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Exhibit 10.2

 
Form of Severance Compensation Agreement
 
THIS AGREEMENT is made and entered into as of [date], by and between
Callon Petroleum Company, a Delaware corporation (together with its
subsidiaries, “Callon”) and [name], as the current [office], (“Executive”).
 
WITNESSETH:
 
WHEREAS, Callon recognizes that the current business environment makes it
difficult to attract and retain highly qualified executives unless a certain
degree of security can be offered to such individuals against organizational and
personnel changes which frequently follow a Change of Control (as defined below)
of a corporation; and
 
WHEREAS, even rumors of acquisitions or mergers may cause executives to consider
major career changes in an effort to assure financial security for themselves
and their families; and
 
WHEREAS, Callon desires to assure fair treatment of its key executives in the
event of a Change of Control and to allow them to make critical career decisions
without undue time pressure and financial uncertainty, thereby increasing their
willingness to remain with Callon notwithstanding the outcome of a possible
Change of Control transaction; and
 
WHEREAS, Callon recognizes that its key executives will be involved in
evaluating or negotiating any offers, proposals, or other transactions which
could result in a Change of Control of Callon and believes that it is in the
best interest of Callon and its stockholders for such key executives to be in a
position, free from personal financial and employment considerations, to be able
to assess objectively and pursue aggressively the interests of Callon and its
stockholders in making these evaluations and carrying on such negotiations; and
 
WHEREAS, the Board of Directors of Callon (the “Board”) believes it is essential
to provide the Executive with compensation arrangements upon a Change of Control
which provide the Executive with individual financial security and which are
competitive with those of other corporations, and in order to accomplish these
objectives, the Board has caused Callon to enter into this Agreement.
 
NOW, THEREFORE, in consideration of the mutual premises and conditions contained
herein, the parties hereto agree as follows:
 
Article 1. Term
 
This Agreement shall terminate, except to the extent that any obligation of
Callon hereunder remains unpaid as of such time, upon the earliest of:
 
(a)
_________; provided, however, that, commencing on December 31, ___ and on each
anniversary date thereafter (each such date, an “Anniversary Date”), the
expiration date under this clause (i) shall automatically be extended for one
additional year unless, immediately prior to such Anniversary Date, either party
shall have given written notice that it does not wish to extend this Agreement,
but in no event shall the expiration date under this clause be earlier than the
second anniversary of the effective date of a Change of Control;

 
 
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(b)
The termination of the Executive’s employment with Callon based on death,
Disability (as defined in Section 3.1 hereof), or Cause (as defined in Section
3.2 hereof); and

 
(c)
The voluntary resignation of the Executive for any reason other than Good Reason
(as defined in Section 3.3).

 
Article 2. Change of Control
 
Except as provided herein, no benefits shall be payable hereunder unless there
shall have been a Change of Control of Callon as defined below, and Executive’s
employment by Callon shall thereafter have been terminated within two (2) years
after the date of such Change of Control in accordance with Section 3. For
purposes hereof, a “Change of Control” or “Change of Control of Callon” shall
mean any one of the following: (i) any person or group of persons acting in
concert (within the meaning of Section 13(d) of the Securities Exchange Act of
1934) shall have become the beneficial owner of more than fifty percent (50%) of
the outstanding common stock of Callon; (ii) the stockholders of Callon shall
cause a change in a majority of the members of the Board within a twelve (12)
month period, provided, however, that the election of a newly-elected director
shall not be deemed to be a change in the membership of the Board if the
nomination for election by Callon’s stockholders of such new director was
approved by the vote of two-thirds (2/3) of the directors then still in office
who were directors at the beginning of such twelve (12) month period; or (iii)
Callon or its stockholders shall enter into an agreement to dispose of all or
substantially all of the assets or outstanding capital stock of Callon in any
manner (including, but not limited to, by means of sale, merger, reorganization
or liquidation). A Change of Control will not result from the issuance of common
stock or other securities of Callon to creditors of Callon in connection with
the restructuring of Callon’s indebtedness, or from transactions entered into
pursuant to or during the pendency of a voluntary or involuntary case or
proceeding by or against Callon under the Federal Bankruptcy Code or any
applicable federal or state bankruptcy, insolvency, reorganization, or other
similar law, if such transactions are related to such case or proceeding, or
from the appointment at any time of a custodian, receiver, liquidator, assignee,
trustee, or sequestrator of Callon.
 
If the Executive’s employment with Callon is terminated in accordance with the
provisions of Section 3 within the six (6) month period prior to the date on
which a Change of Control is effective, and it is reasonably demonstrated that
such termination: (i) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control or (ii) otherwise arose in
connection with a Change of Control, then for all purposes hereof, such
termination shall be deemed to have occurred following a Change of Control.
 
Notwithstanding the foregoing provisions of Section 2, with respect to any
payment hereunder that is (i) subject to Section 409A of the Code and (ii) a
Change of Control which would accelerate the timing of payment thereof, the term
“Change of Control” shall mean a change in the ownership or effective control of
the Company, or in the ownership of a substantial portion of the assets of the
Company as defined Section 409A of the Code and the authoritative guidance
issued thereunder, but only to the extent inconsistent with the above definition
and as necessary to comply with Section 409A as determined by the Company.
 
 
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Article 3. Termination of Employment Following a Change of Control
 
If any of the events described in Section 2 constituting a Change of Control of
Callon shall have occurred, Executive shall be entitled to the benefits provided
in Section 5, and upon the subsequent termination of his employment the benefits
provided in Section 4, provided that such termination occurs within two (2)
years following a Change of Control of Callon (unless such termination is on
account of Executive’s death, in which case such termination must occur within
six (6) months following a Change of Control of Callon), unless such termination
is: (a) because of his “Disability” (as defined in Section 3.1), (b) by Callon
for “Cause” (as defined in Section 3.2); or (c) by Executive other than for
“Good Reason” (as defined in Section 3.3).
 
3.1          Disability. If, upon the disability of Executive, which, for
purposes of this Agreement shall be the physical or mental inability of
Executive to carry out the normal and usual duties of his employment on a
full-time basis for an entire period of six (6) continuous months together with
the reasonable likelihood as determined by the Board that Executive, upon the
advice of a qualified physician, will be unable to carry out the normal and
usual duties of his employment on a full-time basis for the following continuous
period of six (6) months, and within thirty (30) days after written Notice of
Termination (as hereinafter defined) is given, Executive shall not have returned
to the full time performance of his duties, Callon may terminate Executive’s
employment for “Disability.”
 
3.2          Cause. For the purposes hereof, Callon shall have “Cause” to
terminate Executive’s employment hereunder upon (i) willful misconduct or
intentional and continual neglect of duties which in the good faith or
reasonable judgment of the Board (excluding Executive) has materially adversely
affected Callon; provided, however, that Executive shall have first received
written notice from such Board advising of the acts or omissions that constitute
the misconduct or neglect of duties, and such misconduct or neglect of duties
continues after Executive shall have had a reasonable opportunity to correct the
same; (ii) theft or conviction of a felony or any crime involving dishonesty or
moral turpitude; provided, however, that Executive shall have first received
written notice from the Board advising of the acts or omissions that constitute
the failure or refusal to substantially perform duties, and such failure or
refusal continues after Executive shall have had a reasonable opportunity to
correct the same; (iii) the filing of a voluntary or involuntary case or
proceeding by or against Callon under the Federal Bankruptcy Code or any
applicable federal or state bankruptcy, insolvency, reorganization, or other
similar law, or the appointment of a custodian, receiver, liquidator, assignee,
trustee, or sequestrator of Callon; or (iv) the acquisition by Callon’s
creditors of all or substantially all of Callon’s assets through foreclosure or
other judicial means.
 
3.3          Good Reason. Executive may terminate his employment for Good
Reason. For purposes of this Agreement, “Good Reason” shall mean:
 
 
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(a)
Following a Change of Control, the failure of the Board of Directors to re-elect
Executive as [office] of Callon, or Executive’s removal from such office, or at
any time during the term of employment, Callon’s failure to vest Executive with
the powers and authority of [office] of Callon, except in connection with a
termination for Cause as contemplated by Section 3.2 of this Agreement;

 
 
(b)
Following a Change of Control, a significant change in the scope, nature or
status of Executive’s responsibilities or employment prerogatives;

 
 
(c)
Following a Change of Control, an attempted or actual reduction in Executive’s
base salary as in effect on the date of a Change of Control or as the same may
be increased from time to time thereafter or a failure by Callon to increase
Executive’s salary from time to time or to pay Executive a bonus at a level
comparable to the level of salary increases or bonuses (based on the average of
the three (3) preceding years) paid prior to a Change of Control, determined by
consistent application of the bonus formula utilized to establish bonus payments
during the preceding three (3) years;

 
 
(d)
Following a Change of Control, Executive’s relocation by Callon to any place
other than a location within the Natchez, Mississippi area, except for a
relocation consented to by Executive or a relocation to the greater Houston,
Texas area if all reasonable costs of relocation, including moving expenses,
costs of selling a principal residence (and, if requested by Executive, the
purchase of such principal residence at its value as appraised by a qualified
appraiser selected by Executive) are paid or provided for by Callon;

 
 
(e)
Following a Change of Control, the failure by Callon to continue in effect any
compensation plan in which Executive participates unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan in connection with a Change of Control, or the
failure of Callon to continue Executive’s participation therein or the taking of
any action by Callon which would materially and adversely affect Executive’s
participation in any such plan or reduce Executive’s benefits thereunder;

 
 
(f)
Following a Change of Control, the failure by Callon to continue to provide
Executive with benefits not less, in the aggregate, than those enjoyed under any
of Callon’s pension, life insurance, medical, health, and accident, or
disability plans in which Executive was participating at the time of a Change of
Control or the taking of any action by Callon which would directly or indirectly
materially reduce any such benefits;

 
 
(g)
The failure of Callon to obtain a satisfactory agreement from any successor or
parent thereof to assume and agree to perform this Agreement pursuant to
Article 7;

 
 
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(h)
Any purported termination of Executive’s employment with Callon which is not
effected pursuant to a Notice of Termination satisfying the requirements of
Section 3.4 hereof (and for purposes of this Agreement, no such purported
termination shall be effective); and

 
 
(i)
Termination of employment by reason of the Executive’s death or Disability, at
any time during the six month period beginning on the 1st day after the
effective date of a Change of Control.

 
    3.4           Notice of Termination. Any termination pursuant to the
foregoing provisions of this Section (including termination due to Executive’s
death) shall be communicated by written Notice of Termination to the other party
hereto. For purposes hereof, a “Notice of Termination” shall mean a notice which
shall indicate the specific termination provision herein relied upon and shall
set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive’s employment under the provision so
indicated. In the event that Executive seeks to terminate his employment with
Callon pursuant to Section 3.3, he must communicate his written Notice of
Termination to Callon within sixty (60) days of being notified of such action or
actions by Callon which constitute Good Reason for termination.
 
3.5          Date of Termination. “Date of Termination” shall mean: (i) if this
Agreement is terminated for Disability, thirty (30) days after Notice of
Termination is given (provided that Executive shall not have returned to the
performance of his duties on a full-time basis during such thirty (30) day
period); or (ii) if Executive’s employment is terminated pursuant to Section 3.3
or if the Executive’s employment is terminated for any other reason, the date
the Executive Separates from Service.
 
3.6          Reimbursement of Expenses. To the extent this Agreement provides
for the reimbursement of expenses which are not specifically excluded from Code
Section 409A, (i) such expenses shall be eligible for reimbursement for the
lifetime of the Executive, (ii) the amount of expenses eligible for
reimbursement during the Executive’s taxable year shall not affect the expenses
eligible for reimbursement in any other taxable year and (iii) the reimbursement
shall be made not later than by December 31st of the year following the calendar
year in which such expense was incurred by the Executive.
 
Article 4. Compensation upon Termination
 
4.1          Termination without Cause or for Good Reason. If Executive’s
employment is terminated (including termination due to Executive’s death) other
than pursuant to Sections 3.1 or 3.2 or if Executive shall terminate his
employment for Good Reason, then, subject to Sections 4.1(c) and 4.2, and
provided that the Executive signs a general release in a form provided by Callon
that releases Callon from any and all claims that the Executive may have, and
the Executive affirmatively agrees not to violate the provisions of Article 6,
the Executive shall be entitled, if such termination occurred within two (2)
years following the effective date of a Change of Control (or in the case of
termination due to Executive’s death, if such termination occurred within six
(6) months following the effective date of a Change of Control), to the
following benefits:
 
 
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(a)
Callon shall pay to the Executive in a lump sum, in cash, on the date which is
six (6) months following his Date of Termination, an amount equal to two (2)
times the sum of: (i) the Executive’s annual base salary as in effect
immediately prior to the Change of Control or, if higher, in effect immediately
prior to the Date of Termination and (ii) the greater of: (A) the average bonus
(under all Callon bonus plans for which the Executive is eligible) earned with
respect to the three most recently completed full fiscal years or (B) the target
bonus (under all Callon bonus plans for which the Executive is eligible) for the
fiscal year in which the Change of Control occurs, based on a forecast that has
been approved by the Board of the results for the fiscal year in which the
Change of Control occurs.

 
 
(b)
Callon shall, at its expense, maintain in full force and effect for Executive’s
continued benefit until twenty-four (24) months after the Date of Termination
all life, disability, medical, dental, accident and health insurance coverage to
which Executive was entitled immediately prior to the Notice of Termination. In
the event that (i) Executive’s participation in any such coverage is barred
under the general terms and provisions of the plans and programs under which
such coverage is provided, or (ii) any such coverage is discontinued or the
benefits thereunder materially reduced, Callon shall provide or arrange to
provide Executive with benefits substantially similar to those which Executive
was entitled to receive under such coverage immediately prior to the Notice of
Termination. At the end of the period of coverage herein above provided for,
Executive shall have the option to have assigned to Executive at no cost and
with no apportionment of prepaid premiums, any assignable insurance owned by
Callon and relating specifically to Executive and Executive shall be entitled to
all health and similar benefits that are or would have been made available to
Executive under law.  The continued coverage under this Section 4.1(b) shall be
provided in a manner that is intended to satisfy an exception to Section 409A of
the Code, and therefore not treated as an arrangement providing for nonqualified
deferred compensation that is subject to taxation under Section 409A, including
(i) providing such benefits on a nontaxable basis to Executive, (ii) providing
for the reimbursement of medical expenses incurred during the time period during
which Executive would be entitled to continuation coverage under a group health
plan of the Company pursuant to Section 4980B of the Code (i.e., COBRA
continuation coverage), (iii) providing that such benefits constitute the
reimbursement or provision of in-kind benefits payable at a specified time or
pursuant to a fixed schedule as permitted under Section 409A and the
authoritative guidance thereunder, or (4) such other manner as determined by the
Company in compliance with an exception from being treated as nonqualified
deferred compensation subject to Section 409A.

 
 
(c)
Callon’s obligation to pay severance amounts due to the Executive pursuant to
this Section 4.1, to the extent not already paid, shall cease immediately and
such payments will be forfeited if the Executive violates any condition
described in Sections 6.1, 6.2 or 6.3 after the Date of Termination. To the
extent already paid, should the Executive violate any condition described in
Sections 6.1, 6.2 or 6.3 after the Date of Termination, the severance amounts
provided hereunder shall be repaid in their entirety by the Executive to Callon
with interest at the “applicable federal rate” (as defined in Section 1274(d) of
the Code), and all rights to such payments shall be forfeited.

 
 
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4.2          Limitation on Payments.
 
 
(a)
Whether or not the Executive becomes entitled to the payments under Section 4.1
hereof, if any of the payments or benefits received or to be received by the
Executive in connection with a Change of Control or the Executive’s termination
of employment (whether pursuant to the terms of this Agreement or any other
plan, arrangement, or agreement with Callon, any person whose actions result in
a Change of Control or any person affiliated with Callon or such person) (such
payments or benefits, excluding the Gross-Up Payment, being hereinafter referred
to as the “Total Payments”) would be subject to the excise tax imposed under
Section 4999 of the Code (the “Excise Tax”), Callon shall pay to the Executive
an additional amount (the “Gross-Up Payment”) such that the net amount retained
by the Executive, after deduction of any Excise Tax on the Total Payments and
any federal, state, and local income and employment taxes and Excise Tax upon
the Gross-Up Payment, shall be equal to the Total Payments. Callon shall pay to
the Executive the Gross-Up Payment by the end of the Executive’s taxable year
next following the Executive’s taxable year in which he remits the related
taxes. For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the residence of the Executive on
the Date of Termination, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes.

 
 
(b)
All determinations required to be made under this Section 4.2, including whether
a Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be
made by the independent accounting firm which served as Callon’s auditor
immediately prior to the Change of Control (the “Accounting Firm”), which shall
provide detailed supporting calculations both to Callon and the Executive within
fifteen (15) business days after the Date of Termination, if applicable, or such
earlier time as is requested by Callon. In the event that the Accounting Firm is
also serving as accountant or auditor for the individual, entity, or group
effecting the Change of Control, the Executive may appoint another nationally
recognized public accounting firm to make the determinations required hereunder
(which accounting firm shall then be referred to as the Accounting Firm
hereunder), by giving written notice of such appointment to Callon within five
(5) business days after the Date of Termination. All fees and expenses of the
Accounting Firm shall be borne solely by Callon and it shall be Callon’s
obligation to cause the Accounting Firm to take any actions required hereby.

 
 
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If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with an opinion that he has
substantial authority not to report any Excise Tax on his federal income tax
return. As a result of the uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that a Gross-Up Payment which will not have been made by Callon
should have been made (“Underpayment”), consistent with the calculations
required to be made hereunder. In the event that Callon exhausts its remedies
pursuant to Section 4.2(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by Callon to or for the benefit of the Executive.
 
 
(c)
The Executive shall notify Callon, in writing, of any claim by the Internal
Revenue Service that, if successful, would require the payment by Callon of the
Gross-Up Payment. Such notification shall be given as soon as practicable but no
later than ten (10) business days after the Executive receives notice of such
claim and shall apprise Callon of the nature of such claim and the date on which
such claim is requested to be paid. The Executive shall not pay such claim prior
to the expiration of the thirty (30) day period following the date on which he
gives such notice to Callon (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If Callon notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:

 
 
(i)
Give Callon any information reasonably requested by Callon relating to such
claim;

 
 
(ii)
Take such action in connection with contesting such claim as Callon shall
reasonably request in writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an attorney
reasonably selected by Callon;

 
 
(iii)
Cooperate with Callon in good faith in order to effectively contest such claim;
and

 
 
(iv)
Permit Callon to participate in any proceedings relating to such claim,
provided, however, that, in accordance with the provisions of Section 3.6,
Callon shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis, for any Excise
Tax or income tax, including interest and penalties with respect thereto,
imposed as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this Section 4.2(c), Callon
shall control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings, and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive to pay the
tax claimed and sue for a refund, or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as Callon shall determine; provided, however, that
if Callon directs the Executive to pay such claim and sue for a refund, Callon
shall advance the amount of such payment to the Executive, on an interest-free
basis and shall indemnify and hold the Executive harmless, on an after-tax
basis, from any Excise Tax or income tax, including interest or penalties with
respect thereto, imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore,
Callon’s control of the contest shall be limited to issues with respect to which
a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.

 
 
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(d)
If, after the receipt by the Executive of an amount advanced by Callon pursuant
to Section 4.2(c), the Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall (subject to Callon’s complying with
the requirements of Section 4.2(c)) promptly pay to Callon the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by Callon pursuant to Section 4.2(c), a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and
Callon does not notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.

 
4.3          No Mitigation or Set-off of Amounts Payable Hereunder. Executive
shall not be required to mitigate the amount of any payment provided for in this
Section 4 by seeking other employment or otherwise, nor shall the amount of any
payment provided for in this Section 4 be reduced by any compensation earned by
Executive as the result of employment by another employer after the Date of
Termination, or otherwise. Callon’s obligations hereunder also shall not be
affected by any set-off, counterclaim, recoupment, defense, or other claim,
right or action which Callon may have against Executive.
 
 
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Article 5. Stock Options and Other Plans
 
5.1          Acceleration of Benefits.
 
If a Change of Control occurs:
 
(a)
Notwithstanding any provision to the contrary in any stock option agreement,
restricted stock agreement, or other applicable agreement that may be
outstanding between Executive and Callon, all outstanding units, stock options,
incentive stock options, performance shares, performance awards, stock
appreciation rights, career shares, bridge shares, and shares of restricted
stock (the “Stock Rights”) then held by Executive shall immediately become
exercisable and Executive shall become one hundred percent (100%) vested in such
stock rights held by or for the benefit of Executive.  In the event that, and to
the extent that, Callon is unable to provide for acceleration of vesting in
accordance with this paragraph as a result of the provisions in existence prior
to a Change of Control of any plan or agreement, Callon shall provide in lieu
thereof a lump sum cash payment equal to the difference between the total value
of such outstanding stock rights as of the Executive’s Date of Termination and
the total value of the stock rights in which the Executive is vested as of the
Executive’s Date of Termination, payable within the time specified in Section
4.1(a). The value of such accelerated vesting in the Executive’s stock rights
shall be determined by the Board in good faith based on a valuation performed by
an independent consultant mutually agreed to by the Board and Executive.

 
Notwithstanding the above provisions of this Section 5.1(a), no accelerated
vesting or cash out shall apply to any agreement to the extent such acceleration
or cash out would cause the compensation payable thereunder to fail to qualify
as “performance-based compensation” under Section 162(m)(4)(C) of the Code.
 
(b)
Notwithstanding any provision to the contrary in any stock option agreement that
may be outstanding between Executive and Callon, Executive’s right to exercise
any previously unexercised options under any such stock option agreement shall
not terminate until the latest date on which the option granted under such
agreement would expire under the terms of such agreement but for Executive’s
termination of employment.  In the event that, and to the extent that, Callon is
unable to provide for the extension of the expiration date of such options as a
result of the provisions in existence prior to a Change of control of any plan
or agreement, Callon shall provide in lieu thereof a lump sum cash payment equal
to the value of such extension Callon is unable to provide payable within the
time specified in Section 4.1(a).  The values of such accelerated vesting and
exercisability shall be determined by the Board in good faith based on a
valuation performed by an independent consultant mutually agreed to by the Board
and Executive.

 
 
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Article 6. Noncompetition, Nonsolicitation, Nondisclosure of Trade Secrets,
Nonpublic Information, and Ownership
 
6.1          Noncompetition. The Executive agrees that during the term of the
Executive’s employment with Callon and for a period of one year after the Date
of Termination or cessation of the Executive’s employment with Callon for any
reason whatsoever, he will not, directly or indirectly, compete with Callon by
providing services to any other person, partnership, association, corporation,
or other entity that is an “Oil and Gas Business” in any geographic location
where Callon currently operates. As used herein, an “Oil and Gas Business” means
owning, managing, acquiring, attempting to acquire, soliciting the acquisition
of, operating, controlling, or developing Oil and Gas interests or engaging in
or being connected with, as a principal, owner, officer, director,  employee,
shareholder, promoter, consultant, contractor, partner, member, joint venture,
agent, equity owner or in any other capacity whatsoever, any of the foregoing
activities of the oil and gas exploration and production business. The parties
agree that the above restrictions on competition are completely severable and
independent agreements supported by good and valuable consideration and, as
such, shall survive the termination of this Agreement for whatever reason. The
parties further agree that any invalidity or unenforceability of any one or more
of such restrictions on competition shall not render invalid or unenforceable
any remaining restrictions on competition. Additionally, should a court of
competent jurisdiction determine that the scope of any provision of this Section
6.1 is too broad to be enforced as written, the parties intend that the court
reform the provision to such narrower scope as it determines to be reasonable
and enforceable.
 
6.2.          Nonsolicitation. During the term of the Executive’s employment
with Callon and for a period of (three (3) years) after the Date of Termination
with Callon for any reason whatsoever, the Executive shall not, on his own
behalf or on behalf of any other person, partnership, association, corporation,
or entity: (a) directly, indirectly, or through a third party hire or cause to
be hired; (b) directly, indirectly, or through a third party solicit; or (c) in
any manner attempt to influence or induce any employee of Callon or its
subsidiaries or affiliates to leave the employment of Callon or its subsidiaries
or affiliates, nor shall he use or disclose to any person, partnership,
association, corporation, or other entity any information obtained concerning
the names and addresses Callon’s employees. The parties agree that the above
restrictions on hiring and solicitation are completely severable and independent
agreements supported by good and valuable consideration and, as such, shall
survive the termination of this Agreement for whatever reason. The parties
further agree that any invalidity or unenforceability of any one or more such
restrictions on hiring and solicitation shall not render invalid or
unenforceable any remaining restrictions on hiring and solicitation.
Additionally, should a court of competent jurisdiction determine that the scope
of any provision of this Section 6.2 is too broad to be enforced as written, the
parties intend that the court reform the provision to such narrower scope as it
determines to be reasonable and enforceable.
 
6.3.          Nondisclosure of Trade Secrets. Callon promises to disclose to the
Executive and the Executive acknowledges that in and as a result of his
employment by Callon, he will receive, make use of, acquire, have access to
and/or become familiar with, various trade secrets and proprietary and
confidential information of Callon, its subsidiaries, and affiliates, including,
but not limited to, processes, computer programs, compilations of information,
records, financial information, sales reports, sales procedures, customer
requirements, pricing techniques, customer lists, method of doing business,
identities, locations, performance and compensation levels of employees, and
other confidential information (collectively, “Trade Secrets”) which are owned
by Callon, its subsidiaries, and/or affiliates and regularly used in the
operation of its business, and as to which Callon, its subsidiaries, and/or
affiliates take precautions to prevent dissemination to persons other than
certain directors, officers, and employees. The Executive acknowledges and
agrees that the Trade Secrets:
 
 
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(a)
Are secret and not known in the industry;

 
 
(b)
Give Callon or its subsidiaries or affiliates an advantage over competitors who
do not know or use the Trade Secrets;

 
 
(c)
Are of such value and nature as to make it reasonable and necessary to protect
and preserve the confidentiality and secrecy of the Trade Secrets; and

 
 
(d)
Are valuable, special, and unique assets of Callon or its subsidiaries or
affiliates, the disclosure of which could cause substantial injury and loss of
profits and goodwill to Callon or its subsidiaries or affiliates.

 
The Executive promises not to use in any way or disclose any of the Trade
Secrets and confidential and proprietary information, directly or indirectly,
either during or after the term of his employment, except as required in the
course of his employment with Callon, if required in connection with a judicial
or administrative proceeding, or if the information becomes public knowledge
other than as a result of an unauthorized disclosure by the Executive. All
files, records, documents, information, data, and similar items relating to the
business of Callon, whether prepared by the Executive or otherwise coming into
his possession, will remain the exclusive property of Callon and may not be
removed from the premises of Callon under any circumstances without the prior
written consent of Callon (except in the ordinary course of business during the
Executive’s period of active employment under this Agreement), and in any event
must be promptly delivered to Callon upon termination of the Executive’s
employment with Callon. The Executive agrees that upon his receipt of any
subpoena, process, or other requests to produce or divulge, directly or
indirectly, any Trade Secrets to any entity, agency, tribunal, or person,
whether received during or after the term of the Executive’s employment with
Callon, the Executive shall timely notify and promptly hand deliver a copy of
the subpoena, process, or other request to Callon. For this purpose, the
Executive irrevocably nominates and appoints Callon (including any attorney
retained by Callon), as his true and lawful attorney-in-fact, to act in the
Executive’s name, place, and stead to perform any act that the Executive might
perform to defend and protect against any disclosure of any Trade Secrets.
 
The parties agree that the above restrictions on confidentiality and disclosure
are completely severable and independent agreements supported by good and
valuable consideration and, as such, shall survive the termination of this
Agreement for whatever reason. The parties further agree that any invalidity or
unenforceability of any one or more of such restrictions on confidentiality and
disclosure shall not render invalid or unenforceable any remaining restrictions
on confidentiality and disclosure. Additionally, should a court of competent
jurisdiction determine that the scope of any provision of this Section 6.3 is
too broad to be enforced as written, the parties intend that the court reform
the provision to such narrower scope as it determines to be reasonable and
enforceable.
 
 
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6.4          Ownership. The Executive agrees that all inventions, copyrightable
material, business and/or technical information, marketing plans, customer
lists, and trade secrets which arise out of the performance of this Agreement
are the property of Callon.
 
Article 7. Successors; Binding Agreement
 
7.1          Successors of Callon. Callon will require any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of Callon, by agreement in form
and substance satisfactory to Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that Callon
would be required to perform it if no such succession had taken place. Failure
of Callon to obtain such agreement prior to the effectiveness of any such
succession shall be a breach hereof and shall entitle Executive to compensation
from Callon in the same amount and on the same terms as Executive would be
entitled hereunder if Executive terminated his employment for Good Reason, the
date on which any such succession becomes effective shall be deemed the Date of
Termination; provided however, that such compensation shall be paid to Executive
only if such successor is a considered to be a successor to Callon by reason of
a Change of Control.  As used herein, “Callon Petroleum Company” shall mean
Callon as hereinbefore defined and any successor to its business and/or assets
as aforesaid which executes and delivers the agreement provided for in this
Section 6 or which otherwise becomes bound by all the terms and provisions
hereof by operation of law.
 
7.2          Executive’s Heirs, Etc. This Agreement shall inure to the benefit
of and be enforceable by Executive’s personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees, and
legatees. If Executive should die while any amounts would still be payable to
him hereunder as if he had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms hereof to his
designee or, if there be no such designee, to his estate.
 
Article 8. Notice
 
For the purposes hereof, notices and all other communications provided for
herein shall be in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to Callon at its principal place
of business and to Executive at his address as shown on the records of Callon,
provided that all notices to Callon shall be directed to the attention of the
Chief Executive Officer of Callon with a copy to the Secretary of Callon, or to
such other address provided in writing in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
 
Article 9. Miscellaneous
 
No provisions hereof may be amended, modified, waived, or discharged unless such
amendment, waiver, modification, or discharge is agreed to in writing and signed
by Executive and such officer as may be specifically designated by the Board
(which shall in any event include Callon’s Chief Executive Officer). No waiver
by either party hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision hereof, to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly herein.
 
 
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Article 10. Validity
 
The invalidity or unenforceability of any provisions hereof shall not affect the
validity or enforceability of any other provision hereof, which shall remain in
full force and effect.
 
Article 11. Legal Expenses
 
In accordance with the provisions of Section 3.6, Callon agrees to pay, upon
written demand therefore by Executive, all legal fees and expenses which
Executive may reasonably incur as a result of any dispute or contest (regardless
of the outcome thereof) by or with Callon or others regarding the validity or
enforceability of, or liability under, any provision hereof (including as a
result of any contest about the amount of any payment pursuant to Section 4.2),
plus interest on such legal fees and expenses at the “applicable federal rate”
(as defined in Section 1274(d) of the Code). In any such action brought by
Executive for damages or to enforce any provisions hereof, he shall be entitled
to seek both legal and equitable relief and remedies, including, without
limitation, specific performance of Callon’s obligations hereunder, in his sole
discretion.
 
Article 12. Continuation of Salary during Dispute
 
In the event of Executive’s termination of employment, if there is any dispute
or contest by or with Callon or others regarding the validity or enforceability
of, or liability under, any provision hereof (including as a result of any
contest about the amount of any payments pursuant to Section 4), and upon
written demand by the Executive, Callon shall continue to pay the Executive his
base salary and maintain all life, disability, medical, dental, accident, and
health insurance coverage in effect immediately prior to the date of such
dispute. Said periodic payments shall be made in accordance with Callon’s normal
payroll practices. Payments shall continue until final resolution of such
dispute or contest either by an agreement between the Executive and Callon or
final order of a court with proper jurisdiction. In the event that Callon
substantially prevails in such dispute, the Executive shall be obligated to
repay to Callon all amounts he has received for base salary under this Section
11 (after taxes applicable thereto) plus interest at the “applicable federal
rate” (as defined in Section 1274(d) of the Code).
 
Article 13. Counterparts
 
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original but all of which together will constitute one and
the same instrument.
 
Article 14. Governing Law
 
This Agreement shall be governed by and construed under the laws of the State of
Mississippi.
 
 
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Article 15. Captions and Gender
 
The use of captions and section headings herein is for purposes of convenience
only and shall not effect the interpretation or substance of any provisions
contained herein. Similarly, the use of the masculine gender with respect to
pronouns herein is for purposes of convenience and includes either sex who may
be a signatory.
 

 
[Signature page follows.]

 
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IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the day
and year first above written.
 
CALLON PETROLEUM COMPANY
       
By:
               
EXECUTIVE
       
By:
   

 
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