximately equivalent to the yield on long-term tax-exempt bonds during the month in which the ownership change occurs. In addition, the limitation would be increased if there are recognized built-in gains during any post-change year, but only to the extent of any net unrealized built-in gains inherent in the assets sold. Any such limitation could cause some of such loss carryforwards from prior to 2018 to expire before Callon would be able to utilize them to reduce taxable income in future periods, possibly resulting in a substantial income tax expense or write down of Callon’s tax assets or both.

Callon’s bylaws designate the Court of Chancery of the State of Delaware (the “Court of Chancery”) as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by Callon shareholders, which could limit Callon shareholders’ ability to obtain a favorable judicial forum for disputes with Callon or its directors, officers, or other employees.

Callon’s bylaws provide that, unless Callon consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of Callon, (ii) any action or proceeding asserting a claim for breach of a fiduciary duty owed by any current or former director, officer, or other employee of Callon to Callon or Callon’s shareholders, (iii) any action or proceeding asserting a claim against Callon or any current or former director, officer, or other employee of Callon arising pursuant to any provision of the Delaware General Corporate Law (the “DGCL”) or Callon’s charter or bylaws (as each may be amended from time to time), (iv) any action or proceeding asserting a claim against Callon or any current or former director, officer, or other employee of Callon governed by the internal affairs doctrine, or (v) any action or proceeding as to which the DGCL confers jurisdiction on the Court of Chancery shall be the Court of Chancery or, if and only if the Court of Chancery lacks subject matter jurisdiction, any state court located within the State of Delaware or, if and only if such state courts lack subject matter jurisdiction, the federal district court for the District of Delaware, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants.

Callon’s exclusive forum provision is not intended to apply to claims arising under the Securities Act or the Exchange Act. To the extent the provision could be construed to apply to such claims, there is uncertainty as to whether a court would enforce the forum selection provision with respect to such claims, and in any event, Callon’s shareholders would not be deemed to have waived Callon’s compliance with federal securities laws and the rules and regulations thereunder.

Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of Callon is deemed to have received notice of and consented to the foregoing forum selection provision. This provision may limit Callon shareholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with Callon or its directors, officers, or other employees, which may discourage such lawsuits. Alternatively, if a court were to find this choice of forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, Callon may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect its business, financial condition, prospects, or results of operations. Please see “Comparison of Shareholder Rights—Exclusive Forum.”

 

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Risk Relating to Callon’s and Carrizo’s Businesses

Callon’s and Carrizo’s businesses are, will continue to be, subject to the risks described in Callon’s and Carrizo’s Annual Reports on Form 10-K for the fiscal year ended December 31, 2018, as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information” for the location of information incorporated by reference into this joint proxy statement/prospectus.

 

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INFORMATION ABOUT CALLON

Callon has been engaged in the development, acquisition, and production of oil and natural gas properties since 1950. Callon is focused on the acquisition and development of unconventional onshore oil and natural gas reserves in the Permian Basin. The Permian Basin is located in West Texas and southeastern New Mexico and is comprised of three primary sub-basins: the Midland Basin, the Delaware Basin, and the Central Basin Platform. For more than a decade, Callon has been focused on the Midland Basin and entered the Delaware Basin through an acquisition completed in February 2017 and has further expanded its presence in the Delaware Basin through acquisitions in 2018. Callon has assembled a multi-year inventory of potential horizontal well locations and intends to add to this inventory through delineation drilling of emerging zones on its existing acreage and acquisition of additional locations through working interest acquisitions, acreage purchases, joint ventures, and asset swaps.

Callon is a Delaware corporation with principal executive offices located at 2000 W. Sam Houston Parkway S., Suite 2000, Houston, Texas 77042. Its telephone number at that address is (281) 589-5200. Callon’s common stock is listed on the NYSE under the symbol “CPE.” Additional information about Callon and its subsidiaries is included in documents incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information.”

 

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INFORMATION ABOUT CARRIZO

Carrizo is a Houston-based energy company which, together with its subsidiaries, is actively engaged in the exploration, development, and production of crude oil, NGLs, and natural gas from resource plays located in the United States. Carrizo’s current operations are principally focused in proven, producing oil and gas plays in the Eagle Ford Shale in South Texas and the Permian Basin in West Texas. Carrizo was incorporated in the State of Texas in 1993.

Carrizo’s principal executive offices are located at 500 Dallas Street, Suite 2300, Houston, Texas 77002. Its telephone number at that address is (713) 328-1000. Carrizo’s common stock is listed on the NASDAQ under the symbol “CRZO.” Additional information about Carrizo and its subsidiaries is included in documents incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information.”

 

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CALLON SPECIAL MEETING

General

This joint proxy statement/prospectus is being provided to Callon shareholders as part of a solicitation of proxies by the Callon board for use at the Callon special meeting and at any adjournments or postponements of such special meeting. This joint proxy statement/prospectus provides Callon shareholders with important information about the Callon special meeting and should be read carefully in its entirety.

Date, Time and Place of the Callon Special Meeting

The Callon special meeting will be held on November 14, 2019 at 9:00 a.m. Central Time, in the Advice & Counsel meeting room of the Hotel ZaZa, 9787 Katy Freeway, Houston, Texas.

Purposes of the Callon Special Meeting

The Callon special meeting is being held to consider and vote on the following proposals:

 

   

Proposal 1: to approve and adopt the merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus;

 

   

Proposal 2: to approve the issuance of shares of Callon common stock to shareholders of Carrizo in connection with the merger contemplated by the merger agreement;

 

   

Proposal 3: to approve and adopt an amendment to Callon’s certificate of incorporation to increase Callon’s authorized shares of common stock from 300 million shares to 750 million shares;

 

   

Proposal 4: to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Callon’s named executive officers that is based on or otherwise relates to the merger, as described in “The Merger—Interests of Certain Callon Directors and Executive Officers in the Merger”; and

 

   

Proposal 5: to approve any motion to adjourn the Callon special meeting, if necessary to solicit additional proxies if there are not sufficient votes of Callon shareholders to approve the Callon merger proposal, the share issuance proposal or the charter amendment proposal at the time of the Callon special meeting.

Recommendation of the Callon Board

The Callon board unanimously recommends that Callon shareholders vote:

 

   

Proposal 1:FOR” the Callon merger proposal;

 

   

Proposal 2: “FOR” the share issuance proposal;

 

   

Proposal 3: “FOR” the charter amendment proposal;

 

   

Proposal 4: “FOR” the Callon compensation proposal; and

 

   

Proposal 5:FOR” the Callon adjournment proposal.

This joint proxy statement/prospectus contains important information regarding these proposals and factors that Callon shareholders should consider when deciding how to cast their votes. Callon shareholders are encouraged to read the entire document carefully, including the annexes to and documents incorporated by reference into this joint proxy statement/prospectus, for more detailed information regarding the merger agreement, including the share issuance proposal.

 

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The Non-binding Compensation Advisory Proposal and Interests of Directors

In considering the recommendations of the Callon board, Callon shareholders should be aware that some of Callon’s directors and executive officers may have interests that are different from, or in addition to, the interests of Callon shareholders more generally. For additional information, please see “The Merger—Interests of Certain Callon Directors and Executive Officers in the Merger.”

Section 14A of the Exchange Act, which was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, requires that Callon provide its shareholders with the opportunity to vote to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Callon’s named executive officers that is based on or otherwise relates to the merger, as disclosed in this joint proxy statement/prospectus, including the compensation table and the related narrative named executive officer compensation disclosures set forth in “The Merger—Interests of Certain Callon Directors and Executive Officers in the Merger.” This vote is commonly referred to as a “golden parachute say on pay” vote. Accordingly, Callon shareholders are being provided with the opportunity to cast an advisory (non-binding) vote on those change of control payments.

Callon shareholders should note that the non-binding compensation advisory proposal is merely an advisory vote that will not be binding on Callon, Carrizo, or their respective boards of directors. Further, the underlying plans and arrangements are contractual in nature and not, by their terms, subject to shareholder approval. Accordingly, regardless of the outcome of the advisory vote, if the merger is consummated, the eligibility of the Callon named executive officers for such payments and benefits will not be affected by the outcome of the advisory vote.

The proposal to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Callon’s named executive officers that is based on or otherwise relates to the merger is a vote separate and apart from the vote on the proposal to adopt the merger agreement. Accordingly, a Callon shareholder may vote to approve one proposal and not the other. Because the vote on the proposal to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Callon’s named executive officers that is based on or otherwise relates to the merger is advisory in nature only, it will not be binding on Callon or Carrizo, and the approval of the proposal is not a condition to the completion of the merger.

Voting by Directors and Executive Officers

On the Callon record date, there were                  shares of Callon common stock outstanding. On the Callon record date, Callon directors and executive officers, as a group, beneficially owned and were entitled to vote                  shares of Callon common stock or approximately     % of the issued and outstanding shares of Carrizo common stock. Although none of them has entered into any agreement obligating them to do so, Callon currently expects that all of its directors and executive officers will vote their shares “FOR” the Callon merger proposal, “FOR” the share issuance proposal, “FOR” the charter amendment proposal, “FOR” the Callon compensation proposal, and “FOR” the Callon adjournment proposal.

Attendance at the Callon Special Meeting

Only Callon shareholders of record on the Callon record date, beneficial owners of Callon common stock on the Callon record date, holders of valid proxies for the Callon special meeting, and invited guests of Callon may attend the Callon special meeting.

All attendees should be prepared to present government-issued photo identification (such as a driver’s license or passport) for admittance. The additional items, if any, that attendees must bring depend on whether they are Callon shareholders of record, beneficial owners of Callon common stock, or proxy holders.

 

   

A Callon shareholder who holds shares of Callon common stock directly registered in such shareholder’s name with Callon’s transfer agent, American Stock Transfer & Trust Company, LLC (a

 

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“Callon shareholder of record”), who wishes to attend the Callon special meeting in person should bring government-issued photo identification.

 

   

A beneficial owner of Callon common stock who wishes to attend the Callon special meeting in person should bring:

 

     

government-issued photo identification; and

 

     

proof of beneficial ownership as of the Callon record date (e.g., a letter from the broker, bank, trustee, or other nominee that is the record owner of such beneficial owner’s shares, a brokerage account statement, or the voting instruction form provided by the broker).

 

   

A proxy holder who wishes to attend the Callon special meeting in person should bring:

 

     

government-issued photo identification;

 

     

the validly executed proxy naming such person as the proxy holder, signed by the Callon shareholder of record; and

 

     

proof of the signing shareholder’s record ownership as of the Callon record date.

No cameras, recording equipment or other electronic devices will be allowed in the meeting room. Failure to provide the requested documents at the door or failure to comply with the procedures for the Callon special meeting may prevent shareholders from being admitted to the Callon special meeting.

Record Date

The Callon board has fixed the close of business on October 7, 2019 as the Callon record date for the determination of the Callon shareholders entitled to receive notice of, and to vote at, the Callon special meeting. The Callon shareholders of record at the Callon record date are the only Callon shareholders that are entitled to receive notice of, and to vote at, the Callon special meeting or any adjournment or postponement of the Callon special meeting, so long as such shares remain outstanding on the date of the Callon special meeting.

Outstanding Shares as of Record Date and Voting Rights of Callon Shareholders

On the Callon record date, there were                  shares of Callon common stock outstanding, held by                 holders of record. Each share of Callon common stock entitles its holder of record to one vote at the Callon special meeting. Shares of Callon common stock are the only class of shares entitled to vote at the Callon special meeting, and Callon shareholders are entitled to vote on each proposal presented.

A complete list of registered Callon shareholders entitled to vote at the Callon special meeting will be available for inspection at Callon’s principal executive offices at 2000 W. Sam Houston Parkway S., Suite 2000, Houston, Texas 77042, during regular business hours for a period of no less than ten days before the Callon special meeting and at the place of the Callon special meeting during the meeting.

Quorum

In order for business to be conducted at the Callon special meeting, a quorum must be present. A quorum at the Callon special meeting requires the presence, in person or by proxy, of holders of a majority of the total issued and outstanding shares of Callon common stock entitled to vote at the Callon special meeting. Abstentions and broker non-votes will be counted for purposes of determining whether there is a quorum at the Callon special meeting.

Adjournment

If a quorum is not present or represented, a majority in interest of those present or represented may adjourn the Callon special meeting from time to time, without notice other than announcement at the meeting, until a

 

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quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified.

Vote Required

The votes required for each proposal are as follows:

 

   

Proposal 1—the Callon merger proposal. The affirmative vote of the holders of a majority of the issued and outstanding shares of Callon common stock entitled to vote at the Callon special meeting is required to approve the Callon merger proposal. Abstentions and failures by any Callon shareholder to submit a vote (e.g., by not submitting a proxy and not voting in person) are considered shares of Callon common stock entitled to vote and will have the same effect as a vote “against” the Callon merger proposal. Because the Callon merger proposal is non-routine, brokers, banks, and other nominees do not have discretionary authority to vote on the Callon merger proposal and will not be able to vote on the Callon merger proposal absent instructions from the beneficial owner. The failure of a beneficial owner to provide voting instructions to its broker, bank, or other nominee will have the same effect as a vote “against” the Callon merger proposal.

 

   

Proposal 2—the share issuance proposal. The affirmative vote of a majority of votes cast by Callon shareholders entitled vote thereon and present in person or represented by proxy at the Callon special meeting is required to approve the share issuance proposal. Abstentions are considered votes cast and will have the same effect as a vote “against” the share issuance proposal. The failure of any Callon shareholder to submit a vote (e.g., by not submitting a proxy and not voting in person) will not be counted in determining the votes cast in connection with the share issuance proposal and will therefore have no effect on the outcome of the share issuance proposal. Because the share issuance proposal is non-routine, brokers, banks, and other nominees do not have discretionary authority to vote on the share issuance proposal and will not be able to vote on the share issuance proposal absent instructions from the beneficial owner. The failure of a beneficial owner to provide voting instructions to its broker, bank, or other nominee will result in the applicable shares not being counted in determining the votes cast in connection with the share issuance proposal, and will therefore have no effect on the outcome of the share issuance proposal.

 

   

Proposal 3—the charter amendment proposal. The affirmative vote of the holders of a majority of the issued and outstanding shares of Callon common stock entitled to vote at the Callon special meeting is required to approve the charter amendment proposal. Abstentions and failures by any Callon shareholder to submit a vote (e.g., by not submitting a proxy and not voting in person) are considered shares of Callon common stock entitled to vote and will have the same effect as a vote “against” the charter amendment proposal. Because the charter amendment proposal is non-routine, brokers, banks, and other nominees do not have discretionary authority to vote on the charter amendment proposal and will not be able to vote on the charter amendment proposal absent instructions from the beneficial owner. The failure of a beneficial owner to provide voting instructions to its broker, bank, or other nominee will have the same effect as a vote “against” the charter amendment proposal.

 

   

Proposal 4—the Callon compensation proposal. The affirmative vote of a majority of the shares of Callon common stock entitled to vote thereon and present in person or represented by proxy at the Callon special meeting is required to approve the Callon compensation proposal. Since the votes for the Callon compensation proposal are non-binding, if the merger is completed, the compensation that is the subject of the Callon compensation proposal, which includes amounts Callon is contractually obligated to pay, may still be paid regardless of the outcome of the non-binding advisory vote on the Callon compensation proposal. Abstentions are considered shares of Callon common stock present and entitled to vote and will have the same effect as a vote “against” the Callon compensation proposal. Any Callon shareholder who fails to submit a vote (e.g., by not submitting a proxy and not voting in person) will not

 

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be considered present and entitled to vote; accordingly, failures to submit a vote will have no effect on the outcome of the Callon compensation proposal. Because the Callon compensation proposal is non-routine, brokers, banks, and other nominees do not have discretionary authority to vote on the Callon compensation proposal and will not be able to vote on the Callon compensation proposal absent instructions from the beneficial owner. The failure of a beneficial owner to provide voting instructions to its broker, bank, or other nominee will result in a broker non-vote, which will have no effect on the outcome of the Callon compensation proposal.

 

   

Proposal 5—the Callon adjournment proposal. The affirmative vote of a majority of the shares of Callon common stock entitled to vote thereon and present in person or represented by proxy at the Callon special meeting is required to approve the Callon adjournment proposal. Abstentions are considered shares of Callon common stock present and entitled to vote and will have the same effect as a vote “against” the Callon adjournment proposal. Any Callon shareholder who fails to submit a vote (e.g., by not submitting a proxy and not voting in person) will not be considered present and entitled to vote; accordingly, failures to submit a vote will have no effect on the outcome of the Callon adjournment proposal. Because the Callon adjournment proposal is non-routine, brokers, banks, and other nominees do not have discretionary authority to vote on the Callon adjournment proposal and will not be able to vote on the Callon adjournment proposal absent instructions from the beneficial owner. The failure of a beneficial owner to provide voting instructions to its broker, bank, or other nominee will result in a broker non-vote, which will have no effect on the outcome of the Callon adjournment proposal.

An abstention occurs when the beneficial owner of shares, or a broker or other nominee holding shares for a beneficial owner, is present, in person or by proxy, and entitled to vote at the meeting, but such person refrains from voting as to a particular proposal by expressly marking the “abstain” box on the voting instruction form or ballot.

A broker non-vote occurs when a broker or other nominee returns a valid proxy card without voting on such proposal because they did not receive voting instructions from the street name holder and do not have discretionary authority to vote the shares on a particular proposal. Shares represented by broker non-votes will not be voted on any proposal for which the broker or other nominee has no discretionary authority to vote.

Under applicable rules, brokers or other nominees have discretionary voting power with respect to matters that are considered routine. Callon does not expect any broker non-votes at the Callon special meeting because each of the proposals to be presented at the Callon special meeting are considered non-routine. As a result, no broker will be permitted to vote shares of Callon common stock at the Callon special meeting without receiving instructions from the beneficial owner of such shares.

How to Vote

Callon shareholders of record on the Callon record date may have their shares of Callon common stock voted by submitting a proxy or may vote in person at the Callon special meeting by following the instructions provided on the enclosed proxy card. Callon recommends that Callon shareholders entitled to vote submit a proxy prior to the Callon special meeting even if they plan to attend the Callon special meeting.

Callon shareholders of record may vote in one of the following ways:

 

   

Internet: Callon shareholders of record may submit their proxy over the internet at the web address shown on their proxy card. Internet voting is available 24 hours a day and will be accessible until 11:59 p.m. Eastern Time (10:59 p.m. Central Time), on November 13, 2019. Shareholders will be given an opportunity to confirm that their voting instructions have been properly recorded. Callon shareholders who submit a proxy this way need not send in their proxy card.

 

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Telephone: Callon shareholders of record may submit their proxy by calling the toll-free telephone number shown on their proxy card. Telephone voting is available 24 hours a day and will be accessible until 11:59 p.m. Eastern Time (10:59 p.m. Central Time), on November 13, 2019. Easy-to-follow voice prompts will guide shareholders through the voting and allow them to confirm that their instructions have been properly recorded. Callon shareholders who submit a proxy this way need not send in their proxy card.

 

   

Mail: Callon shareholders of record may submit their proxy by properly completing, signing, dating and mailing their proxy card in the postage-paid envelope (if mailed in the United States) included with this joint proxy statement/prospectus. Callon shareholders who vote this way should mail the proxy card early enough so that it is received prior to the closing of the polls at the Callon special meeting.

 

   

In Person: Callon shareholders of record may vote in person at the Callon special meeting or by sending a representative with an acceptable proxy that has been signed and dated; attendance at the Callon special meeting will not, however, in and of itself constitute a vote or a revocation of a prior proxy.

Callon shareholders are encouraged to submit a proxy promptly. Each valid proxy received in time will be voted at the Callon special meeting according to the choice specified, if any. Executed but uninstructed proxies (i.e., proxies that are properly signed, dated and returned but are not marked to tell the proxies how to vote) will be voted in accordance with the recommendations of the Callon board.

Callon shareholders who hold their shares of Callon common stock beneficially in “street name” and wish to submit a proxy must provide instructions to the broker, bank, trustee or other nominee that holds their shares of record as to how to vote their shares with respect to Proposals 1, 2, 3, 4, and 5. Callon shareholders who hold their shares of Callon common stock beneficially and wish to vote in person at the Callon special meeting must obtain proxies issued in their own names (known as a “legal proxy”).

Proxies and Revocation

Callon shareholders of record may revoke their proxies at any time before their shares of Callon common stock are voted at the Callon special meeting in any of the following ways:

 

   

sending a written notice of revocation to Callon at 2000 W. Sam Houston Parkway S., Suite 2000, Houston, Texas 77042, Attention: Corporate Secretary, which must be received before their shares are voted at the Callon special meeting;

 

   

properly submitting a new, later-dated proxy card, which must be received by 11:59 p.m. Eastern Time (10:59 p.m. Central Time), on November 13, 2019 (in which case only the later-dated proxy is counted and the earlier proxy is revoked);

 

   

submitting a proxy via the internet or by telephone at a later date, which must be received by 11:59 p.m. Eastern Time (10:59 p.m. Central Time), on November 13, 2019 (in which case only the later-dated proxy is counted and the earlier proxy is revoked); or

 

   

attending the Callon special meeting and voting in person; attendance at the Callon special meeting will not, however, in and of itself, constitute a vote or revocation of a prior proxy.

Beneficial owners of shares of Callon common stock may change their voting instruction only by submitting new voting instructions to the brokers, banks or other nominees that hold their shares of record or by requesting a “legal proxy” from such broker, bank, or other nominee and voting in person at the Callon special meeting.

Solicitation of Proxies

Callon will pay for the proxy solicitation costs related to the Callon special meeting. In addition to sending and making available these materials, some of Callon’s directors, officers and other employees may solicit

 

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proxies by contacting Callon shareholders by telephone, by mail, by e-mail or in person. Callon shareholders may also be solicited by news releases issued by Callon and/or Carrizo, postings on Callon’s or Carrizo’s websites and advertisements in periodicals. None of Callon’s directors, officers or employees will receive any extra compensation for their solicitation services. Callon has also retained Innisfree M&A Incorporated (“Innisfree”) as its proxy solicitor to assist in the solicitation of proxies. For these proxy solicitation services, Innisfree will receive an estimated fee of approximately $50,000, plus reasonable out-of-pocket expenses and fees for any additional services. Callon will also reimburse brokers, banks and other nominees for their expenses in sending proxy solicitation materials to the beneficial owners of shares of Callon common stock and obtaining their proxies.

No Dissenters’ Rights

Under the DGCL, as well as the governing documents of Callon, Callon shareholders are not entitled to dissenters’ rights in connection with the merger or the transactions contemplated by the merger.

Other Matters

At this time, Callon knows of no other matters to be submitted at the Callon special meeting.

Householding of Special Meeting Materials

Unless Callon has received contrary instructions, Callon may send a single copy of this joint proxy statement/prospectus and notice to any household at which two or more shareholders reside if Callon believes the shareholders are members of the same family. Each shareholder in the household will continue to receive a separate proxy card. This process, known as “householding,” reduces the volume of duplicate information received at a household and helps to reduce Callon’s expenses.

Questions and Additional Information

Callon shareholders may contact Callon’s proxy solicitor with any questions about the proposals or how to vote or to request additional copies of any materials at:

Innisfree M&A Incorporated

501 Madison Ave, 20th Floor

New York, New York 10022

Shareholders may call toll-free: (888) 750-5834

Banks and Brokers may call collect: (212) 750-5833

 

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CALLON PROPOSAL 1—MERGER AGREEMENT

This joint proxy statement/prospectus is being furnished to Callon shareholders as part of the solicitation of proxies by the Callon board for use at the Callon special meeting to consider and vote upon a proposal to approve and adopt the merger agreement, which is attached as Annex A to this joint proxy statement/prospectus.

The Callon board, after due and careful discussion and consideration, unanimously approved and declared advisable the merger agreement, the merger, and the other transactions contemplated by the merger agreement.

The Callon board accordingly unanimously recommends that Callon shareholders approve and adopt the merger agreement, as disclosed in this joint proxy statement/prospectus, particularly the related narrative disclosures in the sections of this joint proxy statement/prospectus entitled “The Merger” and “The Merger Agreement,” and as attached as Annex A to this joint proxy statement/prospectus.

The merger between Callon and Carrizo cannot be completed without the affirmative vote of the holders of a majority of the issued and outstanding shares of Callon common stock entitled to vote at the Callon special meeting. Accordingly, a Callon shareholder’s abstention from voting, a broker non-vote, or the failure of a Callon shareholder to vote will have the same effect as a vote “against” the Callon merger proposal.

 

 

IF YOU ARE A CALLON SHAREHOLDER, THE CALLON BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE CALLON MERGER PROPOSAL

 

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CALLON PROPOSAL 2—SHARE ISSUANCE

This joint proxy statement/prospectus is being furnished to you as a shareholder of Callon as part of the solicitation of proxies by the Callon board for use at the Callon special meeting to consider and vote upon a proposal to approve the issuance of shares of Callon common stock to Carrizo shareholders pursuant to the merger agreement, which is attached as Annex A to this joint proxy statement/prospectus. Under the rules of the NYSE, a company listed on the NYSE is required to obtain shareholder approval prior to the issuance of common stock in any transaction or series of related transactions if the number of shares of common stock to be issued is equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the common stock. If the merger is completed, it is currently estimated that Callon will issue approximately                  shares of Callon common stock in connection with the merger, which will exceed 20% of the shares of Callon common stock outstanding before such issuance and for this reason Callon must obtain the approval of Callon shareholders for the issuance of shares of Callon common stock in connection with the merger.

The Callon board unanimously approved and declared advisable the merger agreement, the merger, and the other transactions contemplated by the merger agreement, including the issuance of shares of Callon common stock to Carrizo shareholders pursuant to the merger agreement.

The Callon board accordingly unanimously recommends that Callon shareholders vote “for” the issuance of Callon common stock to Carrizo shareholders pursuant to the merger agreement, as disclosed in this joint proxy statement/prospectus, particularly the related narrative disclosures in “The Merger” and “The Merger Agreement” and as attached as Annex A to this joint proxy statement/prospectus.

Assuming a quorum is present at the Callon special meeting, approval of the share issuance proposal requires the affirmative vote of a majority of votes cast by Callon shareholders entitled to vote thereon and present or represented by proxy at the Callon special meeting. Accordingly, a Callon shareholder’s abstention from voting will have the same effect as a vote “against” the share issuance proposal, while a broker non-vote or the failure of a Callon shareholder to vote will have no effect on the outcome of the share issuance proposal.

 

 

IF YOU ARE A CALLON SHAREHOLDER, THE CALLON BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE CALLON SHARE ISSUANCE PROPOSAL

 

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CALLON PROPOSAL 3—CHARTER AMENDMENT

This joint proxy statement/prospectus is being furnished to you as a shareholder of Callon as part of the solicitation of proxies by the Callon board for use at the Callon special meeting to consider and vote upon a proposal to amend the Callon charter prior to the merger in order to increase the authorized number of shares of Callon common stock to 750 million shares. The Callon charter currently provides that the total number of shares of common stock which Callon is authorized to issue is 300 million. The Callon board believes that the increased number of authorized shares of Callon common stock contemplated by the proposed amendment is important to the combined company in order for additional shares to be available for issuance from time to time, without further action or authorization by the Callon shareholders (except as required by law or the NYSE rules), if needed for such corporate purposes as may be determined by the Callon board. The additional 450 million shares authorized would be a part of the existing class of Callon common stock and, if issued, would have the same rights and privileges as the shares of Callon common stock presently issued and outstanding. Approval by Callon’s shareholders of the charter amendment proposal is a condition to any party’s obligation to complete the merger.

If the Callon shareholders approve the charter amendment proposal, Callon expects to file a Certificate of Amendment with the Delaware Secretary of State to increase the number of authorized shares of its capital and common stock. Upon filing of the Certificate of Amendment with the Delaware Secretary of State, the first sentence of Article IV of Callon’s charter will be amended and restated to read as follows:

The Corporation shall have authority to issue two classes of stock, and the total number authorized shall be 750,000,000 shares of Common Stock, par value $.01 per share, and 2,500,000 shares of Preferred Stock, par value $.01 per share.

As of                     , 2019, Callon had an aggregate of              shares of common stock issued and outstanding or reserved for issuance. Upon the completion of the merger, Callon would issue up to              shares of common stock to Carrizo shareholders, resulting in              shares of common stock issued and outstanding or reserved for issuance, which represents approximately     % of Callon’s authorized shares of common stock. The number of shares of Callon common stock that would be issued to Carrizo shareholders is based on the estimated maximum number of shares of Carrizo common stock that may be converted into shares of Callon common stock.

Other than payment of the merger consideration, the Callon board has no immediate plans to issue additional shares of common stock or securities that are convertible into common stock. However, the Callon board desires to have the shares available to facilitate the closing of the merger and to provide additional flexibility for business and financial purposes and provide appropriate equity incentives for Callon’s employees, directors and consultants. The additional shares may be used for various purposes without further shareholder approval. These purposes may include: (i) raising capital, if Callon has an appropriate opportunity, through offerings of common stock or securities that are convertible into common stock; (ii) exchanges of common stock or securities that are convertible into common stock for other outstanding securities; (iii) providing equity incentives to employees, officers, directors, consultants, or advisors; (iv) expanding Callon’s business through the acquisition of other businesses or assets; (v) stock splits, dividends, and similar transactions; and (vi) other purposes.

The Callon board accordingly unanimously recommends that Callon shareholders vote “for” the approval of the charter amendment proposal, as disclosed in this joint proxy statement/prospectus, particularly the related narrative disclosures in “The Merger” and “The Merger Agreement.” Approval of the charter amendment proposal requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Callon common stock entitled to vote at the Callon special meeting. Accordingly, a Callon shareholder’s abstention from voting, a broker non-vote, or the failure of a Callon shareholder to vote will have the same effect as a vote “against” the charter amendment proposal.

 

 

IF YOU ARE A CALLON SHAREHOLDER, THE CALLON BOARD OF DIRECTORS UNANIMOUSLY

RECOMMENDS THAT YOU VOTE “FOR” THE CHARTER AMENDMENT PROPOSAL

 

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CALLON PROPOSAL 4—NON-BINDING ADVISORY VOTE ON MERGER-RELATED

COMPENSATION FOR NAMED EXECUTIVE OFFICERS

Pursuant to Section 14A of the Exchange Act and Rule 14a-21(c) thereunder, Callon is seeking a non-binding advisory shareholder approval of the compensation of Callon’s named executive officers that is based on or otherwise relates to the merger as disclosed in “The Merger—Interests of Certain Callon Directors and Executive Officers in the Merger—Quantification of Potential Payments to Callon Named Executive Officers in Connection with the Merger.” The proposal gives Callon shareholders the opportunity to express their views on the merger-related compensation of Callon’s named executive officers.

Accordingly, the Callon board unanimously recommends a vote “for” the adoption of the following resolution, on a non-binding advisory basis:

“RESOLVED, that the compensation that will or may be paid or become payable to Callon’s named executive officers, that is based on or otherwise relates to the merger, and the agreements or understandings pursuant to which such compensation will or may be paid or become payable, in each case as disclosed pursuant to Item 402(t) of Regulation S-K in “The Merger—Interests of Callon’s Directors and Executive Officers in the Merger—Quantification of Potential Payments to Callon Named Executive Officers in Connection with the Merger” are hereby APPROVED.”

The vote on the Callon compensation proposal is a vote separate and apart from the vote on the proposal to approve the Callon merger proposal, share issuance proposal, and charter amendment proposal. Accordingly, Callon shareholders may vote to approve the Callon merger proposal, share issuance proposal, and charter amendment proposal and vote not to approve the Callon compensation proposal, and vice versa. If the merger is completed, the merger-related compensation may be paid to Callon’s named executive officers to the extent payable in accordance with the terms of the compensation agreements and arrangements even if the Callon shareholders fail to approve the advisory vote regarding merger-related compensation.

Assuming a quorum is present at the Callon special meeting, approval of the Callon compensation proposal requires the affirmative vote of the holders of a majority of the shares of Callon common stock entitled to vote thereon and present or represented by proxy at the Callon special meeting. Accordingly, a Callon shareholder’s abstention from voting will have the same effect as a vote “against” the Callon compensation proposal, while a broker non-vote or the failure of a Callon shareholder to vote will have no effect on the outcome of the Callon compensation proposal.

 

 

IF YOU ARE A CALLON SHAREHOLDER, THE CALLON BOARD OF DIRECTORS UNANIMOUSLY

RECOMMENDS THAT YOU VOTE “FOR” THE CALLON COMPENSATION PROPOSAL

 

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CALLON PROPOSAL 5—ADJOURNMENT OF THE CALLON SPECIAL MEETING

The Callon special meeting may be adjourned to another time and place if necessary to permit solicitation of additional proxies if there are not sufficient votes to approve the Callon merger proposal, the share issuance proposal, or the charter amendment proposal.

Callon is asking its shareholders to authorize the holder of any proxy solicited by the Callon board to vote in favor of any adjournment to the Callon special meeting to solicit additional proxies if there are not sufficient votes to approve the Callon merger proposal, the share issuance proposal, or the charter amendment proposal.

The Callon board unanimously recommends that Callon shareholders vote “for” the proposal to adjourn the Callon special meeting, if necessary.

Assuming a quorum is present at the Callon special meeting, approval of the Callon adjournment proposal requires the affirmative vote of the holders of a majority of the shares of Callon common stock entitled to vote thereon and present or represented by proxy at the Callon special meeting. Accordingly, a Callon shareholder’s abstention from voting will have the same effect as a vote “against” the Callon adjournment proposal, while a broker non-vote or the failure of a Callon shareholder to vote will have no effect on the outcome of the Callon adjournment proposal.

 

 

IF YOU ARE A CALLON SHAREHOLDER, THE CALLON BOARD OF DIRECTORS UNANIMOUSLY

RECOMMENDS THAT YOU VOTE “FOR” THE CALLON ADJOURNMENT PROPOSAL

 

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CARRIZO SPECIAL MEETING

General

This joint proxy statement/prospectus is being provided to Carrizo shareholders as part of a solicitation of proxies by the Carrizo board for use at the Carrizo special meeting and at any adjournments or postponements of such special meeting. This joint proxy statement/prospectus provides Carrizo shareholders with important information about the Carrizo special meeting and should be read carefully in its entirety.

Date, Time and Place of the Carrizo Special Meeting

The Carrizo special meeting will be held on November 14, 2019 at 9:00 a.m. Central Time, in the B. Jordan II Ballroom of the C. Baldwin Hotel, 400 Dallas Street, Houston, Texas.

Purposes of the Carrizo Special Meeting

The Carrizo special meeting is being held to consider and vote on the following proposals:

 

   

Proposal 1: to approve the merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus, pursuant to which each outstanding share of Carrizo common stock will be cancelled and converted automatically into the right to receive from Callon 2.05 shares of Callon common stock with cash paid in lieu of any fractional Callon common stock, if any;

 

   

Proposal 2: to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Carrizo’s named executive officers that is based on or otherwise relates to the merger, discussed under the heading “The Merger—Interests of Certain Carrizo Directors and Executive Officers in the Merger”; and

 

   

Proposal 3: to approve any motion to adjourn the Carrizo special meeting, if necessary to solicit additional proxies if there are not sufficient votes of holders of Carrizo common stock to approve the Carrizo merger proposal at the time of the Carrizo special meeting.

Recommendation of the Carrizo Board

The Carrizo board unanimously recommends that Carrizo shareholders vote:

 

   

Proposal 1: FOR” the Carrizo merger proposal;

 

   

Proposal 2: FOR” the Carrizo compensation proposal; and

 

   

Proposal 3: FOR” the Carrizo adjournment proposal.

This joint proxy statement/prospectus contains important information regarding these proposals and factors that Carrizo shareholders should consider when deciding how to cast their votes. Carrizo shareholders are encouraged to read the entire document carefully, including the annexes to and documents incorporated by reference into this joint proxy statement/prospectus, for more detailed information regarding the merger agreement and the merger.

The Non-binding Compensation Advisory Proposal and Interests of Directors

In considering the recommendations of the Carrizo board, Carrizo shareholders should be aware that some of Carrizo’s directors and executive officers may have interests that are different from, or in addition to, the interests of Carrizo shareholders more generally. For additional information, please see “The Merger—Interests of Certain Carrizo Directors and Executive Officers in the Merger.”

 

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Section 14A of the Exchange Act, which was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, requires that Carrizo provide its shareholders with the opportunity to vote to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Carrizo’s named executive officers that is based on or otherwise relates to the merger, as disclosed in this joint proxy statement/prospectus, including the compensation table and the related narrative named executive officer compensation disclosures set forth in “The Merger—Interests of Certain Carrizo Directors and Executive Officers in the Merger.” This vote is commonly referred to as a “golden parachute say on pay” vote. Accordingly, Carrizo shareholders are being provided with the opportunity to cast an advisory (non-binding) vote on those change of control payments.

Carrizo shareholders should note that the non-binding compensation advisory proposal is merely an advisory vote that will not be binding on Carrizo, Callon, or their respective boards of directors. Further, the underlying plans and arrangements are contractual in nature and not, by their terms, subject to shareholder approval. Accordingly, regardless of the outcome of the advisory vote, if the merger is consummated, the eligibility of the Carrizo named executive officers for such payments and benefits will not be affected by the outcome of the advisory vote.

The proposal to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Carrizo’s named executive officers that is based on or otherwise relates to the merger is a vote separate and apart from the vote on the proposal to adopt the merger agreement. Accordingly, a Carrizo shareholder may vote to approve one proposal and not the other. Because the vote on the proposal to approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Carrizo’s named executive officers that is based on or otherwise relates to the merger is advisory in nature only, it will not be binding on Carrizo or Callon, and the approval of the proposal is not a condition to the completion of the merger.

Voting by Directors and Executive Officers

On the Carrizo record date, there were              shares of Carrizo common stock outstanding. On the Carrizo record date, Carrizo directors and executive officers, as a group, beneficially owned and were entitled to vote                  shares of Carrizo common stock or approximately         % of the issued and outstanding shares of Carrizo common stock.

Agreements with Directors

Concurrently with the execution of the merger agreement, Callon entered into voting and support agreements (each, a “Support Agreement” and, collectively, the “Support Agreements”) with each director of Carrizo in that director’s capacity as a shareholder, pursuant to which each such individual has agreed, among other matters and upon the terms and subject to the conditions set forth in the Support Agreements, to vote all of their shares of Carrizo common stock in favor of the approval of the merger agreement, each of the other actions contemplated by the merger agreement and any action in furtherance of the foregoing and against (a) any action or agreement that would result in a material breach of any material representation, warranty, covenant, or obligation of Carrizo in the merger agreement and (b)(i) any merger, consolidation, or other business combination involving Carrizo or any of its subsidiaries; (ii) any sale, lease, sublease, license, sublicense, or transfer of a material portion of the properties or other assets of Carrizo or any of its subsidiaries; (iii) any change in a majority of the board of directors of Carrizo; (iv) any action or proposal to amend, or waive any provision of the articles of incorporation or bylaws of Carrizo, which amendment may have the effect of (1) frustrating the purpose of, or breaching, or nullifying any provision of, the merger agreement, (2) impeding, interfering with, preventing, delaying, or adversely affecting the merger or (3) changing the voting rights of any shares of capital stock of Carrizo; and (v) any other action which is intended, or would reasonably be expected, to materially (1) impede, (2) interfere with, (3) delay, (4) postpone, (5) discourage, or (6) adversely affect the merger, including the Financing (as defined in the merger agreement), or any of the transactions contemplated by the merger agreement and, in the case of clauses (iii) and (iv), only to the extent such action is intended, or would reasonably be expected, to

 

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materially (1) impede, (2) interfere with, (3) delay, (4) postpone, (5) discourage, or (6) adversely affect the merger or any of the transactions contemplated by the merger agreement, including the Financing.

The Support Agreements expire upon certain events including the occurrence of a Company Adverse Recommendation Change (as defined in the merger agreement) by the Carrizo board in connection with a Company Superior Proposal (as defined in the merger agreement). The form of Support Agreement is attached as Exhibit 10.1 to Callon’s Current Report on Form 8-K filed July 15, 2019.

Attendance at the Carrizo Special Meeting

Only Carrizo shareholders and holders of Carrizo preferred stock of record on the Carrizo record date, beneficial owners of Carrizo common stock and Carrizo preferred stock on the Carrizo record date, holders of valid proxies for the Carrizo special meeting, and invited guests of Carrizo may attend the Carrizo special meeting.

All attendees should be prepared to present government-issued photo identification (such as a driver’s license or passport) for admittance. The additional items, if any, that attendees must bring depend on whether they are Carrizo shareholders of record, beneficial owners of Carrizo common stock or proxy holders.

 

   

A Carrizo shareholder who holds shares of Carrizo common stock directly registered in such shareholder’s name with Carrizo’s transfer agent, EQ Shareowner Services formerly Wells Fargo Shareowner Services (a “Carrizo shareholder of record”), who wishes to attend the Carrizo special meeting in person should bring government-issued photo identification.

 

   

A beneficial owner of Carrizo common stock who wishes to attend the Carrizo special meeting in person should bring:

 

     

government-issued photo identification; and

 

     

proof of beneficial ownership as of the Carrizo record date (e.g., a letter from the broker, bank, trustee, or other nominee that is the record owner of such beneficial owner’s shares, a brokerage account statement, or the voting instruction form provided by the broker).

 

   

A proxy holder who wishes to attend the Carrizo special meeting in person should bring:

 

     

government-issued photo identification;

 

     

the validly executed proxy naming such person as the proxy holder, signed by the Carrizo shareholder of record; and

 

     

proof of the signing shareholder’s record ownership as of the Carrizo record date.

No cameras, recording equipment, or other electronic devices will be allowed in the meeting room. Failure to provide the requested documents at the door or failure to comply with the procedures for the Carrizo special meeting may prevent shareholders from being admitted to the Carrizo special meeting.

Record Date

The Carrizo board has fixed the close of business on October 7, 2019 as the Carrizo record date for the determination of the Carrizo shareholders entitled to receive notice of, and to vote at, the Carrizo special meeting. The Carrizo shareholders of record on the Carrizo record date are the only Carrizo shareholders that are entitled to receive notice of, and to vote at, the Carrizo special meeting or any adjournments or postponements of the Carrizo special meeting, so long as such shares remain outstanding on the date of the Carrizo special meeting.

 

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Outstanding Common Shares as of Record Date and Voting Rights

On the Carrizo record date, there were              shares of Carrizo common stock outstanding, held by                 holders of record. Each outstanding share of Carrizo common stock entitles its holder of record to one vote on each matter to be considered at the Carrizo special meeting. Carrizo shareholders are entitled to vote on each proposal presented.

A complete list of registered Carrizo shareholders entitled to vote at the Carrizo special meeting will be available for inspection at the principal place of business of Carrizo at 500 Dallas Street, Suite 2300, Houston, Texas 77002, during regular business hours for a period of no less than ten days before the Carrizo special meeting and at the place of the Carrizo special meeting during the meeting.

Quorum

In order for business to be conducted at the Carrizo special meeting, a quorum must be present. A quorum at the Carrizo special meeting requires the presence of the holders of a majority of shares of Carrizo common stock entitled to vote at the Carrizo special meeting, represented in person or by proxy. Abstentions and broker non-votes will be counted for purposes of determining whether there is a quorum at the Carrizo special meeting.

Adjournment

If a quorum is not present or represented, a majority in interest of those present or represented may adjourn the Carrizo special meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified.

Vote Required

The votes required for each proposal are as follows:

 

   

Proposal 1—the Carrizo merger proposal. The affirmative vote of the holders of at least two-thirds of the outstanding shares of Carrizo common stock entitled to vote on the proposal is required to approve the Carrizo merger proposal. Abstentions, failure to submit a proxy, or failure to vote in person at the Carrizo special meeting will have the same effect as a vote “against” the Carrizo merger proposal. Because the Carrizo merger proposal is non-routine, brokers, banks, and other nominees do not have discretionary authority to vote on the Carrizo merger proposal and will not be able to vote on the Carrizo merger proposal absent instructions from the beneficial owner. The failure of a beneficial owner to provide voting instructions to its broker, bank, or other nominee will have the same effect as a vote “against” the Carrizo merger proposal.

 

   

Proposal 2—the Carrizo compensation proposal. The affirmative vote of the holders of a majority of the shares of Carrizo common stock entitled to vote on the matter and that vote for or against or expressly abstain with respect to the matter is required to approve, on a non-binding advisory basis, the Carrizo compensation proposal. Since the votes for the Carrizo compensation proposal are non-binding, if the merger agreement is approved by Carrizo shareholders and the merger is completed, the compensation that is the subject of the Carrizo compensation proposal, which includes amounts Carrizo or Callon are contractually obligated to pay, would still be paid regardless of the outcome of the advisory (non-binding) vote on the Carrizo compensation proposal. Abstentions will have the same effect as a vote “against” the Carrizo compensation proposal. Failure to submit a proxy or failure to vote in person at the Carrizo special meeting and will have no effect on the proposal. Because the Carrizo compensation proposal is non-routine, brokers, banks, and other nominees do not have discretionary authority to vote on the Carrizo compensation proposal and will not be able to vote on the Carrizo compensation proposal absent instructions from the beneficial owner.

 

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Proposal 3—the Carrizo adjournment proposal. The affirmative vote of the holders of a majority of shares of Carrizo common stock entitled to vote on the matter and that vote for or against or expressly abstain with respect to the matter is required to approve the Carrizo adjournment proposal. Failure to submit a proxy or failure to vote in person at the Carrizo special meeting and broker non-votes will have no effect on the Carrizo adjournment proposal.

An abstention occurs when the beneficial owner of shares, or a broker or other nominee holding shares for a beneficial owner, is present, in person or by proxy, and entitled to vote at the meeting, but such person refrains from voting as to a particular proposal by expressly marking the “abstain” box on the voting instruction form or ballot.

A broker non-vote occurs when a broker or other nominee returns a valid proxy card without voting on such proposal because they did not receive voting instructions from the street name holder and do not have discretionary authority to vote the shares on a particular proposal. Shares represented by broker non-votes will not be voted on any proposal for which the broker or other nominee has no discretionary authority to vote. Such shares will be disregarded in the calculation of “votes cast” with respect to such proposal and therefore will have no effect on the outcome of that proposal (even though those shares may be considered entitled to vote or be voted on other proposals).

Under applicable rules, brokers or other nominees have discretionary voting power with respect to matters that are considered routine. Carrizo does not expect any broker non-votes at the Carrizo special meeting because each of the proposals to be presented at the Carrizo special meeting are considered non-routine. As a result, no broker will be permitted to vote shares of Carrizo common stock at the Carrizo special meeting without receiving instructions from the beneficial owner of such shares.

How to Vote

Carrizo shareholders of record on the Carrizo record date may have their shares of Carrizo common stock voted by submitting a proxy or may vote in person at the Carrizo special meeting by following the instructions provided on the enclosed proxy card. Carrizo recommends that Carrizo shareholders entitled to vote submit a proxy even if they plan to attend the Carrizo special meeting.

Carrizo shareholders may vote in one of the following ways:

 

   

Internet: Carrizo shareholders may submit their vote over the internet at the web address shown on their proxy card or voting instruction form. Internet voting is available 24 hours a day and will be accessible until 11:59 p.m. Eastern Time, on November 13, 2019. Shareholders will be given an opportunity to confirm that their voting instructions have been properly recorded. Carrizo shareholders who submit a vote this way need not send in their proxy card or voting instruction form.

 

   

Telephone: Carrizo shareholders may submit their vote by calling the toll-free telephone number shown on their proxy card or voting instruction form. Telephone voting is available 24 hours a day and will be accessible until 11:59 p.m. Eastern Time, on November 13, 2019. Easy-to-follow voice prompts will guide shareholders through the voting and allow them to confirm that their instructions have been properly recorded. Carrizo shareholders who vote this way need not send in their proxy card or voting instruction form.

 

   

Mail: Carrizo shareholders may submit their vote by properly completing, signing, dating and mailing their proxy card or voting instruction form in the postage-paid envelope (if mailed in the United States) included with this joint proxy statement/prospectus. Carrizo shareholders who vote this way should mail the proxy card or voting instruction form early enough so that it is received before the date of the Carrizo special meeting.

 

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In Person: Carrizo shareholders of record may vote in person at the Carrizo special meeting or by sending a representative with an acceptable proxy that has been signed and dated; attendance at the Carrizo special meeting will not, however, in and of itself constitute a vote or a revocation of a prior proxy.

Carrizo shareholders are encouraged to submit a proxy promptly. Each valid proxy received in time will be voted at the Carrizo special meeting according to the choice specified, if any. Executed but uninstructed proxies (i.e., proxies that are properly signed, dated and returned but are not marked to tell the proxies how to vote) will be voted in accordance with the recommendations of the Carrizo board.

Carrizo shareholders who hold their shares of Carrizo common stock beneficially in “street name” and wish to submit a proxy must provide instructions to the broker, bank, trustee or other nominee that holds their shares of record as to how to vote their shares with respect to Proposals 1, 2, and 3. Carrizo shareholders who hold their shares of Carrizo common stock beneficially and wish to vote in person at the Carrizo special meeting must obtain proxies issued in their own names (known as a “legal proxy”).

Proxies and Revocation

Carrizo shareholders of record may revoke their proxies at any time before their shares of Carrizo common stock are voted at the Carrizo special meeting in any of the following ways:

 

   

sending a written notice of revocation to Carrizo at 500 Dallas Street, Suite 2300, Houston, Texas 77002, Attention: Corporate Secretary, which must be received before their shares are voted at the Carrizo special meeting;

 

   

properly submitting a new, later-dated proxy card, which must be received which must be received by 11:59 p.m. Eastern Time, on November 13, 2019 (in which case only the later-dated proxy is counted and the earlier proxy is revoked);

 

   

submitting a proxy via the internet or by telephone at a later date, which must be received by 11:59 p.m. Eastern Time, on November 13, 2019 (in which case only the later-dated proxy is counted and the earlier proxy is revoked); or

 

   

attending the Carrizo special meeting and voting in person; attendance at the Carrizo special meeting will not, however, in and of itself, constitute a vote or revocation of a prior proxy.

Beneficial owners of shares of Carrizo common stock may change their voting instruction by submitting new voting instructions to the brokers, banks or other nominees that hold their shares of record or by requesting a “legal proxy” from such broker, bank, or other nominee and voting in person at the Carrizo special meeting.

Solicitation of Proxies

Carrizo will pay for the proxy solicitation costs related to the Carrizo special meeting. In addition to sending and making available these materials, some of Carrizo’s directors, officers and other employees may solicit proxies by contacting Carrizo shareholders by telephone, by mail, by e-mail or in person. Carrizo shareholders may also be solicited by news releases issued by Carrizo and/or Callon, postings on Carrizo’s or Callon’s websites and advertisements in periodicals. None of Carrizo’s directors, officers or employees will receive any extra compensation for their solicitation services. Carrizo has also retained MacKenzie Partners, Inc. to assist in the solicitation of proxies for a fee expected not to exceed $25,000, plus related fees for any additional services and reasonable out-of-pocket expenses. Carrizo will also reimburse brokers, banks and other nominees for their expenses in sending proxy solicitation materials to the beneficial owners of Carrizo common stock and obtaining their proxies.

No Dissenter or Appraisal Rights for Common Shareholders

Because shares of Carrizo common stock are listed on the NASDAQ and Carrizo shareholders are not required to receive consideration other than Callon common stock, shares of which are listed on the NYSE, with

 

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cash paid in lieu of the issuance of fractional Callon common stock, if any, in the merger, Carrizo shareholders are not entitled to exercise appraisal or dissenters’ rights under Texas law in connection with the merger.

Vote by Holders of Carrizo Preferred Stock

The holders of Carrizo preferred stock will vote separately as a class on the approval of the merger agreement, but will not vote on the Carrizo merger proposal at the Carrizo special meeting; instead, the merger agreement will be submitted for approval by written consent to holders of Carrizo preferred stock. The approval of the merger agreement by the holders of the Carrizo preferred stock, however, is not necessary to complete the merger. If the affirmative vote or written consent of a majority of the outstanding shares of Carrizo preferred stock entitled to vote thereon in favor of the merger agreement is not obtained prior to the conclusion of the Carrizo special meeting, then, subject to the terms and conditions of the merger agreement, the Carrizo preferred stock will be redeemed immediately prior to the merger. Additionally, holders of Carrizo preferred stock are not being asked to vote on either the approval of the Carrizo compensation proposal or the Carrizo adjournment proposal.

On the Carrizo record date, there were 200,000 shares of Carrizo preferred stock outstanding, held by one holder of record. Each outstanding share of Carrizo preferred stock entitles its holder of record to one vote but such holders will not have the right to vote at the Carrizo special meeting.

Other Matters

At this time, Carrizo knows of no other matters to be submitted at the Carrizo special meeting.

Householding of Special Meeting Materials

Unless Carrizo has received contrary instructions, Carrizo may send a single copy of this joint proxy statement/prospectus and notice to any household at which two or more shareholders reside if Carrizo believes the shareholders are members of the same family. Each shareholder in the household will continue to receive a separate proxy card. This process, known as “householding,” reduces the volume of duplicate information received at a household and helps to reduce Carrizo’s expenses.

Questions and Additional Information

Carrizo shareholders may contact Carrizo’s proxy solicitor, MacKenzie Partners, Inc. with any questions about the proposals or how to vote or to request additional copies of any materials at:

MacKenzie Partners, Inc.

1407 Broadway, 27th Floor

New York, New York 10018

Carrizo@mackenziepartners.com

(212) 929-5500

Toll-Free: (800) 322-2885

 

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CARRIZO PROPOSAL 1—MERGER AGREEMENT

The Carrizo board, after due and careful discussion and consideration, unanimously approved and recommended Carrizo shareholder approval of the merger agreement, the execution, delivery, and performance of the merger agreement and the consummation of the transactions contemplated thereby, including the merger.

The Carrizo board accordingly unanimously recommends that Carrizo shareholders approve the merger agreement, as disclosed in this joint proxy statement/prospectus, particularly the related narrative disclosures in the sections of this joint proxy statement/prospectus entitled “The Merger” and “The Merger Agreement,” and as attached as Annex A to this joint proxy statement/prospectus.

The merger between Carrizo and Carrizo cannot be completed without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Carrizo common stock entitled to vote on the Carrizo merger proposal. Accordingly, a Carrizo shareholder’s abstention from voting, a broker non-vote, or the failure of a Carrizo shareholder to vote will have the same effect as a vote “against” the Carrizo merger proposal.

 

 

IF YOU ARE A CARRIZO SHAREHOLDER, THE CARRIZO BOARD OF DIRECTORS

UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE CARRIZO MERGER PROPOSAL

 

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CARRIZO PROPOSAL 2—NON-BINDING ADVISORY VOTE ON MERGER-RELATED

COMPENSATION FOR NAMED EXECUTIVE OFFICERS

Pursuant to Section 14A of the Exchange Act and Rule 14a-21(c) thereunder, Carrizo is seeking a non-binding advisory shareholder approval of the compensation of Carrizo’s named executive officers that is based on or otherwise relates to the merger as disclosed in “The Merger—Interests of Certain Carrizo Directors and Executive Officers in the Merger—Quantification of Payments and Benefits to Carrizo’s Named Executive Officers.” The proposal gives Carrizo shareholders the opportunity to express their views on the merger-related compensation of Carrizo’s named executive officers.

Accordingly, the Carrizo board unanimously recommends a vote “for” the adoption of the following resolution, on a non-binding advisory basis:

“RESOLVED, that Carrizo shareholders approve, on a non-binding advisory basis, the compensation that may be paid or become payable to Carrizo’s named executive officers that is based on or otherwise relates to the merger, as disclosed pursuant to Item 402(t) of Regulation S-K under the heading “The Merger—Interests of Certain Carrizo Directors and Executive Officers in the Merger” (which disclosure includes the compensation table and related narrative named executive officer compensation disclosures required pursuant to Item 402(t) of Regulation S-K).”

The vote on the Carrizo compensation proposal is a vote separate and apart from the vote on the Carrizo merger proposal. Accordingly, Carrizo shareholders may vote to approve the Carrizo merger proposal and vote not to approve the Carrizo compensation proposal, and vice versa. If the merger is completed, the merger-related compensation may be paid to Carrizo’s named executive officers to the extent payable in accordance with the terms of the compensation agreements and arrangements even if the Carrizo shareholders fail to approve the Carrizo compensation proposal.

Assuming a quorum is present at the Carrizo special meeting, approval of the Carrizo compensation proposal requires the affirmative vote of the holders of a majority of the shares of Carrizo common stock entitled to vote on the proposal and that voted for or against or expressly abstained with respect to such proposal. Accordingly, abstentions will have the same effect as a vote “against” the Carrizo compensation proposal, while a broker non-vote or the failure of a Carrizo shareholder to vote will have no effect on the Carrizo compensation proposal.

 

 

IF YOU ARE A CARRIZO SHAREHOLDER, THE CARRIZO BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE CARRIZO COMPENSATION PROPOSAL

 

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CARRIZO PROPOSAL 3—ADJOURNMENT OF THE CARRIZO SPECIAL MEETING

The Carrizo special meeting may be adjourned to another time and place if necessary to permit solicitation of additional proxies if there are not sufficient votes to approve the Carrizo merger proposal.

Carrizo is asking its shareholders to authorize the holder of any proxy solicited by the Carrizo board to vote in favor of any adjournment to the Carrizo special meeting to solicit additional proxies if there are not sufficient votes to approve the Carrizo merger proposal.

The Carrizo board unanimously recommends that Carrizo shareholders vote “for” the proposal to adjourn the Carrizo special meeting, if necessary.

Assuming a quorum is present at the Carrizo special meeting, approval of the Carrizo adjournment proposal requires the affirmative vote of the holders of a majority of shares of Carrizo common stock entitled to vote on the proposal and that voted for or against or expressly abstained with respect to such proposal. Accordingly, a Carrizo shareholder’s failure to submit a proxy or failure to vote in person at the Carrizo special meeting and broker non-votes will have no effect on the Carrizo special meeting adjournment proposal.

 

 

IF YOU ARE A CARRIZO SHAREHOLDER, THE CARRIZO BOARD OF DIRECTORS

UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE CARRIZO ADJOURNMENT

PROPOSAL

 

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THE MERGER

This section of the joint proxy statement/prospectus describes the material aspects of the proposed merger. This section may not contain all of the information that is important to you. You should carefully read this entire proxy statement/prospectus and the documents incorporated by reference into this joint proxy statement/prospectus, including the full text of the merger agreement, a copy of which is attached to this joint proxy statement/prospectus as Annex A, for a more complete understanding of the proposed merger and the transactions related thereto. In addition, important business and financial information about each of Callon and Carrizo is included in or incorporated by reference into this joint proxy statement/prospectus and is included in the annexes hereto. Please see “Where You Can Find More Information.”

Effects of the Merger

Upon satisfaction or waiver of the conditions to closing in the merger agreement, at the effective time, Carrizo will merge with and into Callon, Carrizo’s separate corporate existence will cease, and Callon will be the surviving company in the merger. At the effective time, each share of Carrizo common stock issued and outstanding immediately prior to the effective time will be canceled and converted automatically into the right to receive 2.05 shares of Callon common stock, with cash paid in lieu of the issuance of any fractional shares of Callon common stock. In addition, Carrizo will take all actions as may be necessary so that at the effective time, each outstanding share of restricted stock, restricted stock unit, Special RSU Award, performance share unit award and stock appreciation right in respect of Carrizo common stock will be treated as described in “The Merger—Treatment of Carrizo Equity Awards in the Merger.” Also in connection with the merger, each share of Carrizo preferred stock will be converted automatically into and shall represent one share of Callon new preferred stock, unless the preferred stock redemption occurs prior to the consummation of the merger.

Background of the Merger

The terms of the merger are the result of arm’s length negotiations between Carrizo and Callon. The following is a summary of the events leading up to the agreement to merge and the key meetings, negotiations, discussions and actions by and between Carrizo and Callon and their respective advisors that preceded the public announcement of the merger.

As part of Callon’s ongoing strategic planning process, the Callon board, together with Callon’s executive management team, regularly reviews and assesses Callon’s long-term strategic plans and goals, opportunities, overall industry trends, the competitive environment in which Callon operates and Callon’s short- and long-term performance. In addition, Mr. Joseph Gatto regularly met with his counterparts at both larger and smaller exploration and production companies active in the Permian Basin and other unconventional basins in the lower 48 states to discuss industry trends and other matters. During these meetings, Mr. Gatto would occasionally engage in discussions with potential counterparties of all sizes regarding recent and potential consolidation activity in the industry. In connection with these activities, the Callon board met periodically in the ordinary course of business to receive updates from Mr. Gatto on these discussions and to consider and evaluate potential strategic alternatives, including change of control transactions, business combinations, acquisitions, dispositions, and joint ventures.

In the course of its evaluation of Callon’s strategic direction, the Callon board discussed a number of potential strategic alternatives, including potentially acquiring one or more exploration and production companies or assets or entering into a business combination with a similarly-sized or larger exploration and production company to enhance Callon’s scale, free cash flow generation and competitiveness in an increasingly volatile market. The Callon board discussed these potential paths in depth, including the relative merits of each option in relation to providing attractive economies of scale, improved free cash flow and a return of capital to Callon’s investors as well as the potential to achieve a premium valuation in a change of control transaction.

 

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At various meetings, the Callon board evaluated the shift in the exploration and production industry from resource extraction and production growth to efficiently developing assets while living within cash flows. The Callon board also noted the company’s historical focus on the Permian Basin and discussed whether Callon would benefit from the scale and attendant efficiencies that could come from a strategic combination with another shale-focused exploration and production company. The Callon board also considered whether the pursuit of any transaction might preclude future flexibility or might enhance or detract from the ability to pursue future consolidation or change of control transactions. In the months preceding the Callon board’s decision to submit a bid for Carrizo, the Callon board discussed several potential transactions that might warrant further consideration, including discussions with two similarly sized counterparties that ultimately were not pursued as the combinations were determined not to advance Callon’s corporate operational and financial goals. The Callon board also discussed potential change of control transactions including historical discussions and the fact that no party had historically indicated interest in Callon that the Callon board thought would lead to a transaction that was superior to the status quo.

As discussed further below, in March 2019, the Callon board identified Carrizo as strategically attractive for its complementary Delaware Basin footprint, its near-term free cash flow, which would improve Callon’s ability to self-fund and accelerate development of its valuable Permian Basin assets, and its accretion to net asset value and free cash flow per share. In subsequently assessing Carrizo as a more compelling combination than other potential strategic alternatives that it had previously considered, the Callon board also looked at, among other things, likely operational, financial, and organizational benefits, balance sheet scale to support larger pad development, and the ability to drive significant synergies for the combined company. Prior to entering into the merger agreement with Carrizo, the Callon board convened in three regular meetings and six special sessions to discuss the merits of the transaction and its impact to shareholders relative to other alternatives.

The Carrizo board and Carrizo management regularly review the strategic direction of Carrizo and evaluate potential opportunities to enhance shareholder value, including reviewing potential strategic combinations and acquisition opportunities. The Carrizo board and Carrizo management have focused on positioning Carrizo as an independent oil and natural gas company actively engaged in the exploration, development, and production of oil and gas from resource plays located in the United States, with operations principally focused on proven, producing oil and gas plays in the Eagle Ford Shale in South Texas and the Delaware Basin in West Texas. Carrizo has sought to grow its business both organically through its drilling program and, in recent years, through an acquisition strategy targeting the Delaware Basin while preserving a balance sheet and liquidity position that allowed for financial flexibility.

On July 11, 2018, the chief executive officer of Company A, a publicly traded oil and gas company, contacted Mr. S.P. “Chip” Johnson IV, the President and Chief Executive Officer of Carrizo, to inquire whether Carrizo would be interested in discussing a possible strategic combination with Company A. Mr. Johnson acknowledged that Carrizo would be interested in engaging in such a discussion. Mr. Johnson asked Mr. Gerald Morton, General Counsel and Vice President of Business Development of Carrizo, to prepare and negotiate a confidentiality and standstill agreement to be entered into by Carrizo and Company A, and both companies executed a mutual confidentiality and standstill agreement on July 13, 2018. At or about this time, Mr. Johnson advised Mr. Steven A. Webster, chairman of the Carrizo board, about the approach from Company A. Mr. Webster agreed that it would be useful to gain a better technical understanding of Company A’s assets to see if there was any interest by Carrizo in a possible strategic combination.

On August 1, 2018, Company A presented to Carrizo an overview of its assets and operations and Carrizo presented to Company A an overview of its assets and operations.

On August 21, 2018, the Carrizo board held a meeting at which members of Carrizo management and representatives of Lazard were also present. At the meeting, Mr. Johnson informed the balance of the Carrizo board of the chief executive officer of Company A approaching Carrizo regarding a potential strategic combination. Lazard had previously been retained by Carrizo management and the Carrizo board on May 23, 2018 to assist in matters relating to shareholder activism. Lazard thereafter provided merger and acquisition

 

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advice on an informal basis to Carrizo. As part of Lazard’s shareholder activism engagement, it was contemplated that Carrizo would also retain Lazard as a financial advisor in connection with certain possible business combinations. Lazard was subsequently formally retained to provide mergers and acquisitions advice.

In connection with a presentation to the Carrizo board relating to both shareholder activism and potential strategic combinations, representatives of Lazard reviewed a presentation (the “August 21, 2018 presentation”) based upon publicly available information regarding four companies that, in Lazard’s view, might be proposed by activists as possible merger candidates for Carrizo. The August 21, 2018 presentation included Company A and another company with which Mr. Johnson had intermittent discussions for several years as an acquisition candidate of Carrizo, but for which Mr. Johnson now believed would require Carrizo to pay too high a price to make a transaction attractive.

During the week of September 3, 2018, the chief executive officer of Company A communicated to Mr. Johnson that Company A was no longer interested in a potential business combination transaction.

Over the next several weeks, from September 2018 to October 2018, Mr. Johnson arranged meetings with the chief executive officers of the two remaining companies identified in the August 21, 2018 presentation, other than Company A and the prior acquisition candidate. During these meetings, the parties discussed, among other things, whether a possible business combination with Carrizo would be of interest. One of these candidates expressed interest in discussing such a combination; however, that company entered into another business combination before discussions could progress. The other candidate expressed no interest in a combination with Carrizo.

On October 25, 2018, Mr. Johnson met with the chief executive officer and the chief operating officer of Company B, a publicly traded oil and gas company, and inquired if Company B would be interested in discussing a possible business combination with Carrizo. During the week of November 5, 2018, the chief executive officer of Company B responded and acknowledged that he would be interested in a discussion of such a transaction and suggested that the parties exchange data.

On November 12, 2018, the Carrizo board met, together with members of Carrizo management, at which meeting Mr. Johnson reported on his conversations with the chief executive officers of possible merger partners, including Company B. He noted that there had been merger and acquisition activity in the industry, as two of the four companies in the August 21, 2018 presentation had entered into agreements with other companies to complete business combinations since the last Carrizo board meeting. At the meeting, the Carrizo board asked Mr. Morton to prepare and negotiate a confidentiality and standstill agreement for Carrizo and Company B. The Carrizo board reviewed materials prepared by management based on publicly available information regarding potential merger candidates and other asset acquisitions that members of Carrizo management had identified, in each case with operations primarily in the Delaware Basin. Following a review of this information, the Carrizo board asked Mr. Johnson to continue his efforts in engaging with counterparties and evaluating and exploring opportunities.

On November 14, 2018, Carrizo and Company B executed a mutual confidentiality and standstill agreement.

On November 27, 2018, members of management of Carrizo presented to Company B an overview of Carrizo’s assets and operations and members of management of Company B presented to Carrizo an overview of Company B’s assets and operations. Thereafter, Carrizo and Company B each populated a virtual data room (“VDR”) for due diligence purposes. Representatives of Carrizo continued to meet with representatives of Company B and its financial advisors on due diligence from December 2018 through February 2019.

During the week of December 10, 2018, the chief executive officer of Company C, a publicly traded oil and gas company, contacted Mr. Johnson about a possible business combination in which Carrizo would acquire Company C in a low premium, stock-for-stock merger. Mr. Johnson expressed an interest in exploring such a

 

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transaction and exchanging information. On December 28, 2018, Carrizo and Company C entered into a mutual confidentiality and standstill agreement, and during January 2019, Carrizo and Company C populated and shared data through VDRs.

On December 18, 2018, a former Carrizo employee, on an unsolicited basis, offered to arrange an introduction between Mr. Johnson and Mr. Gatto via e-mail. Mr. Johnson accepted this offer, and on December 20, 2018, Mr. Gatto offered to Mr. Johnson that they meet. However, due to conflicting schedules, the meeting was deferred until the following month.

During January 2019, Mr. Johnson received inquiries from, and met with, two private equity firms regarding their interest in engaging in strategic discussions with Carrizo, including direct equity investments to fund strategic opportunities, as well as the sale of Carrizo assets to their respective portfolio companies or a possible take-private of Carrizo.

On January 16, 2019, Messrs. Gatto and Johnson met in person in Houston, Texas. At the meeting, they shared views on the strategic merits of a potential business combination of Callon and Carrizo.

On January 22, 2019, a business development executive of Carrizo spoke with a business development executive of Company D, a publicly traded oil and gas company, and was asked if Carrizo would be interested in a possible business combination transaction with Company D.

In late January 2019, Callon contacted Kirkland to expand its existing representation to include assisting Callon in considering a potential business combination with Carrizo or others. Callon also asked several investment banks over the subsequent weeks to provide their views on the current status of the exploration and production industry generally, recent strategic activity among industry participants and the availability of opportunistic strategic transactions for Callon in the then-current market.

On January 24, 2019, the Carrizo board met together with members of Carrizo management. Mr. Johnson provided the Carrizo board with an update on Carrizo’s efforts relating to a possible strategic combination transaction. The Carrizo board received a preliminary analysis on Company B, Company C, and Callon based on publicly available information that had been prepared by representatives of Lazard for use at the meeting. Mr. Johnson also reported that Carrizo was prepared to enter into mutual confidentiality and standstill agreements with each of Company D and Callon and noted that management was also considering Company E, a publicly traded oil and gas company, as a possible merger candidate. The Carrizo board authorized Mr. Johnson to continue to hold preliminary meetings and share information under confidentiality and standstill agreements with these and other potential parties to a strategic combination. In addition, Mr. Johnson reported on the approach of the two private equity firms. The Carrizo board asked to be kept informed of any additional approaches by these or other private equity firms. On January 25, 2019, Messrs. Gatto and Johnson spoke regarding mutual due diligence efforts for purposes of evaluating the merits of a potential business combination. The parties executed a mutual confidentiality agreement on January 29, 2019.

On January 31, 2019, at a regularly scheduled meeting of the Callon board, Mr. Gatto provided an update to the Callon board on his recent discussions with Mr. Johnson and the recently executed mutual confidentiality agreement. The Callon board, together with the Callon management team, discussed the strategic advantages of a combination with Carrizo, and the Callon board authorized the exchange of due diligence information between the two companies.

On February 4, 2019, Carrizo and Company D executed a mutual confidentiality and standstill agreement. Mr. Johnson subsequently spoke about the possibility of a transaction with the business development executive of Company D.

On February 7, 2019, the Carrizo board met in a regularly scheduled meeting, together with members of Carrizo management. At the meeting, Mr. Johnson provided an update on Carrizo’s ongoing process of exploring

 

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strategic transactions and its discussions with Company B, Callon, Company C, and Company D. Mr. Johnson presented a preliminary analysis and shareholder information regarding both Carrizo and such potential counterparties that had been prepared by representatives of Lazard based upon publicly available information.

On February 11 and 12, 2019, Callon and Carrizo, respectively, opened access to their VDRs and, with respect to Carrizo, made access available to each potential counterparty.

On February 22, 2019, representatives of Company C informed Mr. Morton that Company C wished to suspend discussions.

On February 26, 2019, Mr. Johnson discussed a possible business combination with the chief executive officer of Company D.

On February 28, 2019, the technical and financial teams of Callon and Carrizo met and each company made a presentation to the other regarding the assets and operations of each company.

On March 3, 2019, the general counsel of Company B sent to Carrizo and Baker Botts, Carrizo’s longtime outside legal counsel, a draft of a merger agreement.

On March 6 and 7, 2019, the Callon board met at a regularly scheduled meeting. At the invitation of the Callon board, representatives of each of Kirkland and J.P. Morgan also attended. Representatives of Kirkland provided an overview of the Callon board’s fiduciary duties with respect to strategic transactions. With input from Callon’s executive management team and representatives of each of Kirkland and J.P. Morgan, the Callon board continued its discussion and consideration of strategic transaction options that could enable Callon to increase the size and scale of its operations, increase production, and protect shareholder value. The management team and representatives of J.P. Morgan also provided preliminary results and findings from due diligence efforts on Carrizo. The Callon board determined that, after taking into consideration the favorable preliminary results of due diligence efforts as well as the challenges facing the exploration and production industry as the shale industry matured, further consideration of a potential business combination with Carrizo was warranted. The Callon board suggested that Mr. Gatto meet with Mr. Johnson to discuss advancing the process and to suggest a meeting among Callon’s and Carrizo’s respective management teams for the purpose of better understanding each company. The Callon board also authorized Callon management to engage J.P. Morgan to serve as Callon’s financial advisor with respect to a transaction with Carrizo.

On March 6, 2019, the technical, financial, and legal teams of Company D and Carrizo met and Carrizo made a presentation to the Company D regarding the assets and operations of Carrizo.

On March 7, 2019, representatives of Company B delivered a non-binding offer letter to Carrizo proposing an all-stock merger transaction at an exchange ratio that reflected a modest premium at that time to the ratio of Carrizo’s stock price to Company B’s stock price as of closing on March 6, 2019. The offer letter requested a 14-day exclusivity period to complete diligence and execute a definitive agreement.

Also on March 7, 2019, Mr. Johnson and the chief operating officer of Company E met for lunch and discussed the merits of a possible business combination.

On March 13, 2019, Mr. Johnson spoke with the chief executive officer of Company B regarding Company B’s proposal. Mr. Johnson explained to the chief executive officer of Company B that Carrizo expected to hire financial advisors, conduct a more formal process of exploring for possible merger partners, and contact additional candidates, and that Carrizo was therefore not in a position to act upon Company B’s proposal.

On March 15, 2019, Mr. Johnson was approached by the chief executive officer of Company F, a private oil and gas company, about a purchase of Carrizo in an all-cash transaction. Mr. Johnson explained that he would relay this interest to the Carrizo board. On March 19, 2019, the chief executive officer of Company F called

 

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Mr. Johnson to further discuss an acquisition of Carrizo and explained that such a transaction might be part of a larger set of acquisition transactions by Company F involving other companies.

During the period that Carrizo was exchanging due diligence information with various potential counterparties, and particularly when Carrizo received the proposal from Company B, Carrizo management decided to conduct a more structured process in lieu of its prior negotiations on different timetables with several parties. This process, which would be implemented by independent financial advisors, would impose uniform timing on all potential counterparties and was intended to allow for an efficient outreach and sharing of information with potential merger candidates in addition to those that were already engaged in discussions with Carrizo. Carrizo met with various financial advisors, and selected both RBCCM and Lazard. RBCCM was selected because of its reputation, expertise in oil and gas matters, including its experience in mergers and acquisitions, and its capabilities in technical analysis of oil and gas properties. Lazard was selected because of its qualifications, expertise, and reputation in investment banking and mergers and acquisitions generally and in the oil and gas industry specifically, as well as its familiarity with the business of Carrizo. RBCCM was subsequently formally engaged by Carrizo on March 18, 2019, and Lazard was formally engaged by Carrizo on March 22, 2019.

On March 17, 2019, a news organization published a rumor that Carrizo was considering a strategic combination with another exploration and production company. Messrs. Gatto and Johnson spoke briefly regarding the article and decided to meet in person in the coming days to continue their discussion regarding a potential business combination.

On March 18, 2019, members of management of Carrizo held a meeting with representatives of RBCCM to discuss the progress that had been made to date in Carrizo’s exploration of strategic merger partners.

On March 19, 2019, Mr. Johnson met with the chief executive officer and the chief operating officer of Company E to discuss consolidation in the industry and to determine if Company E would have any interest in exploring a possible business combination transaction with Carrizo. At the meeting, such officers of Company E expressed interest in further discussions regarding a possible business combination transaction, and the parties discussed entry into a mutual confidentiality and standstill agreement.

That same day, members of the executive management teams of Callon and Carrizo met for dinner in Houston, Texas. The attendees discussed the perceived strategic merits of the transaction, management style, and due diligence efforts to date. Later that week, Mr. Johnson emailed Mr. Gatto confirming that Carrizo had begun working with RBCCM on a due diligence review of Callon’s oil and gas assets. During the following week, Callon’s and Carrizo’s respective advisors engaged in discussions and exchanged information regarding such diligence efforts.

During the week of March 21, 2019, Mr. Johnson and Mr. Webster met with the chief executive officer of Company F to discuss Company F’s views as to a possible business combination. The chief executive officer of Company F discussed the possibility of a cash purchase transaction in which all of Carrizo’s debt would be repaid.

On March 22, 2019, representatives of RBCCM met with Carrizo to discuss current and additional merger candidates. Representatives of RBCCM and Carrizo management took various factors into account in their selections, including the size of the company, basins in which operations were conducted, whether operations would be complementary to those of Carrizo, and likely interest in and ability to consummate a transaction. Representatives of RBCCM noted that publicly traded strategic buyers could provide an increased chance of consummation compared to private equity buyers and they advised as to which companies would be likely to have an interest in Carrizo and the ability to propose and complete a transaction that shareholders would find attractive. Three publicly traded oil and gas companies were added as potential candidates to those previously identified and RBCCM was asked to contact each of these companies to determine if they had an interest in a possible business combination with Carrizo. Representatives of RBCCM also proposed contacting one prior

 

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candidate with which Carrizo management had previously been in contact regarding a strategic business combination, but with which Carrizo had not progressed discussions of such a combination. Each of these four additional companies was contacted by representatives of RBCCM, but no discussions progressed to the point of entering into a confidentiality and standstill agreement with Carrizo.

On March 26, 2019, Mr. Johnson met with the chief executive officer of Company G at an industry conference to discuss matters of mutual interest, and Mr. Johnson raised the possibility of a business combination of the two companies. The chief executive officer of Company G acknowledged he would be interested in exploring that possibility and agreed to share information under a mutual confidentiality and standstill agreement.

On March 28, 2019, Carrizo executed a mutual confidentiality and standstill agreement with Company E.

On March 28, 2019, the Carrizo board met, together with members of Carrizo management and representatives of each of RBCCM and Baker Botts. Representatives of RBCCM discussed (i) the process of exploring potential business combinations, (ii) recommendations for additional potential transaction counterparties, (iii) the eight publicly traded oil and gas companies that representatives of RBCCM and Carrizo management recommended for further potential engagement as a transaction counterparty, and (iv) the proposal received from Company B on March 7, 2019. The Carrizo board determined not to accept Company B’s proposal or negotiate exclusively with it in light of the expected process with other potential counterparties. Mr. Johnson also reviewed with the Carrizo board the developments regarding Company F’s interest in a cash acquisition of Carrizo. The Carrizo board discussed the possibility of a cash sale to a private company such as Company F or a private equity buyer versus a stock-for-stock transaction. The Carrizo board discussed the advantages of a stock transaction and the disadvantages of causing Carrizo shareholders to be cashed out of their investment without the possibility of participating in future upside of a combined company or in future industry consolidations. The Carrizo board noted that these disadvantages were enhanced by both Carrizo’s relatively low stock price from a historical perspective and the uncertainty in the oil and gas industry. The Carrizo board also discussed the relative merits of continuing as a standalone company versus seeking a strategic business combination transaction. A representative of Baker Botts discussed the directors’ fiduciary duties in connection with Carrizo’s process of exploring potential strategic transactions.

On March 30, 2019, representatives of each of J.P. Morgan and RBCCM discussed Carrizo’s decision to engage in a sales process with multiple parties. Representatives of RBCCM informed representatives of J.P. Morgan that Carrizo wanted Callon to participate in such a process. Representatives of J.P. Morgan indicated that Callon might participate but advised representatives of RBCCM that Callon would continue to consider other possible transactions in lieu of a potential business combination with Carrizo.

On April 2, 2019, Mr. Morton and counsel to Company F exchanged drafts of a mutual confidentiality and standstill agreement.

On April 2, 2019, Company B delivered a letter to Mr. Johnson to notify Carrizo that Company B had formally revoked the offer reflected in its March 7, 2019 letter. Subsequently, the chief executive officer of Company B spoke with Mr. Johnson and explained that although Company B had formally revoked its proposal, Company B remained interested in a potential transaction with Carrizo and encouraged Mr. Johnson to contact him again prior to accepting any other proposal.

On April 4, 2019, Company D informed representatives of RBCCM that it was no longer interested in pursuing a transaction with Carrizo. That same day, the Callon board met and received a presentation from representatives of J.P. Morgan regarding current trends in the exploration and production industry generally, recent merger and acquisition activity in the industry, the current status of the potential transaction with Carrizo and other matters. Following these discussions, the Callon board instructed Callon’s executive management team to continue their due diligence efforts on Carrizo and further analyze the merits of a potential business combination.

 

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On April 8, 2019, Messrs. Gatto and Johnson spoke telephonically, together with their respective advisors from each of J.P. Morgan and RBCCM, to discuss the potential business combination between Callon and Carrizo, including the parties’ efforts to quantify operational synergies and analyze the financial impact of the transaction. Mr. Gatto reiterated the Callon board’s interest in pursuing a transaction with Carrizo. Mr. Johnson responded by noting that the Carrizo board was committed to its sales process and was conducting due diligence on the parties involved in such sales process. To further efforts toward a potential business combination between Callon and Carrizo, the parties agreed to an in-person due diligence session later that week. On April 11, 2019, representatives from Callon and Carrizo met for a technical due diligence session.

On April 17, 2019, Carrizo and Callon had a meeting of the two companies’ technical teams at J.P. Morgan’s offices, with representatives of each of J.P. Morgan, RBCCM, and Lazard present, to discuss technical matters, including geological information, reservoir engineering, facilities, and other operational components, and legal diligence with Callon.

On April 22, 2019, Mr. Morton instructed representatives of Baker Botts to prepare a form draft merger agreement that could be uploaded to the VDR for use by potential merger candidates. Also on that day, Callon received access to a new VDR established by Carrizo.

On April 23, 2019, Carrizo executed a mutual confidentiality and standstill agreement with Company G.

Also on April 23, 2019, Callon and Carrizo held a finance diligence meeting attended by the chief financial officers and finance personnel of each company at RBCCM’s offices, with representatives of each of J.P. Morgan, RBCCM, and Lazard present.

On April 30, 2019, representatives of RBCCM provided a process letter to Callon and other participants in Carrizo’s sales process. The process letter requested that Callon return a proposal by May 31, 2019 specifying, among other things, a description of Callon’s assets and operations, Callon’s proposed transaction structure and valuation, key assumptions, sources of funding, timing and plans with respect to employees, company operations and governance. The process letter also required a mark-up of the draft merger agreement prepared by Baker Botts.

On May 2, 2019, members of management of Company E presented to Carrizo an overview of Company E’s assets and operations and members of management of Carrizo presented to Company E an overview of Carrizo’s assets and operations, with representatives of each of Lazard, RBCCM, and Company E’s financial advisors present. Carrizo and Company E continued to perform mutual due diligence and held discussions regarding a potential business combination transaction until July 8, 2019, when Carrizo signed an exclusivity agreement with Callon.

On May 7, 2019, representatives of Callon and Carrizo met to discuss general and administrative synergies, open due diligence items and financing scenarios in connection with the proposed business combination. That same day, Mr. Johnson and Mr. Webster met with the chief executive officer and the chief operating officer of Company E so that Company E could explain its vision for a combined company, express its interest generally, and answer any questions from the Carrizo representatives.

The Callon board met for a regularly scheduled board meeting on May 8, 2019 and discussed, among other things, the status of due diligence efforts and the financial, operational and other characteristics of the potential business combination. Callon’s executive management team discussed with the Callon board the ongoing due diligence with Carrizo, developing views on synergies, a refreshed look at the potential exchange ratio and relative ownership, governance matters and key points for negotiation of a merger agreement. The Callon board continued to recognize the merits of a combination with Carrizo and instructed Mr. Gatto to meet with Mr. Johnson to continue discussions regarding the potential transaction.

 

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The next week, on May 13, 2019, Messrs. Gatto, Johnson and Webster met to discuss the merits of a potential business combination of Callon and Carrizo. Mr. Gatto expressed Callon’s interest in Carrizo’s technical team and other employees and explained that he expected Callon’s current executive management would remain in place for the combined company. That same day, members of Carrizo’s management attended a presentation by management of Company C and its financial advisor, which, through that financial advisor, had reengaged with Carrizo as part of a formal process that Company C had initiated to seek a buyer for itself. Company C sought to continue discussions about Carrizo acquiring Company C, but now sought a transaction in which Carrizo would be required to pay a significant premium to Company C’s shareholders. Following additional diligence, Carrizo management determined, and later recommended to the Carrizo board, that it was not interested in nor was it advisable to continue seeking to acquire Company C on such terms.

On May 14, 2019, members of Carrizo management met with senior business development representatives and financial and technical advisors from Company G and provided them with a detailed technical presentation on Carrizo. While Company G indicated interest in Carrizo, it advised representatives of Lazard that it would likely be unable to meet the May 31, 2019 deadline established by Carrizo’s financial advisors and, ultimately, did not submit a bid. That same day, Carrizo made available in its VDR a form of draft merger agreement. The draft contemplated, among other things: (i) a reverse triangular merger that would be tax-free to Carrizo shareholders; (ii) non-solicitation provisions that would allow the Carrizo board, under certain circumstances, to change its recommendation in the event of a superior proposal or intervening event and to terminate the merger agreement to accept a superior proposal and that would allow the board of the counterparty, under certain circumstances, to change its recommendation in response to an intervening event (including alternative proposals) but not terminate the agreement to accept a superior proposal and not to respond to or accept a superior proposal; and (iii) a termination fee based on an unspecified percentage of Carrizo’s equity value payable by Carrizo in the event the agreement was terminated by Carrizo to accept a superior proposal or by Carrizo or the counterparty following a change in recommendation or the entry into an alternative proposal within 12 months of termination in certain circumstances. Members of Callon management and representatives of Kirkland discussed and evaluated the terms of the draft merger agreement over the following days.

On May 16, 2019, the Carrizo board met, together with members of Carrizo management, during which Mr. Johnson updated the Carrizo board regarding the process of exploring a strategic transaction and explained that the process currently provided for proposals to be made by a deadline of May 31, 2019. Mr. Johnson reviewed preliminary net asset value (“NAV”) analyses of Carrizo, one of which had been prepared by management and one of which had been prepared by RBCCM based on preliminary forecasts and assumptions provided by Carrizo management, as well as a preliminary NAV analysis of Callon that had been prepared by RBCCM based on preliminary forecasts and assumptions provided by Carrizo management. Mr. Morton discussed provisions of Carrizo’s form of draft merger agreement that had been placed in the VDR. The Carrizo board asked management to continue with its process of exploring strategic transactions.

On May 20, 2019, Company E provided a detailed technical and management presentation, including the strategic rationale for a merger, to senior Carrizo representatives at Lazard’s offices, with representatives of each of RBCCM and Lazard present.

The Callon board convened a special meeting on May 22, 2019 to discuss the potential business combination of Callon and Carrizo. The Callon board discussed the terms of the draft merger agreement and the results of legal and financial due diligence. The Callon board and Callon management team, together with input from representatives of J.P. Morgan, discussed the merits of the proposed business combination. The Callon board authorized the Callon management team to continue to engage in due diligence efforts and asked J.P. Morgan to engage with Carrizo’s financial advisors to further efforts toward a potential business combination. Representatives of Kirkland discussed the proposed structure of the transaction, including the benefits and disadvantages of a direct merger between Callon and Carrizo. After further discussions with Callon management and representatives of each of Kirkland and J.P. Morgan, and an overview of valuation analyses of Callon, Carrizo, and the pro forma company, the Callon board authorized Callon management to submit a non-binding proposal to Carrizo contemplating, among other things: (i) an exchange ratio whereby Carrizo’s shareholders

 

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would own up to 45% of the combined company, (ii) the provision of a fully underwritten commitment letter for an amended and upsized revolving credit facility with a borrowing base of no less than $2 billion, (iii) two members of the Carrizo board would be invited to join the board of directors of the combined company, and (iv) a mutual termination fee equal to 4.0% of Carrizo’s equity value. The Callon board directed the Callon management team and the advisors to prepare a bid letter and to continue to engage with Carrizo and its advisors to further efforts toward a potential business combination.

On May 23, 2019, representatives of each of RBCCM and Lazard received an unsolicited call from executives of Company H stating that Company H would be interested in a transaction. The Company H executives said that Company H did not believe it would be able to submit a proposal by the May 31, 2019 deadline, but would submit such a proposal shortly thereafter. On May 24, 2019, Carrizo executed a mutual confidentiality and standstill agreement with Company H.

Each confidentiality and standstill agreement entered into by Carrizo that is described in this section contained customary “standstill” and “don’t ask, don’t waive” provisions, subject to a customary “fall away” provision, which provided that the restrictions in the “standstill” would terminate if, among other things, either party to the agreement entered into a business combination agreement with a person or group that would result in such party’s common equity holders owning less than 50% of the common or equivalent equity of the surviving entity resulting from such business combination. These standstill provisions also did not prohibit the chief executive officer of either party from making a non-public proposal to the chief executive officer of the other party. As a result, the standstill provisions should not have a deterrent effect on the ability of a third party to make an offer to acquire Carrizo after execution of the merger agreement, as the merger will result in Carrizo’s common equity holders owning less than 50% of the common stock of Callon.

Representatives of each of Kirkland and Baker Botts held a telephonic meeting on May 29, 2019 to discuss the contemplated structure of the transaction, including the potential merits of a direct merger structure in comparison to a reverse triangular merger. That same day, Mr. Johnson had lunch with the chief executive officer of Company E, who indicated that Company E was expecting to make an offer to acquire Carrizo in a stock-for-stock transaction with a modest premium and explained that Company E was open to adding a Carrizo director to the board of directors of the combined company.

On May 30, 2019, representatives of Kirkland sent to Baker Botts a revised draft merger agreement that included changes to the Carrizo form of merger agreement that had been placed in the VDR. The draft of the merger agreement, among other things, (i) reflected the terms set out above, other than the direct merger structure changes that were in process, and (ii) provided that Callon, but not Carrizo, could enter into agreements for mergers and other alternative transactions without the need to terminate the agreement. Later that day, representatives of each of Kirkland and Baker Botts discussed certain issues in Callon’s draft merger agreement.

Also on May 30, 2019, the Callon management team provided an update to the Callon board regarding preparation of the bid for the proposed acquisition of Carrizo. Management briefed the Callon board on the preliminary view of the parties to structure the transaction as a direct merger of Callon and Carrizo, with Callon surviving and continuing as a Delaware corporation, in order to, among other things, minimize the impact of certain change of control provisions in each company’s agreements. The Callon board also reviewed (i) the proposed exchange ratio of 1.945 shares of Callon common stock for each share of Carrizo common stock outstanding immediately prior to the merger, which would translate into Carrizo’s shareholders owning approximately 45% of the combined company, (ii) the proposed revisions to the merger agreement, and (iii) the draft bid letter with an expiration date of June 7, 2019.

On May 31, 2019, representatives of Callon submitted the non-binding proposal discussed above to the Carrizo board.

On May 31, 2019, a member of management of Company G informed a representative of Lazard that it would not be making a proposal for a business combination with Carrizo.

 

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On May 31, 2019, Company E submitted to Carrizo a non-binding offer letter with respect to the acquisition of 100% of the outstanding common stock of Carrizo, together with a revised draft merger agreement that included changes to the Carrizo form of merger agreement that had been placed in the VDR. Under the terms of the offer letter, Carrizo shareholders would receive a fixed exchange ratio of Company E common shares for each share of Carrizo common stock, which implied a premium to Carrizo’s stock price as of closing on May 30, 2019.

On May 31, 2019, the chief executive officer of Company H called Mr. Johnson to discuss Company H’s interest in Carrizo, and the benefits of a combination of the two companies, and to describe other possible business combination transactions that were also of interest to Company H that would be complementary to a combination of Company H and Carrizo, but Company H did not submit a proposal at that time.

On May 31, 2019, Mr. Johnson called the chief executive officer of Company B to inquire whether Company B had a continued interest in Carrizo and to note that it would need to significantly increase the premium it had previously offered to make a competitive offer. The chief executive officer of Company B declined to make a new proposal but told Mr. Johnson that Company B would be interested in hearing back from Mr. Johnson if Carrizo wanted to discuss a “merger of equals” transaction.

On June 3, 2019, the Carrizo board met, together with members of Carrizo management and representatives of each of RBCCM, Lazard, and Baker Botts, to provide an update on Carrizo’s process of exploring strategic combinations, including the recent developments with Company H. The financial advisors noted that, since Carrizo had begun active diligence efforts with Company B in late 2018, there had been ten potentially interested publicly traded oil and gas companies (including Company B) with which Carrizo or its financial advisors had been in contact, six of which had executed non-disclosure agreements and three of which had provided non-binding proposals, although one such proposal had later been withdrawn. The proposals from Callon and Company E were the only active proposals that had been received by the May 31, 2019 deadline established by Carrizo’s financial advisors. Carrizo’s financial advisors focused on the proposals received from Callon and Company E and representatives of each of RBCCM and Lazard provided a preliminary financial analysis based on publicly available information and preliminary perspectives on the two proposals. Representatives of each of RBCCM and Lazard noted that Callon’s proposal provided a higher implied value than that of Company E. For informational purposes, representatives of each of RBCCM and Lazard explained that Company B’s proposal, although withdrawn, would have had a still lower implied value at May 31, 2019 and was also at a discount to Carrizo’s market price at May 31, 2019. Representatives of RBCCM also discussed with the Carrizo board information regarding Company H. The Carrizo board discussed whether Carrizo should engage in any strategic transaction and noted that significant benefits of a business combination would be attributable to the cost savings and other synergies resulting from such transaction. The Carrizo board directed management to obtain additional information to further quantify the cost savings and other synergies expected by Callon and Company E. Also, representatives of Lazard explained that further information was necessary with respect to Company E to allow it to analyze Company E so as to better advise on the relative merits of the two proposals. Additionally, the Carrizo board asked management and the financial advisors to determine if Company H would make an acceptable proposal. Mr. Morton discussed with the Carrizo board the mark-ups of the form merger agreement received from Callon and Company E.

On June 4, 2019, Mr. Johnson advised Mr. Gatto that Callon would receive a letter in response to the Callon proposal that, among other things, would request additional information from Callon.

On June 5, 2019, Carrizo’s financial advisors sent letters to each of Callon and Company E seeking additional information regarding expected cost savings and other synergies, the contemplated business plan of the combined company, and the merger and acquisitions plan of the respective combined company. That same day, at the direction of the Callon board, a representative of J.P. Morgan, Callon’s financial advisor, spoke with a representative of RBCCM to (i) advise that Callon’s intention was to retain Carrizo’s Eagle Ford assets, (ii) confirm that that corporate G&A cost savings related to a proposed transaction between Carrizo and Callon identified by Callon were estimated to be $35 million per annum, (iii) confirm Callon’s willingness to provide

 

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more information to Carrizo to assist in understanding its proposal, and (iv) confirm Callon’s stated intention to withdraw its offer letter and cease working on its proposal after the expiration date of June 7, 2019 set out in its proposal letter.

On June 6, 2019, representatives from Callon’s and Carrizo’s management teams met in Houston, Texas to discuss the information requests posed in the June 5th letter, including Callon’s projected synergies from a combination of the two companies. Following discussion, Carrizo’s senior management indicated that its board required more time to consider Callon’s proposal and Callon’s senior management agreed to provide Carrizo with additional information on the potential cost savings and other synergies related to the proposed transaction. Over the following two weeks, Callon’s and Carrizo’s management teams communicated intermittently regarding various procedural matters and due diligence issues.

Also on June 6, 2019, representatives of Kirkland sent a revised draft of the merger agreement to Baker Botts reflecting a direct merger structure as contemplated by Callon’s non-binding proposal.

On June 7, 2019, Mr. Johnson informed Mr. Gatto that Carrizo expected to require at least another week to complete a comprehensive review and evaluation of Callon’s bid. Mr. Gatto responded by affirming the two parties’ constructive discussions since January 2019, expressing disappointment that Carrizo was unable to determine whether to proceed with Callon and reiterating that Callon’s non-binding offer would expire at the end of the day. Mr. Gatto also noted that he would discuss with his board the possible submission of a revised proposal.

Over the weekend of June 8-9, 2019, the chief executive officer of Company F called Mr. Johnson to inform him that Company F would not be submitting a proposal for a business combination with Carrizo.

On June 10, 2019, members of the management teams of Carrizo and of Company E and a representative of Lazard attended a meeting at Lazard’s offices to discuss expected cost savings and other synergies in a proposed transaction between the two companies.

On June 12, 2019, the chief executive officer of Company E and Mr. Johnson discussed the possibility of two Carrizo-designated directors being added to Company E’s board.

On June 13, 2019, Company H submitted to Carrizo a non-binding offer letter with respect to the acquisition of 100% of the outstanding common stock of Carrizo. Under the terms of the offer letter, Carrizo shareholders would receive a fixed exchange ratio of Company H common shares for each share of Carrizo common stock, which implied a premium to Carrizo’s stock price as of closing on June 12, 2019. The implied value per share as of closing on June 12, 2019 of Carrizo stock in the proposal was below that in both Callon’s and Company E’s proposals.

On June 14, 2019, Mr. Gatto delivered a letter to Mr. Johnson to reiterate Callon’s interest in a stock-for-stock merger with Carrizo and to confirm it was prepared to resubmit a merger proposal.

On June 17, 2019, the Carrizo board met, together with members of Carrizo management and representatives of each of RBCCM, Lazard, and Baker Botts, to discuss the ongoing exploration of strategic transactions and the three proposals received from Callon, Company E and Company H. Members of Carrizo management presented a preliminary NAV analysis of Carrizo, Callon, and Company E, and representatives of RBCCM discussed with the Carrizo board (i) the results of the bid process since the previous Carrizo board meeting, (ii) a preliminary financial analysis of Carrizo, (iii) a preliminary financial analysis of Callon, including Callon’s projections, prepared by Carrizo’s management, (iv) a discussion of the preliminary cost savings and other synergies as a result of a business combination between Carrizo and Callon, totaling between $120 million and $190 million (per year and on a pre-tax basis), and consisting of $10 million to $20 million of interest savings identified by Carrizo management and the remainder identified by Callon management consisting of operational synergies (including optimized capitalized allocation), and cash general and administrative savings, and (v) preliminary

 

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perspectives on a merger with Callon. Representatives of Lazard discussed with the Carrizo board (i) a preliminary financial analysis of Company E, including Company E’s projections, prepared by Company E’s management, (ii) preliminary perspectives on a merger with Company E, (iii) a discussion of the cost savings and other synergies expected as a result of a business combination that were presented by Company E, and (iv) financial and legal issues with respect to Company E’s operations. Mr. Johnson explained that he believed additional work should be done to analyze the expected cost savings and other synergies claimed by Callon and Company E. In addition, representatives of RBCCM discussed with the Carrizo board (i) the non-binding indication of interest received from Company H, (ii) the key terms of Company H’s proposal and that the merger cost savings and other synergies with Company H had not been quantified by Company H, (iii) Company H’s failure to submit a mark-up of the form of draft merger agreement with its proposal, as requested in Carrizo’s bid instructions provided to prospective bidders, (iv) financial analyses of Company H, including current and historical stock trading prices and liquidity metrics based upon publicly available information, and (v) the fact that the analyses of Company H performed to date were based on public information, as Carrizo did not yet have access to a VDR from Company H to perform due diligence on Company H and its assets. Representatives of RBCCM provided summary information reflecting that, based on June 14, 2019 closing share prices, the ranking of the implied values of the three active proposals received was that Callon’s proposal had the highest implied value, Company E’s proposal had the next highest implied value and Company H’s proposal had the lowest implied value. The Carrizo board directed management and Carrizo’s financial advisors to refine their respective analyses of the cost savings and other synergies identified by both Callon and Company E and to obtain additional information from both bidders regarding the steps that would be taken following any transaction to capture any identified cost savings and other synergies, and Carrizo’s technical team to gather relevant additional data regarding the assets of both Callon and Company E. Management was also asked to continue to work toward obtaining finalized and improved proposals from the bidders.

On June 18, 2019, Mr. Johnson, at the suggestion of the chief executive officer of Company H, spoke with a large shareholder of Company H about that company, its recent activities and its future plans. The large shareholder expressed confidence in Company H, but informed Mr. Johnson that strategic transactions, in addition to a combination with Carrizo, as had been previously mentioned by the chief executive officer of Company H, would be difficult to achieve in the near term.

On June 19, 2019, Mr. Johnson informed Mr. Gatto that the Carrizo board remained interested in a transaction with Callon but expected there would be an improvement of Callon’s proposed exchange ratio and would like to have additional Carrizo directors appointed to the Callon board so that the board representation would be more in line with the post-combination pro forma ownership by current Carrizo shareholders. Carrizo also wanted to have a better understanding regarding cost savings and other synergies related to a proposed transaction between Carrizo and Callon.

On June 20, 2019, Mr. Johnson conveyed to the chief executive officer of Company E that the Carrizo board was focused on understanding the cost savings and other synergies related to a potential merger with Company E and that Carrizo would need to complete its diligence investigation of Company E.

On June 20, 2019, Mr. Johnson contacted the chief executive officer of Company H to notify him that its proposed premium in its offer letter dated June 13, 2019 was below that of other bidders.

On June 21, 2019, representatives of J.P. Morgan, on behalf of Callon, requested that Carrizo enter into an exclusivity agreement whereby it would negotiate exclusively with Callon.

On June 24, 2019, the Carrizo board met, together with members of Carrizo management and representatives of each of RBCCM, Lazard, and Baker Botts, to discuss an update on the process of exploring strategic transactions. Mr. Johnson informed the Carrizo board that (i) Carrizo, its financial advisors and its legal advisors had been in frequent contact with Callon and Company E, (ii) Carrizo and its financial advisors had also been working on Company H’s proposal, and (iii) although Company H’s proposal offered a lower implied value for Carrizo’s shareholders compared to the other two proposals, he believed discussions with Company H on its

 

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proposal should continue. Representatives of each of RBCCM and Lazard presented preliminary valuation materials based upon further refinements provided by Carrizo management to the models for Callon and Company E and preliminary pro forma combined company analysis based on the current proposals. The financial advisors discussed that, based on closing prices as of June 21, 2019, the current implied value of the proposal from Company E was slightly higher than the implied value of the proposal from Callon, and that the implied value in both such proposals continued to significantly exceed that of Company H’s proposal. The Carrizo board discussed the merits and considerations of continuing as an independent company, including challenges to smaller exploration and production companies from both the decline of interest by the investing public and the decreased availability of financing and the difficulties in achieving further cost savings as a standalone company. The Carrizo board discussed the relative merits of the pending proposals. The Carrizo board agreed upon the desirability of developing scale in the Permian Basin and noted that a transaction with Callon would better achieve this goal. The Carrizo board believed that the combined company’s assets and operations resulting from a combination with Callon provided a better strategic fit than those resulting from a combination with Company E and that cost savings and other synergies were more likely to be achieved with Callon. The Carrizo board expressed its belief that both Callon and Company E could benefit from Carrizo’s technical expertise and that additional board seats for Carrizo directors would help to ensure that either combined company could integrate this expertise into its operations. The Carrizo board also discussed Company H’s proposal, but noted that, especially with its lower implied value, it did not appear to be as attractive as the other two proposals. As a result of the meeting, the Carrizo board (i) determined that Carrizo should continue its dialogue with Callon and Company E and remain engaged with Company H despite the implied value of its proposal being significantly below the implied values of the proposals of the other two potential counterparties, and (ii) directed Mr. Johnson to communicate to Callon that it was currently the preferred potential merger partner, but request that Mr. Gatto (a) improve Callon’s proposed exchange ratio from the then current 1.945 Callon shares for each Carrizo share to closer to 2.4 Callon shares for each Carrizo share, which would result in Carrizo shareholders owning approximately 50% of the combined company, and (b) increase the number of Carrizo directors to be appointed to the Callon board to be commensurate with Carrizo’s equity ownership percentage in the combined company. The Carrizo board determined, however, not to grant negotiating exclusivity to any party at this time. The Carrizo board directed Mr. Johnson to communicate to Company E Carrizo’s hesitation regarding its proposal, but also to press Company E to provide an increased exchange ratio and additional board seats for Carrizo directors.

On June 25, 2019, representatives from Callon’s and Carrizo’s management met in Houston, Texas to discuss various aspects of the proposed transaction. Carrizo suggested that the exchange ratio should reflect a pro forma equity split of close to 50% for Carrizo’s historical shareholders and proportional board representation. Members of Callon’s management commented that equal board representation and a merger of equals were not, in their view, appropriate but agreed to take Carrizo’s request back to the Callon board. That day, representatives of Baker Botts distributed a revised draft of the merger agreement that, among other things, included (i) proportional board representation for Carrizo, (ii) the removal of Callon’s ability to respond to and accept a superior proposal during the period between signing and closing, and (iii) a termination fee equal to 3.9% of the applicable party’s equity value.

On June 25, 2019 and June 26, 2019, Mr. Johnson contacted the chief executive officer of Company E and discussed with him Carrizo’s request to Company E regarding an improvement in the proposed exchange ratio and an increase in the number of Carrizo directors to be appointed to Company E’s board to a number more representative of the relative share ownership of the two shareholder bases in the combined company and informed him of the proposed timing of the process, which contemplated potentially signing a merger agreement during the second week of July 2019.

On June 26, 2019, members of Carrizo’s senior management team and representatives of each of RBCCM and Lazard met with members of Company H’s senior management team to better understand Company H and its perspective on the strategic benefits of a combination with Carrizo.

 

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On June 27, 2019, the Callon board met telephonically to discuss the latest developments with the potential Carrizo transaction, including discussions regarding the exchange ratio and other proposed terms of the merger agreement. The Callon board also discussed the advisability of requesting an agreement providing for a period of exclusive negotiations between Callon and Carrizo. The Callon board authorized Mr. Gatto to respond to Carrizo with a proposal for an exchange ratio of 1.995 shares of Callon common stock for each outstanding share of Carrizo common stock and two board seats for Carrizo’s current directors on the board of the combined company. The Callon board also authorized Callon’s executive management team to negotiate an exclusivity agreement with Carrizo.

The next day, Mr. Johnson engaged in discussions with Mr. Gatto to (i) convey Carrizo’s request to Callon for an improved proposal in advance of Callon’s next board meeting, and (ii) discuss the size of the board of the pro forma combined company, exclusivity and timing. Later on June 28, 2019, Callon sent an exclusivity agreement to Carrizo proposing that Carrizo exclusively negotiate with Callon for a period to be agreed upon between the parties. On June 29, 2019, representatives of Baker Botts returned a draft of the exclusivity agreement to Callon and Kirkland proposing, among other things, that the obligation to negotiate exclusively be mutual.

On July 1, 2019, Mr. Johnson discussed the proposed exchange ratio and Carrizo’s request for an improved proposal with the chief executive officer of Company E.

On July 2, 2019, Mr. Gatto advised Mr. Johnson that Callon would be interested in pursuing an all-stock transaction at an exchange ratio of 1.995 shares of Callon common stock for each outstanding share of Carrizo common stock. Further, Mr. Gatto indicated that the Callon board would be expanded to include two current Carrizo directors and provide a one-year role for Mr. Johnson to serve as a special advisor. Based on information provided by Carrizo regarding its outstanding shares, an exchange ratio of 1.995 would result in approximately 45.5% of the issued and outstanding Callon common stock following the closing of the proposed transaction being held by holders of Carrizo common stock immediately prior to the merger. Mr. Johnson indicated that he would discuss that proposal with the Carrizo board and respond to Mr. Gatto in due course. Also on July 2, 2019, representatives of Callon and Carrizo met in person in Houston, Texas, to continue due diligence on financial matters related to the potential transaction.

That same day, the Carrizo board met, together with members of Carrizo management and representatives of each of RBCCM, Lazard, and Baker Botts, to receive an update on the process of exploring strategic transactions. The Carrizo board discussed Callon’s improved proposal. Mr. Johnson informed the Carrizo board that the chief executive officer of Company E had not yet responded to Carrizo’s request to increase the exchange ratio and the number of Carrizo directors to be appointed to Company E’s board. Mr. Johnson also reported on the meeting between Carrizo’s management and Company H’s management on June 26, 2019, Carrizo’s management’s view of Company H’s business plan and the fact that Company H’s proposed exchange ratio continued to result in an implied value that was significantly less than those in the proposals by Callon or Company E. The Carrizo board indicated it would need Company H’s implied premium to be significantly increased in order to remain interested in a combination with that company. The Carrizo board discussed Callon’s counterproposal, including the fact that, as a result of fluctuations in stock market prices, Callon’s proposed exchange ratio resulted in a higher implied value than that of Company E. The Carrizo board also noted (i) its preference for Callon’s assets and structure, and its belief that Callon provided a better strategic fit with Carrizo than Company E or Company H, and (ii) that Callon’s all-stock proposal allowed for increased scale that could benefit Carrizo shareholders through their participation in the results of the combined company and its ability to participate in possible future industry consolidation. The Carrizo board (i) instructed Mr. Johnson to (a) request that Callon increase Carrizo’s ownership interest in the pro forma combined company to 47% and increase the number of Carrizo directors to be appointed to the Callon board from two to four seats, and (b) seek to have one of the Carrizo board designees serve as chairman of Callon’s nominating and corporate governance committee, (ii) authorized Mr. Johnson and Mr. Webster to approve an exclusivity agreement in connection with obtaining an improved proposal from Callon, and (iii) instructed Mr. Johnson to request that (a) Company E present its highest and best offer with

 

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respect to the exchange ratio and the number of Carrizo directors to be appointed to Company E’s board, and (b) Company H present its highest and best offer with respect to the exchange ratio.

Later in the day, representatives of Kirkland sent Baker Botts a revised draft of the merger agreement reflecting Mr. Gatto’s proposal and other changes, including largely reciprocal non-solicitation provisions, except that Callon, but not Carrizo, could enter into agreements for mergers and other alternative transactions without the need to terminate the agreement, and termination rights and termination fee triggers, except that only Carrizo would have the right to terminate the merger agreement to accept a superior proposal. Later that evening, Mr. Johnson contacted the chief executive officer of Company E to request Company E’s highest and best proposed exchange ratio offer and number of Carrizo directors to be appointed to Company E’s board. The chief executive officer of Company E indicated that he would get back to Mr. Johnson the next day. Following the call, representatives of Baker Botts sent a revised draft of the merger agreement to Company E’s legal counsel.

On July 3, 2019, Mr. Johnson advised Mr. Gatto that the Carrizo board wanted an exchange ratio that would result in approximately 47% of the issued and outstanding Callon common stock following the closing of the proposed transaction being held by former shareholders of Carrizo, together with four Carrizo directors joining the board of directors of the combined company. Mr. Gatto expressed his concern as to the effect of Carrizo’s proposed exchange ratio on the attractiveness of the transaction to Callon’s shareholders and his hesitation in increasing the size of the Callon board from eight to twelve members. Mr. Gatto told Mr. Johnson that he would need to consult with his board.

That same day, the chief executive officer of Company E informed Mr. Johnson that the exchange ratio proposed by Company E in its May 31, 2019 offer letter was already its highest and best offer. Later that day, Company E submitted to Carrizo a revised offer letter with respect to the acquisition of 100% of the outstanding common stock of Carrizo. Under the terms of the offer letter, Carrizo shareholders would receive a fixed exchange ratio of Company E common shares for each share of Carrizo common stock, which was unchanged from its May 31, 2019 offer. With respect to the composition of the board of directors of the combined company, Company E agreed to increase the size of the board to consist of ten directors, three of whom would be current Carrizo directors, two of whom would be independent from Company E under applicable stock exchange rules and proxy advisor policies. The offer letter requested a 12-day exclusivity period to complete diligence, finalize documentation and announce a transaction.

Also on July 3, 2019, Mr. Johnson called the chief executive officer of Company H and asked for Company H to make its highest and best offer. The chief executive officer of Company H declined to raise its offer, but instead proposed to make a presentation to the Carrizo board regarding the strategic rationale of a proposed transaction with Company H.

On July 5, 2019, representatives of each of Kirkland and Baker Botts spoke by telephone to discuss items in the merger agreement.

On July 6, 2019, the Callon board met to discuss the status of negotiations regarding the proposed transaction with Carrizo, discuss an increased exchange ratio and proposals for Carrizo participation on the combined company board. After discussions with management, representatives of each of J.P. Morgan and Kirkland, the Callon board authorized Mr. Gatto to, among other things, increase the exchange ratio to 2.05 shares of Callon common stock for each outstanding share of Carrizo common stock, propose three board seats for current Carrizo directors on the board of the combined company, one selected by Callon and two selected by Carrizo, and request voting agreements from Carrizo’s directors and executive management in favor of the merger.

Later that day, Messrs. Gatto and Johnson spoke regarding a revised proposal from Callon, which included an exchange ratio of 2.05 shares of Callon common stock for each outstanding share of Carrizo common stock and three board seats for current Carrizo directors on the board of the combined company, two of which would be chosen by Carrizo and one of which would be chosen by Callon, and requested exclusivity with Carrizo

 

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through July 15, 2019. Mr. Johnson and Mr. Webster offered an exclusivity agreement with Callon if two of the three board seats given to Carrizo would be Class I directors of the Callon board and if one of the three board seats given to Carrizo would be a Class III director of the Callon board. Mr. Gatto also requested voting agreements from Carrizo’s directors and executive management in favor of the merger and said he would consult with the Callon board regarding the class of directorships. Mr. Morton sent the Carrizo board an update of the results of these discussions. Based on the number of shares of Carrizo common stock outstanding, an exchange ratio of 2.05 would result in approximately 46% of the issued and outstanding Callon common stock following the closing of the proposed transaction being held by holders of Carrizo common stock immediately prior to the merger.

On July 7, 2019, representatives of Kirkland provided Baker Botts with a draft voting and support agreement, which provided that each of the directors and executive officers of Carrizo would agree, subject to certain terms and conditions, to vote all shares of Carrizo common stock beneficially owned by such person in favor of the approval of the merger agreement and the merger. Later that evening, representatives of Baker Botts sent a revised draft of the voting and support agreement to Kirkland. The parties continued to negotiate the voting and support agreements through July 11, 2019, during which time representatives of each of Kirkland and Baker Botts engaged in discussions on outstanding issues.

On July 8, 2019, Messrs. Gatto and Johnson continued to negotiate the terms of the transaction. Mr. Johnson indicated that the Carrizo board would likely be willing to pursue a transaction on the terms outlined by Mr. Gatto on July 6, 2019. Later that same day, Callon and Carrizo executed an exclusivity agreement providing that each of Callon and Carrizo would negotiate exclusively with each other regarding a potential business combination until 11:59 p.m. CDT on July 15, 2019.

That same day, representatives of each of Callon, Kirkland, Carrizo, and Baker Botts met at Kirkland’s offices in Houston, Texas to discuss outstanding issues in the merger agreement and the parties’ due diligence efforts.

On July 9, 2019, the Callon board met to discuss the proposed transaction with Carrizo. Certain members of Callon management and representatives of each of J.P. Morgan and Kirkland were also in attendance. Ms. Ecklund provided the Callon board with an update regarding the status of the merger agreement and other documentation with respect to the potential transaction. Ms. Ecklund and representatives of Kirkland commented on the material open items in the merger agreement and the efforts and preliminary findings of Callon’s due diligence review. Representatives of Kirkland also provided an overview of the board’s fiduciary duties with respect to transactions of this nature. Representatives of J.P. Morgan discussed various aspects of the potential transaction, including, without limitation, (i) a situation update and a summary of key transaction terms, (ii) transaction mechanics, including ownership splits based on an assumed exchange ratio, (iii) an overview of the valuation analyses of Callon and Carrizo, followed by detail regarding public market trading multiples, discounted cash flow analyses (using various price decks and other assumptions) and net asset value analyses, (iv) a comparison of broker research estimates versus net asset value model projections, (v) operating metrics for each of Callon and Carrizo, (vi) a combination analysis for Callon and Carrizo, including, among other things, an exchange ratio and ownership analysis, a contribution analysis, an accretion and dilution analysis, a relative value analysis and intrinsic value creation analysis, and (vii) a pro forma analysis for the combined company. The Callon board discussed the merits of the transaction and the financial analyses provided by J.P. Morgan, together with benefits expected to be achieved by Callon’s shareholders if the transaction is consummated.

On July 10, 2019, executives of Callon and Carrizo met in Houston, Texas to discuss outstanding issues related to the transaction, including (i) Callon’s request that all members of the Carrizo board sign voting and support agreements pursuant to which each director would agree to vote all shares of Carrizo common stock beneficially owned by such individual in favor of the merger agreement and the merger, and (ii) the scope of the Callon non-solicitation provisions, expense reimbursements, and interim operating covenants in the merger agreement. Later that same day, the parties agreed that the voting and support agreements would be required of directors of Carrizo.

 

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From July 11 until July 13, 2019, representatives of Callon, Kirkland, Carrizo and Baker Botts held telephonic meetings to finalize the outstanding terms of the merger agreement and to address outstanding due diligence items.

On the evening of July 12, 2019, Callon and Carrizo agreed on the remaining key terms with respect to the merger agreement, including expense reimbursement provisions, certain covenants in respect of the financing contemplated by the merger agreement and the treatment of the Carrizo preferred stock. Representatives of each of Kirkland and Baker Botts exchanged drafts of the merger agreement.

On July 13, 2019, the Carrizo board held a meeting attended by Carrizo management and representatives of each of RBCCM, Lazard, and Baker Botts to receive an update on the process of exploring strategic transactions. Representatives of Baker Botts discussed the directors’ fiduciary duties in evaluating and approving the proposed merger. They also discussed with the Carrizo board a detailed summary of the terms of the merger agreement, including the direct merger structure, treatment of the Carrizo preferred stock, deal protection and termination provisions, related termination fee or expense reimbursement triggers, employee matters, pre-closing covenants, as well as the voting and support agreements. Representatives of each of RBCCM and Lazard discussed with the Carrizo board their respective financial analyses with respect to Carrizo, Callon, and the proposed merger. Following this discussion, (i) RBCCM rendered to the Carrizo board its oral opinion, which was subsequently confirmed by delivery of a written opinion dated July 13, 2019, that, as of the date of such opinion, and based on and subject to the assumptions, qualifications, limitations, and other matters as set forth in its written opinion, the exchange ratio provided for in the merger was fair from a financial point of view to the holders of common stock of Carrizo, and (ii) Lazard rendered to the Carrizo board its oral opinion, which was subsequently confirmed in writing by delivery of Lazard’s opinion letter dated July 13, 2019, to the effect that, as of such date, and based upon and subject to the assumptions, procedures, factors, qualifications, and limitations set forth in Lazard’s written opinion, the exchange ratio was fair, from a financial point of view, to the holders of Carrizo common stock (other than holders of excluded shares). Mr. Morton noted that, as of July 12, 2019, the approximate implied premium to Carrizo’s most recent closing price for each proposal was as follows: Callon – 25%; Company E – 13%; Company H – 1% and he also noted that, solely for informational purposes, the prior proposal from Company B, which had subsequently been withdrawn, now represented an approximate 24% implied discount to Carrizo’s most recent closing price. As a result, the proposal from Callon then represented the highest implied premium among the offers that had been made by such potential counterparties. Prior to the end of the meeting, the Carrizo board members present in person or telephonically, representing all of the directors of Carrizo, unanimously (i) approved the execution, delivery, and performance of the merger agreement and the consummation of the transactions contemplated by the merger agreement, (ii) directed that a proposal for the approval of the merger agreement be submitted to the Carrizo shareholders, (iii) recommended that the Carrizo shareholders approve the merger agreement, and (iv) approved other matters relating to the merger agreement.

On July 14, 2019, the Callon board met to discuss the proposed transaction, including the proposed final terms of the merger agreement. Representatives of Kirkland made a presentation to the Callon board with respect to various matters, including, without limitation, (i) the board’s fiduciary duties in connection with its consideration of the transaction, (ii) an overview of the key terms of the merger agreement, including alternative treatments for Carrizo’s preferred stock, the direct merger structure and treatment of employee matters, (iii) an overview of the non-solicitation provisions of the merger agreement, (iv) the status and terms of commitment letters required for refinancing Callon’s and Carrizo’s credit facilities, (v) an illustrative timeline for the transaction from signing to closing, assuming the board approved the proposed business combination, (vi) an update of Callon’s legal due diligence efforts, and (vii) a summary of the resolutions to come before the board in connection with the proposed business combination. J.P. Morgan then provided an updated fairness presentation and responded to questions from the Callon board. Thereafter, J.P. Morgan rendered its fairness opinion to the Callon board that, as of July 14, 2019, and based upon and subject to the assumptions made and limitations to be set forth in the opinion, the exchange ratio was fair, from a financial point of view, to Callon. J.P. Morgan subsequently confirmed its fairness opinion in writing. After discussion, the Callon board unanimously (i) determined that the merger agreement and transactions contemplated thereby, including the merger, the share

 

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issuance and the charter amendment, were advisable to Callon and its shareholders, (ii) approved the execution and delivery of the merger agreement, the performance by Callon of its covenants and agreements contained therein and the consummation of the transactions contemplated by the merger agreement, (iii) directed that the merger agreement, the share issuance and the charter amendment be submitted to Callon shareholders at a special meeting of shareholders, (iv) resolved to recommend that Callon shareholders approve the merger, share issuance and charter amendment contemplated by the merger agreement, and (v) approved other matters related to the merger agreement, the share issuance and the charter amendment.

That evening, representatives of each of Kirkland and Baker Botts finalized the terms of the merger agreement, disclosure schedules and ancillary documents, following which Carrizo and Callon executed and delivered the merger agreement that same day.

Prior to the opening of U.S. stock markets on July 15, 2019, Carrizo and Callon issued a joint news release announcing the proposed merger, and Callon, with participation of Carrizo management, hosted a conference call for the investment community to discuss the proposed merger.

Recommendation of the Callon Board and Reasons for the Merger

On July 14, 2019, the Callon board unanimously determined that the terms of the merger agreement, the merger, and the other transactions contemplated by the merger agreement are advisable to Callon and its shareholders, and unanimously approved and declared advisable the merger agreement, the merger, and the other transactions contemplated by the merger agreement. The Callon board unanimously recommends that Callon’s shareholders vote “FOR” the Callon merger proposal, “FOR” the Callon compensation proposal and “FOR” the Callon adjournment proposal.

In the course of reaching its recommendation in discussions over nine separate board meetings, the Callon board consulted with Callon’s executive management team and its outside legal and financial advisors and considered several potentially positive factors, including the following (not necessarily presented in order of relative importance):

 

   

the merger, which is expected to be immediately accretive to non-GAAP free cash flow per share in fiscal year 2020, with positive free cash flow generation of over $100 million, based on then-current strip pricing, will substantially enhance the Callon’s ability to fund development of its Permian Basin assets;

 

   

the merger will create a leading mid-cap operating company with a strong stand-alone outlook, as well as a more appealing profile for future industry consolidation, through its liquids-rich production profile and increased footprint in two of Texas’ prolific shale development areas, including:

 

     

the opportunity for sustained, long-term growth in connection with transitioning to a model of larger scale program development, unlocking significant cost efficiencies and optimizing the combined inventory of stacked pay zones;

 

     

shared regional infrastructure and an improved ability to enhance technical advancements and well delineation as a larger entity focused on the Delaware Basin;

 

     

the addition of mature production and free cash flow in the Eagle Ford shale with a repeatable, low-risk drilling program that also provides a balance to the relatively higher capital intensity and cycle times of the Delaware Basin; and

 

     

an enhanced organization positioned to capitalize on a combined knowledge base and progress initiatives for increased capital efficiencies over time.

 

   

the acquisition of Carrizo is expected to provide additional financial flexibility to the combined company by, among other things, maintaining a strong credit profile with sufficient liquidity to fund future growth and development;

 

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the merger is expected to create between $110 million and $170 million per year on a pre-tax basis of operational synergies and cost savings;

 

   

Callon will continue to be led by its current strong, experienced management team, and the addition of three current Carrizo directors to the Callon board post-merger is expected to add further valuable expertise, experience and in-depth familiarity with Carrizo’s assets, which will enhance the likelihood of realizing the strategic benefits from the merger;

 

   

the belief that the merger is superior to Callon’s continuing to operate as a stand-alone company and will bring together two organizations grounded in a shared commitment to responsible operations and with a drive to deliver industry-leading results;

 

   

Callon board’s knowledge of, and discussions with Callon management and its advisors regarding, Callon’s and Carrizo’s business operations, financial conditions, earnings and prospects, taking into account Callon’s due diligence investigation of Carrizo;

 

   

the oral opinion of J.P. Morgan rendered to the Callon board on July 14, 2019 (which was subsequently confirmed in writing by delivery of J.P. Morgan’s written opinion addressed to the Callon board dated the same date, which is included as Exhibit C to the joint proxy statement/prospectus) to the effect that, as of the date of such opinion, and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by J.P. Morgan in preparing its opinion, the exchange ratio was fair from a financial point of view to Callon, as further described in the section entitled “—Opinion of Callon’s Financial Advisor”;

 

   

the fact that the merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code;

 

   

the restrictions imposed on Callon’s business and operations during the pendency of the merger are reasonable and not unduly burdensome;

 

   

the exchange ratio is fixed and will not fluctuate in the event that the market price of Carrizo common stock increases relative to the market price of Callon common stock between the date of the merger agreement and the closing of the merger;

 

   

the likelihood of consummation of the merger and the Callon board’s evaluation of the likely time frame necessary to close the merger;

 

   

Callon shareholders will have the opportunity to vote on the charter amendment proposal and share issuance proposal, which is a condition precedent to the merger; and

 

   

the representations, warranties, covenants and conditions contained in the merger agreement, including the following:

 

     

the fact that Callon has the right, subject to certain conditions, to provide non-public information in response to, and to discuss and negotiate, certain unsolicited acquisition proposals made to Callon before Callon’s shareholders approve the transaction (see the section entitled “The Merger Agreement—No Solicitation of Alternative Proposals” beginning on page 163);

 

     

the provision of the merger agreement allowing the Callon board, prior to obtaining Callon shareholder approval, to change its recommendation to the Callon shareholders with respect to the adoption of the merger agreement if it determines in good faith, after consultation with its outside legal counsel and financial advisors, that the failure to take such action would be reasonably likely to be inconsistent with the Callon board’s fiduciary duties;

 

     

the belief of the Callon board that the termination fee of $57 million, which may be payable by Callon in certain circumstances, is reasonable under the circumstances given the size of the transaction and taking into account the range of such termination fees in similar transactions (see the section entitled “The Merger Agreement—Termination of the Merger Agreement” beginning on page 171 and “The Merger Agreement—Expenses and Termination Fees Relating to the Termination of the Merger Agreement” beginning on page 172);

 

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that there are limited circumstances in which the Carrizo board may terminate the merger agreement or change its recommendation that the Carrizo shareholders approve the merger, and if the merger agreement is terminated by Callon as a result of a change in recommendation of the Carrizo board, then Carrizo has agreed to pay Callon a termination fee of $47.4 million, as further described in the section entitled “The Merger Agreement—Expenses and Termination Fees Relating to the Termination of the Merger Agreement” beginning on page 172; and

 

     

that if the merger agreement is terminated by either party because Carrizo shareholders do not approve the merger, then Carrizo has agreed to reimburse Callon for its costs, fees and expenses incurred in connection with the transactions contemplated by the merger agreement, as further described in the section entitled “The Merger Agreement—Expenses and Termination Fees Relating to the Termination of the Merger Agreement,” beginning on page 172.

The Callon board also considered and balanced against the potentially positive factors a number of uncertainties, risks and other countervailing factors in its deliberations concerning the transaction and the other transactions contemplated by the merger agreement, including the following (not necessarily in order of relative importance):

 

   

the fact that the market price of Callon common stock could be affected by many factors, including: (i) if the merger agreement is terminated, the reason or reasons for such termination and whether such termination resulted from factors adversely affecting Callon; (ii) the possibility that, as a result of the termination of the merger agreement, possible acquirers may consider Callon to be an unattractive acquisition candidate; and (iii) the possible sale of Callon common stock by short-term investors following an announcement that the merger agreement was terminated.

 

   

the fact that the amount of time that may be required to consummate the transaction, including the fact that the completion of the transaction depends on factors outside of Callon’s or Carrizo’s control and the risk that the pendency of the transaction for an extended period of time could have an adverse effect on Callon;

 

   

the fact that, under specified circumstances, Callon may be required to pay certain termination fees in the event the merger agreement is terminated and the effect this could have on Callon, including:

 

     

the possibility that a $57 million termination fee would be payable by Callon to Carrizo upon the termination of the merger agreement in the event the Callon board changes its recommendation with regard to the merger, although the Callon board believes that the termination fee is reasonable in amount and will not unduly deter, preclude or restrict any other party that might be interested in acquiring Callon; and

 

     

if the transaction is not consummated, Callon will generally be required to pay its own expenses associated with the transaction and, if the merger agreement is terminated for the failure of Callon’s shareholders to approve the merger agreement and transactions contemplated thereby, Callon will be required to pay Carrizo up to $7.5 million for Carrizo’s costs, fees and expenses incurred in connection with the transactions contemplated by the merger agreement;

 

   

the fact that the merger agreement restricts Callon’s ability to entertain other acquisition proposals unless certain conditions are satisfied;

 

   

the risk that the combined company may not be able to successfully integrate the Callon and Carrizo businesses and may not be able to achieve the cost savings and synergies anticipated in connection with the merger;

 

   

the fact that the restrictions on Callon’s conduct of business prior to completion of the transaction could delay or prevent Callon from undertaking business opportunities that may arise or taking other actions with respect to its operations during the pendency of the transaction;

 

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the fact that the significant costs involved in connection with entering into the merger agreement and completing the transaction, and the substantial time and effort of management required to consummate the transaction, could disrupt Callon’s business operations; and

 

   

the risks and uncertainties associated with executing on Callon’s business strategy and achieving Callon’s related financial projections and opportunities, including as described in the “risk factors” and “forward-looking statements” sections of Callon’s disclosures filed with the SEC and in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” of this joint proxy statement/prospectus.

After taking into account the factors set forth above, as well as others, the Callon board concluded that the risks, uncertainties, restrictions and potentially negative factors associated with the transaction were outweighed by the potential benefits of the transaction to Callon’s shareholders.

The foregoing discussion of factors considered by Callon is not intended to be exhaustive, but summarizes the material factors considered by the Callon board. In light of the variety of factors considered in connection with its evaluation of the merger agreement and the transaction, Callon did not find it practicable to, and did not, quantify, rank or otherwise assign relative weights to the specific factors considered in reaching its determinations and recommendations. Moreover, each member of the Callon board applied his or her own personal business judgment to the process and may have given different weight to different factors. The Callon board based its recommendation on the totality of the information presented, including thorough discussions with, and questioning of, Callon’s executive management team and the Callon board’s financial advisors and outside legal counsel.

In considering the recommendation of the Callon board to approve the merger agreement proposal, Callon shareholders should be aware that the executive officers and directors of Callon have certain interests in the transaction that may be different from, or in addition to, the interests of Callon shareholders generally. The Callon board was aware of these interests and considered them when approving the merger agreement and recommending that Callon shareholders vote to approve the merger agreement proposal. See the section entitled “—Interests of Certain Callon Directors and Executive Officers in the Merger” beginning on page 133.

It should be noted that this explanation of the reasoning of the Callon board and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 32.

Recommendation of the Carrizo Board and Reasons for the Merger

On July 13, 2019, the Carrizo board unanimously determined (i) to approve the merger agreement, the execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated by the merger agreement, including the merger, (ii) to submit the merger agreement to a vote of the holders of Carrizo common stock and (iii) to recommend approval of the merger agreement by the holders of shares of Carrizo common stock. The Carrizo board unanimously recommends that holders of Carrizo common stock vote “FOR” the Carrizo merger proposal and “FOR” the Carrizo compensation advisory proposal and “FOR” the Carrizo adjournment proposal.

In the course of reaching its determinations and recommendations, the Carrizo board consulted with Carrizo’s senior management and its outside legal and financial advisors and considered several potentially positive factors that weighed in favor of the merger, including the following (not necessarily presented in order of relative importance):

 

   

Benefits of a Combination with Callon.

 

   

Exchange ratio. The exchange ratio of 2.05 Callon common shares for each share of Carrizo common stock represented a premium of approximately 25% to the closing price of Carrizo’s

 

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common stock on July 12, 2019, the last trading day before the public announcement of the merger, a premium of approximately 17% to Carrizo’s trailing 90-day volume weighted average price.

 

   

All-stock Consideration. The all-stock merger consideration was an important feature of the transaction to the Carrizo board and will allow Carrizo shareholders to retain exposure to the potential upside of the combined company going forward, with Carrizo shareholders owning approximately 46% of the combined company on a pro forma basis, based on the number of shares of Carrizo common stock and Callon common shares expected to be outstanding immediately prior to the consummation of the merger.

 

   

Callon’s focus in the Permian Basin. All of Callon’s oil and gas assets are located in the Permian Basin, which is one of the most prolific oil and natural gas geologic basins in the United States and is an area where Carrizo also conducts a significant part of its operations. The Carrizo board believes that the Permian Basin provides many exploration and operational advantages and has the potential for attractive results because, among other things, portions of its geology include multiple stacked plays which can allow for efficient development and production from multiple zones. As a Permian “pure-play” company, Callon’s common stock has in recent years generally traded at a premium trading multiple to shares of similarly sized publicly traded oil and gas companies whose assets are not substantially located in the Permian Basin, including as compared to Carrizo’s common stock, and the Carrizo Board believes that Carrizo shareholders would benefit from receiving this attractive acquisition currency. In addition, Carrizo shareholders will, through the merger, gain exposure in the combined company to high-margin oil production in the Midland Basin.

 

   

Increase in scale in the Delaware Basin region of the Permian Basin. The Carrizo board believes the combined company would benefit from the increase in scale in the Delaware Basin region of the Permian Basin as the combined company is expected to operate more than 90,000 net acres in the Delaware Basin region of the Permian Basin, or almost double than Carrizo operated on a standalone basis. With many of Carrizo’s and Callon’s assets in the Delaware Basin proximately located to each other, capital investments could be allocated more efficiently in developing Delaware Basin assets in a combined company and shifted between active drilling areas to react in a timely manner to changes in commodity prices, transportation constraints, regulatory conditions and other factors. The increased scale, combined with enhanced financial capacity, will allow the combined company to benefit from the value of its combined portfolio of drilling locations from an enhanced development model that can deliver optimized returns on capital while preserving the long-term economics of that portfolio.

 

   

Significant synergies and cash savings. The Carrizo board considers consolidation to be an effective method of capturing the benefits of potential synergies. The Carrizo board expects that potential cost savings and other synergies totaling between $120 million and $190 million per year on a pre-tax basis, based primarily on information provided by Callon and consisting of operational synergies (including optimized capitalized allocation), cash general and administrative savings, and interest savings (see the section entitled “—Certain Carrizo Unaudited Prospective Financial and Operating Information—Carrizo Management Projections for Expected Synergies and Cost Savings” beginning on page 104). These include an improvement in the combined company’s ability to optimize development schedules through shorter cycle times and continuous utilization of dedicated crews and to share facilities and infrastructure, including infrastructure optimization benefits through pad sites, production facilities, water and roads. Certain of the cost savings and other synergies will be available from combining the companies’ acreage positions given the geographic adjacency or proximity of Carrizo’s and Callon’s assets in the Delaware Basin. Part of the savings are attributable to expected interest cost savings attributable to the increased size of the combined company. When combined, the pro forma company is expected to have an approximate 200,000 net acre footprint in the Permian Basin and Eagle Ford Shale, approximately 2,500 total gross horizontal drilling locations, and proved reserves of more than 568 MMBoe of oil equivalent.

 

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The Carrizo board believes that this asset profile, taken together with the larger market capitalization and increased trading liquidity will ultimately lead to lower cost of capital and generally improved access to capital markets. A portion of the expected cash savings are expected through the elimination of duplicative internal departments and positions. The Carrizo board determined that the operational footprint of the combined company, combined with Carrizo’s cube development expertise, could enable the combined company to develop its assets for less capital and realize significant cost synergies.

 

   

Other Benefits of a Combined Company. The belief of the Carrizo board that the combined company will be well positioned to achieve future growth and generate additional returns for Carrizo’s former shareholders, including from the following benefits:

 

     

combining technical teams with similar execution-focused cultures;

 

     

greater optionality to direct capital to high rate-of-return projects;

 

     

immediate knowledge transfer from adjacent and other technology projects; and

 

     

the quality and scale of the combined company’s assets and the complementary nature of the assets, including that Callon’s Midland Basin properties and Carrizo’s Eagle Ford properties are complementary to the more capital intensive and riskier assets of both companies in the Delaware Basin.

 

   

Corporate Governance. Carrizo’s pre-merger shareholders will have an indirect continuing influence in the execution of the strategy and business plan of the combined company through the appointment of three Carrizo directors to the board of directors of the combined company in connection with the consummation of the merger.

 

   

Tax Considerations. The Carrizo board considered that the merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code with the result that U.S. holders of shares of Carrizo common stock generally will not recognize any gain or loss for U.S. federal income tax purposes upon receipt of any portion of the merger consideration delivered in the form of Callon common stock. 

 

   

Superior Alternative to Continuing Carrizo on an Independent, Stand-alone Basis. The Carrizo board determined that entering into the merger agreement with Callon was preferable to continuing to operate on a stand-alone basis in light of certain risks associated with continuing to operate as a stand-alone company, such as:

 

   

the risk that it will become increasingly difficult for Carrizo to grow its production, reserves and inventory of drilling locations on a cost-efficient basis at the same pace as it has been able to do so historically, and that other avenues to do so, such as acquiring a third party or financing growth through capital markets, had become more limited recently for exploration and production companies of Carrizo’s size; and

 

   

the risk that, as the performance of Permian Basin and Eagle Ford producers becomes more dependent on the most efficient development of existing resources and less dependent on the acquisition and discovery of new resources, Carrizo, despite its current ability to find and complete wells on a cost-effective basis, may become less competitive, on a relative basis, compared with larger producers, due the scale-related advantages available to larger companies.

 

   

Receipt of Fairness Opinions from RBC Capital Markets and Lazard. The Carrizo board considered (i) the oral opinion of RBCCM to the Carrizo board, which was subsequently confirmed by the delivery of a written opinion dated as of July 13, 2019, to the effect that, as of such date, based on and subject to certain assumptions, qualifications, limitations, and other matters, the exchange ratio was fair, from a financial point of view, to holders of common stock of Carrizo, together with the related financial

 

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analyses and (ii) the financial analysis reviewed and discussed with representatives of Lazard, as well as the oral opinion of Lazard delivered at the meeting of the Carrizo board on July 13, 2019, and subsequently confirmed in writing by delivery of Lazard’s opinion letter dated July 13, 2019, to the effect that, as of such date, and based upon and subject to certain assumptions, procedures, factors, qualifications, and limitations set forth in Lazard’s written opinion letter, the exchange ratio was fair, from a financial point of view, to the holders of Carrizo common stock (other than holders of excluded shares). See the section entitled “—Opinions of Carrizo’s Financial Advisors” beginning on page 113.

 

   

Strategic Review Process. From August 2018 through July 2019, Carrizo or its financial advisors were in contact with a total of 14 potentially interested public and private companies to determine their interest in a business combination transaction with Carrizo. Callon and seven other companies entered into confidentiality agreements with Carrizo. Out of those eight potential counterparties, four made proposals, three (one of which included Callon’s proposal) of which were still outstanding at the time of the Carrizo board’s meeting on July 13, 2019. The Carrizo board determined that Callon’s proposal provided the highest implied value (based on the prior day’s closing stock price), and that the combination with Callon was the most attractive proposal because of, among other things, Callon’s assets, the expected synergies and cost savings and the other reasons described in this section.

 

   

Opportunity to Receive Alternative Acquisition Proposals and to Terminate the Transaction in Order to Accept a Superior Proposal. The Carrizo board considered the terms of the merger agreement relating to Carrizo’s ability to respond to unsolicited acquisition proposals, and the other terms of the merger agreement, including:

 

   

the fact that Carrizo has the right, subject to certain conditions, to provide non-public information in response to, and to discuss and negotiate, certain unsolicited acquisition proposals made before Carrizo shareholders approve of the transaction (see the section entitled “The Merger Agreement—No Solicitation of Alternative Proposals” beginning on page 163);

 

   

the provision of the merger agreement allowing the Carrizo board, prior to obtaining Carrizo shareholder approval, to change its recommendation to holders of Carrizo common stock with respect to the adoption of the merger agreement or to terminate the merger agreement to accept a Company Superior Proposal (as defined in the merger agreement) if it determines in good faith, after consultation with its outside legal counsel and financial advisors, that the failure to take such action would reasonably be likely inconsistent with the Carrizo board’s fiduciary duties;

 

   

the belief of the Carrizo board that the termination fee of $47.4 million, which may be payable by Carrizo in certain circumstances, was reasonable under the circumstances and would not be preclusive to other offers (see the section entitled The Merger Agreement—Termination of the Merger Agreement” and “The Merger Agreement—Expenses and Termination Fees Relating to the Termination of the Merger Agreement” beginning on pages 171 and 172);

 

   

that there are limited circumstances in which the Callon board may terminate the merger agreement or change its recommendation that Callon shareholders approve share issuance proposal, the charter amendment or the merger, and if the merger agreement is terminated by Carrizo as a result of, among other things, a change in recommendation of the Callon board, then Callon has agreed to pay Carrizo a termination fee of $57.0 million, as further described in the section entitled “The Merger Agreement—Expenses and Termination Fees Relating to the Termination of the Merger Agreement—Termination Fees payable by Callon”; and

 

   

that if the merger agreement is terminated by either party because Callon shareholders do not approve the share issuance proposal, the charter amendment or the merger, then Callon has agreed to reimburse Carrizo for up to $7.5 million of its expenses, as further described in the section entitled “The Merger Agreement—Expenses and Termination Fees Relating to the Termination of the Merger Agreement—Expenses.”

 

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The Carrizo board also considered and balanced against the potentially positive factors a number of uncertainties, risks and other countervailing factors in its deliberations concerning the merger and the merger agreement, including the following (not necessarily in order of relative importance):

 

   

Fixed Exchange Ratio. The fact that the exchange ratio in the merger agreement provides for a fixed number of Callon common shares, and, as such, Carrizo shareholders cannot be certain at the time of the Carrizo special meeting of the market value of the merger consideration they will receive, and the possibility that Carrizo shareholders could be adversely affected by a decrease in the trading price of Callon common shares before the closing of the merger.

 

   

Impacts on the Market Price of Carrizo Common Stock. The fact that the market price of Carrizo common stock could be affected by many factors, including: (i) if the merger agreement is terminated, the reason or reasons for such termination and whether such termination resulted from factors adversely affecting Carrizo; (ii) the possibility that, as a result of the termination of the merger agreement, possible acquirers may consider Carrizo to be an unattractive acquisition candidate; and (iii) the possible sale of Carrizo common stock by short-term investors following an announcement that the merger agreement was terminated.

 

   

Risks Associated with the Pendency of the Merger. The risks and contingencies relating to the announcement and pendency of the merger, including the potential for diversion of management and employee attention and the potential effect of the combination on the businesses of both companies and the restrictions on the conduct of Carrizo’s business during the period between the execution of the merger agreement and the completion of the transactions contemplated thereby as set forth in the merger agreement.

 

   

Possible Failure to Achieve Cost Savings and Other Synergies. The potential challenges and difficulties in integrating the operations of Carrizo and Callon and the risk that the anticipated cost savings and operational and other synergies between the two companies, or other anticipated benefits of the merger, might not be realized, may only be achieved over time or might take longer to realize than expected;

 

   

Potential Negative Market Reaction to Combined Company not being a “Pure-Play” Business Model. The potential market reaction to the fact that the combined company would not be considered a Permian “pure-play” company, which could result in the combined company trading at a lower multiple than Callon’s common stock trading multiple prior to the announcement of the merger;

 

   

Termination Fees and Reimbursements. The requirement that Carrizo would be required to (i) pay Callon a termination fee of $47.4 million if the Carrizo board were to terminate the merger agreement in order for Carrizo to enter into a superior proposal, should one be made, or if the merger agreement were to be terminated by Callon in connection with a change in the Carrizo board’s recommendation to the holders of Carrizo common stock with respect to approval of the merger agreement or (ii) reimburse Callon for up to $7.5 million of its expenses if the Carrizo shareholders do not approve the merger agreement. The Carrizo board believed that this termination fee is consistent with fees in comparable transactions and would not be preclusive of other offers. In addition, if the merger agreement is terminated, Carrizo will generally be required to pay its own expenses associated with the transaction;

 

   

Restrictions on Third-Party Discussions. The fact that there are restrictions in the merger agreement on Carrizo’s ability to solicit competing bids to acquire it and to entertain other acquisition proposals unless certain conditions are satisfied;

 

   

Less Influence over Business Decisions. Current Carrizo shareholders will have a reduced ownership and voting interest after the merger and will exercise less influence over the policies of the combined company than they now have on the policies of Carrizo;

 

   

Future Consolidation May Not Occur. Although the combined company is expected to have a significantly larger market capitalization and improved financial and operational metrics relative to Carrizo as a standalone entity that may facilitate the ability of the combined company to participate in

 

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future industry consolidation, there is no guarantee that future consolidation may occur with the combined company or within the industry.

 

   

Leverage Profile May Not Improve Immediately. The risk that the merger will not immediately or thereafter improve the combined company’s credit profile, including in respect of reduced debt leverage, balance sheet and liquidity, or that any improvement will be material, any of which may result in limited or no improvement of the combined company’s access to capital and overall cost of capital.

 

   

Interim Operating Covenants. The fact that the restrictions on Carrizo’s conduct of business prior to completion of the transaction could delay or prevent Carrizo from undertaking business opportunities that may arise or taking other actions with respect to its operations during the pendency of the transaction;

 

   

Other Risks. The Carrizo Board considered risks of the type and nature described under the sections entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” beginning on pages 32 and 34, respectively.

After taking into account the factors set forth above, as well as others, the Carrizo board concluded that the risks, uncertainties, restrictions and potentially negative factors associated with the transaction were outweighed by the potential benefits of the transaction to Carrizo shareholders.

The foregoing discussion of factors considered by Carrizo is not intended to be exhaustive but summarizes the material factors considered by the Carrizo board. In light of the variety of factors considered in connection with their evaluation of the merger agreement and the transaction, Carrizo did not find it practicable to, and did not, quantify, rank or otherwise assign relative weights to the specific factors considered in reaching their determinations and recommendations. Moreover, each member of the Carrizo board applied his or her own personal business judgment to the process and may have given different weight to different factors. The Carrizo board based its recommendation on the totality of the information presented, including thorough discussions with, and questioning of, Carrizo’s senior management and the Carrizo’s board’s outside legal and financial advisors.

In considering the recommendation of the Carrizo board to approve the merger agreement, holders of Carrizo common stock should be aware that the executive officers and directors of Carrizo have certain interests in the transaction that may be different from, or in addition to, the interests of Carrizo shareholders generally. See the section entitled “—Interests of Certain Carrizo Directors and Executive Officers in the Merger” beginning on page 135.

It should be noted that this explanation of the reasoning of the Carrizo board and certain information presented in this section is forward-looking in nature and should be read in light of the factors set forth in “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 32.

Certain Callon Unaudited Prospective Financial and Operating Information

Callon does not as a matter of course make public long-term forecasts or internal projections as to future performance, revenues, production, earnings, or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, in connection with its evaluation of the merger, Callon’s management prepared certain unaudited internal financial forecasts with respect to Callon, which were provided to the Callon board and Carrizo, as well as Callon’s and Carrizo’s respective financial advisors, in connection with their evaluation of the proposed merger. Such forecasts also were provided to J.P. Morgan for its use and reliance in connection with its financial analyses and opinion described in “—Opinion of Callon’s Financial Advisor.” The inclusion of this information should not be regarded as an indication that any of Callon, Carrizo, their respective advisors, or other representatives or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future performance or events, or that it should be construed as financial guidance, and such summary projections set forth below should not be relied on as such.

 

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This information was prepared solely for internal use and is subjective in many respects. While presented with numeric specificity, the unaudited prospective financial and operating information reflects numerous estimates and assumptions that are inherently uncertain and may be beyond the control of Callon’s management, including, among others, Callon’s and Carrizo’s future results, oil and gas industry activity, commodity prices, demand for crude oil and natural gas, the availability of financing to fund the exploration and development costs associated with the respective projected drilling programs, general economic and regulatory conditions, and other matters described in “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.” The unaudited prospective financial and operating information reflects both assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. Callon and Carrizo can give no assurance that the unaudited prospective financial and operating information and the underlying estimates and assumptions will be realized. In addition, since the unaudited prospective financial and operating information covers multiple years, such information by its nature becomes less predictive with each successive year. Actual results may differ materially from those set forth below, and important factors that may affect actual results and cause the unaudited prospective financial information to be inaccurate include, but are not limited to, risks and uncertainties relating to its business, industry performance, the regulatory environment, general business and economic conditions, and other matters described in “Risk Factors.” Please also see “Cautionary Statement Regarding Forward-Looking Statements” and “Where You Can Find More Information.”

The unaudited prospective financial and operating information was not prepared with a view toward public disclosure, nor was it prepared with a view toward compliance with GAAP, published guidelines of the SEC, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither Callon’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the unaudited prospective financial and operating information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability. The report of the independent registered public accounting firm to Callon contained in its Annual Report on Form 10-K for the year ended December 31, 2018, which is incorporated by reference into this joint proxy statement/prospectus, relates to historical financial information of Callon, and such report does not extend to the projections included below and should not be read to do so.

Furthermore, the unaudited prospective financial and operating information does not take into account any circumstances or events occurring after the date it was prepared. Callon and Carrizo can give no assurance that, had the unaudited prospective financial and operating information been prepared either as of the date of this joint proxy statement/prospectus or as of the date of the Callon special meeting and the Carrizo special meeting, similar estimates and assumptions would be used. Except as required by applicable securities laws, Callon and Carrizo do not intend to, and disclaim any obligation to, make publicly available any update or other revision to the unaudited prospective financial and operating information to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, including with respect to the accounting treatment of the merger under GAAP, or to reflect changes in general economic or industry conditions. The unaudited prospective financial and operating information does not take into account all the possible financial and other effects on Callon or Carrizo of the merger, the effect on Callon or Carrizo of any business or strategic decision or action that has been or will be taken as a result of the merger agreement having been executed, or the effect of any business or strategic decisions or actions which would likely have been taken if the merger agreement had not been executed, but which were instead altered, accelerated, postponed, or not taken in anticipation of the merger. Further, the unaudited prospective financial and operating information does not take into account the effect on Callon or Carrizo of any possible failure of the merger to occur. None of Callon, Carrizo, or their respective affiliates, officers, directors, advisors, or other representatives has made, makes, or is authorized in the future to make any representation to any Callon or Carrizo shareholder or other person regarding Callon’s or Carrizo’s ultimate performance compared to the information contained in the unaudited prospective financial and operating information or that the forecasted results will be achieved. The inclusion of the unaudited prospective financial

 

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and operating information herein should not be deemed an admission or representation by Callon, Carrizo, their respective advisors, or any other person that it is viewed as material information of Callon or Carrizo, particularly in light of the inherent risks and uncertainties associated with such forecasts. The summary of the unaudited prospective financial and operating information included below is not being included to influence your decision whether to vote in favor of the merger, the share issuance, the charter amendment, or any other proposal to be considered at the special meetings, but is being provided solely because it was made available to the Callon board, Carrizo, and Callon’s and Carrizo’s respective financial advisors in connection with the merger.

In light of the foregoing, and considering that the special meetings will be held several months after the unaudited prospective financial and operating information was prepared, as well as the uncertainties inherent in any forecasted information, Callon shareholders and Carrizo shareholders are cautioned not to place undue reliance on such information, and Callon and Carrizo urge all Callon shareholders and Carrizo shareholders to review Callon’s most recent SEC filings for a description of Callon’s reported financial results and Carrizo’s most recent SEC filings for a description of Carrizo’s reported financial results. Please see “Where You Can Find More Information.”

Summary of Certain Callon Unaudited Prospective Financial and Operating Information

In preparing the prospective financial and operating information described below, the management team of Callon authorized the use of the following price assumptions, which are based on (1) New York Mercantile Exchange (“NYMEX”) oil and gas strip pricing available on July 11, 2019 and (2) Wall Street consensus pricing with respect to future commodity prices for oil and natural gas, per Bloomberg, as of July 11, 2019:

 

     NYMEX oil and gas strip pricing  
             2019E                      2020E                      2021E                      2022E                      2023E          

Natural Gas ($/Mmbtu)

   $ 2.48      $ 2.60      $ 2.60      $ 2.61      $ 2.68  

Crude Oil ($/Bbl)

   $ 59.65      $ 58.07      $ 55.59      $ 54.45      $ 54.20  

 

     Wall Street consensus pricing  
             2019E                      2020E                      2021E                      2022E                      2023E          

Natural Gas ($/Mmbtu)

   $ 2.85      $ 2.84      $ 2.85      $ 2.85      $ 2.85  

Crude Oil ($/Bbl)

   $ 58.99      $ 59.50      $ 59.50      $ 59.50      $ 59.50  

The following tables set forth certain summarized prospective financial and operating information regarding Callon for the years 2019 through 2023, based on the respective price assumptions indicated above, which information was prepared by or at the direction of Callon management and authorized by Callon management to be used and relied upon by J.P. Morgan in connection with its financial analysis and opinions described in “—Opinion of Callon’s Financial Advisor.” The following unaudited prospective financial and operating information should not be regarded as an indication that Callon considered, or now considers, it to be necessarily predictive of actual future performance or events, or that it should be construed as financial guidance, and such information does not take into account any circumstances or events occurring after the date it was prepared, including, among other things, Callon’s anticipated or actual capital allocation relating to the Callon assets post-closing of the merger.

 

     Unaudited Callon Financial and Operating Forecast
with NYMEX oil and gas strip pricing
 
($ in millions)          2019E                  2020E                  2021E                  2022E                  2023E        

Total net daily production (Mboe/d)

     39.7        46.0        54.1        67.4        80.4  

Net daily oil production (Mbo/d)

     31.2        36.7        43.2        53.8        63.6  

Adjusted EBITDAX(1)

   $ 529      $ 679      $ 800      $ 991      $ 1,181  

Adjusted operating cash flow(2)

   $ 483      $ 676      $ 797      $ 988      $ 1,178  

Capital expenditures(3)

   $ 515      $ 581      $ 650      $ 753      $ 725  

 

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     Unaudited Callon Financial and Operating Forecast
with Wall Street consensus pricing
 
($ in millions)          2019E                  2020E                  2021E                  2022E                  2023E        

Total net daily production (Mboe/d)

     39.7        46.0        54.1        67.5        80.5  

Net daily oil production (Mbo/d)

     31.2        36.7        43.2        53.8        63.6  

Adjusted EBITDAX(1)

   $ 526      $ 702      $ 867      $ 1,096      $ 1,310  

Adjusted operating cash flow(2)

   $ 480      $ 699      $ 864      $ 1,094      $ 1,307  

Capital expenditures(3)

   $ 515      $ 581      $ 650      $ 753      $ 725  

 

(1)

Defined as oil and gas revenue less operating expenses, hedge loss and general and administrative expenses. Adjusted EBITDAX is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

 

(2)

Defined as Adjusted EBITDAX less interest expense, cash taxes, and other operating expenses. Adjusted operating cash flow is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for cash flow provided by operating activities or other measures prepared in accordance with GAAP.

(3)

Unlevered free cash flow is defined by Callon as adjusted operating cash flow less capital expenditures plus immaterial amounts of interest expense and less immaterial amounts of capitalized G&A. Unlevered free cash flow is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for cash flow provided by operating activities or other measures prepared in accordance with GAAP.

Callon Management Projections for Carrizo

Callon management also provided to the Callon board certain unaudited prospective financial and operating information with respect to Carrizo, which was generally derived from the information provided by Carrizo management and summarized in “—Certain Carrizo Unaudited Prospective Financial and Operating Information,” except that Callon management adjusted the information provided by Carrizo management in order to harmonize certain of the assumptions underlying such information with the assumptions underlying Callon’s prospective financial information summarized above. Such forecasts with respect to Carrizo also were provided to J.P. Morgan for its use and reliance in connection with its financial analyses and opinion described in “—Opinion of Callon’s Financial Advisor.” The following table sets forth a summary of this adjusted prospective financial and operating information regarding Carrizo for the years 2019 through 2023 as prepared by Callon management. The following unaudited prospective financial and operating information should not be regarded as an indication that Callon considered, or now considers, it to be necessarily predictive of actual future performance or events, or that it should be construed as financial guidance, and such information does not take into account any circumstances or events occurring after the date it was prepared, including, among other things, Callon’s anticipated or actual capital allocation relating to the Carrizo assets post-closing of the merger.

 

     Unaudited Carrizo Financial and Operating Forecast
with NYMEX oil and gas strip pricing
 
($ in millions)          2019E                  2020E                  2021E                  2022E                  2023E        

Total net daily production (Mboe/d)

     65.5        71.5        79.6        82.4        97.0  

Net daily oil production (Mbo/d)

     42.3        44.6        48.6        49.9        54.6  

Adjusted EBITDAX(1)

   $ 749      $ 803      $ 851      $ 864      $ 949  

Adjusted operating cash flow(2)

   $ 676      $ 746      $ 798      $ 816      $ 903  

Capital expenditures(3)

   $ 542      $ 520      $ 613      $ 590      $ 799  

 

     Unaudited Carrizo Financial and Operating Forecast
with Wall Street consensus pricing
 
($ in millions)          2019E                  2020E                  2021E                  2022E                  2023E        

Total net daily production (Mboe/d)

     65.5        71.5        79.6        82.3        97.0  

Net daily oil production (Mbo/d)

     42.3        44.6        48.6        49.9        54.7  

Adjusted EBITDAX(1)

   $ 749      $ 827      $ 924      $ 959      $ 1,057  

Adjusted operating cash flow(2)

   $ 676      $ 770      $ 873      $ 915      $ 1,017  

Capital expenditures(3)

   $ 542      $ 520      $ 613      $ 590      $ 799  

 

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(1)

Defined as oil and gas revenue less operating expenses, hedge loss and general and administrative expenses. Adjusted EBITDAX is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for net income (loss), operating income (loss) or other measures prepared in accordance with GAAP.

 

(2)

Defined as Adjusted EBITDAX less interest expense, cash taxes, and other operating expenses. Adjusted operating cash flow is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for cash flow provided by operating activities or other measures prepared in accordance with GAAP.

(3)

Unlevered free cash flow is defined by Callon as adjusted operating cash flow less capital expenditures plus immaterial amounts of interest expense and less immaterial amounts of capitalized G&A. Unlevered free cash flow is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for cash flow provided by operating activities or other measures prepared in accordance with GAAP.

Callon Management Projections for Expected Synergies and Cost Savings

Callon management provided to the Callon board, Carrizo, and Carrizo’s financial advisors certain estimates of the amounts and timing of expected synergies and cost savings anticipated by Callon management to result from the merger, which totaled between $110 million and $170 million per year on a pre-tax basis (the “Callon Expected Synergies”). The Callon Expected Synergies consisted of (i) operational synergies, including (a) improved cycle times, (b) reduced well costs, (c) an optimized development schedule leading to increased utilization of drilling and completion crews, (d) improved uptime from concentrated development of mega-pads, and (e) increased purchasing power, all as result of larger scale operations; and (ii) corporate general and administrative cost savings, including (a) corporate overhead optimization, and (b) elimination of redundant corporate-level operating expenses. The Callon Expected Synergies also were provided to J.P. Morgan for its use and reliance in connection with its opinion and related financial analyses described in “—Opinion of Callon’s Financial Advisor.”

In addition to the Callon Expected Synergies above, Callon management also provided to the Callon board as part of its consideration of the strategic, financial, and operational merits of a merger with Callon, estimates regarding (i) certain one-time costs as a result of the proposed merger consisting of severance costs and financial, legal, and other advisory fees (the “Callon Transaction Costs”) and (ii) the present value tax effect of the Callon Expected Synergies, transaction costs, and restricted usage of certain net operating losses due to limitations expected to be imposed by Section 382 of the Code as a result of a merger with Carrizo (the “Transaction Tax Attributes”). The Callon Transaction Costs and Transaction Tax Attributes were also provided to Callon’s financial advisor for its use and reliance in connection with its opinion and related financials analyses described in “—Opinion of Callon’s Financial Advisor.”

Certain Carrizo Unaudited Prospective Financial and Operating Information

Carrizo does not as a matter of course make public long-term forecasts or internal projections as to future performance, revenues, production, earnings, or other results due to, among other reasons, the uncertainty of the underlying assumptions and estimates. However, in connection with its evaluation of the merger, Carrizo’s management prepared certain unaudited internal financial and operating forecasts and estimates (i) with respect to Carrizo, which were provided to the Carrizo board and Callon, as well as Carrizo’s and Callon’s respective financial advisors, in connection with their evaluation of the proposed merger, and (ii) with respect to Callon (including estimates for expected cost savings and other synergies), which were provided to the Carrizo board, as well as Carrizo’s financial advisors, in connection with their evaluation of the proposed merger. The inclusion of this information should not be regarded as an indication that any of Callon, Carrizo, their respective advisors, or other representatives or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future performance or events, or that it should be construed as financial guidance, and such summary projections set forth below should not be relied on as such.

This information was prepared solely for internal use and is subjective in many respects. While presented with numeric specificity, the unaudited prospective financial and operating information reflects numerous estimates and assumptions that are inherently uncertain and may be beyond the control of Carrizo’s management,

 

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including, among others, Carrizo’s and Callon’s future results, oil and gas industry activity, commodity prices, demand for crude oil and natural gas, the availability of financing to fund the exploration and development costs associated with the respective projected drilling programs, general economic and regulatory conditions, and other matters described in “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.” The unaudited prospective financial and operating information reflects both assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. Carrizo and Callon can give no assurance that the unaudited prospective financial and operating information and the underlying estimates and assumptions will be realized. In addition, since the unaudited prospective financial and operating information covers multiple years, such information by its nature becomes less predictive with each successive year. Actual results may differ materially from those set forth below, and important factors that may affect actual results and cause the unaudited prospective financial information to be inaccurate include, but are not limited to, risks and uncertainties relating to its business, industry performance, the regulatory environment, general business and economic conditions, and other matters described in “Risk Factors.” Please also see “Cautionary Statement Regarding Forward-Looking Statements” and “Where You Can Find More Information.”

The unaudited prospective financial and operating information was not prepared with a view toward public disclosure, nor was it prepared with a view toward compliance with GAAP, published guidelines of the SEC, or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither Carrizo’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the unaudited prospective financial and operating information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability. The reports of the independent registered public accounting firms to Carrizo contained in its Annual Report on Form 10-K for the year ended December 31, 2018, which are incorporated by reference into this joint proxy statement/prospectus, relate to historical financial information of Carrizo, and such report does not extend to the projections included below and should not be read to do so.

Furthermore, the unaudited prospective financial and operating information does not take into account any circumstances or events occurring after the date it was prepared. Carrizo and Callon can give no assurance that, had the unaudited prospective financial and operating information been prepared either as of the date of this joint proxy statement/prospectus or as of the date of the Carrizo special meeting or the Callon special meeting, similar estimates and assumptions would be used. Except as required by applicable securities laws, Carrizo and Callon do not intend to, and disclaim any obligation to, make publicly available any update or other revision to the unaudited prospective financial and operating information to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, including with respect to the accounting treatment of the merger under GAAP, or to reflect changes in general economic or industry conditions. The unaudited prospective financial and operating information does not take into account all the possible financial and other effects on Carrizo or Callon of the merger, the effect on Carrizo or Callon of any business or strategic decision or action that has been or will be taken as a result of the merger agreement having been executed, or the effect of any business or strategic decisions or actions which would likely have been taken if the merger agreement had not been executed, but which were instead altered, accelerated, postponed, or not taken in anticipation of the merger. Further, the unaudited prospective financial and operating information does not take into account the effect on Carrizo or Callon of any possible failure of the merger to occur. None of Callon, Carrizo, or their respective affiliates, officers, directors, advisors, or other representatives has made, makes, or is authorized in the future to make any representation to any Carrizo or Callon shareholder or other person regarding Carrizo’s or Callon’s ultimate performance compared to the information contained in the unaudited prospective financial and operating information or that the forecasted results will be achieved. The inclusion of the unaudited prospective financial and operating information herein should not be deemed an admission or representation by Callon, Carrizo, their respective advisors, or any other person that it is viewed as material information of Carrizo or Callon, particularly in light of the inherent risks and uncertainties associated with such forecasts. The summary of the

 

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unaudited prospective financial and operating information included below is not being included to influence your decision whether to vote in favor of the merger, the share issuance, the charter amendment, or any other proposal to be considered at the special meetings, but is being provided solely because it was made available to the Carrizo board, Callon, and Carrizo’s and Callon’s respective financial advisors in connection with the merger.

In connection with net asset value analyses of Carrizo and Callon to be performed by RBCCM and Lazard, each as further described below, Carrizo prepared an analysis of its reserves and resources from a database of its wells and identified locations and Carrizo performed a technical analysis of Callon wells and identified locations made available by Callon. Both of these analyses were used to generate estimates of reserves and resources as of March 31, 2019. These analyses incorporated wells and locations comprising proved reserves included in the 2018 year-end reserve reports of both Carrizo and Callon; however, forecasted production for such wells and locations was updated as of March 31, 2019 as well as wells that started production during the first three months of 2019. Certain additional wells and locations comprising other reserves and resources, some of which are not included in such year-end reserve reports and which were not based on SEC reserve criteria, were also included in these analyses as they were identified by Carrizo to be attributable to likely ultimate drilling locations. For Carrizo and Callon locations other than those that were proved developed producing, Carrizo further adjusted the reserves and resources using a reserve adjustment factor approach, as further described below. In estimating reserves and resources attributable to all wells and locations included in the analyses, Carrizo applied NYMEX oil and gas strip pricing as of July 11, 2019. These estimated reserves and resources were incorporated in developing Carrizo management’s estimates related to the unlevered free cash flows described herein, which were subsequently utilized by RBCCM and Lazard in their respective net asset value analyses. The reserves and resources models were multi-decade life-of-field models and, accordingly, the respective net asset value analyses contained no terminal value assumptions.

In light of the foregoing, and considering that the special meetings will be held several months after the unaudited prospective financial and operating information was prepared, as well as the uncertainties inherent in any forecasted information, Carrizo shareholders and Callon shareholders are cautioned not to place undue reliance on such information, and Carrizo and Callon urge all Carrizo shareholders and Callon shareholders to review Carrizo’s most recent SEC filings for a description of Carrizo’s reported financial results and Callon’s most recent SEC filings for a description of Callon’s reported financial results. Please see “Where You Can Find More Information.”

Summary of Certain Carrizo Unaudited Prospective Financial and Operating Information

In preparing the prospective financial and operating information for Carrizo described below, the management team of Carrizo used the following price assumptions, which are based on NYMEX oil and natural gas strip pricing (“Strip Pricing”) and Wall Street consensus pricing (“Consensus Pricing”), in each case, as of July 11, 2019 (collectively, the “Pricing Assumptions”).

 

     Strip Pricing  
           2019E                  2020E                  2021E                  2022E                  2023E        

Oil Price ($/Bbl)

   $ 59.65      $ 58.07      $ 55.59      $ 54.45      $ 54.20  

Gas Price ($/Mmbtu)

   $ 2.48      $ 2.60      $ 2.60      $ 2.61      $ 2.68  
     Consensus Pricing                       
     2019E      2020E                       

Oil Price ($/Bbl)

   $ 59.60      $ 60.38           

Gas Price ($/Mmbtu)

   $ 2.82      $ 3.03           

The following tables present selected financial and operating data for Carrizo from the unaudited financial and operating forecasts prepared on a risked basis by Carrizo management for the years presented (i) provided to the Carrizo board and Carrizo’s financial advisors based on Strip Pricing and (ii) provided to the Carrizo board and RBCCM based on Consensus Pricing. The following selected unaudited forecasted financial and

 

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operating data should not be regarded as an indication that Carrizo considered, or now considers, it to be necessarily predictive of actual future performance or events, or that it should be construed as financial guidance, and such information does not take into account any circumstances or events occurring after the date it was prepared, including, among other things, Carrizo’s anticipated or actual capital allocation relating to the Carrizo assets post-closing of the merger.

 

     Unaudited Carrizo Financial and Operating Forecast
with Strip Pricing
 
($ in millions)          2019E                  2020E                  2021E                  2022E                  2023E        

Production (Mboe/d)

     66        76        90        93        109  

Adjusted EBITDA(1)

   $ 740      $ 839      $ 962      $ 946      $ 1,082  

Capital Expenditures

   $ 536      $ 553      $ 669      $ 690      $ 735  

Adjusted EBITDA Less Capital Expenditures

   $ 204      $ 286      $ 292      $ 256      $ 346  

Unlevered Free Cash Flow (DCF)(2)

   $ 163      $ 258      $ 365      $ 316      $ 287  
     Unaudited Carrizo Financial
and Operating Forecast
with Consensus Pricing
                      
($ in millions)    2019E      2020E                       

Production (Mboe/d)

     66        76           

Adjusted EBITDA(1)

   $ 759      $ 887           

Capital Expenditures

   $ 536      $ 553           

Adjusted EBITDA Less Capital Expenditures

   $ 223      $ 334           

 

  (1)

Adjusted EBITDA is defined as total revenues less lease operating expenses, production and ad valorem taxes, cash general and administrative expense plus net cash received (less net cash paid) for commodity derivative settlements. Adjusted EBITDA is a non-GAAP financial measure as it excludes certain items that are included in net income (loss) attributable to common shareholders, the most directly comparable GAAP financial measure. Adjusted EBITDA should not be considered as a substitute for net income (loss) attributable to common shareholders, net cash provided by operating activities, or any other measure of profitability or liquidity presented in accordance with GAAP.

  (2)

Unlevered Free Cash Flow is defined as Adjusted EBITDA Less Capital Expenditures, less cash income taxes, together with changes in working capital (based on projected financial and operating performance) which, in the case of 2019, reflected only Unlevered Free Cash Flow for the last three quarters of 2019.

Carrizo management also prepared unaudited financial and operating forecasts for operated assets using additional pricing assumptions for purposes of Carrizo’s financial advisors’ NAV analyses of Carrizo and for presentation to the Carrizo board, as more fully described below. These additional pricing assumptions were (1) Strip Pricing for the years 2019 through 2023, (2) Strip Pricing for each of 2019 and 2020, and $45.00/Bbl for crude oil and $2.75/Mcf for natural gas thereafter (“$45 Flat Pricing”), and (3) Strip Pricing for each of 2019 and 2020, and $60.00/Bbl for crude oil and $2.75/Mcf for natural gas thereafter (“$60 Flat Pricing”) (collectively, the “Additional Pricing Assumptions”). The following tables present selected financial and operating data for Carrizo (through year end 2023) from the unaudited financial and operating forecasts prepared on a risked basis by Carrizo management based on the Additional Pricing Assumptions and provided to Carrizo’s financial advisors and the Carrizo board.

 

     Unaudited Carrizo Financial and Operating Forecast with Strip Pricing for
Operated Assets
 
($ in millions)          2019E                  2020E                  2021E                  2022E                  2023E        

Production (Mboe/d)

     66        73        87        91        107  

Adjusted EBITDA(1)

   $ 777      $ 856      $ 974      $ 957      $ 1,099  

Capital Expenditures

   $ 511      $ 519      $ 633      $ 692      $ 732  

Adjusted EBITDA Less Capital Expenditures

   $ 266      $ 337      $ 341      $ 265      $ 367  

Unlevered Free Cash Flow (NAV)(2)(3)

   $ 327      $ 335      $ 345      $ 277      $ 365  

 

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     Unaudited Carrizo Financial and Operating Forecast with $45 Flat Pricing
for Operated Assets
 
($ in millions)    2019E      2020E      2021E      2022E      2023E  

Production (Mboe/d)

     66        72        85        88        101  

Adjusted EBITDA(1)

   $ 777      $ 849      $ 747      $ 746      $ 839  

Capital Expenditures

   $ 502      $ 501      $ 602      $ 621      $ 669  

Adjusted EBITDA Less Capital Expenditures

   $ 275      $ 348      $ 146      $ 126      $ 170  

Unlevered Free Cash Flow (NAV)(2)(4)

   $ 336      $ 346      $ 165      $ 134      $ 170  

 

     Unaudited Carrizo Financial and Operating Forecast with $60 Flat Pricing
for Operated Assets
 
($ in millions)    2019E      2020E      2021E      2022E      2023E  

Production (Mboe/d)

     66        73        87        94        111  

Adjusted EBITDA(1)

   $ 777      $ 856      $ 1,068      $ 1,098      $ 1,271  

Capital Expenditures

   $ 511      $ 519      $ 633      $ 768      $ 785  

Adjusted EBITDA Less Capital Expenditures

   $ 266      $ 337      $ 435      $ 330      $ 486  

Unlevered Free Cash Flow (NAV)(2)(5)

   $ 327      $ 335      $ 433      $ 345      $ 479  

 

  (1)

Adjusted EBITDA is defined as total revenues less lease operating expenses, production and ad valorem taxes, cash general and administrative expense plus net cash received (less net cash paid) for commodity derivative settlements. Adjusted EBITDA is a non-GAAP financial measure as it excludes certain items that are included in net income (loss) attributable to common shareholders, the most directly comparable GAAP financial measure. Adjusted EBITDA should not be considered as a substitute for net income (loss) attributable to common shareholders, net cash provided by operating activities, or any other measure of profitability or liquidity presented in accordance with GAAP.

  (2)

Unlevered Free Cash Flow is defined as Adjusted EBITDA Less Capital Expenditures, less cash income taxes, together with changes in working capital (based on historical performance) which, in the case of 2019, reflected only Unlevered Free Cash Flow for the last three quarters of 2019.

  (3)

RBCCM used analogous cash flows in its NAV analysis, which excluded changes in working capital and net cash received (less net cash paid) for commodity derivative settlements, resulting in analogous cash flows of $358, $350, $344, $265, and $365 for 2019 (the last three quarters thereof) through 2023, respectively.

  (4)

RBCCM used analogous cash flows in its NAV analysis, which excluded changes in working capital and net cash received (less net cash paid) for commodity derivative settlements, resulting in analogous cash flows of $367, $360, $148, $126, and $170 for 2019 (the last three quarters thereof) through 2023, respectively.

  (5)

RBCCM used analogous cash flows in its NAV analysis, which excluded changes in working capital and net cash received (less net cash paid) for commodity derivative settlements, resulting in analogous cash flows of $358, $350, $437, $329, and $483 for 2019 (the last three quarters thereof) through 2023, respectively.

Carrizo’s management directed Carrizo’s financial advisors to rely for purposes of their respective financial analyses upon the risked Carrizo forecasts reflecting parameters on select assumptions because Carrizo’s management regarded such risked forecasts as more reasonable and achievable than the un-risked Carrizo forecasts; Carrizo’s un-risked forecasts were not relied upon or taken into account in Carrizo’s financial advisors’ analyses.

Carrizo Management Projections for Callon

Carrizo management also provided to the Carrizo board and its financial advisors for their use and reliance in connection with its financial analyses and opinions certain unaudited financial and operating forecasts with respect to Callon, which was generally derived from the information provided by Callon management and

 

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summarized in this joint proxy statement/prospectus under the caption “Certain Callon Unaudited Prospective Financial and Operating Information,” except that Carrizo management adjusted the forecasts provided by Callon management in order to harmonize certain of the assumptions underlying such information with the assumptions underlying Carrizo’s unaudited financial and operating forecasts summarized above.

The following tables present selected financial and operating data for Callon (through year end 2023) from the unaudited adjusted financial and operating forecasts prepared on a risked basis by Carrizo management based on the Pricing Assumptions, which were used by RBCCM for its discounted cash flow analysis as well as by each of Carrizo’s financial advisors for their NAV analyses. The following selected unaudited prospective financial and operating data should not be regarded as an indication that Carrizo considered, or now considers, it to be necessarily predictive of actual future performance or events, or that it should be construed as financial guidance, and such information does not take into account any circumstances or events occurring after the date it was prepared, including, among other things, Carrizo’s anticipated or actual capital allocation relating to the Callon assets post-closing of the merger.

 

     Unaudited Callon Financial and Operating Forecast
with Strip Pricing
 
($ in millions)          2019E                 2020E                2021E                  2022E                  2023E        

Production (Mboe/d)

     39       43        49        57        63  

Adjusted EBITDA(1)

   $ 499     $ 615      $ 705      $ 827      $ 902  

Capital Expenditures

   $ 522     $ 581      $ 592      $ 568      $ 561  

Adjusted EBITDA Less Capital Expenditures

   $ (23   $ 34      $ 113      $ 259      $ 341  

Unlevered Free Cash Flow (DCF)(2)

   $ (24   $ 17      $ 133      $ 279      $ 245  

Unlevered Free Cash Flow (NAV)(3)(4)

   $ (2   $ 58      $ 115      $ 271      $ 335  
     Unaudited Callon Financial
and Operating Forecast
with Consensus Pricing
                      
($ in millions)    2019E     2020E                       

Production (Mboe/d)

     39       43           

Adjusted EBITDA(1)

   $ 512     $ 650           

Capital Expenditures

   $ 522     $ 581           

Adjusted EBITDA Less Capital Expenditures

   $ (10   $ 69           

 

  (1)

Adjusted EBITDA is defined as total revenues less lease operating expenses, production and ad valorem taxes, cash general and administrative expense plus net cash received (less net cash paid) for commodity derivative settlements. Adjusted EBITDA is a non-GAAP financial measure as it excludes certain items that are included in net income (loss) attributable to common shareholders, the most directly comparable GAAP financial measure. Adjusted EBITDA should not be considered as a substitute for net income (loss) attributable to common shareholders, net cash provided by operating activities, or any other measure of profitability or liquidity presented in accordance with GAAP.

  (2)

Unlevered Free Cash Flow is defined as Adjusted EBITDA Less Capital Expenditures, less cash income taxes, together with changes in working capital (based on projected financial and operating performance) which, in the case of 2019, reflected only Unlevered Free Cash Flow for the last three quarters of 2019.

  (3)

Unlevered Free Cash Flow is defined as Adjusted EBITDA Less Capital Expenditures, less cash income taxes, together with changes in working capital (based on historical performance) which, in the case of 2019, reflected only Unlevered Free Cash Flow for the last three quarters of 2019.

  (4)

RBCCM used analogous cash flows in its NAV analysis, which excluded changes in working capital and net cash received (less net cash paid) for commodity derivative settlements, resulting in analogous cash flows of $53, $43, $113, $258, and $340 for 2019 (the last three quarters thereof) through 2023, respectively.

 

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Carrizo management also prepared unaudited adjusted financial and operating forecasts based on (1) $45 Flat Pricing and (2) $60 Flat Pricing for purposes of Carrizo’s financial advisors’ NAV analyses of Callon and to be presented to the Carrizo board. The following tables present selected financial and operating data for Callon (through year end 2023) from the unaudited adjusted financial and operating forecasts prepared on a risked basis by Carrizo management based on $45 Flat Pricing and $60 Flat Pricing assumptions and provided to Carrizo’s financial advisors for their NAV analyses and the Carrizo board.

 

     Unaudited Callon Financial and Operating Forecast
with $45 Flat Pricing
 
($ in millions)          2019E                 2020E                  2021E                  2022E                  2023E        

Production (Mboe/d)

     39       42        47        54        59  

Adjusted EBITDA(1)

   $ 494     $ 594      $ 553      $ 641      $ 698  

Capital Expenditures

   $ 522     $ 581      $ 532      $ 524      $ 465  

Adjusted EBITDA Less Capital Expenditures

   $ (28   $ 13      $ 21      $ 117      $ 233  

Unlevered Free Cash Flow (NAV)(2)(3)

   $ (5   $ 34      $ 36      $ 127      $ 230  
     Unaudited Callon Financial and Operating Forecast
with $60 Flat Pricing
 
($ in millions)    2019E     2020E      2021E      2022E      2023E  

Production (Mboe/d)

     39       44        49        59        65  

Adjusted EBITDA(1)

   $ 499     $ 619      $ 775      $ 938      $ 1,042  

Capital Expenditures

   $ 522     $ 581      $ 594      $ 618      $ 637