CALLON PETROLEUM COMPANY
2006 Stock Incentive Plan
(Effective May 4, 2006)
SECTION 1
General Provisions Relating to
Plan Governance, Coverage and Benefits

1.1   Establishment and Purpose       Callon Petroleum Company, a Delaware
corporation, (the “Company”) hereby establishes the Callon Petroleum Company
2006 Stock Incentive Plan effective as of May 4, 2006 (the “Effective Date”)
(the “Plan”) for the benefit of the Company and the participants in the Plan.  
    The purpose of the Plan is to foster and promote the long-term financial
success of the Company and to increase stockholder value by: (a) encouraging the
commitment and retention of selected key Employees and Outside Directors,
(b) motivating superior performance of key Employees and Outside Directors by
means of long-term incentives, (c) encouraging and providing key Employees and
Outside Directors with a program for obtaining ownership interests in the
Company that link and align their personal interests to those of the Company’s
stockholders, (d) maintaining competitive compensation levels, thereby
attracting and retaining key Employees and Outside Directors by providing
competitive compensation opportunities, and (e) enabling key Employees and
Outside Directors to share in the long-term growth and success of the Company.  
    The Plan will remain in effect, subject to the right of the Board to amend
or terminate the Plan at any time pursuant to Section 6.7, until the earlier of
the date that (a) all Shares subject to the Plan have been purchased or acquired
according to its provisions or (b) the Plan terminates pursuant to Section 6.18.
However, in no event may an Incentive Stock Option be granted under the Plan
after the expiration of ten (10) years from the Effective Date.   1.2  
Definitions       The following terms shall have the meanings set forth below:

  (a)   Authorized Officer. The Chairman of the Board, the CEO or any other
senior officer of the Company to whom either of them delegate the authority to
execute any Incentive Agreement for and on behalf of the Company. No officer or
director shall be an Authorized Officer with respect to any Incentive Agreement
for himself.     (b)   Board. The Board of Directors of the Company.

 

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  (c)   Cause. Unless otherwise provided in the applicable Incentive Agreement,
when used in connection with the termination of a Grantee’s Employment, “Cause”
shall mean the termination of the Grantee’s Employment by the Company or any
Subsidiary by reason of:

  (i)   the conviction of the Grantee by a court of competent jurisdiction as to
which no further appeal can be taken of a crime involving moral turpitude or a
felony or entering the plea of nolo contendere to such crime by Grantee;    
(ii)   the commission by the Grantee of a material act of fraud upon the Company
or any Parent or Subsidiary;     (iii)   the material misappropriation by the
Grantee of any funds or other property of the Company or any Parent or
Subsidiary;     (iv)   the knowing engagement by the Grantee without the written
approval of the Board, in any material activity which directly competes with the
business of the Company or any Parent or Subsidiary, or which would directly
result in a material injury to the business or reputation of the Company or any
Parent or Subsidiary; or     (v)   with respect to any Grantee who is an
Employee (A) a material breach by Employee during his employment period of any
of the restrictive covenants set out in his employment agreement with the
Company or any Parent or Subsidiary, if applicable, or (B) the willful, material
and repeated nonperformance of Employee’s duties to the Company or any Parent or
Subsidiary (other than by reason of Employee’s illness or incapacity), but Cause
shall not exist under this clause; or (v)(A) or (v)(B) until after written
notice from the Board has been given to Employee of such material breach or
nonperformance (which notice specifically identifies the manner and sets forth
specific facts, circumstances and examples in which the Board believes that
Employee has breached the agreement or not substantially performed his duties)
and Employee has failed to cure such alleged breach or nonperformance within the
time period set by the Board, but in no event less than thirty (30) business
days after his receipt of such notice; and, for purposes of this clause (v), no
act or failure to act on Employee’s part shall be deemed “willful” unless it is
done or omitted by Employee not in good faith and without his reasonable belief
that such action or omission was in the best interest of the Company (assuming
disclosure of the pertinent facts, any action or omission by Employee after
consultation with, and in accordance with the advice of, legal counsel
reasonably acceptable to the Company shall be deemed to have been taken in good
faith and to not be willful for purposes of this definition of “Cause”).

  (d)   CEO. The Chief Executive Officer of the Company.

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  (e)   Change in Control. Any of the events described in and subject to Section
5.8.     (f)   Code. The Internal Revenue Code of 1986, as amended, and the
regulations and other authority promulgated thereunder. References herein to any
provision of the Code shall refer to any successor provision thereto.     (g)  
Committee. A committee appointed by the Board to administer the Plan. The Plan
shall be administered by the Compensation Committee appointed by the Board
consisting of not less than three directors who fulfill the “non-employee
director” requirements of Rule 16b-3 under the Exchange Act and the “outside
director” requirements of Code Section 162(m). The Compensation Committee of the
Board may appoint a subcommittee provided that, in all events, the members of
the Committee for purposes of the Plan satisfy the requirements of the previous
provisions of this paragraph.         The Board shall have the power to fill
vacancies on the Committee arising by resignation, death, removal or otherwise.
The Board, in its sole discretion, may divide the powers and duties of the
Committee among one or more separate committees, or retain all powers and duties
of the Committee in a single Committee. The members of the Committee shall serve
at the discretion of the Board.         Notwithstanding the preceding paragraphs
of this Section 1.2(g), the term “Committee” as used in the Plan with respect to
any Incentive Award for an Outside Director shall refer to the entire Board. In
the case of an Incentive Award for an Outside Director, the Board shall have all
the powers and responsibilities of the Committee hereunder as to such Incentive
Award, and any actions as to such Incentive Award may be acted upon only by the
Board (unless it otherwise designates in its discretion). When the Board
exercises its authority to act in the capacity as the Committee hereunder with
respect to an Incentive Award for an Outside Director, it shall so designate
with respect to any action that it undertakes in its capacity as the Committee.
    (h)   Common Stock. The common stock of the Company, no par value per share
and any class of common stock into which such common shares may hereafter be
converted, reclassified or recapitalized.     (i)   Company. Callon Petroleum
Company and any successor in interest thereto.     (j)   Covered Employee. A
named executive officer who is one of the group of covered employees, as defined
in Code Section 162(m) and Treasury Regulation § 1.162-27(c) (or its successor),
during any period that the Company is a Publicly Held Corporation.     (k)  
Disability. Disability means that the Grantee, because of ill health, physical
or mental disability or any other reason beyond his control, is unable to
perform his

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      employment duties for a period of six (6) continuous months, as determined
in good faith by the Committee. With respect to any Incentive Stock Option,
however, “Disability” means permanent and total disability as defined in Code
Section 22(e)(3). A determination of Disability may be made by a physician
selected or approved by the Committee and, in this respect, the Grantee shall
submit to any reasonable examination(s) required by such physician upon request.
Notwithstanding the foregoing provisions of this paragraph, in the event any
Incentive Award is subject to Code Section 409A, then, in lieu of the foregoing
definition and to the extent necessary to comply with the requirements of Code
Section 409A, the definition of “Disability” for purposes of such Incentive
Award shall be the definition of “disability” provided for under Code
Section 409A and the regulations or other guidance issued thereunder.     (l)  
Employee. Any employee of the Company within the meaning of Code Section 3401(c)
who, in the opinion of the Committee, is in a position to contribute to the
growth, development or financial success of the Company, including, without
limitation, officers who are members of the Board.     (m)   Employment.
Employment means that the individual is employed as an Employee, or engaged as
an Outside Director, by the Company, or by any corporation issuing or assuming
an Incentive Award in any transaction described in Code Section 424(a). In this
regard, neither the transfer of a Grantee from Employment by the Company to
Employment by any Parent or Subsidiary, nor the transfer of a Grantee from
Employment by any Parent or Subsidiary to Employment by the Company, shall be
deemed to be a termination of Employment of the Grantee. Moreover, the
Employment of a Grantee shall not be deemed to have been terminated because of
an approved leave of absence from active Employment on account of temporary
illness, authorized vacation or granted for reasons of professional advancement,
education, or health, or during any period required to be treated as a leave of
absence by virtue of any applicable statute, Company personnel policy or written
agreement. All determinations regarding Employment, and the termination of
Employment hereunder, shall be made by the Committee.         The term
“Employment” for all purposes of the Plan shall include (i) active performance
of agreed services by an employee and (ii) current membership on the Board by an
Outside Director.         Notwithstanding anything in the Plan to the contrary,
in the event an Incentive Award issued under the Plan is subject to Code
Section 409A, then, to the extent necessary to comply with Code Section 409A, no
Employee or Outside Director shall be deemed to have suffered a termination of
Employment, unless such termination of Employment constitutes a “separation from
service” as defined under Code Section 409A and the regulations or other
guidance issued thereunder.     (n)   Exchange Act. The Securities Exchange Act
of 1934, as amended.

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  (o)   Fair Market Value. While the Company is a Publicly Held Corporation, the
Fair Market Value of one Share of Common Stock on the date in question is deemed
to be the average of the opening and closing prices of a Share on the date as of
which Fair Market Value is to be determined, or if no such sales were made on
such date, the closing sales price on the immediately preceding business day of
a Share as reported on the New York Stock Exchange or other principal securities
exchange on which Shares are then listed or admitted to trading.         If the
Company is not a Publicly Held Corporation at the time a determination of the
Fair Market Value of the Common Stock is required to be made hereunder, the
determination of Fair Market Value for purposes of the Plan shall be made by the
Committee in its sole and absolute discretion and using a reasonable valuation
method in accordance with the requirements of Code Section 409A and the
regulations and other guidance issued thereunder. In this respect, the Committee
may rely on such financial data, appraisals, valuations, experts, and other
sources as, in its sole and absolute discretion, it deems advisable under the
circumstances.     (p)   Grantee. Any Employee or Outside Director who is
granted an Incentive Award under the Plan.     (q)   Immediate Family. With
respect to a Grantee, the Grantee’s child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law,
including adoptive relationships.     (r)   Incentive Agreement. The written
agreement entered into between the Company and the Grantee setting forth the
terms and conditions pursuant to which an Incentive Award is granted under the
Plan, as such agreement are further defined in Section 5.1.     (s)   Incentive
Award or Award. A grant of an award under the Plan to a Grantee, including any
Non-statutory Stock Option, Incentive Stock Option, Stock Appreciation Right
(SAR), or Restricted Stock Award.     (t)   Incentive Stock Option or ISO. A
Stock Option granted by the Committee to an Employee under Section 2 which is
designated by the Committee as an Incentive Stock Option and is intended to
qualify as an Incentive Stock Option under Code Section 422.     (u)   Insider.
If the Company is a Publicly Held Corporation, an individual who is, on the
relevant date, an officer, director or ten percent (10%) beneficial owner of any
class of the Company’s equity securities that is registered pursuant to
Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange
Act.     (v)   Non-statutory Stock Option. A Stock Option granted by the
Committee to a Grantee under Section 2 that is not designated by the Committee
as an Incentive Stock Option.

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  (w)   Option Price. The exercise price at which a Share may be purchased by
the Grantee of a Stock Option.     (x)   Other Stock-Based Award. An award
granted by the Committee to a Grantee under Section 4.1 that is valued in whole
or in part by reference to, or is otherwise based upon, Common Stock.     (y)  
Outside Director. A member of the Board who is not at the time of grant of an
Incentive Award, an Employee.     (z)   Parent. Any corporation (whether now or
hereafter existing) which constitutes a “parent” of the Company, as defined in
Code Section 424(e).     (aa)   Plan. The Callon Petroleum Company 2006 Stock
Incentive Plan, as set forth herein and as it may be amended from time to time.
    (bb)   Publicly Held Corporation. A corporation issuing any class of common
equity securities required to be registered under Section 12 of the Exchange
Act.     (cc)   Restricted Stock. Shares of Common Stock issued or transferred
to a Grantee pursuant to Section 3.     (dd)   Restricted Stock Award. An
authorization by the Committee to issue or transfer Restricted Stock to a
Grantee pursuant to Section 3.     (ee)   Restriction Period. The period of time
determined by the Committee and set forth in the Incentive Agreement during
which the transfer of Restricted Stock by the Grantee is restricted.     (ff)  
Retirement. The voluntary termination of Employment from the Company
constituting retirement for age (i) on any date after the Employee attains the
normal retirement age of 62 years, or (ii) an earlier retirement date for age as
expressly agreed to by the Committee and designated by the Committee in the
Employee’s individual Incentive Agreement.     (gg)   Share. A share of the
Common Stock of the Company.     (hh)   Share Pool. The number of shares
authorized for issuance under Section 1.4, as adjusted for awards and payouts
under Section 1.5 and as adjusted for changes in corporate capitalization under
Section 5.6.     (ii)   Spread. The difference between the exercise price per
Share specified in a SAR grant and the Fair Market Value of a Share on the date
of exercise of the SAR.     (jj)   Stock Appreciation Right or SAR. A Stock
Appreciation Right as described in Section 2.5.

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  (kk)   Stock Option or Option. Pursuant to Section 2, (i) an Incentive Stock
Option granted to an Employee or (ii) a Non-statutory Stock Option granted to an
Employee or Outside Director, which Option provides the Grantee with the right
to purchase Shares of Common Stock upon specified terms. In accordance with Code
Section 422, only an Employee may be granted an Incentive Stock Option.     (ll)
  Subsidiary. Any (i) corporation in an unbroken chain of corporations beginning
with the Company, if each of the corporations other than the last corporation in
the unbroken chain owns stock possessing a majority of the total combined voting
power of all classes of stock in one of the other corporations in the chain,
(ii) limited partnership, if the Company or any corporation described in item
(i) above owns a majority of the general partnership interest and a majority of
the limited partnership interests entitled to vote on the removal and
replacement of the general partner, and (iii) partnership or limited liability
company, if the partners or members thereof are composed only of the Company,
any corporation listed in item (i) above or any limited partnership listed in
item (ii) above, except that with respect to the issuance of Incentive Stock
Options, the term “Subsidiary” shall have the same meaning as the term
“subsidiary corporation” as defined in Code Section 424(f) as required by Code
Section 422.

1.3   Plan Administration

  (a)   Authority of the Committee. Except as may be limited by law and subject
to the provisions herein, the Committee shall have full power to (i) select
Grantees who shall participate in the Plan; (ii) determine the sizes, duration
and types of Incentive Awards; (iii) determine the terms and conditions of
Incentive Awards and Incentive Agreements; (iv) determine whether any Shares
subject to Incentive Awards will be subject to any restrictions on transfer;
(v) construe and interpret the Plan and any Incentive Agreement or other
agreement entered into under the Plan; and (vi) establish, amend, or waive rules
for the Plan’s administration. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of the
Plan.     (b)   Meetings. The Committee shall designate a chairman from among
its members who shall preside at its meetings, and shall designate a secretary,
without regard to whether that person is a member of the Committee, who shall
keep the minutes of the proceedings and all records, documents, and data
pertaining to its administration of the Plan. Meetings shall be held at such
times and places as shall be determined by the Committee and the Committee may
hold telephonic meetings. The Committee may take any action otherwise proper
under the Plan by the affirmative vote, taken with or without a meeting, of a
majority of its members. The Committee may authorize any one or more of its
members or any officer of the Company to execute and deliver documents on behalf
of the Committee.     (c)   Decisions Binding. All determinations and decisions
of the Committee shall be made in its discretion pursuant to the terms and
provisions of the Plan, and shall

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      be final, conclusive and binding on all persons including the Company, its
stockholders, Employees, Grantees, and their estates and beneficiaries. The
Committee’s decisions with respect to any Incentive Award need not be uniform
and may be made selectively among Incentive Awards and Grantees, whether or not
such Incentive Awards are similar or such Grantees are similarly situated.    
(d)   Modification of Outstanding Incentive Awards. Subject to the stockholder
approval requirements of Section 6.7 if applicable, upon a Grantee’s death,
Disability, Retirement or termination of Employment without Cause, or upon a
Change in Control, the Committee may, in its discretion, provide for the
extension of the exercisability of an Incentive Award, accelerate the vesting or
exercisability of an Incentive Award (except for an Incentive Award that is a
SAR), eliminate or make less restrictive any restrictions contained in an
Incentive Award, waive any restriction or other provisions of an Incentive
Award, or otherwise amend or modify an Incentive Award in any manner that is
either (i) not adverse to the Grantee to whom such Incentive Award was granted,
(ii) is consented to by such Grantee, and (iii) does not cause the Incentive
Award to provide for the deferral of compensation subject to Code Section 409A
(unless otherwise determined by the Committee). With respect to an Incentive
Award that is an ISO, no adjustment thereto shall be made to the extent
constituting a “modification” within the meaning of Code Section 424(h)(3)
unless otherwise agreed to by the Grantee in writing. Notwithstanding the above
provisions of this subsection, no amendment or modification of an Incentive
Award shall be made to the extent such modification results in any Stock Option
with an exercise price less than 100% of the Fair Market Value per Share on the
date of grant.     (e)   Delegation of Authority. The Committee may delegate to
designated officers or other employees of the Company any of its duties and
authority under the Plan pursuant to such conditions or limitations as the
Committee may establish from time to time; provided, however, the Committee may
not delegate to any person the authority to grant Incentive Awards or (ii) to
take any action which would contravene the requirements of Rule 16b-3 under the
Exchange Act.     (f)   Expenses of Committee. The Committee may employ legal
counsel, including, without limitation, independent legal counsel and counsel
regularly employed by the Company, and other agents as the Committee may deem
appropriate for the administration of the Plan. The Committee may rely upon any
opinion or computation received from any such counsel or agent. All expenses
incurred by the Committee in interpreting and administering the Plan, including,
without limitation, meeting expenses and professional fees, shall be paid by the
Company.     (g)   [Reserved]

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  (h)   Indemnification. Each person who is or was a member of the Committee
shall be indemnified by the Company against and from any damage, loss,
liability, cost and expense that may be imposed upon or reasonably incurred by
him in connection with or resulting from any claim, action, suit, or proceeding
to which he may be a party or in which he may be involved by reason of any
action taken or failure to act under the Plan, except for any such act or
omission constituting willful misconduct or gross negligence. Each such person
shall be indemnified by the Company for all amounts paid by him in settlement
thereof, with the Company’s approval, or paid by him in satisfaction of any
judgment in any such action, suit, or proceeding against him, provided he shall
give the Company an opportunity, at its own expense, to handle and defend the
same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company’s
Articles or Certificate of Incorporation or Bylaws, pursuant to any separate
indemnification or hold harmless agreement with the Company, as a matter of law,
or otherwise, or any power that the Company may have to indemnify them or hold
them harmless.

1.4   Shares of Common Stock Available for Incentive Awards       Subject to
adjustment under Section 5.6, there shall be available for Incentive Awards that
are granted wholly or partly in Common Stock (including rights or Stock Options
that may be exercised for or settled in Common Stock) five hundred thousand
(500,000) Shares of Common Stock. The number of Shares of Common Stock that are
the subject of Incentive Awards under this Plan, which are forfeited or
terminated, expire unexercised, lapse, or are settled in cash in lieu of Common
Stock or in another manner such that all or some of the Shares covered by the
Incentive Award are either not issued to a Grantee or are exchanged for
Incentive Awards that do not involve Common Stock, shall again, in each case,
immediately become available for Incentive Awards to be granted under the Plan.
The aggregate number of Shares of Common Stock which may be issued upon exercise
of ISOs shall be five hundred thousand (500,000) of the Shares reserved pursuant
to the first sentence of this paragraph. For purposes of counting Shares against
the ISO maximum, only the net number of Shares issued pursuant to the exercise
of an ISO shall be counted. The Committee may from time to time adopt and
observe such procedures concerning the counting of Shares against the Plan
maximum as it may deem appropriate.       During any period that the Company is
a Publicly Held Corporation, then unless and until the Committee determines that
a particular Incentive Award granted to a Covered Employee is not intended to
comply with the “performance-based exception” under Code Section 162(m), the
following rules shall apply to grants of Incentive Awards to Covered Employees:

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  (a)   Subject to adjustment as provided in Section 5.6, the maximum aggregate
number of Shares of Common Stock attributable to Incentive Awards (including
Stock Options, SARs, and Restricted Stock) that may be granted (in the case of
Stock Options and SARs) or that may vest (in the case of Restricted Stock), as
applicable, in any calendar year pursuant to any Incentive Award held by any
individual Covered Employee shall be two hundred thousand (200,000) Shares.    
(b)   Subject to the limitation of paragraph (a) above, the maximum aggregate
number of Shares issuable to any one person pursuant to Incentive Awards shall
be five percent (5%) of the number of Shares of Common Stock outstanding at the
time of the grant of an Incentive Award.     (c)   [Reserved]

1.5   Share Pool Adjustments for Awards and Payouts       The following
Incentive Awards and payouts shall reduce, on a one Share for one Share basis,
the number of Shares authorized for issuance under the Share Pool:

  (a)   Stock Option;     (b)   SAR;     (c)   Restricted Stock Award; and    
(d)   A payout of an Other Stock-Based Award in Shares.

    The following transactions shall restore, on a one Share for one Share
basis, the number of Shares authorized for issuance under the Share Pool:

  (a)   A cancellation, termination, expiration, forfeiture, or lapse for any
reason of any Shares subject to an Incentive Award; and     (b)   Payment of an
Option Price by withholding Shares which otherwise would be acquired on exercise
(i.e., the Share Pool shall be increased by the number of Shares withheld in
payment of the Option Price).

    Notwithstanding any provisions of the Plan to the contrary, only shares
forfeited back to the Company, shares canceled on account of termination,
expiration or lapse of an Incentive Award, shares surrendered in payment of the
exercise price of an option or shares withheld for payment of applicable
employment taxes and/or withholding obligations resulting from the exercise of
an option shall again be available for grant of

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    Incentive Stock Options under the Plan, but shall not increase the maximum
number of shares described in Section 1.4 above as the maximum number of Shares
that may be delivered pursuant to Incentive Stock Options.

1.6   Common Stock Available       The Common Stock available for issuance or
transfer under the Plan shall be made available from Shares now or hereafter
(a) held in the treasury of the Company, (b) authorized but unissued shares, or
(c) shares to be purchased or acquired by the Company. No fractional shares
shall be issued under the Plan; payment for fractional shares shall be made in
cash.

1.7   Participation

  (a)   Eligibility. The Committee shall from time to time designate those
Employees and/or Outside Directors to be granted Incentive Awards under the
Plan, the type of Incentive Awards granted, the number of Shares, Stock Options,
rights or units, as the case may be, which shall be granted to each such person,
and any other terms or conditions relating to the Incentive Awards as it may
deem appropriate to the extent consistent with the provisions of the Plan. A
Grantee, who has been granted an Incentive Award may, if otherwise eligible, be
granted additional Incentive Awards at any time.         No Insider shall be
eligible to be granted an Incentive Award that is subject to Rule 16a-3 under
the Exchange Act unless and until such Insider has granted a limited power of
attorney to those officers of the Company who have been designated by the
Committee for purposes of future required filings under the Exchange Act.    
(b)   Incentive Stock Option Eligibility. No individual shall be eligible for
the grant of any Incentive Stock Option except an Employee. However, no Employee
shall be eligible for the grant of any ISO who owns or would own immediately
before the grant of such ISO, directly or indirectly, stock possessing more than
ten percent (10%) of the combined voting power of all classes of stock of the
Company, or any Parent or Subsidiary. This restriction does not apply if, at the
time such ISO is granted, the ISO exercise price is at least one hundred and ten
percent (110%) of the Fair Market Value on the date of grant and the ISO by its
terms is not exercisable after the expiration of five (5) years from the date of
grant. For the purpose of the immediately preceding sentence, the attribution
rules of Code Section 424(d) shall apply from the purpose of determining an
Employee’s percentage ownership in the Company or any Parent or Subsidiary. This
paragraph shall be construed consistent with the requirements of Code
Section 422.

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1.8   Types of Incentive Awards       The types of Incentive Awards under the
Plan are Stock Options, Stock Appreciation Rights, Restricted Stock and Other
Stock-Based Awards (as described in Section 4), or any combination of the
foregoing.

SECTION 2
Stock Options and Stock Appreciation Rights

2.1   Grant of Stock Options       The Committee is authorized to grant
(a) Non-statutory Stock Options to Employees and Outside Directors and
(b) Incentive Stock Options to Employees only in accordance with the terms and
conditions of the Plan, and with such additional terms and conditions, not
inconsistent with the Plan, as the Committee shall determine in its discretion.
Successive grants may be made to the same Grantee regardless of whether any
Stock Option previously granted to such person remains unexercised.

2.2   Stock Option Terms

  (a)   Written Agreement. Each grant of a Stock Option shall be evidenced by a
written Incentive Agreement. Among its other provisions, each Incentive
Agreement shall set forth the extent to which the Grantee shall have the right
to exercise the Stock Option following termination of the Grantee’s Employment.
Such provisions shall be determined in the discretion of the Committee, shall be
included in the Grantee’s Incentive Agreement, and need not be uniform among all
Stock Options issued pursuant to the Plan.     (b)   Number of Shares. Each
Stock Option shall specify the number of Shares of Common Stock to which it
pertains.     (c)   Exercise Price. The exercise price per Share of Common Stock
under each Stock Option shall be determined by the Committee; provided however,
that such exercise price shall not be less than 100% of the Fair Market Value
per Share on the date the Stock Option is granted. Each Stock Option shall
specify the method of exercise which shall be consistent with the requirements
of Section 2.4(a).     (d)   Term. In the Incentive Agreement, the Committee
shall fix the term of each Stock Option, not to exceed ten (10) years from the
date of grant for ISO grants or five (5) years for ISO grants to 10% or greater
stockholders pursuant to Section 1.7(b). In the event no term is fixed, such
term shall be ten (10) years from the date of grant.     (e)   Exercise. The
Committee shall determine the time or times at which a Stock Option may be
exercised, in whole or in part. Each Stock Option may specify the required
period of continuous Employment before the Stock Option or portion

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      thereof will become exercisable. All such terms and conditions shall be
set forth in the Incentive Agreement.     (f)   $100,000 Annual Limit on
Incentive Stock Options. Notwithstanding any contrary provision in the Plan, to
the extent that the aggregate Fair Market Value (determined as of the time the
Incentive Stock Option is granted) of the Shares of Common Stock with respect to
which ISOs are exercisable for the first time by any Grantee during any single
calendar year (under the Plan and any other stock option plans of the Company
and its Subsidiaries or Parent) exceeds the sum of $100,000, such ISO shall
automatically be deemed to be a Non-statutory Stock Option but only to the
extent in excess of the $100,000 limit, and not an ISO. In such event, all other
terms and provisions of such Stock Option grant shall remain unchanged. This
paragraph shall be applied by taking ISOs into account in the order in which
they were granted and shall be construed in accordance with Code Section 422(d).

2.3   Stock Option Exercises

  (a)   Method of Exercise and Payment. Stock Options shall be exercised by the
delivery of a signed written notice of exercise to the Company as of a date set
by the Company in advance of the effective date of the proposed exercise. The
notice shall set forth the number of Shares with respect to which the Option is
to be exercised, accompanied by full payment for the Shares.         The Option
Price upon exercise of any Stock Option shall be payable to the Company in full
either: (i) in cash or its equivalent; or (ii) subject to prior approval by the
Committee in its discretion, by tendering previously acquired Shares having an
aggregate Fair Market Value at the time of exercise equal to the Option Price
(provided that the Shares which are tendered must have been held by the Grantee
for at least six (6) months prior to their tender to satisfy the Option Price);
or (iii) subject to prior approval by the Committee in its discretion, by
withholding Shares which otherwise would be acquired on exercise having an
aggregate Fair Market Value at the time of exercise equal to the total Option
Price; or (iv) subject to prior approval by the Committee in its discretion, by
a combination of (i), (ii), and (iii) above.         Any payment in Shares shall
be effected by the surrender of such Shares to the Company in good form for
transfer and shall be valued at their Fair Market Value on the date when the
Stock Option is exercised. Unless otherwise permitted by the Committee in its
discretion, the Grantee shall not surrender, or attest to the ownership of,
Shares in payment of the Option Price if such action would cause the Company to
recognize compensation expense (or additional compensation expense) with respect
to the Stock Option for financial accounting reporting purposes.         The
Committee, in its discretion, also may allow the Option Price to be paid with
such other consideration as shall constitute lawful consideration for the
issuance

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    of Shares (including, without limitation, effecting a “cashless exercise”
with a broker of the Option), subject to applicable securities law restrictions
and tax withholdings, or by any other means which the Committee determines to be
consistent with the Plan’s purpose and applicable law. At the direction of the
Grantee, the broker will either (i) sell all of the Shares received when the
Option is exercised and pay the Grantee the proceeds of the sale (minus the
Option Price, withholding taxes and any fees due to the broker); or (ii) sell
enough of the Shares received upon exercise of the Option to cover the Option
Price, withholding taxes and any fees due the broker and deliver to the Grantee
(either directly or through the Company) a stock certificate for the remaining
Shares. Dispositions to a broker affecting a cashless exercise are not exempt
under Section 16 of the Exchange Act if the Company is a Publicly Held
Corporation. Moreover, in no event will the Committee allow the Option Price to
be paid with a form of consideration; including a loan or a “cashless exercise,”
if such form of consideration would violate the Sarbanes-Oxley Act of 2002, as
determined by the Committee in its sole discretion.         As soon as
practicable after receipt of a written notification of exercise and full
payment, the Company shall deliver, or cause to be delivered, to or on behalf of
the Grantee, in the name of the Grantee or other appropriate recipient, evidence
of ownership for the number of Shares purchased under the Stock Option.        
Subject to Section 5.4, during the lifetime of a Grantee, each Option granted to
him shall be exercisable only by the Grantee (or his legal guardian in the event
of his Disability) or by a broker-dealer acting on his behalf pursuant to a
cashless exercise under the foregoing provisions of this Section 2.4(a).     (b)
  Restrictions on Share Transferability. The Committee may impose such
restrictions on any grant of Stock Options or on any Shares acquired pursuant to
the exercise of a Stock Option as it may deem advisable, including, without
limitation, restrictions under (i) any stockholders’ agreement, buy/sell
agreement, right of first refusal, non-competition, and any other agreement
between the Company and any of its securities holders or employees; (ii) any
applicable federal securities laws; (iii) the requirements of any stock exchange
or market upon which such Shares are then listed and/or traded; or (iv) any blue
sky or state securities law applicable to such Shares. Any certificate issued to
evidence Shares issued upon the exercise of an Incentive Award may bear such
legends and statements as the Committee shall deem advisable to assure
compliance with federal and state laws and regulations.         Any Grantee or
other person exercising an Incentive Award shall be required, if requested by
the Committee, to give a written representation that the Incentive Award and the
Shares subject to the Incentive Award will be acquired for investment and not
with a view to public distribution; provided, however, that the Committee, in
its discretion, may release any person receiving an Incentive Award from any
such representations either prior to or subsequent to the exercise of the
Incentive Award.

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  (c)   Notification of Disqualifying Disposition of Shares from Incentive Stock
Options. Notwithstanding any other provision of the Plan, a Grantee who disposes
of Shares of Common Stock acquired upon the exercise of an Incentive Stock
Option by a sale or exchange either (i) within two (2) years after the date of
the grant of the Incentive Stock Option under which the Shares were acquired or
(ii) within one (1) year after the transfer of such Shares to him pursuant to
exercise, shall promptly notify the Company of such disposition, the amount
realized and his adjusted basis in such Shares.     (d)   Proceeds of Option
Exercise. The proceeds received by the Company from the sale of Shares pursuant
to Stock Options exercised under the Plan shall be used for general corporate
purposes.

2.4   Stock Appreciation Rights

  (a)   Grant. The Committee may grant Stock Appreciation Rights that are
independent of Non-statutory Stock Options (“SARs”), but only with respect to
Shares that are traded on an established securities exchange. All SARs granted
under the Plan are intended to satisfy the requirements for stock appreciation
rights to be exempt from the requirements of Code Section 409A, and therefore
not provide for any deferral of compensation subject to Code Section 409A.    
(b)   General Provisions. The terms and conditions of each SAR shall be
evidenced by an Incentive Agreement. The exercise price per Share shall never be
less than one hundred percent (100%) of the Fair Market Value of a Share on the
grant date of the SAR. The term of the SAR shall be determined by the Committee.
The Committee cannot include any feature for the deferral of compensation other
than the deferral of recognition of income until exercise of the SAR.     (c)  
Exercise. SARs shall be exercisable subject to such terms and conditions as the
Committee shall specify in the Incentive Agreement for the SAR grant, provided
that such terms and conditions are not inconsistent with the Plan. No SAR
granted to an Insider may be exercised prior to six (6) months from the date of
grant, except in the event of his death or Disability which occurs prior to the
expiration of such six-month period if so permitted under the Incentive
Agreement.     (d)   Settlement. Upon exercise of the SAR, the Grantee shall
receive an amount equal to the Spread. The Spread, less applicable withholdings,
shall be payable only in Shares within 30 calendar days of the exercise date. In
no event shall any SAR be settled in any manner other than by delivery of Shares
that are traded on an established securities market. In addition, the Incentive
Agreement under which such SARs are awarded, or any other agreements or
arrangements, shall not provide that the Company will purchase any Shares
delivered to the Grantee as a result of the exercise or vesting of a SAR.

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SECTION 3
Restricted Stock

3.1   Award of Restricted Stock

  (a)   Grant. With respect to a Grantee who is an Employee or Outside Director,
Shares of Restricted Stock may be awarded by the Committee with such
restrictions during the Restriction Period as the Committee shall designate in
its discretion. Any such restrictions may differ with respect to a particular
Grantee. Restricted Stock shall be awarded for no additional consideration or
such additional consideration as the Committee may determine, which
consideration may be less than, equal to, or more than the Fair Market Value of
the shares of Restricted Stock on the grant date. Subject to Section 3.2.(c),
the terms and conditions of each grant of Restricted Stock shall be evidenced by
an Incentive Agreement and, during the Restriction Period, such Shares of
Restricted Stock must remain subject to a “substantial risk of forfeiture”
within the meaning given to such term under Code Section 83.     (b)   Immediate
Transfer Without Immediate Delivery of Restricted Stock. Unless otherwise
specified in the Grantee’s Incentive Agreement, each Restricted Stock Award
shall not constitute an immediate transfer of the record and beneficial
ownership of the Shares of Restricted Stock to the Grantee in consideration of
the performance of services as an Employee or Outside Director, as applicable,
and shall not entitle such Grantee to any voting and other ownership rights in
such Shares until the date the Restriction Period ends.         As specified in
the Incentive Agreement, a Restricted Stock Award may limit the Grantee’s
dividend rights during the Restriction Period in which the shares of Restricted
Stock are subject to a “substantial risk of forfeiture” (within the meaning
given to such term under Code Section 83) and restrictions on transfer. In the
Incentive Agreement, the Committee may apply any restrictions to the dividends
that the Committee deems appropriate. In the event that any dividend constitutes
a derivative security or an equity security pursuant to the rules under
Section 16 of the Exchange Act, if applicable, such dividend shall be subject to
a vesting period equal to the remaining vesting period of the Shares of
Restricted Stock with respect to which the dividend is paid.         Shares
awarded pursuant to a grant of Restricted Stock may be issued in the name of the
Grantee and held, together with a stock power endorsed in blank, by the
Committee or Company (or their delegates) or in trust or in escrow pursuant to
an agreement satisfactory to the Committee, as determined by the Committee,
until such time as the restrictions on transfer have expired. All such terms and
conditions shall be set forth in the particular Grantee’s Incentive Agreement.
The Company or Committee (or their delegates) shall issue to the Grantee a
receipt evidencing the certificates held by it which are registered in the name
of the Grantee.

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3.2   Restrictions

  (a)   Forfeiture of Restricted Stock. Restricted Stock awarded to a Grantee
may be subject to the following restrictions until the expiration of the
Restriction Period: (i) a restriction that constitutes a “substantial risk of
forfeiture” (as defined in Code Section 83), or a restriction on
transferability; (ii) unless otherwise specified by the Committee in the
Incentive Agreement, the Restricted Stock that is subject to restrictions which
are not satisfied shall be forfeited and all rights of the Grantee to such
Shares shall terminate; and (iii) any other restrictions that the Committee
determines in advance are appropriate, including, without limitation, rights of
repurchase or first refusal in the Company or provisions subjecting the
Restricted Stock to a continuing substantial risk of forfeiture in the hands of
any transferee. Any such restrictions shall be set forth in the particular
Grantee’s Incentive Agreement.     (b)   Issuance of Certificates. Reasonably
promptly after the date of grant with respect to Shares of Restricted Stock, the
Company shall cause to be issued a stock certificate, registered in the name of
the Grantee to whom such Shares of Restricted Stock were granted, evidencing
such Shares; provided, however, that the Company shall not cause to be issued
such a stock certificate unless it has received a stock power duly endorsed in
blank with respect to such Shares. Each such stock certificate shall bear the
following legend or any other legend approved by the Company:

The transferability of this certificate and the shares of stock represented
hereby are subject to restrictions, terms and conditions (including forfeiture
and restrictions against transfer) contained in the Callon Petroleum Company
2006 Stock Incentive Plan and an Incentive Agreement entered into between the
registered owner of such shares and Callon Petroleum Company 2006 Stock
Incentive Plan a copy of the Plan and Incentive Agreement are on file in the
main corporate office of Callon Petroleum Company.

      Such legend shall not be removed from the certificate evidencing such
Shares of Restricted Stock unless and until such Shares vest pursuant to the
terms of the Incentive Agreement.     (c)   Removal of Restrictions. The
Committee, in its discretion, shall have the authority to remove any or all of
the restrictions on the Restricted Stock if it determines that, by reason of a
change in applicable law or another change in circumstance arising after the
grant date of the Restricted Stock, such action is necessary or appropriate;
provided, however, that the Committee may only accelerate the vesting of
Restricted Stock upon a Grantee’s death, Disability, Retirement, or termination
of Employment without Cause, or upon a Change in Control. Except as otherwise
provided by Section 1.3(d), notwithstanding

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      anything to the contrary herein, in no event shall the Restriction Period
for a grant of Restricted Stock expire earlier than (i) one year from the date
of grant for Restricted Stock for which the Restriction Period expires upon the
attainment of Performance Goals (as described in Section 3.4) or (ii) ratably
over three years from the grant date for Restricted Stock for which the
Restriction Period expires upon the performance of services over time.

3.3   Delivery of Shares of Common Stock. Subject to withholding taxes under
Section 6.3 and to the terms of the Incentive Agreement, a stock certificate
evidencing the Shares of Restricted Stock with respect to which the restrictions
in the Incentive Agreement have been satisfied shall be delivered to the Grantee
or other appropriate recipient free of restrictions.   3.4   Performance Goals.
Awards of Restricted Stock and Other Stock-Based Awards under the Plan may be
made subject to the attainment of any of this goals described in this
Section 3.4 (“Performance Goals”) relating to one or more business criteria
which, where applicable, shall be within the meaning of Code Section 162(m) and
consist of one or more or any combination of the following criteria: cash flow;
cost; revenues; sales; ratio of debt to debt plus equity; net borrowing, credit
quality or debt ratings; profit before tax; economic profit; earnings before
interest and taxes; earnings before interest, taxes, depreciation and
amortization; gross margin; earnings per share (whether on a pre-tax, after-tax,
operational or other basis); operating earnings; capital expenditures; expenses
or expense levels; economic value added; ratio of operating earnings to capital
spending or any other operating ratios; free cash flow; net profit; net sales;
net asset value per share; the accomplishment of mergers, acquisitions,
dispositions, public offerings or similar extraordinary business transactions;
sales growth; price of the Company’s Common Stock; return on assets, equity or
stockholders’ equity; market share; inventory levels, inventory turn or
shrinkage; or total return to stockholders (“Performance Criteria”). Any
Performance Criteria may be used to measure the performance of the Company as a
whole or any business unit of the Company and may be measured relative to a peer
group or index. Any Performance Criteria may include or exclude (i)
extraordinary, unusual and/or non-recurring items of gain or loss, (ii) gains or
losses on the disposition of a business, (iii) changes in tax or accounting
regulations or laws, or (iv) the effect of a merger or acquisition, as
identified in the Company’s quarterly and annual earnings releases. In all other
respects, Performance Criteria shall be calculated in accordance with the
Company’s financial statements, under generally accepted accounting principles,
or under a methodology established by the Committee prior to the issuance of an
Award which is consistently applied and identified in the audited financial
statements, including footnotes, or the Management Discussion and Analysis
section of the Company’s annual report. However, to the extent Section 162(m) of
the Code is applicable, the Committee may not in any event increase the amount
of compensation payable to an individual upon the attainment of a Performance
Goal.

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SECTION 4
Other Stock-Based Awards

4.1   Grant of Other Stock-Based Awards       Other Stock-Based Awards may be
awarded by the Committee to selected Grantees that are payable in Shares or in
cash, as determined in the discretion of the Committee to be consistent with the
goals of the Company. Other types of Stock-Based Awards that are payable in
Shares include, without limitation, purchase rights, Shares of Common Stock
awarded that are not subject to any restrictions or conditions, convertible or
exchangeable debentures, and other rights convertible into Shares. As is the
case with other types of Incentive Awards, Other Stock-Based Awards may be
awarded either alone or in addition to or in conjunction with any other
Incentive Awards. Other Stock-Based Awards that are payable in Shares are not
intended to be deferred compensation that is subject to Code Section 409A unless
otherwise determined and provided by the Committee.   4.2   Other Stock-Based
Award Terms

  (a)   Written Agreement. The terms and conditions of each grant of an Other
Stock-Based Award shall be evidenced by an Incentive Agreement.     (b)  
Purchase Price. Except to the extent that an Other Stock-Based Award is granted
in substitution for an outstanding Incentive Award or is delivered upon exercise
of a Stock Option, the amount of consideration required to be received by the
Company shall be either (i) no consideration other than services actually
rendered (in the case of authorized and unissued shares) or to be rendered, or
(ii) as otherwise specified in the Incentive Agreement.     (c)   Other Terms.
All terms and conditions of Other Stock-Based Awards shall be determined by the
Committee and set forth in the Incentive Agreement, provided that such terms and
conditions are consistent with the Plan. Except as otherwise provided by
Section 1.3(d), notwithstanding anything to the contrary herein, in no event
shall a grant of an Other Stock-Based Award vest earlier than (i) one year from
the date of grant for an Other Stock-Based Award which is subject to the
attainment of Performance Goals (as described in Section 3.4) or (ii) ratably
over three years from the date of grant for an Other Stock-Based Award which
vests upon the performance of services over time.     (d)   Payment. Other
Stock-Based Awards shall be paid in Shares, in a single payment or in
installments on such dates as determined by the Committee; all as specified in
the Incentive Agreement.

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SECTION 5
Provisions Relating to Plan Participation

5.1   Incentive Agreement       Each Grantee to whom an Incentive Award is
granted shall be required to enter into an Incentive Agreement with the Company,
in such a form as is provided by the Committee. The Incentive Agreement shall
contain specific terms as determined by the Committee, in its discretion, with
respect to the Grantee’s particular Incentive Award. Such terms need not be
uniform among all Grantees or any similarly situated Grantees. The Incentive
Agreement may include, without limitation, vesting, forfeiture and other
provisions particular to the particular Grantee’s Incentive Award, as well as,
for example, provisions to the effect that the Grantee (a) shall not disclose
any confidential information acquired during Employment with the Company,
(b) shall abide by all the terms and conditions of the Plan and such other terms
and conditions as may be imposed by the Committee, (c) shall not interfere with
the employment or other service of any employee, (d) shall not compete with the
Company or become involved in a conflict of interest with the interests of the
Company, (e) shall forfeit an Incentive Award if terminated for cause, (f) shall
not be permitted to make an election under Code Section 83(b) when applicable,
and (g) shall be subject to any other agreement between the Grantee and the
Company regarding Shares that may be acquired under an Incentive Award
including, without limitation, a stockholders’ agreement, buy-sell agreement, or
other agreement restricting the transferability of Shares by Grantee. An
Incentive Agreement shall include such terms and conditions as are determined by
the Committee, in its discretion, to be appropriate with respect to any
individual Grantee. The Incentive Agreement shall be signed by the Grantee to
whom the Incentive Award is made and by an Authorized Officer.   5.2   No Right
to Employment       Nothing in the Plan or any instrument executed pursuant to
the Plan shall create any Employment rights (including without limitation,
rights to continued Employment) in any Grantee or affect the right of the
Company to terminate the Employment of any Grantee at any time without regard to
the existence of the Plan.   5.3   Securities Requirements       The Company
shall be under no obligation to affect the registration pursuant to the
Securities Act of 1933 of any Shares to be issued hereunder or to effect similar
compliance under any state laws. Notwithstanding anything herein to the
contrary, the Company shall not be obligated to cause to be issued or delivered
any certificates evidencing Shares pursuant to the Plan unless and until the
Company is advised by its counsel that the issuance and delivery of such
certificates is in compliance with all applicable laws, regulations of
governmental authorities, and the requirements of any securities exchange on
which Shares are traded. The Committee may require, as a condition of the
issuance and delivery of certificates evidencing Shares pursuant to the terms
hereof, that the recipient of such Shares make such covenants, agreements and

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    representations, and that such certificates bear such legends, as the
Committee, in its discretion, deems necessary or desirable.       The Committee
may, in its discretion, defer the effectiveness of any exercise of an Incentive
Award in order to allow the issuance of Shares to be made pursuant to
registration or an exemption from registration or other methods for compliance
available under federal or state securities laws. The Committee shall inform the
Grantee in writing of its decision to defer the effectiveness of the exercise of
an Incentive Award. During the period that the effectiveness of the exercise of
an Incentive Award has been deferred, the Grantee may, by written notice to the
Committee, withdraw such exercise and obtain the refund of any amount paid with
respect thereto.       If the Shares issuable on exercise of an Incentive Award
are not registered under the Securities Act of 1933, the Company may imprint on
the certificate for such Shares the following legend or any other legend which
counsel for the Company considers necessary or advisable to comply with the
Securities Act of 1933:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (“ACT”), OR THE SECURITIES LAWS OF ANY
STATE. THE SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO ANY APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT AND SUCH LAWS OR PURSUANT TO A WRITTEN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

5.4   Transferability       Incentive Awards granted under the Plan shall not be
transferable or assignable other than: (a) by will or the laws of descent and
distribution or (b) pursuant to a qualified domestic relations order (as defined
under Code Section 414(p)); provided, however, only with respect to Incentive
Awards consisting of Non-statutory Stock Options, the Committee may, in its
discretion, authorize all or a portion of the Non-statutory Stock Options to be
granted on terms which permit transfer by the Grantee to (i) the members of the
Grantee’s Immediate Family, (ii) a trust or trusts for the exclusive benefit of
Immediate Family members, (iii) a partnership in which such Immediate Family
members are the only partners, or (iv) any other entity owned solely by
Immediate Family members; provided that (A) there may be no consideration for
any such transfer, (B) the Incentive Agreement pursuant to which such
Non-statutory Stock Options are granted must be approved by the Committee, and
must expressly provide for transferability in a manner consistent with this
Section 5.4, (C) subsequent transfers of transferred Non-statutory Stock Options
shall be prohibited except in accordance with clauses (a) and (b) (above) of
this sentence, and (D) there may be no transfer of any Incentive Award in a
listed transaction as described in IRS Notice 2003-47. Following

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    any permitted transfer, the Non-statutory Stock Option shall continue to be
subject to the same terms and conditions as were applicable immediately prior to
transfer, provided that the term “Grantee” shall be deemed to refer to the
transferee. The events of termination of employment, as set out in Section 5.7
and in the Incentive Agreement, shall continue to be applied with respect to the
original Grantee, and the Incentive Award shall be exercisable by the transferee
only to the extent, and for the periods, specified in the Incentive Agreement.  
    Except as may otherwise be permitted under the Code, in the event of a
permitted transfer of a Non-statutory Stock Option hereunder, the original
Grantee shall remain subject to withholding taxes upon exercise. In addition,
the Company and the Committee shall have no obligation to provide any notices to
any Grantee or transferee thereof, including, for example, notice of the
expiration of an Incentive Award following the original Grantee’s termination of
employment.       The designation by a Grantee of a beneficiary of an Incentive
Award shall not constitute transfer of the Incentive Award. No transfer by will
or by the laws of descent and distribution shall be effective to bind the
Company unless the Committee has been furnished with a copy of the deceased
Grantee’s enforceable will or such other evidence as the Committee deems
necessary to establish the validity of the transfer. Any attempted transfer in
violation of this Section 5.4 shall be void and ineffective. All determinations
under this Section 5.4 shall be made by the Committee in its discretion.

5.5   Rights as a Stockholder

  (a)   No Stockholder Rights. Except as otherwise provided in Section 3.1(b)
for grants of Restricted Stock, a Grantee of an Incentive Award (or a permitted
transferee of such Grantee) shall have no rights as a stockholder with respect
to any Shares of Common Stock until the issuance of a stock certificate or other
record of ownership for such Shares.     (b)   Representation of Ownership. In
the case of the exercise of an Incentive Award by a person or estate acquiring
the right to exercise such Incentive Award by reason of the death or Disability
of a Grantee, the Committee may require reasonable evidence as to the ownership
of such Incentive Award or the authority of such person. The Committee may also
require such consents and releases of taxing authorities as it deems advisable.

5.6 Change in Stock and Adjustments

  (a)   Changes in Law or Circumstances. Subject to Section 5.8 (which only
applies in the event of a Change in Control), in the event of any change in
applicable law or any change in circumstances which results in or would result
in any dilution of the rights granted under the Plan, or which otherwise
warrants an equitable adjustment because it interferes with the intended
operation of the Plan, then, if the Board or Committee should so determine, in
its absolute discretion, that such change equitably requires an adjustment in
the number or kind of shares of stock

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    or other securities or property theretofore subject, or which may become
subject, to issuance or transfer under the Plan or in the terms and conditions
of outstanding Incentive Awards, such adjustment shall be made in accordance
with such determination. Such adjustments may include changes with respect to
(i) the aggregate number of Shares that may be issued under the Plan, (ii) the
number of Shares subject to Incentive Awards, and (iii) the Option Price or
other price per Share for outstanding Incentive Awards, but shall not result in
the grant of any Stock Option with an exercise price less than 100% of the Fair
Market Value per Share on the date of grant. The Board or Committee shall give
notice to each applicable Grantee of such adjustment which shall be effective
and binding.     (b)   Exercise of Corporate Powers. The existence of the Plan
or outstanding Incentive Awards hereunder shall not affect in any way the right
or power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalization, reorganization or other changes in the Company’s
capital structure or its business or any merger or consolidation of the Company,
or any issue of bonds, debentures, preferred or prior preference stocks ahead of
or affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding whether of a
similar character or otherwise.     (c)   Recapitalization of the Company.
Subject to Section 5.8 (which only applies in the event of a Change in Control),
if while there are Incentive Awards outstanding, the Company shall effect any
subdivision or consolidation of Shares of Common Stock or other capital
readjustment, the payment of a stock dividend, stock split, combination of
Shares, recapitalization or other increase or reduction in the number of Shares
outstanding, without receiving compensation therefore in money, services or
property, then the number of Shares available under the Plan and the number of
Incentive Awards which may thereafter be exercised shall (i) in the event of an
increase in the number of Shares outstanding, be proportionately increased and
the Option Price or Fair Market Value of the Incentive Awards awarded shall be
proportionately reduced; and (ii) in the event of a reduction in the number of
Shares outstanding, be proportionately reduced, and the Option Price or Fair
Market Value of the Incentive Awards awarded shall be proportionately increased.
The Board or Committee shall take such action and whatever other action it deems
appropriate, in its discretion, so that the value of each outstanding Incentive
Award to the Grantee shall not be adversely affected by a corporate event
described in this Section 5.6(c).     (d)   Issue of Common Stock by the
Company. Except as hereinabove expressly provided in this Section 5.6 and
subject to Section 5.8 in the event of a Change in Control, the issue by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, for cash or property, or for labor or services, either
upon direct sale or upon the exercise of rights or warrants to subscribe
therefore, or upon any conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number of, or

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      Option Price or Fair Market Value of, any Incentive Awards then
outstanding under previously granted Incentive Awards; provided, however, in
such event, outstanding Shares of Restricted Stock shall be treated the same as
outstanding unrestricted Shares of Common Stock.     (e)   Assumption under the
Plan of Outstanding Stock Options. Notwithstanding any other provision of the
Plan, the Board or Committee, in its discretion, may authorize the assumption
and continuation under the Plan of outstanding and unexercised stock options or
other types of stock-based incentive awards that were granted under a stock
option plan (or other type of stock incentive plan or agreement) that is or was
maintained by a corporation or other entity that was merged into, consolidated
with, or whose stock or assets were acquired by, the Company as the surviving
corporation. Any such action shall be upon such terms and conditions as the
Board or Committee, in its discretion, may deem appropriate, including
provisions to preserve the holder’s rights under the previously granted and
unexercised stock option or other stock-based incentive award; such as, for
example, retaining an existing exercise price under an outstanding stock option.
Any such assumption and continuation of any such previously granted and
unexercised incentive award shall be treated as an outstanding Incentive Award
under the Plan and shall thus count against the number of Shares reserved for
issuance pursuant to Section 1.4. In addition, any Shares issued by the Company
through the assumption or substitution of outstanding grants from an acquired
company shall reduce the Shares available for grants under Section 1.4.     (f)
  Assumption of Incentive Awards by a Successor. Subject to the accelerated
vesting and other provisions of Section 6.8 that apply in the event of a Change
in Control, in the event of a Corporate Event (defined below), each Grantee
shall be entitled to receive, in lieu of the number of Shares subject to
Incentive Awards, such shares of capital stock or other securities or property
as may be issuable or payable with respect to or in exchange for the number of
Shares which Grantee would have received had he exercised the Incentive Award
immediately prior to such Corporate Event, together with any adjustments
(including, without limitation, adjustments to the Option Price and the number
of Shares issuable on exercise of outstanding Stock Options). For this purpose,
Shares of Restricted Stock shall be treated the same as unrestricted outstanding
Shares of Common Stock. A “Corporate Event” means any of the following: (i) a
dissolution or liquidation of the Company, (ii) a sale of all or substantially
all of the Company’s assets, or (iii) a merger, consolidation or combination
involving the Company (other than a merger, consolidation or combination (A) in
which the Company is the continuing or surviving corporation and (B) which does
not result in the outstanding Shares being converted into or exchanged for
different securities, cash or other property, or any combination thereof). The
Board or Committee shall take whatever other action it deems appropriate to
preserve the rights of Grantees holding outstanding Incentive Awards.

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      Notwithstanding the previous paragraph of this Section 5.6(f), but subject
to the accelerated vesting and other provisions of Section 5.8 that apply in the
event of a Change in Control, in the event of a Corporate Event (described in
the previous paragraph), the Board or Committee, in its discretion, shall have
the right and power to:

  (i)   cancel, effective immediately prior to the occurrence of the Corporate
Event, each outstanding Incentive Award (whether or not then exercisable) and,
in full consideration of such cancellation, pay to the Grantee an amount in cash
equal to the excess of (A) the value, as determined by the Board or Committee,
of the property (including cash) received by the holders of Common Stock as a
result of such Corporate Event over (B) the exercise price of such Incentive
Award, if any; provided, however, this subsection (i) shall be inapplicable to
an Incentive Award granted within six (6) months before the occurrence of the
Corporate Event if the Grantee is an Insider and such disposition is not exempt
under Rule 16b-3 (or other rules preventing liability of the Insider under
Section 16(b) of the Exchange Act) and, in that event, the provisions hereof
shall be applicable to such Incentive Award after the expiration of six
(6) months from the date of grant; or     (ii)   provide for the exchange or
substitution of each Incentive Award outstanding immediately prior to such
Corporate Event (whether or not then exercisable) for another award with respect
to the Common Stock or other property for which such Incentive Award is
exchangeable and, incident thereto, make an equitable adjustment as determined
by the Board or Committee, in its discretion, in the Option Price or exercise
price of the Incentive Award, if any, or in the number of Shares or amount of
property (including cash) subject to the Incentive Award; or     (iii)   provide
for assumption of the Plan and such outstanding Incentive Awards by the
surviving entity or its parent.

      The Board or Committee, in its discretion, shall have the authority to
take whatever action it deems to be necessary or appropriate to effectuate the
provisions of this Section 5.6(f).

5.7   Termination of Employment, Death, Disability and Retirement

  (a)   Termination of Employment. Unless otherwise expressly provided in the
Grantee’s Incentive Agreement or the Plan, if the Grantee’s Employment is
terminated for any reason other than due to his death, Disability, Retirement or
for Cause, any non-vested portion of any Stock Option or other Incentive Award
at the time of such termination shall automatically expire and terminate and no
further vesting shall occur after the termination date. In such event, except as
otherwise expressly provided in his Incentive Agreement, the Grantee shall be
entitled to exercise his rights only with respect to the portion of the
Incentive

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      Award that was vested as of his termination of Employment date for a
period that shall end on the earlier of (i) the expiration date set forth in the
Incentive Agreement or (ii) ninety (90) days after the date of his termination
of Employment.     (b)   Termination of Employment for Cause. Unless otherwise
expressly provided in the Grantee’s Incentive Agreement or the Plan, in the
event of the termination of a Grantee’s Employment for Cause, all vested and
non-vested Stock Options and other Incentive Awards granted to such Grantee
shall immediately expire, and shall not be exercisable to any extent, as of
12:01 a.m. (CST) on the date of such termination of Employment.     (c)  
Retirement. Unless otherwise expressly provided in the Grantee’s Incentive
Agreement or the Plan, upon the termination of Employment due to the Grantee’s
Retirement:

  (i)   any non-vested portion of any outstanding Option or other Incentive
Award shall immediately terminate and no further vesting shall occur; and    
(ii)   any vested Option or other Incentive Award shall expire on the earlier of
(A) the expiration date set forth in the Incentive Agreement for such Incentive
Award; or (B) the expiration of (1) one year after the date of his termination
of Employment due to Retirement in the case of any Incentive Award other than an
Incentive Stock Option or (2) three months after his termination date in the
case of an Incentive Stock Option.

  (d)   Disability or Death. Unless otherwise expressly provided in the
Grantee’s Incentive Agreement or the Plan, upon termination of Employment as a
result of the Grantee’s Disability or death:

  (i)   any non-vested portion of any outstanding Option or other Incentive
Award shall immediately terminate upon termination of Employment and no further
vesting shall occur; and     (ii)   any vested Incentive Award shall expire on
the earlier of either (A) the expiration date set forth in the Incentive
Agreement or (B) the one year anniversary date of the Grantee’s termination of
Employment date.

      In the case of any vested Incentive Stock Option held by an Employee
following termination of Employment, notwithstanding the definition of
“Disability” in Section 1.2, whether the Employee has incurred a “Disability”
for purposes of determining the length of the Option exercise period following
termination of Employment under this Section 5.7(d) shall be determined by
reference to Code Section 22(e)(3) to the extent required by Code
Section 422(c)(6). The Committee shall determine whether a Disability for
purposes of this Section 5.7(d) has occurred.

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  (e)   Continuation. Subject to the conditions and limitations of the Plan and
applicable law and regulation in the event that a Grantee ceases to be an
Employee or Outside Director, as applicable, for whatever reason, the Committee
and Grantee may mutually agree with respect to any outstanding Option or other
Incentive Award then held by the Grantee (i) for an acceleration or other
adjustment in any vesting schedule applicable to the Incentive Award; (ii) for a
continuation of the exercise period following termination for a longer period
than is otherwise provided under such Incentive Award; or (iii) to any other
change in the terms and conditions of the Incentive Award. In the event of any
such change to an outstanding Incentive Award, a written amendment to the
Grantee’s Incentive Agreement shall be required. Notwithstanding the foregoing,
no amendment to a Grantee’s Incentive Award shall be made to the extent
compensation payable pursuant thereto as a result of such amendment would be
considered deferred compensation subject to Code Section 409A, unless otherwise
determined and provided by the Committee.

5.8   Change in Control       Notwithstanding any contrary provision in the
Plan, in the event of a Change in Control (as defined below), the following
actions shall automatically occur as of the day immediately preceding the Change
in Control date unless expressly provided otherwise in the individual Grantee’s
Incentive Agreement:

  (a)   all of the Stock Options and Stock Appreciation Rights then outstanding
shall become 100% vested and immediately and fully exercisable;     (b)   all of
the restrictions and conditions of any Restricted Stock and any Other
Stock-Based Awards then outstanding shall be deemed satisfied, and the
Restriction Period with respect thereto shall be deemed to have expired, and
thus each such Incentive Award shall become free of all restrictions and fully
vested; and     (c)   all of the Performance-Based Stock-Based Awards and any
Other Stock-Based Awards shall become fully vested, deemed earned in full, and
promptly paid within thirty (30) days to the affected Grantees without regard to
payment schedules and notwithstanding that the applicable performance cycle,
retention cycle or other restrictions and conditions have not been completed or
satisfied.

    For all purposes of this Plan, a “Change in Control” of the Company means
the occurrence of any one or more of the following events:

  (a)   any consolidation, merger or share exchange of the Company in which the
Company is not the continuing or surviving corporation or pursuant to which
Shares would be converted into cash, securities or other property, other than a
consolidation, merger or share exchange of the Company in which the holders of
the Common Stock immediately prior to such transaction have the same
proportionate ownership of Common Stock of the surviving corporation immediately
after such transaction;

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  (b)   any sale, lease, exchange or other transfer (excluding transfer by way
of pledge or hypothecation) in one transaction or a series of related
transactions, of all or substantially all of the assets of the Company;     (c)
  the stockholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company;     (d)   the cessation of control
(by virtue of their not constituting a majority of directors) of the Board by
the individuals (the “Continuing Directors”) who (x) at the date of this Plan
were directors or (y) become directors after the effective date of the Plan and
whose election or nomination for election by the Company’s stockholders, was
approved by a vote of at least two-thirds of the directors then in office who
were directors at the effective date of the Plan or whose election or nomination
for election was previously so approved;     (e)   the acquisition of beneficial
ownership (within the meaning of Rule 13d-3 under the Exchange Act) of an
aggregate of 20% of the voting power of the Company’s outstanding voting
securities by any person or group (as such term is used in Rule 13d-5 under the
Exchange Act) who beneficially owned less than 15% of the voting power of the
Company’s outstanding voting securities on the effective date of the Plan, or
the acquisition of beneficial ownership of an additional 5% of the voting power
of the Company’s outstanding voting securities by any person or group who
beneficially owned at least 15% of the voting power of the Company’s outstanding
voting securities on the effective date of the Plan; provided, however, that
notwithstanding the foregoing, an acquisition shall not constitute a Change of
Control hereunder if the acquirer is (x) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company and acting in such
capacity, (y) a Subsidiary of the Company or a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of voting securities of the Company or (z) any
other person whose acquisition of shares of voting securities is approved in
advance by a majority of the Continuing Directors; or     (f)   in a Title 11
bankruptcy proceeding, the appointment of a trustee or the conversion of a case
involving the Company to a case under Chapter 7.

    Notwithstanding the occurrence of any of the foregoing events set out in
this Section 5.8 which would otherwise result in a Change in Control, the Board
may determine in its discretion, if it deems it to be in the best interest of
the Company, that an event or events otherwise constituting or reasonably
leading to a Change in Control shall not be deemed a Change in Control
hereunder. Such determination shall be effective only if it is made by the Board
(a) prior to the occurrence of an event that otherwise would be, or reasonably
lead to, a Change in Control, or (b) after such event only if made by the Board
a majority of which is composed of directors who were members of the Board
immediately prior to the event that otherwise would be, or reasonably lead to, a
Change in Control.

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    Notwithstanding the foregoing provisions of this Section 5.8, to the extent
that any payment or acceleration hereunder is subject to Code Section 409A for
deferred compensation, Change in Control shall have the meaning set forth in
Code Section 409A(2)(A)(v) and any regulations issued thereunder, which are
incorporated herein by reference, but only to the extent inconsistent with the
foregoing provisions as determined in the discretion of the Committee.   5.9  
Financing       Subject to the requirements of the Sarbanes-Oxley Act of 2002,
the Company may extend and maintain, or arrange for and guarantee, the extension
and maintenance of financing to any Grantee to purchase Shares pursuant to
exercise of an Incentive Award upon such terms as are approved by the Committee
in its discretion.

SECTION 6
General

6.1   Effective Date and Grant Period       This Plan is adopted by the Board
effective as of the Effective Date, subject to the approval of the stockholders
of the Company within one year from the Effective Date. Incentive Awards may be
granted under the Plan at any time prior to receipt of such stockholder
approval; provided, however, if the requisite stockholder approval is not
obtained then any Incentive Awards granted hereunder shall automatically become
null and void and of no force or effect. Notwithstanding the foregoing, any
Incentive Award that is intended to satisfy the “performance-based exception”
under Code Section 162(m) shall not be granted until the terms of the Plan are
disclosed to, and approved by, the stockholders of the Company in accordance
with the requirements of the “performance-based exception” under Code
Section 162(m).   6.2   Funding and Liability of Company       No provision of
the Plan shall require the Company, for the purpose of satisfying any
obligations under the Plan, to purchase assets or place any assets in a trust or
other entity to which contributions are made, or otherwise to segregate any
assets. In addition, the Company shall not be required to maintain separate bank
accounts, books, records or other evidence of the existence of a segregated or
separately maintained or administered fund for purposes of the Plan. Although
bookkeeping accounts may be established with respect to Grantees who are
entitled to cash, Common Stock or rights thereto under the Plan, any such
accounts shall be used merely as a bookkeeping convenience. The Company shall
not be required to segregate any assets that may at any time be represented by
cash, Common Stock or rights thereto. The Plan shall not be construed as
providing for such segregation, nor shall the Company, the Board or the
Committee be deemed to be a trustee of any cash, Common Stock or rights thereto.
Any liability or obligation of the Company to any Grantee with respect to an
Incentive Award shall be based solely upon any contractual obligations that may
be created by this Plan and any

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    Incentive Agreement, and no such liability or obligation of the Company
shall be deemed to be secured by any pledge or other encumbrance on any property
of the Company. The Company, the Board or the Committee shall be required to
give any security or bond for the performance of any obligation that may be
created by the Plan.

6.3   Withholding Taxes

  (a)   Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Grantee to remit to the Company, an amount
sufficient to satisfy federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of the Plan or an Incentive Award hereunder. Upon the lapse
of restrictions on Restricted Stock, the Committee, in its discretion, may elect
to satisfy the tax withholding requirement, in whole or in part, by having the
Company withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to the minimum withholding taxes which could be imposed on the
transaction as determined by the Committee.     (b)   Share Withholding. With
respect to tax withholding required upon the exercise of Stock Options or SARs,
upon the lapse of restrictions on Restricted Stock, or upon any other taxable
event arising as a result of any Incentive Awards, Grantees may elect, subject
to the approval of the Committee in its discretion, to satisfy the withholding
requirement, in whole or in part, by having the Company withhold Shares having a
Fair Market Value on the date the tax is to be determined equal to the minimum
withholding taxes which could be imposed on the transaction as determined by the
Committee. All such elections shall be made in writing, signed by the Grantee,
and shall be subject to any restrictions or limitations that the Committee, in
its discretion, deems appropriate.     (c)   Incentive Stock Options. With
respect to Shares received by a Grantee pursuant to the exercise of an Incentive
Stock Option, if such Grantee disposes of any such Shares within (i) two years
from the date of grant of such Option or (ii) one year after the transfer of
such shares to the Grantee, the Company shall have the right to withhold from
any salary, wages or other compensation payable by the Company to the Grantee an
amount sufficient to satisfy the minimum withholding taxes which could be
imposed with respect to such disqualifying disposition.     (d)   Loans. To the
extent permitted by the Sarbanes-Oxley Act of 2002 or other applicable law, the
Committee may provide for loans, on either a short term or demand basis, from
the Company to a Grantee who is an Employee to permit the payment of taxes
required by law.

6.4   No Guarantee of Tax Consequences       Neither the Company nor the
Committee makes any commitment or guarantee that any federal, state or local tax
treatment will apply or be available to any person participating or eligible to
participate hereunder.

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6.5   Designation of Beneficiary by Participant       Each Grantee may, from
time to time, name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid
in case of his death before he receives any or all of such benefit. Each such
designation shall revoke all prior designations by the same Grantee, shall be in
a form prescribed by the Committee, and will be effective only when filed by the
Grantee in writing with the Committee during the Grantee’s lifetime. In the
absence of any such designation, benefits remaining unpaid at the Grantee’s
death shall be paid to the Grantee’s estate.   6.6   Deferrals       The
Committee shall not permit a Grantee to defer such Grantee’s receipt of the
payment of cash or the delivery of Shares that would, otherwise be due to such
Grantee by virtue of the lapse or waiver of restrictions with respect to
Restricted Stock, or the satisfaction of any requirements or goals with respect
to Performance-Based Stock-Based Awards or Other Stock-Based Awards.   6.7  
Amendment and Termination       The Board shall have the power and authority to
terminate or amend the Plan at any time; provided, however, the Board shall not,
without the approval of the stockholders of the Company within the time period
required by applicable law:

  (a)   except as provided in Section 5.6, increase the maximum number of Shares
which may be issued under the Plan pursuant to Section 1.4;     (b)   amend the
requirements as to the class of Employees eligible to purchase Common Stock
under the Plan;     (c)   extend the term of the Plan; or,     (d)   if the
Company is a Publicly Held Corporation (i) increase the maximum limits on
Incentive Awards to Covered Employees as set for compliance with the
“performance-based exception” under Code Section 162(m) or (ii) decrease the
authority granted to the Committee under the Plan in contravention of Rule 16b-3
under the Exchange Act.

    No termination, amendment, or modification of the Plan shall adversely
affect in any material way any outstanding Incentive Award previously granted to
a Grantee under the Plan, without the written consent of such Grantee or other
designated holder of such Incentive Award.       In addition, to the extent that
the Committee determines that (a) the listing for qualification requirements of
any national securities exchange or quotation system on which the Company’s
Common Stock is then listed or quoted, if applicable, or (b) the

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    Code (or regulations promulgated thereunder), require stockholder approval
in order to maintain compliance with such listing requirements or to maintain
any favorable tax advantages or qualifications, then the Plan shall not be
amended in such respect without approval of the Company’s stockholders.

6.8   Requirements of Law

  (a)   Governmental Entities and Securities Exchanges. The granting of
Incentive Awards and the issuance of Shares under the Plan shall be subject to
all applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
Certificates evidencing shares of Common Stock delivered under this Plan (to the
extent that such shares are so evidenced) may be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under the
rules and regulations of the Securities and Exchange Commission, any securities
exchange or transaction reporting system upon which the Common Stock is then
listed or to which it is admitted for quotation, and any applicable federal or
state securities law, if applicable. The Committee may cause a legend or legends
to be placed upon such certificates (if any) to make appropriate reference to
such restrictions.     (b)   Securities Act Rule 701. If no class of the
Company’s securities is registered under Section 12 of the Exchange Act, then
unless otherwise determined by the Committee, grants of Incentive Awards to
“Rule 701 Grantees” (as defined below) and issuances of the underlying shares of
Common Stock, if any, on the exercise or conversion of such Incentive Awards are
intended to comply with all applicable conditions of Securities Act Rule 701
(“Rule 701”), including, without limitation, the restrictions as to the amount
of securities that may be offered and sold in reliance on Rule 701, so as to
qualify for an exemption from the registration requirements of the Securities
Act. Any ambiguities or inconsistencies in the construction of an Incentive
Award or the Plan shall be interpreted to give effect to such intention. In
accordance with Rule 701, each Grantee shall receive a copy of the Plan on or
before the date an Incentive Award is granted to him, as well as the additional
disclosure required by Rule 701(e) if the aggregate sales price or amount of
securities sold during any consecutive 12-month period exceeds $5,000,000 as
determined under Rule 701(e). If Rule 701 (or any successor provision) is
amended to eliminate or otherwise modify any of the requirements specified in
Rule 701, then the provisions of this Section 6.8(b) shall be interpreted and
construed in accordance with Rule 701 as so amended. For purposes of this
Section 6.8(b), as determined in accordance with Rule 701, “Rule 701 Grantees”
shall mean any Grantee other than a director of the Company, the Company’s
chairman, CEO, president, chief financial officer, controller and any vice
president of the Company, and any other key employee of the Company who
generally has access to financial and other business related information and
possesses sufficient sophistication to understand and evaluate such information.

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6.9   Rule 16b-3 Securities Law Compliance for Insiders       If the Company is
a Publicly Held Corporation, transactions under the Plan with respect to
Insiders are intended to comply with all applicable conditions of Rule 16b-3
under the Exchange Act. Any ambiguities or inconsistencies in the construction
of an Incentive Award or the Plan shall be interpreted to give effect to such
intention, and to the extent any provision of the Plan or action by the
Committee fails to so comply, it shall be deemed null and void to the extent
permitted by law and deemed advisable by the Committee in its discretion.   6.10
  Compliance with Code Section 162(m) for Publicly Held Corporation       If the
Company is a Publicly Held Corporation, unless otherwise determined by the
Committee with respect to any particular Incentive Award, it is intended that
the Plan shall comply fully with the applicable requirements so that any
Incentive Awards subject to Section 162(m) that are granted to Covered Employees
shall qualify for the “performance-based exception” under Code Section 162(m),
except for grants of Non-statutory Stock Options with an Option Price set at
less than the Fair Market Value of a Share on the date of grant. If any
provision of the Plan or an Incentive Agreement would disqualify the Plan or
would not otherwise permit the Plan or Incentive Award to comply with the
“performance-based exception” under Code Section 162(m) as so intended, such
provision shall be construed or deemed to be amended to conform to the
requirements of the “performance-based exception” under Code Section 162(m) to
the extent permitted by applicable law and deemed advisable by the Committee;
provided, however, no such construction or amendment shall have an adverse
effect on the prior grant of an Incentive Award or the economic value to a
Grantee of any outstanding Incentive Award.   6.11   Notices

  (a)   Notice From Insiders to Secretary of Change in Beneficial Ownership.
Within two business days after the date of a change in beneficial ownership of
the Common Stock issued or delivered pursuant to this Plan, an Insider should
report to the Secretary of the Company any such change to the beneficial
ownership of Common Stock that is required to be reported with respect to such
Insider under Rule 16(a)-3 promulgated pursuant to the Exchange Act. Whenever
reasonably feasible, Insiders will provide the Committee with advance
notification of such change in beneficial ownership.     (b)   Notice to
Insiders and Securities and Exchange Commission. The Company shall provide
notice to any Insider, as well as to the Securities and Exchange Commission, of
any “blackout period,” as defined in Section 306(a)(4) of the Sarbanes-Oxley Act
of 2002, in any case in which Insider is subject to the requirements of
Section 304 of said Act in connection with such “blackout period.”

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6.12   Pre-Clearance Agreement with Brokers       Notwithstanding anything in
the Plan to the contrary, no shares of Common Stock issued pursuant to this Plan
will be delivered to a broker or dealer that receives such shares for the
account of an Insider unless and until the broker or dealer enters into a
written agreement with the Company whereby such broker or dealer agrees to
report immediately to the Secretary of the Company (or other designated person)
a change in the beneficial ownership of such shares.   6.13   Successors to
Company       All obligations of the Company under the Plan with respect to
Incentive Awards granted hereunder shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business and/or assets of the Company.   6.14   Miscellaneous
Provisions

  (a)   No Employee, Outside Director, or other person shall have any claim or
right to be granted an Incentive Award under the Plan. Neither the Plan, nor any
action taken hereunder, shall be construed as giving any Employee or Outside
Director any right to be retained in the Employment or other service of the
Company or any Parent or Subsidiary.     (b)   The expenses of the Plan shall be
borne by the Company.     (c)   By accepting any Incentive Award, each Grantee
and each person claiming by or through him shall be deemed to have indicated his
acceptance of the Plan.

6.15   Severability       In the event that any provision of this Plan shall be
held illegal, invalid or unenforceable for any reason, such provision shall be
fully severable, but shall not affect the remaining provisions of the Plan, and
the Plan shall be construed and enforced as if the illegal, invalid, or
unenforceable provision was not included herein.

6.16   Gender, Tense and Headings       Whenever the context so requires, words
of the masculine gender used herein shall include the feminine and neuter, and
words used in the singular shall include the plural. Section headings as used
herein are inserted solely for convenience and reference and constitute no part
of the interpretation or construction of the Plan.

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6.17   Governing Law       The Plan shall be interpreted, construed and
constructed in accordance with the laws of the State of Delaware without regard
to its conflicts of law provisions, except as may be superseded by applicable
laws of the United States.   6.18   Term of the Plan       Unless terminated
earlier pursuant to Section 6.7 hereof, the Plan shall terminate as of the close
of business on May 3, 2016, and no Incentive Award may be granted under the Plan
thereafter, but such termination shall not affect any Incentive Award issued or
granted on or prior to such termination date.

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IN WITNESS WHEREOF, the Company has caused this Plan to be duly executed in its
name and on its behalf by its duly authorized officer, effective as of May 4,
2006.

                  CALLON PETROLEUM COMPANY    
 
           
 
  By:        
 
  Name:
 
     Fred L. Callon    
 
  Title:   President & Chief Executive Officer    

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