--------------------------------------------------------------------------------

Exhibit 10.1

CALLON PETROLEUM COMPANY
CONSENT SOLICITATION STATEMENT

Solicitation of Consents
with respect to
$200 Million of 9.75% Senior Notes Due 2010, Series B
Cusip No. 13123XAP7

THE CONSENT SOLICITATION WILL EXPIRE AT 11:00 A.M., NEW YORK CITY TIME, ON APRIL
4, 2008, UNLESS OTHERWISE EXTENDED (SUCH TIME AND DATE, AS THEY MAY BE EXTENDED,
THE “CONSENT DATE”).

Subject to the terms and conditions set forth in this Consent Solicitation
Statement (as may be amended or supplemented, the “Consent Solicitation
Statement”) and the accompanying Letter of Consent (the “Letter of Consent”),
Callon Petroleum Company, a Delaware corporation (“Callon”), is hereby
soliciting the consent (the “Consent Solicitation”) of Holders (as defined
below) as of the Record Date (as defined below) of each of its 9.75% Senior
Notes due 2010, Series B (the “Notes”) outstanding under the Indenture (the
“Indenture”), dated as of March 15, 2004, among Callon, as issuer, and American
Stock Transfer & Trust Company, as trustee (in such capacity, the “Notes
Trustee”).

The purpose of the Consent Solicitation is to amend and supplement the Indenture
(the “Supplemental Indenture”) to permit Callon to transfer the Entrada prospect
(as described below) to Callon Entrada Company (“Callon Entrada”) which will be
a wholly-owned Unrestricted Subsidiary (as defined in the Indenture) of
Callon.  Callon Entrada proposes to enter into a Credit Agreement and related
documents (the “Entrada Credit Facility”) with CIECO Energy (Entrada) LLC, a
subsidiary of ITOCHU Corporation, pursuant to which Callon Entrada will borrow
up to $150 million plus capitalized interest to finance the development of the
Entrada prospect.  The Entrada Credit Facility will be non-recourse to Callon,
and Callon will have no obligation to repay principal and interest outstanding
under the Entrada Credit Facility.  However, Callon will enter into a customary
indemnification agreement pursuant to which it agrees to indemnify the lenders
under the Entrada Credit Facility against Callon Entrada’s misappropriation of
funds, non-performance of certain covenants and similar matters.  In addition,
Callon will also guaranty payment by Callon Entrada of any of its obligations to
fund its proportionate share of any costs and expenses for any operation related
to the Entrada project that Callon Entrada may, from time to time, expressly
approve under the joint operating agreement in effect for the Entrada
project.  Callon will also guaranty Callon Entrada’s payment of all amounts to
plug and abandon wells and related facilities, for a breach of law, rule or
regulation (including environmental  laws) and for any losses attributable to
gross negligence of Callon Entrada.

Callon has entered into an agreement with beneficial owners of $148,158,000
principal amount of Notes, in which the beneficial owners agree, within two
business days following the commencement of this solicitation, to vote their
Notes in favor of the Supplemental Indenture.  Approval of the Supplemental
Indenture requires the approval of Holders of $150 million principal amount of
Notes or more.

The Tabulation Agent for the Consent Solicitation is

Global Bondholder Services Corporation

March 31, 2008

 
 

--------------------------------------------------------------------------------

 

The Supplemental Indenture shall become effective (the “Effective Date”)
promptly following (i) receipt of valid consents which are not revoked from
Holders (the “Consenting Holders”) representing $150 million aggregate principal
amount of Notes (the “Requisite Consents”) prior to the Consent Date, (ii)
execution of the Supplemental Indenture to the Indenture, and (iii) payment of
the Consent Fee (as defined below).

Callon will pay a fee on or prior to the Effective Date (the “Consent Fee”), to
each Holder whose properly executed Letter of Consent is received by the
Tabulation Agent (as defined below and as described on the back cover page
hereof) on or prior to the Consent Date equal to $5.00 in cash for each $1,000
in principal amount of Notes with respect to which such a consent is received
and not revoked from such Consenting Holder.  The Consent Fee will be paid only
if the Supplemental Indenture becomes effective with respect to the Notes.

In this Consent Solicitation Statement, the term “Record Date” means 5:00 p.m.,
New York City time, on March 28, 2008, and the term “Holder” means each person
shown on the records of the Registrar (as defined in the Indenture) for the
Notes as a registered holder on the Record Date.  For purposes of determining
the Requisite Consents with respect to the Notes, as of the date of this Consent
Solicitation Statement, there was outstanding $200 million in aggregate
principal amount of Notes.

Only Holders of Notes whose properly executed Letters of Consent with respect to
such Holders’ Notes are received by the Tabulation Agent on or prior to the
Consent Date and not revoked will be entitled to receive the applicable Consent
Fee in the event the Supplemental Indenture becomes effective.  All other
Holders of Notes will not be entitled to receive the Consent Fee but will be
bound by the Supplemental Indenture if it becomes effective.  Subject to the
terms and conditions of this Consent Solicitation Statement and the related
Letter of Consent, Callon will pay the applicable Consent Fee to the Consenting
Holders on the Effective Date.

No Consent Fee will be paid if the Requisite Consents are not received, if the
Consent Solicitation is withdrawn for any reason or if the Supplemental
Indenture does not otherwise become effective for any reason.  If Callon does
not pay the Consent Fee to each Consenting Holder by the Consent Date, the
Consent Solicitation will terminate.

Holders are requested to read and consider carefully the information contained
in this Consent Solicitation Statement and the related Letter of Consent and to
give their consent to the Supplemental Indenture by properly completing and
executing the accompanying Letter of Consent in accordance with the instructions
set forth herein and therein.

The transfer of Notes after the Record Date will not have the effect of revoking
any consent theretofore validly given by a Holder, and each properly completed
and executed Letter of Consent will be counted notwithstanding any transfer of
the Notes to which such Letter of Consent relates.

RECIPIENTS OF THIS CONSENT SOLICITATION STATEMENT AND THE ACCOMPANYING MATERIALS
SHOULD NOT CONSTRUE THE CONTENTS HEREOF OR THEREOF AS LEGAL, BUSINESS OR TAX
ADVICE.  EACH RECIPIENT SHOULD CONSULT ITS OWN ATTORNEY, BUSINESS ADVISOR AND
TAX ADVISOR AS TO LEGAL, BUSINESS, TAX AND RELATED MATTERS CONCERNING THE
CONSENT SOLICITATION.

 
 

--------------------------------------------------------------------------------

 

IMPORTANT

Only Holders are eligible to consent to the Supplemental Indenture.  Any
beneficial owner of Notes who is not a Holder of such Notes must arrange with
the person who is the Holder or such Holder’s assignee or nominee to execute and
deliver a Letter of Consent on behalf of such beneficial owner.  As of the date
of this Consent Solicitation Statement, the only Holder of the Notes is Cede &
Co., as nominee for The Depository Trust Company (“DTC”).  For purposes of the
Consent Solicitation, DTC has authorized DTC participants (“Participants”) set
forth in the position listing of DTC as of the Record Date to execute Letters of
Consent as if they were the Holders of the Notes held of record in the name of
DTC or the name of its nominee.  Accordingly, for purposes of the Consent
Solicitation, the term “Holder” shall be deemed to include such Participants.

Holders who wish to consent must deliver their properly completed and duly
executed Letters of Consent to the Tabulation Agent as set forth on the back
cover page of this Consent Solicitation Statement and in the Letter of Consent
in accordance with the instructions set forth herein and therein.  Consents
should not be delivered to Callon or the Notes Trustee.  However, Callon
reserves the right to accept any consent received by Callon or the Notes
Trustee.  Under no circumstances should any person tender or deliver Notes to
Callon, the Tabulation Agent, the Notes Trustee or any other party at any time.

No person has been authorized to give any information or make any
representations other than those contained or incorporated by reference herein
or in the accompanying Letter of Consent, and, if given or made, such
information or representations must not be relied upon as having been authorized
by Callon, the Tabulation Agent, the Notes Trustee or any other person.  The
statements made in this Consent Solicitation Statement are made as of the date
hereof, and the delivery of this Consent Solicitation Statement and the
accompanying materials shall not, under any circumstances, create any
implication that the information contained herein is correct after the date
hereof.

Unless you are a Holder, please handle this matter through your nominee bank or
broker through whom you hold an interest in the Notes.  Questions concerning the
terms of the Consent Solicitation should be directed to the Tabulation Agent at
the address or telephone numbers set forth on the back cover page
hereof.  Requests for assistance in completing and delivering Letters of Consent
or requests for additional copies of this Consent Solicitation Statement, the
Letter of Consent or other related documents should be directed to the
Tabulation Agent at the address or telephone number set forth on the back cover
page hereof.

CALLON PETROLEUM COMPANY

Callon Petroleum Company (NYSE: CPE) is engaged in the exploration and
development of oil and gas properties, primarily in the Gulf of Mexico.

PURPOSE AND BACKGROUND OF THE CONSENT SOLICITATION

Purpose

The purpose of the Consent Solicitation is to amend the Indenture to permit
Callon to transfer the Entrada prospect to Callon Entrada, a wholly-owned
Unrestricted Subsidiary of Callon and to facilitate Callon Entrada entering into
the Entrada Credit Facility to develop the Entrada prospect.  The Entrada
prospect is located in the deep water Gulf of Mexico, in approximately 4,500
feet of water.  Callon currently owns the entire working interest in the Entrada
prospect.

On February 12, 2008, Callon agreed to sell a 50% working interest to CIECO
Energy (US) Limited (“CIECO”), a subsidiary of ITOCHU Corporation.  As part of
the sale, CIECO agreed to enter into the Entrada Credit Facility and loan to
Callon Entrada, on a non-recourse basis, up to $150 million (plus capitalized
interest) to develop the 50% working interest in the Entrada prospect retained
by Callon. Callon believes this financing arrangement is favorable to Callon for
the following reasons:

 
 

--------------------------------------------------------------------------------

 

 
·
If development of the Entrada prospect is not successful, Callon will have no
obligation to repay principal and interest borrowed to develop the project.

 
·
The financing arrangement has favorable prepayment terms, so Callon can
refinance it if the Entrada prospect is successful.

 
·
The Entrada Credit Facility is part of the sale of a 50% interest in the Entrada
prospect to CIECO, the proceeds of which sale will be used to repay senior
secured indebtedness of Callon.

In order to contribute the Entrada prospect to Callon Entrada and consummate the
Entrada Credit Facility, Callon must amend the Indenture as described herein.

THE SUPPLEMENTAL INDENTURE

The Supplemental Indenture provides for the following:

 
·
Clause (y) of the proviso at the end of the definition of “Debt” in Section 1.1
of the Indenture is amended in its entirety to read as follows: “(y) any debt
arising in connection with a Permitted Medusa Transaction or a Permitted Entrada
Transaction, or”

 
·
Clause (b) of the definition of “Interest Expense” in Section 1.1 of the
Indenture is amended in its entirety to read as follows: “(b) imputed interest
expense attributable to any production payment, project financing by vendors and
other non-recourse debt, but not including any amounts arising out of a
Permitted Medusa Transaction or a Permitted Entrada Transaction”;

 
·
Clause (n) of the definition of “Permitted Investment” in Section 1.1 of the
Indenture is amended in its entirety to read: “(n) any Investment arising from
or related to a Permitted Medusa Transaction, or a Permitted Entrada
Transaction; and”

 
·
Clause (a) of the definition of “Unrestricted Subsidiary” in Section 1.1 of the
Indenture is amended in its entirety to read: “(a) Callon Entrada Company and
any other Subsidiary of the Company that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors of the Company
in the manner provided below; and”

 
·
A new definition of “Entrada Assets” is added to Section 1.1 of the Indenture,
such new definition to be inserted in appropriate alphabetical order and to read
in its entirety as follows: “‘Entrada Assets’ means all Oil and Gas Properties
owned by the Company or any of its Subsidiaries and located on, under or related
to Garden Banks Blocks 738, 782, 785, 826, and 827 in the federal offshore
waters of the Gulf of Mexico, subject to certain depth limits, and any and all
related equipment, accounts receivable, general intangibles and other assets
related thereto and any proceeds therefrom.”

 
 

--------------------------------------------------------------------------------

 
 
 
·
A new definition of “Permitted Entrada Transaction” is added to Section 1.1 of
the Indenture, such new definition to be inserted in appropriate alphabetical
order and to read in its entirety as follows:  “Permitted Entrada Transaction’
means  (i) the sale, conveyance and assignment by the Company or any of its
Subsidiaries of a portion of the Entrada Assets to a third party in a
transaction which otherwise complies with the requirements of Section 3.14(a),
(ii) the contribution by the Company or any of its Restricted Subsidiaries of
all or any portion of its ownership interests in the Entrada Assets,  to a newly
formed Unrestricted Subsidiary, Callon Entrada Company, which contribution may
occur either prior to, contemporaneously with or after the sale, conveyance and
assignment contemplated in the immediately preceding clause (i), which
Unrestricted Subsidiary and/or its assets may be managed under one or more
management services agreements, contract operating agreements or similar
agreements with the Company or any of its Restricted Subsidiaries, (iii) the
incurrence by Callon Entrada Company of Debt, the proceeds of which are to be
used to fund the costs and expenses incurred to develop and/or produce its
interests in the Entrada Assets, such Debt to be non-recourse to the Company and
its Restricted Subsidiaries except to the extent of the indemnities and/or
performance guaranties described in clause (vi) below,  (iv) the granting of
Liens on (w) the Entrada Assets, (x) all other assets of Callon Entrada Company,
(y) the equity interests of Callon Entrada Company, and/or (z) any deposit
accounts established and maintained to hold any loan proceeds of such Debt
pending disbursement and/or any revenues and proceeds of production or other
amounts attributable to the Entrada Assets, in each case to secure such Debt,
and (v) the contribution or advance by the Company or any of its Restricted
Subsidiaries of additional cash or other assets to Callon Entrada Company from
time to time not to exceed, in the aggregate at any time outstanding, the sum of
(A) $ 10,000,000, plus (B) other contributions or advances arising from or
deemed to exist as a result of the payment and performance by the Company or any
of its Restricted Subsidiaries of any of their respective obligations under
clause (vi) of this definition, and (vi) the indemnification of any Person
against loss from the failure of Callon Entrada Company to comply with, or the
guarantee by the Company or a Restricted Subsidiary of performance by Callon
Entrada Company of, its obligations arising under or related to the documents
and agreements evidencing or governing its Debt or relating to the development
and operations of its assets (other than the obligation of Callon Entrada
Company to repay the principal and interest of the Debt described in clause
(iii) of this definition) by the Company or any of its Restricted Subsidiaries.”

 
 
·
The proviso at the end of Section 3.17 of the Indenture is amended to read in
its entirety as follows: “; provided, however, that notwithstanding the
provisions of this Section 3.17, the Company may engage in any Permitted Medusa
Transaction or Permitted Entrada Transaction.”

 
·
Section 3.23 of the Indenture is amended in its entirety to read as follows:
“Section 3.23 Permitted Medusa Transactions; Permitted Entrada
Transaction.  Notwithstanding anything in this Indenture to the contrary, so
long as no Default or Event of Default has occurred and is continuing at the
time the Company or any of its Subsidiaries enters into any Permitted Medusa
Transaction or Permitted Entrada Transaction, the entering into and carrying out
of such Permitted Medusa Transaction or Permitted Entrada Transaction, as
applicable, shall be allowed hereunder and shall not in itself constitute a
breach of, non-compliance with, or Default or Event of Default under this
Indenture.”

 
 

--------------------------------------------------------------------------------

 

THE CONSENT SOLICITATION

Overview

The Supplemental Indenture will become effective on the Effective Date, which
shall occur promptly following (i) receipt of valid consents which have not been
revoked from Consenting Holders representing $150 million aggregate principal
amount of Notes, (ii) execution of the Supplemental Indenture, and (iii) payment
of the applicable Consent Fee.

If the Supplemental Indenture becomes effective, it will be binding on all
Holders of Notes and their transferees, regardless of whether such Holders have
consented to the Supplemental Indenture.  Failure to deliver a Letter of Consent
will have the same effect as if a Holder had chosen not to give its consent with
respect to the Supplemental Indenture.

The delivery of a Letter of Consent will not affect a Holder’s right to sell or
transfer the Notes.  If a Holder delivers a consent and subsequently transfers
its Notes, any payment pursuant to the Consent Solicitation with respect to such
Notes will be made to such transferring Holder.

Beneficial owners of the Notes who wish to provide a consent and whose Notes are
held, as of the Record Date, in the name of a broker, dealer, commercial bank,
trust company or other nominee institution must contact such nominee promptly
and instruct such nominee, as the Holder of such Notes, to execute promptly and
deliver a Letter of Consent on behalf of the beneficial owner on or prior to the
Consent Date.

Consent Fees

Callon shall pay (directly or through an agent) a Consent Fee, on the Effective
Date, to each Holder of Notes whose properly executed Letter of Consent is
received by the Tabulation Agent on or prior to the Consent Date, of $5.00 in
cash for each $1,000 in principal amount of Notes with respect to which such a
consent is received and not revoked from such Consenting Holder.

No Consent Fee will be paid if the Requisite Consents are not received, if the
Consent Solicitation is withdrawn for any reason or if the Supplemental
Indenture does not otherwise become effective for any reason.  If Callon does
not pay the Consent Fee to each Consenting Holder by the Consent Date, the
Consent Solicitation will terminate.

Record Date

The Record Date for the determination of Holders entitled to give consents
pursuant to the Consent Solicitation is 5:00 p.m., New York City time, on March
28, 2008.  This Consent Solicitation Statement and the accompanying Letter of
Consent are being sent to all Holders.  As of the date of this Consent
Solicitation Statement, the only Holder of the Notes is Cede & Co. as nominee
for DTC.  For purposes of the Consent Solicitation, DTC has authorized DTC
Participants set forth in the position listing of DTC as of the Record Date to
execute Letters of Consent as if they were the Holders of the Notes held of
record in the name of DTC or the name of its nominee.  Accordingly, for purposes
of the Consent Solicitation, the term “Holder” shall be deemed to include such
Participants.  Callon reserves the right to establish from time to time any new
date as the Record Date and, thereupon, any such new date will be deemed to be
the “Record Date” for purposes of the Consent Solicitation.

Consent Date; Extensions; Amendment

The term “Consent Date” means 11:00 A.M.., New York City time, on April 4, 2008,
unless Callon, in its sole discretion, extends the period during which the
Consent Solicitation is open, in which case the term Consent Date means the
latest time and date to which the Consent Solicitation is extended.  In order to
extend the Consent Date, Callon will notify the Tabulation Agent and the Notes
Trustee in writing of any extension and will make a public announcement thereof,
each prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled Consent Date.  Callon may waive any conditions with respect
to, or extend, amend, modify or withdraw the Consent Solicitation; however, if
the Consent Solicitation is amended or modified in a manner determined by Callon
to constitute a material adverse change to the Holders, Callon will promptly
disclose such amendment or modification in a manner it deems appropriate, with
written notice to the Tabulation Agent and the Notes Trustee, and may, if
appropriate, extend the Consent Solicitation for a period deemed by it to be
adequate to permit the Holders of such Notes to deliver and/or revoke their
consents.  Failure by any Holder or beneficial owner of Notes to be so notified
will not affect the extension of the Consent Solicitation.

 
 

--------------------------------------------------------------------------------

 

Procedures for Consenting

All Letters of Consent that are properly completed and duly executed and
received by the Tabulation Agent on or prior to the Consent Date will be given
effect in accordance with the specifications therein.

Holders who desire to act with respect to the Supplemental Indenture should so
indicate by signing and dating the accompanying Letter of Consent included
herewith and delivering it to the Tabulation Agent at the address set forth in
the Letter of Consent, in accordance with the instructions contained herein and
therein.  Signatures must be guaranteed in accordance with paragraph 6 of the
instructions in the Letter of Consent.

The Letter of Consent must be executed by a Holder in exactly the same manner as
the name of the Holder appears in the records of the registrar for the
Notes.  An authorized Participant must execute the Letter of Consent exactly as
its name appears on DTC’s position listing as of the Record Date.  If the Notes
are held of record by two or more joint Holders, all such Holders must sign the
Letter of Consent.  If a signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other Holder acting in a
fiduciary or representative capacity, such person should so indicate when
signing and must submit proper evidence satisfactory to Callon of such person’s
authority so to act.  If the Notes are registered in different names, separate
Letters of Consent must be executed covering each form of registration.  If a
Letter of Consent is executed by a person other than the Holder, then such
person must have been properly authorized by proxy or in some other manner
acceptable to Callon to execute the Letter of Consent.  Any beneficial owner of
the Notes who is not a Holder of record of such Notes or an authorized
Participant must arrange with the person who is the Holder of record or such
Holder’s assignee or nominee to execute and deliver a Letter of Consent on
behalf of such beneficial owner.

If a Letter of Consent relates to fewer than all the Notes held as of the Record
Date by the Holder providing such Letter of Consent, such Holder must indicate
on the Letter of Consent the series and aggregate dollar amount (in integral
multiples of $1,000) of such Notes to which the Letter of Consent relates.
Otherwise, the Letter of Consent will be deemed to relate to all such Notes.

A Holder must complete, sign and date the Letter of Consent (or photocopy
thereof) for such Holder’s Notes and deliver such Letter of Consent to the
Tabulation Agent by mail, first-class postage prepaid, hand delivery, overnight
courier or by facsimile transmission at the address or facsimile number of the
Tabulation Agent set forth on the back cover page hereof.  Delivery of Letters
of Consent should be made sufficiently in advance of the Consent Date to assure
that the Letter of Consent is received prior to the Consent Date.  Under no
circumstances should any person tender or deliver Notes to Callon, the
Tabulation Agent, the Notes Trustee or any other party at any time.

Callon reserves the right to receive Letters of Consent by any other reasonable
means or in any form that reasonably evidences the giving of consent.

All questions as to the validity, form, eligibility (including time of receipt)
and acceptance of consents will be resolved by Callon, whose good faith
determinations will be final and binding.  Callon reserves the absolute right to
reject any or all consents that are not in proper form or the acceptance of
which could, in the opinion of Callon’s counsel, be unlawful.  Callon also
reserves the right to waive any irregularities in connection with deliveries,
which Callon may require to be cured within such time as Callon
determines.  None of Callon, the Notes Trustee, the Tabulation Agent or any
other person shall have any duty to give notification of any such irregularities
or waiver, nor shall any of them incur any liability for failure to give such
notification.  Deliveries of Letters of Consent will not be deemed to have been
made until such irregularities have been cured or waived.  Callon’s good faith
interpretation of the terms and conditions of the Consent Solicitation
(including this Consent Solicitation Statement and the accompanying Letter of
Consent and the instructions hereto and thereto) will be final and binding on
all parties.

 
 

--------------------------------------------------------------------------------

 

Revocation of Consents

All properly completed and executed Letters of Consent received prior to the
Consent Date will be counted, notwithstanding any transfer of any Notes to which
such Letter of Consent relates, unless the Tabulation Agent receives from a
Holder (or a subsequent holder that has received a proxy from the relevant
Holder) a written notice of revocation bearing a date later than the date of the
prior Letter of Consent at any time prior to the Consent Date.  Any notice of
revocation received after the Consent Date will not be given effect.  A transfer
of Notes after the Record Date must be accompanied by a duly executed proxy from
the relevant Holder if the subsequent transferee is to have revocation rights
with respect to the consent to the Supplemental Indenture.  To be effective, a
notice of revocation must be in writing, must contain the name of the Holder and
the aggregate principal amount of the Notes to which it relates and must be (i)
signed in the same manner as the original Letter of Consent or (ii) accompanied
by a duly executed proxy or other authorization (in form satisfactory to
Callon).  All revocations of consents must be sent to the Tabulation Agent at
its address set forth in the Letter of Consent.

A revocation of a consent may be rescinded only by the delivery of a written
notice of revocation or the execution and delivery of a new Letter of Consent.

Tabulation Agent

Callon has retained Global Bondholder Services Corporation to act as Tabulation
Agent with respect to the Consent Solicitation (the “Tabulation Agent”).  For
the services of the Tabulation Agent, Callon has agreed to pay reasonable and
customary fees and to reimburse the Tabulation Agent for its reasonable
out-of-pocket expenses in connection with such services.

Requests for assistance in completing and delivering the Letter of Consent or
requests for additional copies of this Consent Solicitation Statement, the
accompanying Letter of Consent and other related documents should be directed to
the Tabulation Agent at its address or telephone number set forth on the back
cover page hereof.  Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Consent
Solicitation.  The executed Letter of Consent and any other documents required
by the Letter of Consent should be sent to the Tabulation Agent at the address
set forth in the Letter of Consent, and not to Callon or the Notes Trustee.

Fees and Expenses

Callon will bear the costs of the Consent Solicitation.  Callon will reimburse
the Notes Trustee for the reasonable and customary expenses that the Notes
Trustee incurs in connection with the Consent Solicitation.  Callon will also
reimburse banks, trust companies, securities dealers, nominees, custodians and
fiduciaries for their reasonable and customary expenses in forwarding this
Consent Solicitation Statement, the accompanying Letter of Consent and other
materials to beneficial owners of the Notes.

 
 

--------------------------------------------------------------------------------

 

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following summary describes certain material United States (“U.S.”) federal
income tax consequences of the Consent Solicitation, the Indenture and the
receipt of the Consent Fee.  This discussion is based on the Internal Revenue
Code of 1986, as amended (the “Code”), existing and proposed Treasury
regulations and judicial and administrative rulings as in effect and existing on
the date hereof, all of which are subject to change or differing
interpretations, possibly with retroactive effect.  Callon has not sought any
rulings from the Internal Revenue Service (the “IRS”) with respect to the
statements made and positions taken in this summary.  Therefore, there is no
assurance that the IRS would not assert a position contrary to the positions
stated below, or that a court would not agree with any such
assertion.  Furthermore, no opinion of counsel has been or will be rendered with
respect to the tax consequences of the Consent Solicitation, the Supplemental
Indenture and/or the receipt of the Consent Fee.

This summary does not discuss any aspects of state, local, estate, gift or
foreign tax laws, and it applies only to Notes that are held as capital assets
(within the meaning of Section 1221 of the Code).  This discussion does not
describe all of the tax consequences that may be relevant to Holders in light of
their particular circumstances or to Holders subject to special rules, such as,
but not limited to:

 
·
certain financial institutions;

 
·
insurance companies;

 
·
brokers or dealers in securities or foreign currencies;

 
·
persons holding Notes as part of a straddle, conversion transaction, hedge or
other integrated transaction;

 
·
U.S. Holders (as defined below) whose functional currency is not the U.S.
dollar;

 
·
partnerships or other pass-through entities for U.S. federal income tax
purposes;

 
·
persons subject to the alternative minimum tax;

 
·
tax-exempt entities;

 
·
real estate investment trusts;

 
·
controlled foreign corporations; and

 
·
certain U.S. expatriates.

HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH REGARD TO THE APPLICATION
OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS
ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN
TAXING JURISDICTION.

Tax Consequences to Consenting U.S. Holders

As used herein, the term “U.S. Holder” means a beneficial owner of a Note for
U.S. federal income tax purposes that is:

 
·
an individual who is a citizen or resident of the United States;

 
 

--------------------------------------------------------------------------------

 

 
·
a corporation, or other entity taxable as a corporation for U.S. federal income
tax purposes, created or organized in or under the laws of the United States or
of any political subdivision thereof;

 
·
an estate, the income of which is subject to U.S. federal income taxation
regardless of its source; or

 
·
a trust that (a) is subject to primary supervision by a court within the United
States and with respect to which one or more U.S. persons have the authority to
control all substantial decisions, or (b) has made a valid election under
applicable Treasury regulations to be treated as a U.S. person.

Special rules, not discussed in this summary, may apply to persons holding Notes
through entities treated as partnerships for U.S. federal income tax
purposes.  Such persons should consult their own tax advisors with respect to
these rules.

Debt Modification Rules

Generally, the modification of a debt instrument (including a change in the
yield) will be treated as a “deemed exchange” of an “old” debt instrument for a
“new” debt instrument for U.S. federal income tax purposes if such modification
is “significant” within the meaning of the Treasury regulations promulgated
under Section 1001 of the Code (the “Reissuance Regulations”).  Such a deemed
exchange would be a taxable event unless a non-recognition provision of the Code
were to apply.  Under the Reissuance Regulations, the modification of a debt
instrument is “significant” if, based on all the facts and circumstances and
taking into account all modifications of the debt instrument collectively, the
legal rights or obligations that are altered and the degree to which they are
altered are “economically significant.”  The Reissuance Regulations provide that
a modification of a debt instrument that adds, deletes or alters customary
accounting or financial covenants is not a significant modification.  However,
the Reissuance Regulations also provide that a change in the yield of certain
debt instruments generally constitutes a significant modification if the yield
of the modified debt instrument varies from the yield of the unmodified debt
instrument by more than the greater of 25 basis points or 5 percent of the
annual yield on the unmodified debt instrument.

Although the payment of the Consent Fee will change the yield of the Notes, this
change will be smaller than that which would be treated as a significant
modification under the Reissuance Regulations.  Accordingly, the adoption of the
Supplemental Indenture and the payment of the Consent Fee should not cause a
deemed exchange of a U.S. Holder’s Notes (“Old Notes”) for new Notes (“New
Notes”) for U.S. federal income tax purposes, and since a deemed exchange does
not appear to occur a U.S. Holder should not recognize gain or loss as a result
of the payment of the Consent Fee (although the Consent Fee would be included in
income, as discussed below).

Even if the adoption of the Supplemental Indenture and the payment of the
Consent Fee were found to result in a deemed exchange with respect to the Notes,
Callon would take the position that, although not free from doubt, the deemed
exchange constitutes a tax-free recapitalization under Section 354(a) of the
Code for U.S. federal income tax purposes.  If there were a deemed exchange and
such exchange was treated as a tax-free recapitalization, generally no gain or
loss would be recognized by a U.S. Holder (except to the extent of the Consent
Fee being included as income).  In such event, a U.S. Holder would have an
initial tax basis in the New Notes received in the deemed exchange equal to the
Holder’s tax basis in the Old Notes deemed exchanged, increased by any taxable
gain or income recognized in the exchange (as discussed under the heading
“Consent Fee” below). In general, the Holder’s holding period for the New Notes
would include the period during which the Holder held the Old Notes deemed
surrendered in the deemed exchange.

If any such deemed exchange were not to qualify as a tax-free recapitalization
with respect to the Notes, the tax consequences of the adoption of the
Supplemental Indenture and the payment of the Consent Fee could materially
differ from those described herein.

 
 

--------------------------------------------------------------------------------

 

Consent Fee

The law is unclear with respect to the U.S. federal income tax treatment of the
Consent Fee.  Callon intends to treat the Consent Fee as a fee paid to a U.S.
Holder in consideration of such Holder’s consent to the Supplemental
Indenture.  Alternatively, the Consent Fee might be treated as a payment of
additional interest on the Notes.  In either case, a U.S. Holder would recognize
ordinary income in the amount of the Consent Fee received without any reduction
by any portion of a U.S. Holder’s tax basis in the Notes.

Information Reporting and Backup Withholding

Information returns will be filed with the IRS in connection with the payment of
the Consent Fee and any deemed interest payments with respect to a deemed
exchange of Old Notes for New Notes.  A U.S. Holder will be subject to U.S.
backup withholding on such payments if the U.S. Holder fails to provide its
taxpayer identification number to the paying agent and comply with certain
certification procedures or otherwise establish an exemption from backup
withholding.  The amount of any backup withholding deducted from a payment to a
U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal
income tax liability and may entitle the U.S. Holder to a refund, provided that
the required information is furnished to the IRS.

U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE U.S. FEDERAL INCOME
TAX CONSEQUENCES OF THE CONSENT SOLICITATION.

Tax Consequences to Consenting Non-U.S. Holders

As used herein, the term “Non-U.S. Holder” means a beneficial owner of a Note
for U.S. federal income tax purposes that is not a U.S. Holder or an entity
treated as a partnership for U.S. federal income tax purposes.  This discussion
is not addressed to Non-U.S. Holders who own, actually or constructively, 10% or
more of the total combined voting power of all classes of stock of Callon
entitled to vote, who are controlled foreign corporations related to Callon
through stock ownership, or who, on the date of acquisition of the Notes, owned
Notes with a fair market value of more than 5% of the fair market value of the
common stock of Callon.  Additionally, this discussion does not describe the
U.S. federal income tax consequences to Non-U.S. Holders who are engaged in a
trade or business in the United States with which the Notes are effectively
connected, or who are individuals present in the United States for 183 days or
more in the taxable year of disposition.  Such Non-U.S. Holders will generally
be subject to special rules and should consult their own tax advisors regarding
the U.S. federal income tax consequences applicable to their particular
situation.

Although it is not entirely clear that withholding of U.S. federal income tax is
applicable to the payment of the Consent Fee to a Non-U.S. Holder, Callon
intends to withhold such tax from any Consent Fee paid to a Non-U.S. Holder at a
30% rate unless an exemption or partial reduction as a result of a treaty is
properly established.  A Non-U.S. Holder may be able to claim an exemption or
establish that a reduced rate of withholding applies by delivering to the
applicable withholding agent a properly executed (a) IRS Form W-8BEN (or a
permissible substitute) claiming and exemption from or reduction in withholding
under the benefit of an applicable income tax treaty or (b) IRS Form W-8ECI
stating that the Consent Fee is not subject to withholding tax because it is
effectively connected with the Non-U.S. Holder’s conduct of a trade or business
in the United States.

Information Reporting and Backup Withholding

Information returns will be filed with the IRS in connection with the payment of
the Consent Fee and any deemed interest payments with respect to any deemed
exchange of Old Notes for New Notes.  Unless the Non-U.S. Holder complies with
certification procedures to establish that it is not a U.S. person, the Non-U.S.
Holder may be subject to U.S. backup withholding on any Consent Fee payments or
deemed interest payments with respect to the Notes.  The certification
procedures required to claim the exemption from withholding tax described above
will satisfy the certification requirements necessary to avoid backup
withholding as well.  The amount of any backup withholding from a payment to a
Non-U.S. Holder will be allowed as a credit against the Non-U.S. Holder’s U.S.
federal income tax liability and may entitle the Non-U.S. Holder to a refund,
provided that the required information is furnished to the IRS.

 
 

--------------------------------------------------------------------------------

 

NON-U.S. HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE U.S.
FEDERAL INCOME TAX TREATMENT OF THE CONSENT FEE AND THE POSSIBILITY OF OBTAINING
A REFUND WITH RESPECT TO ANY U.S. FEDERAL TAXES WITHHELD THEREFROM.

Tax Considerations for Non-Consenting Holders

The Supplemental Indenture will not be a significant modification to
non-consenting Holders, and therefore, the Consent Solicitation will generally
have no U.S. federal income tax consequences to such Holders.

WHERE YOU CAN FIND MORE INFORMATION

Callon is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, (the “Exchange Act”) and, in accordance therewith,
files reports and other information with the Securities and Exchange Commission
(“SEC”).  Such reports and other information can be inspected, without charge,
and copied at the Public Reference Section of the SEC located at 100 F Street,
N.E., Room 1580, Washington, D.C. 20549. The SEC also maintains a web site at
http://www.sec.gov, which contains reports and other information regarding
registrants that file electronically with the SEC.  Copies of these materials
can be obtained at prescribed rates from the Public Reference Section of the SEC
at the principal offices of the SEC, 100 F Street, N.E., Room 1580, Washington,
D.C. 20549.

All documents and reports filed by Callon with the SEC pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the date of this
Consent Solicitation Statement and on or prior to the Effective Date or the
withdraw of the Consent Solicitation will be deemed incorporated herein by
reference and will be deemed to be a part hereof from the date of filing of such
documents and reports.  Any statement contained in a document incorporated or
deemed to be incorporated by reference herein will be deemed to be modified or
superseded for purposes of this Consent Solicitation Statement to the extent
that a statement contained herein or in any subsequently filed document or
report that also is or is deemed to be incorporated by reference herein modifies
or supersedes such statement.  Any such statement so modified or superseded will
not be deemed, except as so modified or superseded, to constitute a part of this
Consent Solicitation Statement.  Callon is not incorporating any document or
information deemed to have been furnished and not filed in accordance with SEC
rules.

Callon will provide, without charge, to each Holder to whom this Consent
Solicitation Statement is delivered, upon the written or oral request of any
such person, a copy of any or all of the documents relating to Callon that are
incorporated herein by reference, except the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such
documents).  Requests for such copies should be directed to Callon at Investor
Relations, Callon Petroleum Company, 200 North Canal Street, Natchez,
Mississippi 39120; Tel: (601) 442-1601.

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

This Consent Solicitation Statement and the documents incorporated by reference
herein include “forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of
the Exchange Act. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements. In some
cases, you can identify forward-looking statements by terms such as “may,”
“will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,”
“intends,” “believes,” “estimates,” “projects,” “predicts,” “potential,” and
similar expressions intended to identify forward-looking statements.

 
 

--------------------------------------------------------------------------------

 

All statements, other than statements of historical facts, included in herein
and the documents incorporated by reference that address activities, events or
developments that we expect or anticipate will or may occur in the future,
including such things as estimated future net revenues from oil and gas reserves
and the present value thereof, future capital expenditures (including the amount
and nature thereof), business strategy and measures to implement strategy,
competitive strength, goals, expansion and growth of our business and
operations, plans, references to future success, reference to intentions as to
future matters and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by us in light of
our experience and our perception of historical trends, current conditions and
expected future developments as well as other factors we believe are appropriate
in the circumstances. However, whether actual results and developments will
conform with our expectations and predictions is subject to a number of
factors.  Some of the factors which could affect our future results and could
cause results to differ materially from those expressed in our forward-looking
statements include:

 
·
general economic and industry conditions;

 
·
volatility of oil and natural gas prices;

 
·
uncertainty of estimates of oil and natural gas reserves;

 
·
impact of competition;

 
·
availability and cost of seismic, drilling and other equipment;

 
·
operating hazards inherent in the exploration for and production of oil and
natural gas;

 
·
difficulties encountered during the exploration for and production of oil and
natural gas;

 
·
difficulties encountered in delivering oil and natural gas to commercial
markets;

 
·
changes in customer demand and producers’ supply;

 
·
uncertainty of our ability to attract capital;

 
·
compliance with, or the effect of changes in, the extensive governmental
regulations regarding the oil and natural gas business;

 
·
actions of operators of our oil and gas properties;

 
·
weather conditions; and

 
·
the risk factors discussed in the documents we have incorporated by reference.

Consequently, all of the forward-looking statements herein and in the documents
incorporated by reference are qualified by these cautionary statements and we
cannot assure you that the actual results or developments anticipated by us will
be realized or, even if realized, that they will have the expected consequences
to or effects on us, our business or operations. We have no intention, and
disclaim any obligation, to update or revise any forward looking statements,
whether as a result of new information, future results or otherwise.

 
 

--------------------------------------------------------------------------------

 

MISCELLANEOUS

This Consent Solicitation is not being made to, and Letters of Consent will not
be accepted from or on behalf of, Holders in any jurisdiction in which the
making of the Consent Solicitation or the acceptance thereof would not be in
compliance with the laws of such jurisdiction.  However, Callon may in its
discretion take any action that it deems necessary to make the Consent
Solicitation in any such jurisdiction and to extend the Consent Solicitation to
Holders in such jurisdiction.  In any jurisdiction in which the securities laws
or blue sky laws require the Consent Solicitation to be made by a licensed
broker or dealer, the Consent Solicitation will be deemed to be made on behalf
of Callon by one or more registered brokers or dealers that are licensed under
the laws of such jurisdiction.

Requests for assistance in completing and delivering the Letter of Consent or
requests for additional copies of this Consent Solicitation Statement, the
Letter of Consent and other related documents should be directed to the
Tabulation Agent at its address and telephone number below. Letters of Consent
must be delivered to the Tabulation Agent on or before the Consent Date.

The Tabulation Agent for the Consent Solicitation is:

Global Bondholder Services Corporation
65 Broadway – Suite 7
New York, New York 10006
Attn:  Corporate Actions

Banks and Brokers call:  (212) 430-3774
Toll free (866) 470-3800

By Facsimile:
(For Eligible Institutions Only):
(212) 430-3775

Confirmation:
(212) 430-3774

By Mail, Overnight Courier or Hand Delivery:
65 Broadway – Suite 723
New York, New York 10006

 
 

--------------------------------------------------------------------------------

 

CALLON PETROLEUM COMPANY
LETTER OF CONSENT

Relating to the Solicitation of Consents
with respect to the $200 Million of 9.75% Senior Notes Due 2010, Series B, Cusip
No. 13123XAP7

To:  Global Bondholder Services Corporation (as Tabulation Agent)

Global Bondholder Services Corporation
65 Broadway – Suite 723
New York, New York 10006
Attn:  Corporate Actions

Banks and Brokers call:  (212) 430-3774
Toll free (866) 470-3800

By Facsimile:
(For Eligible Institutions Only):
(212) 430-3775

Confirmation:
(212) 430-3774

The Consent Solicitation is made by Callon Petroleum Company, a Delaware
corporation (“Callon”), only to Holders (as defined below) as of the Record Date
(as defined below) of the 9.75% Senior Notes due 2010, Series B (“Notes”),
issued and outstanding under the Indenture dated as of March 15, 2004, among
Callon, as issuer, and American Stock Transfer & Trust Company, as trustee (in
such capacity, the “Notes Trustee”) as more fully described in the accompanying
Consent Solicitation Statement dated March 31, 2008 (as may be amended or
supplemented, the “Consent Solicitation Statement”) of Callon.

The term “Record Date” as used herein means 5:00 p.m., New York City time, on
March 28, 2008, and the term “Holder” means each person shown on the records of
the Registrar for the Notes as a registered holder on the Record
Date.  Capitalized terms used herein but not defined herein have the meanings
given to them in the Consent Solicitation Statement or in the Indenture.

Holders of the Notes who wish to consent to the amendments to the Indenture (the
“Supplemental Indenture”) must deliver their properly completed and duly
executed Letter of Consent by mail, first-class postage prepaid, hand delivery,
overnight courier or by facsimile transmission to the Tabulation Agent (not to
Callon or the Notes Trustee) at its address or facsimile number set forth above
in accordance with the instructions set forth herein and in the Consent
Solicitation Statement.  However, Callon reserves the right to accept any
consent received by it or the Notes Trustee.

Under no circumstances should any person tender or deliver Notes to Callon, the
Tabulation Agent, the Notes Trustee or any other party at any time in connection
with the Consent Solicitation or this Letter of Consent.

Only Holders or their duly designated proxies (“Duly Designated Proxies”) are
eligible to consent to the Supplemental Indenture. Any beneficial owner of Notes
who is not a Holder of such Notes must arrange with the person who is the Holder
or such Holder’s assignee or nominee to (i) execute and deliver a Letter of
Consent on behalf of such beneficial owner or (ii) deliver a proxy so that such
beneficial owner can execute and deliver a Letter of Consent on its own behalf.
As of the date of the Consent Solicitation Statement, the only Holder of the
Notes is Cede & Co., nominee for The Depository Trust Company (“DTC”).  For
purposes of the Consent Solicitation, DTC has authorized DTC participants
(“Participants”) set forth in the position listing of DTC as of the Record Date
to execute Letters of Consent as if they were Holders of the Notes held of
record in the name of DTC or the name of its nominee. Accordingly, for purposes
of the Consent Solicitation, the term “Holder” shall be deemed to include such
Participants.

 
 

--------------------------------------------------------------------------------

 

Only Holders of Notes whose properly executed Letters of Consent with respect to
such Notes are received by the Tabulation Agent on or prior to the Consent Date
and not revoked will be entitled to receive the applicable Consent Fee in the
event the Supplemental Indenture becomes effective with respect to the
Notes.  Subject to the terms and conditions of this Consent Solicitation
Statement and the related Letter of Consent, Callon will pay the Consent Fee to
the Consenting Holders on or prior to the Effective Date.

CONSENT TO SUPPLEMENTAL INDENTURE

By execution hereof, the undersigned acknowledges receipt of the Consent
Solicitation Statement and hereby represents and warrants that the undersigned
is a Holder (or Duly Designated Proxy) of the Notes indicated below and has full
power and authority to take the action indicated below in respect of such Notes.
The undersigned will, upon request, execute and deliver any additional documents
deemed by Callon to be necessary or desirable to perfect the undersigned’s
consent to the Supplemental Indenture.

The undersigned acknowledges that the undersigned must comply with the
provisions of this Letter of Consent and complete the information required
herein to consent validly to the Supplemental Indenture.

By execution hereof, the undersigned acknowledges that Callon has not filed or
may fail to file with the Securities and Exchange Commission (the “SEC”), and
has not furnished to the applicable Notes Trustee certain of the reports
described by the Indenture(s) governing the Notes held by such Holder and called
for by the applicable provisions of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”).

The undersigned acknowledges that the Supplemental Indenture will become
effective on the Effective Date, which shall occur promptly following (i)
receipt of valid consents which are not revoked from Consenting Holders
representing $150 million aggregate principal amount of such Notes (the
“Requisite Consent”), (ii) execution of the Supplemental Indenture, and (iii)
payment of the Consent Fee. The terms of the Indenture shall remain in full
force and effect, except as modified by the Supplemental Indenture, and are
hereby confirmed.

The undersigned acknowledges that Letters of Consent delivered pursuant to any
one of the procedures described under the heading “The Consent
Solicitation—Procedures for Consenting” in the Consent Solicitation Statement
and in the instructions included in this Letter of Consent will constitute a
binding agreement between the undersigned and Callon upon the terms and subject
to the conditions of the Consent Solicitation.

Unless otherwise specified in the table below, this Letter of Consent relates to
the total aggregate principal amount of Notes held of record by the undersigned
at the close of business on the Record Date. If this Letter of Consent relates
to less than the total aggregate principal amount of Notes so held, the
undersigned must list on the table below the serial numbers (with respect to the
Notes not held by depositaries) and principal amount (in integral multiples of
$1,000) of Notes for which consent is given. If the space provided below is
inadequate, list the certificate numbers and aggregate principal amounts on a
separate signed schedule and affix the schedule to this Letter of Consent.

The undersigned authorizes the Tabulation Agent to deliver this Letter of
Consent and any proxy delivered in connection herewith to Callon and the Notes
Trustee as evidence of the undersigned’s actions with respect to the
Supplemental Indenture.

 
 

--------------------------------------------------------------------------------

 

DESCRIPTION OF THE NOTES AS TO WHICH CONSENTS ARE GIVEN

Name and Address of Holder
 
Serial Number(s)*
 
Aggregate Principal Amount of Notes**
 
Principal Amount With Respect to Which Consents are Given**
                                             
Total Principal Amount Consenting of Notes: $
       

________________________

*
Need not be completed by Holders whose Notes are held of record by depositaries
including DTC.

**
Unless otherwise indicated in the column labeled “Principal Amount With Respect
to Which Consents Are Given,” the undersigned will be deemed to have consented
in respect of the entire aggregate principal amount indicated in the column
labeled “Aggregate Principal Amount of Notes.” All principal amounts must be in
multiples of $1,000.

 
 

--------------------------------------------------------------------------------

 

CONSENT

IMPORTANT—READ CAREFULLY

A Holder must execute this Letter of Consent exactly as its name appears on the
Notes.  An authorized Participant must execute this Letter of Consent exactly as
its name appears on DTC’s position listing as of the Record Date.  If the Notes
are held of record by two or more joint Holders, all such Holders must sign this
Letter of Consent.  If a signatory is a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person must so indicate when signing
this Letter of Consent and must submit proper evidence satisfactory to Callon of
such person’s authority to so act.  If the Notes are registered in different
names, separate Letters of Consent must be executed covering each form of
registration.  If this Letter of Consent is executed by a person other than the
Holder, then such person must have been authorized by proxy or in some other
manner acceptable to Callon to execute and deliver this Letter of Consent on
behalf of the Holder.

Signature(s) of Holder(s)

Signature(s):    
 

Name(s):    
 

(Please Print)

Date:    
 

Capacity (full title):    
 

Address (Include Zip Code):    
 

Area Code and Telephone No.:    
 

Wire Transfer Instructions:*    
 

Tax Identification or Social Security No.:    
 

GUARANTEE OF SIGNATURE(S)
(If required, see instructions 5 and 6 below)

Authorized Signature:    
 

Name and Title:    
 

(Please Print)

Dated:    
 

Name of Firm:    
 

________

* To be provided if payment is to be made by wire transfer

 
 

--------------------------------------------------------------------------------

 

PROXY WITH RESPECT TO THE CONSENT

The undersigned hereby irrevocably appoints                           , as
attorney and proxy of the undersigned, with full power of substitution, to
execute and deliver this Letter of Consent on which this Proxy is set forth with
respect to the Notes in accordance with the terms of the Consent Solicitation
described in the Consent Solicitation Statement, with all the power the
undersigned would possess if consenting personally. THIS PROXY IS IRREVOCABLE
AND IS COUPLED WITH AN INTEREST AND SHALL EXPIRE ON THE CONSENT DATE.

The aggregate principal amount and serial numbers of Notes as to which this
Proxy is given are set forth below.

 
Aggregate Principal Amount of Note(s)
 
Serial Number(s)
                               

IMPORTANT—READ CAREFULLY

This proxy must be signed by the Holder exactly as its name appears on the
Notes.  If the Notes are held of record by two more joint Holders, all such
Holders must sign this proxy.  If a signatory is a trustee, executor,
administrator, guardian, attorney-in-fact, officer or other person acting in a
fiduciary or representative capacity, please set forth the signatory’s full name
below.

PLEASE SIGN BELOW
(See Instructions 1 and 5 below)

Signature:    
 

Signature    
 

Dated:    
 
, 2008

Name(s):    
 

(Please Print)

Capacity (full title):    
 

Address (Including Zip Code):    
 

    

Area Code and Telephone Number:    
 

SIGNATURE GUARANTEE
(If Required, see Instructions 5 and 6 below)

Signature(s) Guaranteed by an Eligible Institution:
   
(Authorized Signature)

     
(Name and Title)

Dated:
  
 
  
 
(Name of Firm)

 
 

--------------------------------------------------------------------------------

 

INSTRUCTIONS FOR CONSENTING HOLDERS
(FORMING PART OF THE TERMS AND CONDITIONS OF THE CONSENT SOLICITATION)

1.           Delivery of this Letter of Consent. Subject to the terms and
conditions set forth herein and in the Consent Solicitation Statement, a
properly completed and duly executed copy of this Letter of Consent and other
documents required by this Letter of Consent must be received by the Tabulation
Agent at its address or facsimile number set forth on the cover hereof on or
prior to the Consent Date. The method of delivery of this Letter of Consent and
all other required documents to the Tabulation Agent is at the risk of the
Holder or Duly Designated Proxy, and the delivery will be deemed made only when
actually received by the Tabulation Agent. In all cases, sufficient time should
be allowed to assure timely delivery. No Letter of Consent should be sent to any
person other than the Tabulation Agent.

Any beneficial owner of Notes who is not a Holder of such Notes must arrange
with the person who is the Holder (e.g., the beneficial owner’s broker, dealer,
commercial bank, trust company or other nominee institution) or such Holder’s
assignee or nominee to (i) execute and deliver this Letter of Consent on behalf
of such beneficial owner or (ii) deliver a proxy so that such beneficial owner
can execute and deliver a Letter of Consent on its own behalf.

2.           Consent Date. The Consent Solicitation expires at 11:00 a.m., New
York City time, on April 4, 2008, unless Callon, in its sole discretion, extends
the period during which the Consent Solicitation is open, in which case the term
“Consent Date” shall mean the latest date and time as so extended. In order to
extend the Consent Date, Callon will notify the Tabulation Agent in writing or
orally of any extension and will make a public announcement thereof by press
release, prior to 9:00 a.m., New York City time, on the next business day after
the previously scheduled Consent Date. Callon may extend the Consent
Solicitation on a daily basis or for such specified period of time as it
determines in its sole discretion. Failure by any Holder or beneficial owner of
the Notes to be so notified will not affect the extension of the Consent
Solicitation.

3.           Questions Regarding Validity, Form, Legality, etc. All questions as
to the validity, form, eligibility (including time of receipt) and acceptance of
consents will be resolved by Callon, whose good faith determinations will be
final and binding. Callon reserves the absolute right to reject any or all
consents that are not in proper form or the acceptance of which could, in the
opinion of Callon’s counsel, be unlawful. Callon also reserves the right to
waive any irregularities in connection with deliveries, or Callon may require
that such irregularities be cured within such time as Callon determines. None of
Callon, the Tabulation Agent, the Notes Trustee or any other person shall have
any duty to give notification of any such irregularities or waiver, nor shall
any of them incur any liability for failure to give such notification.
Deliveries of Letters of Consent will not be deemed to have been made until such
irregularities have been cured or waived. Callon’s good faith interpretation of
the terms and conditions of the Consent Solicitation (including this Letter of
Consent and the accompanying Consent Solicitation Statement and the instructions
hereto and thereto) will be binding on all parties.

4.           Holders Entitled to Consent. Only a Holder (or its Duly Designated
Proxy, representative or attorney-in-fact) or another person who has complied
with the procedures set forth below may execute and deliver a Letter of Consent.
Any beneficial owner or registered holder of the Notes who is not the Holder
thereof (e.g., the beneficial owner’s broker, dealer, commercial bank, trust
company or other nominee institution) must arrange with such Holder(s) or such
Holder’s assignee or nominee to (i) execute and deliver this Letter of Consent
to the Tabulation Agent on behalf of such beneficial owner or (ii) deliver a
proxy so that such beneficial owner can execute and deliver a Letter of Consent
on its own behalf. For purposes of the Consent Solicitation, the term “Holder”
shall be deemed to include Participants through which a beneficial owner’s Notes
may be held of record as of the Record Date in DTC. A consent by a Holder or
Duly Designated Proxy is a continuing consent notwithstanding that ownership of
a Note has been transferred subsequent to the Record Date.

5.           Signatures on this Letter of Consent. If this Letter of Consent is
signed by the Holder(s) of the Notes with respect to which this Letter of
Consent is given, the signature(s) of such Holder(s) must correspond with the
name(s) as contained on the books of the register maintained by the Notes
Trustee or as set forth in DTC’s position listing without alteration,
enlargement or any change whatsoever.  If any of the Notes with respect to which
this Letter of Consent is given were held of record on the Record Date by two or
more joint Holders, all such Holders must sign this Letter of Consent. If any
Notes with respect to which this Letter of Consent is given have different
Holders, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Consent and any necessary accompanying documents as
there are different Holders.

 
 

--------------------------------------------------------------------------------

 

If this Letter of Consent is signed by trustees, executors, administrators,
guardians, Duly Designated Proxies, attorneys-in-fact, officers of corporations
or others acting in a fiduciary or representative capacity, such persons must
indicate such fact when signing and must, unless waived by Callon, submit
evidence satisfactory to Callon of their authority to so act along with this
Letter of Consent.

6.           Signature Guarantees. All signatures on this Letter of Consent must
be guaranteed by a firm or other entity identified in Rule l7Ad-15 under the
Exchange Act including (as such terms are defined therein): (a) a bank; (b) a
broker, dealer, municipal securities dealer, municipal securities broker,
government securities dealer or government securities broker; (c) a credit
union; (d) a national securities exchange, registered securities association or
clearing agency; or (e) a savings institution that is a participant in a
Securities Transfer Association recognized program (each an “Eligible
Institution”). However, signatures need not be guaranteed if this Letter of
Consent is given by or for the account of an Eligible Institution. If the Holder
of the Notes is a person other than the signer of this Letter of Consent, see
Instruction 5.

7.           Backup Withholding.  In general, information reporting requirements
will apply to the payment of the Consent Fee. Federal income tax law also
imposes “backup withholding” unless a consenting U.S. holder has provided such
Holder’s correct taxpayer identification number (“TIN”) which, in the case of a
Holder who is an individual, is his or her social security number, and certain
other information, or otherwise establishes a basis for exemption from backup
withholding.  Completion of the Substitute Form W-9 provided in this Letter of
Consent should be used for this purpose.  Exempt Holders (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and information reporting requirements, provided that
they properly demonstrate their eligibility for exemption.

If the consenting U.S. holder has not provided the correct TIN and certain other
information or an adequate basis for exemption, the Holder may be subject to a
penalty imposed by the IRS and the Consent Fee paid to the Holder will be
subject to a backup withholding tax of 28%.  Backup withholding is not an
additional tax. If any such withholding results in an overpayment of taxes, a
refund or credit may be obtained, provided that the required information is
provided to the IRS.

The “Applied For” box in Part I of the Substitute Form W-9 may be checked if the
consenting U.S. holder (or other payee) has not been issued a TIN and has
applied for a TIN or intends to apply for a TIN in the near future.  If the
“Applied For” box in Part I is so checked and the Tabulation Agent is not
provided with a TIN by the time of payment, the Tabulation Agent will withhold
28% on all such payments received pursuant to the Consent Solicitation until a
TIN is provided to the Tabulation Agent.  A consenting U.S. holder who checks
the “Applied For” box in Part I in lieu of furnishing his or her TIN should
furnish the Tabulation Agent with such Holder’s TIN as soon as it is received.

In order for a non-U.S. holder to qualify as an exempt recipient, that non-U.S.
holder should check the “Exempt from backup withholding” box on the Substitute
Form W-9 provided in this Letter of Consent and submit the appropriate Internal
Revenue Service Form W-8 (which are available from the Tabulation Agent) signed
under penalties of perjury, attesting to that non-U.S. holder’s foreign
status.  Callon intends to withhold at a rate of 30% on any Consent Fee paid to
a non-U.S. Holder unless such Holder provides either (i) an IRS Form W-8BEN
certifying that such non-U.S. holder is eligible for a reduction in the rate of
withholding with respect to “Other Income” under the provisions of an applicable
federal income tax treaty or (ii) IRS Form W-8ECI certifying that income from
such payment is effectively connected with such Holder’s United States trade or
business. If such withholding results in an overpayment of federal income taxes,
a refund or credit may be obtained from the IRS.

 
 

--------------------------------------------------------------------------------

 
 
PAYER’S NAME: Global Bondholder Services Corporation (as Tabulation Agent)
 
SUBSTITUTE
 
Form W-9
PAYEE INFORMATION (please print or type)
Department of the Treasury
   
Internal Revenue Service
Individual or
   
business name:
 

Request for Taxpayer Identification Number and Certification
Check appropriate box:
     
o Individual/Sole Proprietor
o Corporation
 
o Partnership
o Other
 
o Exempt from backup withholding
 

 
Address (number, street, and apt. or suite no.):
                         
City, State and ZIP code:
 

Part I: Taxpayer Identification Number (“TIN”)
 
Enter your TIN to the right. For individuals, your TIN is your social
Social security number:
security number.  Sole proprietors may enter either their social security number
or their employer identification number.
     
For other entities, your TIN is your employer identification number
   
or
 
Employer identification number:
             
o Applied For

Part II: Certification

Certification Instructions:  You must cross out item 2 below if you have been
notified by the Internal Revenue Service (the “IRS”) that you are currently
subject to backup withholding because of underreporting interest or dividends on
your tax return.  However, if after being notified by the IRS that you were
subject to backup withholding you received another notification from the IRS
that you are no longer subject to backup withholding, do not cross out item 2.

 
 

--------------------------------------------------------------------------------

 

Under penalties of perjury, I certify that:

1.
The number shown on this form is my correct TIN (or a TIN has not been issued to
me and either (a) I have mailed or delivered an application to receive a TIN to
the appropriate IRS Center or Social Security Administration Office, or (b) I
intend to mail or deliver an application in the near future).  I understand that
until I provide my TIN to the payer, a portion of all reportable payments made
to me by the payer may be withheld and remitted to the IRS as backup
withholding;

2.
I am not subject to backup withholding because:  (a) I am exempt from backup
withholding, (b) I have not been notified by the IRS that I am subject to backup
withholding as a result of a failure to report all interest or dividends or (c)
the IRS has notified me that I am no longer subject to backup withholding; and

3.
I am a U.S. person (including a U.S. resident alien).

The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.

     
,2008
Signature
 
Date
 

NOTE:
Failure to complete and return this form may result in backup withholding of 28%
of any payments made to you pursuant to the Consent Solicitation and a $50
penalty imposed by the IRS.  Please review the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional details.

8.           Amendment.  Callon reserves the absolute right, subject to
applicable law, to amend or modify the terms of the Consent Solicitation.

9.           Revocation of Consent.  All properly completed and executed Letters
of Consent received prior to the Consent Date will be counted, notwithstanding
any transfer of any Notes to which such Letter of Consent relates, unless the
Tabulation Agent receives from a Holder (or a subsequent holder that has
received a proxy from the relevant Holder) a written notice of revocation
bearing a date later than the date of the prior Letter of Consent at any time
prior to the Consent Date.  Any notice of revocation received after the Consent
Date will not be given effect.  A transfer of Notes after the Record Date must
be accompanied by a duly executed proxy from the relevant Holder if the
subsequent transferee is to have revocation rights with respect to the consent
to the Supplemental Indenture.  To be effective, a notice of revocation must be
in writing, must contain the name of the Holder and the aggregate principal
amount of the Notes to which it relates and must be (i) signed in the same
manner as the original Letter of Consent or (ii) accompanied by a duly executed
proxy or other authorization (in form satisfactory to Callon).  All revocations
of consents must be sent to the Tabulation Agent at its address set forth in the
Letter of Consent.

A revocation of a consent may be rescinded only by the delivery of a written
notice of revocation or the execution and delivery of a new Letter of Consent.

 
 

--------------------------------------------------------------------------------

 

10.           Questions and Requests for Assistance and Additional
Copies.  Questions regarding the Consent Solicitation, requests for assistance
in completing and delivery of this Letter of Consent or for additional copies of
the Consent Solicitation Statement, this Letter of Consent or other related
documents should be directed to the Tabulation Agent as follows:

Global Bondholder Services Corporation

65 Broadway – Suite 723
New York, New York 10006
Attn:  Corporate Actions

Banks and Brokers call:  (212) 430-3774
Toll free (866) 470-3800

By Facsimile:
(For Eligible Institutions Only):
(212) 430-3775

Confirmation:
(212) 430-3774

By Mail, Overnight Courier or Hand Delivery:
65 Broadway – Suite 723
New York, New York 10006
 
 

--------------------------------------------------------------------------------