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Exhibit 10.3
 
CALLON PETROLEUM COMPANY
Amended and Restated 2006 Stock Incentive Plan
Effective December 31, 2008

SECTION 1
General Provisions Relating to
Plan Governance, Coverage and Benefits

1.1           Background and Purpose

Callon Petroleum Company, a Delaware corporation, (the “Company”) established
and adopted the Callon Petroleum Company 2006 Stock Incentive Plan (the “Plan”)
effective as of May 4, 2006 for the benefit of the Company and the participants
in the Plan.

The Company hereby amends and restates the Plan under the form of this Plan
document primarily to (i) incorporate various changes for the benefit of the
Company and the participants in the Plan, and (ii) to comply with the
requirements of Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”).  This amendment and restatement is generally effective as of
December 31, 2008 (the “Effective Date”), except as may otherwise be noted under
certain terms and provisions of the Plan.

The purpose of the Plan is to foster and promote the long-term financial success
of the Company and to increase stockholder value by: (a) encouraging the
commitment and retention of selected key Employees and Outside Directors,
(b) motivating superior performance of key Employees and Outside Directors by
means of long-term incentives, (c) encouraging and providing key Employees and
Outside Directors with a program for obtaining ownership interests in the
Company that link and align their personal interests to those of the Company’s
stockholders, (d) maintaining competitive compensation levels, thereby
attracting and retaining key Employees and Outside Directors by providing
competitive compensation opportunities, and (e) enabling key Employees and
Outside Directors to share in the long-term growth and success of the Company.

The Plan will remain in effect, subject to the right of the Board to amend or
terminate the Plan at any time pursuant to Section 6.7, until the earlier of the
date that (a) all Shares subject to the Plan have been purchased or acquired
according to its provisions or (b) the Plan terminates pursuant to Section 6.18.
However, in no event may an Incentive Stock Option be granted under the Plan
after the expiration of ten (10) years from the Effective Date.

1.2           Definitions

The following terms shall have the meanings set forth below:

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

(b)
Board. The Board of Directors of the Company.

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

 
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(i) 
the conviction of the Grantee by a court of competent jurisdiction as to which
no further appeal can be taken of a crime involving moral turpitude or a felony
or entering the plea of nolo contendere to such crime by Grantee;

(ii) 
the commission by the Grantee of a material act of fraud upon the Company or any
Parent or Subsidiary;

(iii) 
the material misappropriation by the Grantee of any funds or other property of
the Company or any Parent or Subsidiary;

(iv) 
the knowing engagement by the Grantee without the written approval of the Board,
in any material activity which directly competes with the business of the
Company or any Parent or Subsidiary, or which would directly result in a
material injury to the business or reputation of the Company or any Parent or
Subsidiary; or

(v) 
with respect to any Grantee who is an Employee (A) a material breach by Employee
during his employment period of any of the restrictive covenants set out in his
employment agreement with the Company or any Parent or Subsidiary, if
applicable, or (B) the willful, material and repeated nonperformance of
Employee’s duties to the Company or any Parent or Subsidiary (other than by
reason of Employee’s illness or incapacity), but Cause shall not exist under
this clause; or (v)(A) or (v)(B) until after written notice from the Board has
been given to Employee of such material breach or nonperformance (which notice
specifically identifies the manner and sets forth specific facts, circumstances
and examples in which the Board believes that Employee has breached the
agreement or not substantially performed his duties) and Employee has failed to
cure such alleged breach or nonperformance within the time period set by the
Board, but in no event less than thirty (30) business days after his receipt of
such notice; and, for purposes of this clause (v), no act or failure to act on
Employee’s part shall be deemed “willful” unless it is done or omitted by
Employee not in good faith and without his reasonable belief that such action or
omission was in the best interest of the Company (assuming disclosure of the
pertinent facts, any action or omission by Employee after consultation with, and
in accordance with the advice of, legal counsel reasonably acceptable to the
Company shall be deemed to have been taken in good faith and to not be willful
for purposes of this definition of “Cause”).

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

(e) 
Change in Control. Any of the events described in and subject to Section 5.8.

(f)
Code.  The Internal Revenue Code of 1986, as amended, and the regulations and
other authority promulgated thereunder.  References herein to any provision of
the Code shall refer to any successor provision thereto.

(g) 
Committee. A committee appointed by the Board to administer the Plan. The Plan
shall be administered by the Compensation Committee appointed by the Board
consisting of not less than three directors who fulfill the “non-employee
director” requirements of Rule 16b-3 under the Exchange Act and the “outside
director” requirements of Code Section 162(m).  The Compensation Committee of
the Board may appoint a subcommittee provided that, in all events, the members
of the Committee for purposes of the Plan satisfy the requirements of the
previous provisions of this paragraph.

The Board shall have the power to fill vacancies on the Committee arising by
resignation, death, removal or otherwise. The Board, in its sole discretion, may
divide the powers and duties of the Committee among one or more separate
committees, or retain all powers and duties of the Committee in a single
Committee. The members of the Committee shall serve at the discretion of the
Board.

 
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Notwithstanding the preceding paragraphs of this Section 1.2(g), the term
“Committee” as used in the Plan with respect to any Incentive Award for an
Outside Director shall refer to the entire Board. In the case of an Incentive
Award for an Outside Director, the Board shall have all the powers and
responsibilities of the Committee hereunder as to such Incentive Award, and any
actions as to such Incentive Award may be acted upon only by the Board (unless
it otherwise designates in its discretion). When the Board exercises its
authority to act in the capacity as the Committee hereunder with respect to an
Incentive Award for an Outside Director, it shall so designate with respect to
any action that it undertakes in its capacity as the Committee.

(h) 
Common Stock. The common stock of the Company, no par value per share and any
class of common stock into which such common shares may hereafter be converted,
reclassified or recapitalized.

(i) 
Company. Callon Petroleum Company and any successor in interest thereto.

(j) 
Covered Employee. A named executive officer who is one of the group of covered
employees, as defined in Code Section 162(m) and Treasury Regulation
§ 1.162-27(c) (or its successor), during any period that the Company is a
Publicly Held Corporation.

(k) 
Disability.  Disability means that the Grantee, because of ill health, physical
or mental disability or any other reason beyond his control, is unable to
perform his employment duties for a period of six (6) continuous months, as
determined in good faith by the Committee. With respect to any Incentive Stock
Option, however, “Disability” means permanent and total disability as defined in
Code Section 22(e)(3). A determination of Disability may be made by a physician
selected or approved by the Committee and, in this respect, the Grantee shall
submit to any reasonable examination(s) required by such physician upon
request.  Notwithstanding the foregoing provisions of this paragraph, in the
event any Incentive Award is subject to Code Section 409A, then, in lieu of the
foregoing definition and to the extent necessary to comply with the requirements
of Code Section 409A, the definition of “Disability” for purposes of such
Incentive Award shall be the definition of “disability” provided for under Code
Section 409A and the regulations or other guidance issued thereunder.

(l) 
Employee. Any employee of the Company within the meaning of Code Section 3401(c)
who, in the opinion of the Committee, is in a position to contribute to the
growth, development or financial success of the Company, including, without
limitation, officers who are members of the Board.

(m) 
Employment. Employment means that the individual is employed as an Employee, or
engaged as an Outside Director, by the Company, or by any corporation issuing or
assuming an Incentive Award in any transaction described in Code Section 424(a).
In this regard, neither the transfer of a Grantee from Employment by the Company
to Employment by any Parent or Subsidiary, nor the transfer of a Grantee from
Employment by any Parent or Subsidiary to Employment by the Company, shall be
deemed to be a termination of Employment of the Grantee. Moreover, the
Employment of a Grantee shall not be deemed to have been terminated because of
an approved leave of absence from active Employment on account of temporary
illness, authorized vacation or granted for reasons of professional advancement,
education, or health, or during any period required to be treated as a leave of
absence by virtue of any applicable statute, Company personnel policy or written
agreement. All determinations regarding Employment, and the termination of
Employment hereunder, shall be made by the Committee.

 
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The term “Employment” for all purposes of the Plan shall include (i) active
performance of agreed services by an Employee and (ii) current membership on the
Board by an Outside Director.

Notwithstanding anything in the Plan to the contrary, in the event an Incentive
Award issued under the Plan is subject to Code Section 409A, then, to the extent
necessary to comply with Code Section 409A, no Employee or Outside Director
shall be deemed to have suffered a termination of Employment, unless such
termination of Employment constitutes a “separation from service” as defined
under Code Section 409A and the regulations or other guidance issued thereunder.

(n) 
Exchange Act. The Securities Exchange Act of 1934, as amended.

(o) 
Fair Market Value. While the Company is a Publicly Held Corporation, the Fair
Market Value of one Share of Common Stock on the date in question is deemed to
be the average of the opening and closing prices of a Share on the date as of
which Fair Market Value is to be determined, or if no such sales were made on
such date, the closing sales price on the immediately preceding business day of
a Share as reported on the New York Stock Exchange or other principal securities
exchange on which Shares are then listed or admitted to trading.

If the Company is not a Publicly Held Corporation at the time a determination of
the Fair Market Value of the Common Stock is required to be made hereunder, the
determination of Fair Market Value for purposes of the Plan shall be made by the
Committee in its sole and absolute discretion and using a reasonable valuation
method in accordance with the requirements of Code Section 409A and the
regulations and other guidance issued thereunder. In this respect, the Committee
may rely on such financial data, appraisals, valuations, experts, and other
sources as, in its sole and absolute discretion, it deems advisable under the
circumstances.

(p) 
Grantee. Any Employee or Outside Director who is granted an Incentive Award
under the Plan.

 
 

 
(q) 
Immediate Family. With respect to a Grantee, the Grantee’s child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships.

 
(r) 
Incentive Agreement. The written agreement entered into between the Company and
the Grantee setting forth the terms and conditions pursuant to which an
Incentive Award is granted under the Plan, as such agreement is further defined
in Section 5.1.

(s) 
Incentive Award or Award. A grant of an award under the Plan to a Grantee,
including any Non-statutory Stock Option, Incentive Stock Option, Stock
Appreciation Right (SAR), Restricted Stock Award, or Other Stock-Based Award.

(t) 
Incentive Stock Option or ISO. A Stock Option granted by the Committee to an
Employee under Section 2 which is designated by the Committee as an Incentive
Stock Option and is intended to qualify as an Incentive Stock Option under Code
Section 422.

(u) 
Insider. If the Company is a Publicly Held Corporation, an individual who is, on
the relevant date, an officer, director or ten percent (10%) beneficial owner of
any class of the Company’s equity securities that is registered pursuant to
Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange
Act.

 
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(v) 
Non-statutory Stock Option. A Stock Option granted by the Committee to a Grantee
under Section 2 that is not designated by the Committee as an Incentive Stock
Option.

(w) 
Option Price. The exercise price at which a Share may be purchased by the
Grantee of a Stock Option.

(x)
Other Stock-Based Award.  An award granted by the Committee to a Grantee under
Section 4.1 that is valued in whole or in part by reference to, or is otherwise
based upon, Common Stock.

(y) 
Outside Director.  A member of the Board who is not at the time of grant of an
Incentive Award, an Employee.

(z)
Parent. Any corporation (whether now or hereafter existing) which constitutes a
“parent” of the Company, as defined in Code Section 424(e).

(aa) 
Plan. The Callon Petroleum Company 2006 Stock Incentive Plan, as set forth
herein and as it may be amended from time to time.

(bb) 
Publicly Held Corporation. A corporation issuing any class of common equity
securities required to be registered under Section 12 of the Exchange Act.

(cc) 
Restricted Stock. Shares of Common Stock issued or transferred to a Grantee
pursuant to Section 3.

(dd)
Restricted Stock Award. An authorization by the Committee to issue or transfer
Restricted Stock to a Grantee pursuant to Section 3.

(ee)
Restriction Period. The period of time determined by the Committee and set forth
in the Incentive Agreement during which the transfer of Restricted Stock by the
Grantee is restricted.

(ff)
Retirement. The voluntary termination of Employment from the Company
constituting retirement for age on any date after the Employee attains the
normal retirement age of 70 years.

(gg)
Share. A share of the Common Stock of the Company.

(hh) 
Share Pool. The number of shares authorized for issuance under Section 1.4, as
adjusted for awards and payouts under Section 1.5 and as adjusted for changes in
corporate capitalization under Section 5.6.

(ii) 
Spread. The difference between the exercise price per Share specified in a SAR
grant and the Fair Market Value of a Share on the date of exercise of the SAR.

(jj) 
Stock Appreciation Right or SAR. A Stock Appreciation Right as described in
Section 2.4.

(kk) 
Stock Option or Option. Pursuant to Section 2, (i) an Incentive Stock Option
granted to an Employee or (ii) a Non-statutory Stock Option granted to an
Employee or Outside Director, which Option provides the Grantee with the right
to purchase Shares of Common Stock upon specified terms. In accordance with Code
Section 422, only an Employee may be granted an Incentive Stock Option.

(ll)
Subsidiary.  Any (i) corporation in an unbroken chain of corporations beginning
with the Company, if each of the corporations other than the last corporation in
the unbroken chain owns stock possessing a majority of the total combined voting
power of all classes of stock in one of the other corporations in the chain,
(ii) limited partnership, if the Company or any corporation described in item
(i) above owns a majority of the general partnership interest and a majority of
the limited partnership interests entitled to vote on the removal and
replacement of the general partner, and (iii) partnership or limited liability
company, if the partners or members thereof are composed only of the Company,
any corporation listed in item (i) above or any limited partnership listed in
item (ii) above, except that with respect to the issuance of Incentive Stock
Options, the term “Subsidiary” shall have the same meaning as the term
“subsidiary corporation” as defined in Code Section 424(f) as required by Code
Section 422.

 
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1.3           Plan Administration

(a)
Authority of the Committee. Except as may be limited by law and subject to the
provisions herein, the Committee shall have full power to (i) select Grantees
who shall participate in the Plan; (ii) determine the sizes, duration and types
of Incentive Awards; (iii) determine the terms and conditions of Incentive
Awards and Incentive Agreements; (iv) determine whether any Shares subject to
Incentive Awards will be subject to any restrictions on transfer; (v) construe
and interpret the Plan and any Incentive Agreement or other agreement entered
into under the Plan; and (vi) establish, amend, or waive rules for the Plan’s
administration. Further, the Committee shall make all other determinations which
may be necessary or advisable for the administration of the Plan.

(b)
Meetings. The Committee shall designate a chairman from among its members who
shall preside at its meetings, and shall designate a secretary, without regard
to whether that person is a member of the Committee, who shall keep the minutes
of the proceedings and all records, documents, and data pertaining to its
administration of the Plan. Meetings shall be held at such times and places as
shall be determined by the Committee and the Committee may hold telephonic
meetings. The Committee may take any action otherwise proper under the Plan by
the affirmative vote, taken with or without a meeting, of a majority of its
members. The Committee may authorize any one or more of its members or any
officer of the Company to execute and deliver documents on behalf of the
Committee.

(c)
Decisions Binding. All determinations and decisions of the Committee shall be
made in its discretion pursuant to the terms and provisions of the Plan, and
shall be final, conclusive and binding on all persons including the Company, its
stockholders, Employees, Grantees, and their estates and beneficiaries. The
Committee’s decisions with respect to any Incentive Award need not be uniform
and may be made selectively among Incentive Awards and Grantees, whether or not
such Incentive Awards are similar or such Grantees are similarly situated.

(d)
Modification of Outstanding Incentive Awards. Subject to the stockholder
approval requirements of Section 6.7 if applicable, upon a Grantee’s death,
Disability, Retirement or termination of Employment without Cause, or upon a
Change in Control, the Committee may, in its discretion, provide for the
extension of the exercisability of an Incentive Award, accelerate the vesting or
exercisability of an Incentive Award (except for an Incentive Award that is a
SAR), eliminate or make less restrictive any restrictions contained in an
Incentive Award, waive any restriction or other provisions of an Incentive
Award, or otherwise amend or modify an Incentive Award in any manner that is
either (i) not adverse to the Grantee to whom such Incentive Award was granted,
or (ii) is consented to by such Grantee. With respect to an Incentive Award that
is an ISO, no adjustment thereto shall be made to the extent constituting a
“modification” within the meaning of Code Section 424(h)(3) unless otherwise
agreed to by the Grantee in writing. Notwithstanding the preceding provisions of
this subsection, (i) no amendment or other modification of an Incentive Award
shall be made to the extent such modification results in any Stock Option with
an exercise price less than 100% of the Fair Market Value per Share on the date
of grant, and (ii) no acceleration of vesting, extension of exercisability or
other modification shall be made that will subject the Grantee to adverse
taxation under Code Section 409A.

 
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(e)
Delegation of Authority. The Committee may delegate to designated officers or
other employees of the Company any of its duties and authority under the Plan
pursuant to such conditions or limitations as the Committee may establish from
time to time; provided, however, the Committee may not delegate to any person
the authority to grant Incentive Awards or (ii) to take any action which would
contravene the requirements of Rule 16b-3 under the Exchange Act, the
“performance-based exception” under Code Section 162(m), or the Sarbanes-Oxley
Act of 2002.

(f)
Expenses of Committee. The Committee may employ legal counsel, including,
without limitation, independent legal counsel and counsel regularly employed by
the Company, and other agents as the Committee may deem appropriate for the
administration of the Plan. The Committee may rely upon any opinion or
computation received from any such counsel or agent. All expenses incurred by
the Committee in interpreting and administering the Plan, including, without
limitation, meeting expenses and professional fees, shall be paid by the
Company.

(g)
[Reserved]

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

1.4           Shares of Common Stock Available for Incentive Awards

Subject to adjustment under Section 5.6, there shall be available for Incentive
Awards that are granted wholly or partly in Common Stock (including rights or
Stock Options that may be exercised for or settled in Common Stock) five hundred
thousand (500,000) Shares of Common Stock. The number of Shares of Common Stock
that are the subject of Incentive Awards under this Plan, which are forfeited or
terminated, expire unexercised, lapse, are surrendered in payment of the
exercise price of a Stock Option, are surrendered in payment of applicable
employment taxes and/or other withholding obligations in connection with the
vesting of an Incentive Award, or are settled in cash in lieu of Common Stock or
in another manner such that all or some of the Shares covered by the Incentive
Award are either not issued to a Grantee or are exchanged for Incentive Awards
that do not involve Common Stock, shall again, in each case, immediately become
available for Incentive Awards to be granted under the Plan. The aggregate
number of Shares of Common Stock which may be issued upon exercise of ISOs shall
be five hundred thousand (500,000) of the Shares reserved pursuant to the first
sentence of this paragraph. For purposes of counting Shares against the ISO
maximum, only the net number of Shares issued pursuant to the exercise of an ISO
shall be counted. The Committee may from time to time adopt and observe such
procedures concerning the counting of Shares against the Plan maximum as it may
deem appropriate.

 
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During any period that the Company is a Publicly Held Corporation, then unless
and until the Committee determines that a particular Incentive Award granted to
a Covered Employee is not intended to comply with the “performance-based
exception” under Code Section 162(m), the following rules shall apply to grants
of Incentive Awards to Covered Employees:

(a)
Subject to adjustment as provided in Section 5.6, the maximum aggregate number
of Shares of Common Stock attributable to Incentive Awards (including Stock
Options, SARs, and Restricted Stock) that may be granted (in the case of Stock
Options and SARs) or that may vest (in the case of Restricted Stock), as
applicable, in any calendar year pursuant to any Incentive Award held by any
individual Covered Employee shall be two hundred thousand (200,000) Shares.

(b) 
Subject to the limitation of paragraph (a) above, the maximum aggregate number
of Shares issuable to any one person pursuant to Incentive Awards shall be five
percent (5%) of the number of Shares of Common Stock outstanding at the time of
the grant of an Incentive Award.

(c) 
[Reserved]

1.5           Share Pool Adjustments for Awards and Payouts

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

(a) 
Stock Option;

(b)
SAR;

(c) 
Restricted Stock Award; and

(d)
A payout of an Other Stock-Based Award in Shares.

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

(a)
A cancellation, termination, expiration, forfeiture, or lapse for any reason of
any Shares subject to an Incentive Award; 

(b)
Payment of an Option Price by withholding Shares which otherwise would be
acquired on exercise (i.e., the Share Pool shall be increased by the number of
Shares withheld in payment of the Option Price); and

(c)
Payment of any applicable employment taxes and/or other withholding obligations
by withholding Shares which otherwise would be acquired on exercise or vesting
of the Incentive Award (i.e., the Share Pool shall be increased by the number of
Shares withheld in payment of the applicable employment taxes and/or other
withholding obligations).

Notwithstanding any provisions of the Plan to the contrary, only shares
forfeited back to the Company, shares canceled on account of termination,
expiration or lapse of an Incentive Award, shares surrendered in payment of the
exercise price of an Option or shares withheld for payment of applicable
employment taxes and/or withholding obligations resulting from the exercise of
an Option or vesting of another Incentive Award shall again be available for
grant of Incentive Stock Options under the Plan, but shall not increase the
maximum  number of shares described in Section 1.4 above as the maximum number
of Shares that may be delivered pursuant to Incentive Stock Options.

 
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1.6           Common Stock Available

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

1.7           Participation

(a) 
Eligibility. The Committee shall from time to time designate those Employees
and/or Outside Directors to be granted Incentive Awards under the Plan, the type
of Incentive Awards granted, the number of Shares, Stock Options, rights or
units, as the case may be, which shall be granted to each such person, and any
other terms or conditions relating to the Incentive Awards as it may deem
appropriate to the extent consistent with the provisions of the Plan. A Grantee,
who has been granted an Incentive Award may, if otherwise eligible, be granted
additional Incentive Awards at any time.

No Insider shall be eligible to be granted an Incentive Award that is subject to
Rule 16a-3 under the Exchange Act unless and until such Insider has granted a
limited power of attorney to those officers of the Company who have been
designated by the Committee for purposes of future required filings under the
Exchange Act.

(b) 
Incentive Stock Option Eligibility. No individual shall be eligible for the
grant of any Incentive Stock Option except an Employee. However, no Employee
shall be eligible for the grant of any ISO who owns or would own immediately
before the grant of such ISO, directly or indirectly, stock possessing more than
ten percent (10%) of the combined voting power of all classes of stock of the
Company, or any Parent or Subsidiary. This restriction does not apply if, at the
time such ISO is granted, the ISO exercise price is at least one hundred and ten
percent (110%) of the Fair Market Value on the date of grant and the ISO by its
terms is not exercisable after the expiration of five (5) years from the date of
grant. For the purpose of the immediately preceding sentence, the attribution
rules of Code Section 424(d) shall apply from the purpose of determining an
Employee’s percentage ownership in the Company or any Parent or Subsidiary. This
paragraph shall be construed consistent with the requirements of Code
Section 422.

1.8           Types of Incentive Awards

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

SECTION 2
Stock Options and Stock Appreciation Rights

2.1
Grant of Stock Options

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

 
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2.2           Stock Option Terms

(a) 
Written Agreement. Each grant of a Stock Option shall be evidenced by a written
Incentive Agreement. Among its other provisions, each Incentive Agreement shall
set forth the extent to which the Grantee shall have the right to exercise the
Stock Option following termination of the Grantee’s Employment. Such provisions
shall be determined in the discretion of the Committee, shall be included in the
Grantee’s Incentive Agreement, and need not be uniform among all Stock Options
issued pursuant to the Plan.

 
     

(b) 
Number of Shares. Each Stock Option shall specify the number of Shares of Common
Stock to which it pertains.

 
     

(c) 
Exercise Price. The exercise price per Share of Common Stock under each Stock
Option shall be determined by the Committee; provided however, that such
exercise price shall not be less than 100% of the Fair Market Value per Share on
the date the Stock Option is granted. Each Stock Option shall specify the method
of exercise which shall be consistent with the requirements of Section 2.3(a).

(d) 
Term. In the Incentive Agreement, the Committee shall fix the term of each Stock
Option, not to exceed ten (10) years from the date of grant for ISO grants or
five (5) years for ISO grants to 10% or greater stockholders pursuant to
Section 1.7(b). In the event no term is fixed, such term shall be ten (10) years
from the date of grant.

(e)
Exercise. The Committee shall determine the time or times at which a Stock
Option may be exercised, in whole or in part. Each Stock Option may specify the
required period of continuous Employment before the Stock Option or portion
thereof will become exercisable.  All such terms and conditions shall be set
forth in the Incentive Agreement.

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

 
     

2.3           Stock Option Exercises

(a)
Method of Exercise and Payment. Stock Options shall be exercised by the delivery
of a signed written notice of exercise to the Company as of a date set by the
Company in advance of the effective date of the proposed exercise. The notice
shall set forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares.

 
The Option Price upon exercise of any Stock Option shall be payable to the
Company in full either: (i) in cash or its equivalent; or (ii) subject to prior
approval by the Committee in its discretion, by tendering previously acquired
Shares having an aggregate Fair Market Value at the time of exercise equal to
the Option Price (provided that the Shares which are tendered must have been
held by the Grantee for at least six (6) months prior to their tender to satisfy
the Option Price); or (iii) subject to prior approval by the Committee in its
discretion, by withholding Shares which otherwise would be acquired on exercise
having an aggregate Fair Market Value at the time of exercise equal to the total
Option Price; or (iv) subject to prior approval by the Committee in its
discretion, by a combination of (i), (ii), and (iii) above.

 
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Any payment in Shares shall be effected by the surrender of such Shares to the
Company in good form for transfer and shall be valued at their Fair Market Value
on the date when the Stock Option is exercised. Unless otherwise permitted by
the Committee in its discretion, the Grantee shall not surrender, or attest to
the ownership of, Shares in payment of the Option Price if such action would
cause the Company to recognize compensation expense (or additional compensation
expense) with respect to the Stock Option for financial accounting reporting
purposes.

The Committee, in its discretion, also may allow the Option Price to be paid
with such other consideration as shall constitute lawful consideration for the
issuance of Shares (including, without limitation, effecting a “cashless
exercise” with a broker of the Option), subject to applicable securities law
restrictions and tax withholdings, or by any other means which the Committee
determines to be consistent with the Plan’s purpose and applicable law. At the
direction of the Grantee, the broker will either (i) sell all of the Shares
received when the Option is exercised and pay the Grantee the proceeds of the
sale (minus the Option Price, withholding taxes and any fees due to the broker);
or (ii) sell enough of the Shares received upon exercise of the Option to cover
the Option Price, withholding taxes and any fees due the broker and deliver to
the Grantee (either directly or through the Company) a stock certificate for the
remaining Shares. Dispositions to a broker affecting a cashless exercise are not
exempt under Section 16 of the Exchange Act if the Company is a Publicly Held
Corporation. Moreover, in no event will the Committee allow the Option Price to
be paid with a form of consideration; including a loan or a “cashless exercise,”
if such form of consideration would violate the Sarbanes-Oxley Act of 2002, as
determined by the Committee in its sole discretion.

As soon as practicable after receipt of a written notification of exercise and
full payment, the Company shall deliver, or cause to be delivered, to or on
behalf of the Grantee, in the name of the Grantee or other appropriate
recipient, evidence of ownership for the number of Shares purchased under the
Stock Option.

Subject to Section 5.4, during the lifetime of a Grantee, each Option granted to
him shall be exercisable only by the Grantee (or his legal guardian in the event
of his Disability) or by a broker-dealer acting on his behalf pursuant to a
cashless exercise under the foregoing provisions of this Section 2.3(a).

(b)
Restrictions on Share Transferability. The Committee may impose such
restrictions on any grant of Stock Options or on any Shares acquired pursuant to
the exercise of a Stock Option as it may deem advisable, including, without
limitation, restrictions under (i) any stockholders’ agreement, buy/sell
agreement, right of first refusal, non-competition, and any other agreement
between the Company and any of its securities holders or employees; (ii) any
applicable federal securities laws; (iii) the requirements of any stock exchange
or market upon which such Shares are then listed and/or traded; or (iv) any blue
sky or state securities law applicable to such Shares. Any certificate issued to
evidence Shares issued upon the exercise of an Incentive Award may bear such
legends and statements as the Committee shall deem advisable to assure
compliance with federal and state laws and regulations.

Any Grantee or other person exercising an Incentive Award shall be required, if
requested by the Committee, to give a written representation that the Incentive
Award and the Shares subject to the Incentive Award will be acquired for
investment and not with a view to public distribution; provided, however, that
the Committee, in its discretion, may release any person receiving an Incentive
Award from any such representations either prior to or subsequent to the
exercise of the Incentive Award.

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

(d)
Proceeds of Option Exercise. The proceeds received by the Company from the sale
of Shares pursuant to Stock Options exercised under the Plan shall be used for
general corporate purposes.

2.4
Stock Appreciation Rights

(a)
Grant. The Committee may grant Stock Appreciation Rights that are independent of
Non-statutory Stock Options (“SARs”), but only with respect to Shares that are
traded on an established securities exchange. All SARs granted under the Plan
are intended to satisfy the requirements for stock appreciation rights to be
exempt from the requirements of Code Section 409A, and therefore not provide for
any deferral of compensation subject to Code Section 409A.

(b)
General Provisions. The terms and conditions of each SAR shall be evidenced by
an Incentive Agreement. The exercise price per Share shall never be less than
one hundred percent (100%) of the Fair Market Value of a Share on the grant date
of the SAR. The term of the SAR shall be determined by the Committee. The
Committee cannot include any feature for the deferral of compensation other than
the deferral of recognition of income until exercise of the SAR.

(c)
Exercise. SARs shall be exercisable subject to such terms and conditions as the
Committee shall specify in the Incentive Agreement for the SAR grant, provided
that such terms and conditions are not inconsistent with the Plan.  No SAR
granted to an Insider may be exercised prior to six (6) months from the date of
grant, except in the event of his death or Disability which occurs prior to the
expiration of such six-month period if so permitted under the Incentive
Agreement.

(d)
Settlement. Upon exercise of the SAR, the Grantee shall receive an amount equal
to the Spread. The Spread, less applicable withholdings, shall be payable only
in Shares within 30 calendar days of the exercise date. In no event shall any
SAR be settled in any manner other than by delivery of Shares that are traded on
an established securities market. In addition, the Incentive Agreement under
which such SARs are awarded, or any other agreements or arrangements, shall not
provide that the Company will purchase any Shares delivered to the Grantee as a
result of the exercise or vesting of a SAR.

SECTION 3
Restricted Stock

3.1        Award of Restricted Stock

(a)
Grant. With respect to a Grantee who is an Employee or Outside Director, Shares
of Restricted Stock may be awarded by the Committee with such restrictions
during the Restriction Period as the Committee shall designate in its
discretion. Any such restrictions may differ with respect to a particular
Grantee. Restricted Stock shall be awarded for no additional consideration or
such additional consideration as the Committee may determine, which
consideration may be less than, equal to, or more than the Fair Market Value of
the shares of Restricted Stock on the grant date. Subject to Section 3.2(c), the
terms and conditions of each grant of Restricted Stock shall be evidenced by an
Incentive Agreement and, during the Restriction Period, such Shares of
Restricted Stock must remain subject to a “substantial risk of forfeiture”
within the meaning given to such term under Code Section 83.

 
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(b)
Immediate Transfer Without Immediate Delivery of Restricted Stock. Unless
otherwise specified in the Grantee’s Incentive Agreement, each Restricted Stock
Award shall not constitute an immediate transfer of the record and beneficial
ownership of the Shares of Restricted Stock to the Grantee in consideration of
the performance of services as an Employee or Outside Director, as applicable,
and shall not entitle such Grantee to any voting and other ownership rights in
such Shares until the date the Restriction Period ends.

As specified in the Incentive Agreement, a Restricted Stock Award may limit the
Grantee’s dividend rights during the Restriction Period in which the shares of
Restricted Stock are subject to a “substantial risk of forfeiture” (within the
meaning given to such term under Code Section 83) and restrictions on transfer.
In the Incentive Agreement, the Committee may apply any restrictions to the
dividends that the Committee deems appropriate.  In the event that any dividend
constitutes a derivative security or an equity security pursuant to the rules
under Section 16 of the Exchange Act, if applicable, such dividend shall be
subject to a vesting period equal to the remaining vesting period of the Shares
of Restricted Stock with respect to which the dividend is paid.

Shares awarded pursuant to a grant of Restricted Stock may be issued in the name
of the Grantee and held, together with a stock power endorsed in blank, by the
Committee or Company (or their delegates) or in trust or in escrow pursuant to
an agreement satisfactory to the Committee, as determined by the Committee,
until such time as the restrictions on transfer have expired. All such terms and
conditions shall be set forth in the particular Grantee’s Incentive Agreement.
The Company or Committee (or their delegates) shall issue to the Grantee a
receipt evidencing the certificates held by it which are registered in the name
of the Grantee.

3.2           Restrictions

(a)
Forfeiture of Restricted Stock. Restricted Stock awarded to a Grantee may be
subject to the following restrictions until the expiration of the Restriction
Period: (i) a restriction that constitutes a “substantial risk of forfeiture”
(as defined in Code Section 83), or a restriction on transferability;
(ii) unless otherwise specified by the Committee in the Incentive Agreement, the
Restricted Stock that is subject to restrictions which are not satisfied shall
be forfeited and all rights of the Grantee to such Shares shall terminate; and
(iii) any other restrictions that the Committee determines in advance are
appropriate, including, without limitation, rights of repurchase or first
refusal in the Company or provisions subjecting the Restricted Stock to a
continuing substantial risk of forfeiture in the hands of any transferee. Any
such restrictions shall be set forth in the particular Grantee’s Incentive
Agreement.

(b) 
Issuance of Certificates. Reasonably promptly after the date of grant with
respect to Shares of Restricted Stock, the Company shall cause to be issued a
stock certificate, registered in the name of the Grantee to whom such Shares of
Restricted Stock were granted, evidencing such Shares; provided, however, that
the Company shall not cause to be issued such a stock certificate unless it has
received a stock power duly endorsed in blank with respect to such Shares. Each
such stock certificate shall bear the following legend or any other legend
approved by the Company:

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

 
Such legend shall not be removed from the certificate evidencing such Shares of
Restricted Stock unless and until such Shares vest pursuant to the terms of the
Incentive Agreement.
 
 

(c)
Removal of Restrictions.  The Committee, in its discretion, shall have the
authority to remove any or all of the restrictions on the Restricted Stock if it
determines that, by reason of a change in applicable law or another change in
circumstance arising after the grant date of the Restricted Stock, such action
is necessary or appropriate; provided, however, that the Committee may only
accelerate the vesting of Restricted Stock upon a Grantee’s death, Disability,
Retirement, or termination of Employment without Cause, or upon a Change in
Control.  Except as otherwise provided by Section 1.3(d), notwithstanding
anything to the contrary herein, in no event shall the Restriction Period for a
grant of Restricted Stock expire earlier than (i) one year from the date of
grant for Restricted Stock for which the Restriction Period expires upon the
attainment of Performance Goals (as described in Section 3.4) or (ii) ratably
over three years from the date of grant for Restricted Stock for which the
Restriction Period expires upon the performance of services over time.

3.3
Delivery of Shares of Common Stock.  Subject to withholding taxes under
Section 6.3 and to the terms of the Incentive Agreement, a stock certificate
evidencing the Shares of Restricted Stock with respect to which the restrictions
in the Incentive Agreement have been satisfied shall be delivered to the Grantee
or other appropriate recipient free of restrictions.

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

 
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SECTION 4
Other Stock-Based Awards

4.1           Grant of Other Stock-Based Awards

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

4.2           Other Stock-Based Award Terms

(a)
Written Agreement. The terms and conditions of each grant of an Other
Stock-Based Award shall be evidenced by an Incentive Agreement.

(b)
Purchase Price. Except to the extent that an Other Stock-Based Award is granted
in substitution for an outstanding Incentive Award or is delivered upon exercise
of a Stock Option, the amount of consideration required to be received by the
Company shall be either (i) no consideration other than services actually
rendered (in the case of authorized and unissued shares) or to be rendered, or
(ii) as otherwise specified in the Incentive Agreement.

(c)
Other Terms.  All terms and conditions of Other Stock-Based Awards shall be
determined by the Committee and set forth in the Incentive Agreement, provided
that such terms and conditions are consistent with the Plan.  Except as
otherwise provided by Section 1.3(d), notwithstanding anything to the contrary
herein, in no event shall a grant of an Other Stock-Based Award vest earlier
than (i) one year from the date of grant for an Other Stock-Based Award which is
subject to the attainment of Performance Goals (as described in Section 3.4) or
(ii) ratably over three years from the date of grant for an Other Stock-Based
Award which vests upon the performance of services over time.

(d)
Payment. Other Stock-Based Awards shall be paid in Shares, in a single payment
or in installments on such dates as determined by the Committee; all as
specified in the Incentive Agreement.

SECTION 5
Provisions Relating to Plan Participation

5.1           Incentive Agreement

Each Grantee to whom an Incentive Award is granted shall be required to enter
into an Incentive Agreement with the Company, in such a form as is provided by
the Committee. The Incentive Agreement shall contain specific terms as
determined by the Committee, in its discretion, with respect to the Grantee’s
particular Incentive Award. Such terms need not be uniform among all Grantees or
any similarly situated Grantees. The Incentive Agreement may include, without
limitation, vesting, forfeiture and other provisions particular to the
particular Grantee’s Incentive Award, as well as, for example, provisions to the
effect that the Grantee (a) shall not disclose any confidential information
acquired during Employment with the Company, (b) shall abide by all the terms
and conditions of the Plan and such other terms and conditions as may be imposed
by the Committee, (c) shall not interfere with the employment or other service
of any employee, (d) shall not compete with the Company or become involved in a
conflict of interest with the interests of the Company, (e) shall forfeit an
Incentive Award if terminated for cause, (f) shall not be permitted to make an
election under Code Section 83(b) when applicable, and (g) shall be subject to
any other agreement between the Grantee and the Company regarding Shares that
may be acquired under an Incentive Award including, without limitation, a
stockholders’ agreement, buy-sell agreement, or other agreement restricting the
transferability of Shares by Grantee. An Incentive Agreement shall include such
terms and conditions as are determined by the Committee, in its discretion, to
be appropriate with respect to any individual Grantee. The Incentive Agreement
shall be signed by the Grantee to whom the Incentive Award is made and by an
Authorized Officer.

 
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5.2           No Right to Employment

Nothing in the Plan or any instrument executed pursuant to the Plan shall create
any Employment rights (including without limitation, rights to continued
Employment) in any Grantee or affect the right of the Company to terminate the
Employment of any Grantee at any time without regard to the existence of the
Plan.

5.3           Securities Requirements

The Company shall be under no obligation to affect the registration pursuant to
the Securities Act of 1933 of any Shares to be issued hereunder or to effect
similar compliance under any state laws. Notwithstanding anything herein to the
contrary, the Company shall not be obligated to cause to be issued or delivered
any certificates evidencing Shares pursuant to the Plan unless and until the
Company is advised by its counsel that the issuance and delivery of such
certificates is in compliance with all applicable laws, regulations of
governmental authorities, and the requirements of any securities exchange on
which Shares are traded. The Committee may require, as a condition of the
issuance and delivery of  certificates evidencing Shares pursuant to the terms
hereof, that the recipient of such Shares make such covenants, agreements and
representations, and that such certificates bear such legends, as the Committee,
in its discretion, deems necessary or desirable.

The Committee may, in its discretion, defer the effectiveness of any exercise of
an Incentive Award in order to allow the issuance of Shares to be made pursuant
to registration or an exemption from registration or other methods for
compliance available under federal or state securities laws. The Committee shall
inform the Grantee in writing of its decision to defer the effectiveness of the
exercise of an Incentive Award. During the period that the effectiveness of the
exercise of an Incentive Award has been deferred, the Grantee may, by written
notice to the Committee, withdraw such exercise and obtain the refund of any
amount paid with respect thereto.

If the Shares issuable on exercise of an Incentive Award are not registered
under the Securities Act of 1933, the Company may imprint on the certificate for
such Shares the following legend or any other legend which counsel for the
Company considers necessary or advisable to comply with the Securities Act of
1933:
 

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

 
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5.4           Transferability

Incentive Awards granted under the Plan shall not be transferable or assignable
other than: (a) by will or the laws of descent and distribution or (b) pursuant
to a qualified domestic relations order (as defined under Code Section 414(p));
provided, however, only with respect to Incentive Awards consisting of
Non-statutory Stock Options, the Committee may, in its discretion, authorize all
or a portion of the Non-statutory Stock Options to be granted on terms which
permit transfer by the Grantee to (i) the members of the Grantee’s Immediate
Family, (ii) a trust or trusts for the exclusive benefit of Immediate Family
members, (iii) a partnership in which such Immediate Family members are the only
partners, or (iv) any other entity owned solely by Immediate Family members;
provided that (A) there may be no consideration for any such transfer, (B) the
Incentive Agreement pursuant to which such Non-statutory Stock Options are
granted must be approved by the Committee, and must expressly provide for
transferability in a manner consistent with this Section 5.4, (C) subsequent
transfers of transferred Non-statutory Stock Options shall be prohibited except
in accordance with clauses (a) and (b) (above) of this sentence, and (D) there
may be no transfer of any Incentive Award in a listed transaction as described
in IRS Notice 2003-47. Following any permitted transfer, the Non-statutory Stock
Option shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that the term “Grantee” shall
be deemed to refer to the transferee. The events of termination of employment,
as set out in Section 5.7 and in the Incentive Agreement, shall continue to be
applied with respect to the original Grantee, and the Incentive Award shall be
exercisable by the transferee only to the extent, and for the periods, specified
in the Incentive Agreement.

Except as may otherwise be permitted under the Code, in the event of a permitted
transfer of a Non-statutory Stock Option hereunder, the original Grantee shall
remain subject to withholding taxes upon exercise. In addition, the Company and
the Committee shall have no obligation to provide any notices to any Grantee or
transferee thereof, including, for example, notice of the expiration of an
Incentive Award following the original Grantee’s termination of employment.

The designation by a Grantee of a beneficiary of an Incentive Award shall not
constitute transfer of the Incentive Award. No transfer by will or by the laws
of descent and distribution shall be effective to bind the Company unless the
Committee has been furnished with a copy of the deceased Grantee’s enforceable
will or such other evidence as the Committee deems necessary to establish the
validity of the transfer. Any attempted transfer in violation of this
Section 5.4 shall be void and ineffective. All determinations under this
Section 5.4 shall be made by the Committee in its discretion.

5.5           Rights as a Stockholder

(a)
No Stockholder Rights. Except as otherwise provided in Section 3.1(b) for grants
of Restricted Stock, a Grantee of an Incentive Award (or a permitted transferee
of such Grantee) shall have no rights as a stockholder with respect to any
Shares of Common Stock until the issuance of a stock certificate or other record
of ownership for such Shares.

(b)
Representation of Ownership. In the case of the exercise of an Incentive Award
by a person or estate acquiring the right to exercise such Incentive Award by
reason of the death or Disability of a Grantee, the Committee may require
reasonable evidence as to the ownership of such Incentive Award or the authority
of such person. The Committee may also require such consents and releases of
taxing authorities as it deems advisable.

 
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5.6        Change in Stock and Adjustments

(a)
Changes in Law or Circumstances. Subject to Section 5.8 (which only applies in
the event of a Change in Control), in the event of any change in applicable law
or any change in circumstances which results in or would result in any dilution
of the rights granted under the Plan, or which otherwise warrants an equitable
adjustment because it interferes with the intended operation of the Plan, then,
if the Board or Committee should so determine, in its absolute discretion, that
such change equitably requires an adjustment in the number or kind of shares of
stock or other securities or property theretofore subject, or which may become
subject, to issuance or transfer under the Plan or in the terms and conditions
of outstanding Incentive Awards, such adjustment shall be made in accordance
with such determination. Such adjustments may include changes with respect to
(i) the aggregate number of Shares that may be issued under the Plan, (ii) the
number of Shares subject to Incentive Awards, and (iii) the Option Price or
other price per Share for outstanding Incentive Awards, but shall not result in
the grant of any Stock Option with an exercise price less than 100% of the Fair
Market Value per Share on the date of grant. The Board or Committee shall give
notice to each applicable Grantee of such adjustment which shall be effective
and binding.

 (b)
Exercise of Corporate Powers. The existence of the Plan or outstanding Incentive
Awards hereunder shall not affect in any way the right or power of the Company
or its stockholders to make or authorize any or all adjustments,
recapitalization, reorganization or other changes in the Company’s capital
structure or its business or any merger or consolidation of the Company, or any
issue of bonds, debentures, preferred or prior preference stocks ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding whether of a
similar character or otherwise.

 
 

 (c)
Recapitalization of the Company. Subject to Section 5.8 (which only applies in
the event of a Change in Control), if while there are Incentive Awards
outstanding, the Company shall effect any subdivision or consolidation of Shares
of Common Stock or other capital readjustment, the payment of a stock dividend,
stock split, combination of Shares, recapitalization or other increase or
reduction in the number of Shares outstanding, without receiving compensation
therefore in money, services or property, then the number of Shares available
under the Plan and the number of Incentive Awards which may thereafter be
exercised shall (i) in the event of an increase in the number of Shares
outstanding, be proportionately increased and the Option Price or Fair Market
Value of the Incentive Awards awarded shall be proportionately reduced; and
(ii) in the event of a reduction in the number of Shares outstanding, be
proportionately reduced, and the Option Price or Fair Market Value of the
Incentive Awards awarded shall be proportionately increased. The Board or
Committee shall take such action and whatever other action it deems appropriate,
in its discretion, so that the value of each outstanding Incentive Award to the
Grantee shall not be adversely affected by a corporate event described in this
Section 5.6(c).

(d)
Issue of Common Stock by the Company. Except as hereinabove expressly provided
in this Section 5.6 and subject to Section 5.8 in the event of a Change in
Control, the issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services, either upon direct sale or upon the exercise of rights or
warrants to subscribe therefore, or upon any conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of, or Option Price or Fair Market Value of, any Incentive Awards then
outstanding under previously granted Incentive Awards; provided, however, in
such event, outstanding Shares of Restricted Stock shall be treated the same as
outstanding unrestricted Shares of Common Stock.

 
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(e)
Assumption under the Plan of Outstanding Stock Options. Notwithstanding any
other provision of the Plan, the Board or Committee, in its discretion, may
authorize the assumption and continuation under the Plan of outstanding and
unexercised stock options or other types of stock-based incentive awards that
were granted under a stock option plan (or other type of stock incentive plan or
agreement) that is or was maintained by a corporation or other entity that was
merged into, consolidated with, or whose stock or assets were acquired by, the
Company as the surviving corporation. Any such action shall be upon such terms
and conditions as the Board or Committee, in its discretion, may deem
appropriate, including provisions to preserve the holder’s rights under the
previously granted and unexercised stock option or other stock-based incentive
award; such as, for example, retaining an existing exercise price under an
outstanding stock option. Any such assumption and continuation of any such
previously granted and unexercised incentive award shall be treated as an
outstanding Incentive Award under the Plan and shall thus count against the
number of Shares reserved for issuance pursuant to Section 1.4. In addition, any
Shares issued by the Company through the assumption or substitution of
outstanding grants from an acquired company shall reduce the Shares available
for grants under Section 1.4.

(f)
Assumption of Incentive Awards by a Successor. Subject to the accelerated
vesting and other provisions of Section 6.8 that apply in the event of a Change
in Control, in the event of a Corporate Event (defined below), each Grantee
shall be entitled to receive, in lieu of the number of Shares subject to
Incentive Awards, such shares of capital stock or other securities or property
as may be issuable or payable with respect to or in exchange for the number of
Shares which Grantee would have received had he exercised the Incentive Award
immediately prior to such Corporate Event, together with any adjustments
(including, without limitation, adjustments to the Option Price and the number
of Shares issuable on exercise of outstanding Stock Options). For this purpose,
Shares of Restricted Stock shall be treated the same as unrestricted outstanding
Shares of Common Stock. A “Corporate Event” means any of the following: (i) a
dissolution or liquidation of the Company, (ii) a sale of all or substantially
all of the Company’s assets, or (iii) a merger, consolidation or combination
involving the Company (other than a merger, consolidation or combination (A) in
which the Company is the continuing or surviving corporation and (B) which does
not result in the outstanding Shares being converted into or exchanged for
different securities, cash or other property, or any combination thereof). The
Board or Committee shall take whatever other action it deems appropriate to
preserve the rights of Grantees holding outstanding Incentive Awards.

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

(i) 
cancel, effective immediately prior to the occurrence of the Corporate Event,
each outstanding Incentive Award (whether or not then exercisable) and, in full
consideration of such cancellation, pay to the Grantee an amount in cash equal
to the excess of (A) the value, as determined by the Board or Committee, of the
property (including cash) received by the holders of Common Stock as a result of
such Corporate Event over (B) the exercise price of such Incentive Award, if
any; provided, however, this subsection (i) shall be inapplicable to an
Incentive Award granted within six (6) months before the occurrence of the
Corporate Event if the Grantee is an Insider and such disposition is not exempt
under Rule 16b-3 (or other rules preventing liability of the Insider under
Section 16(b) of the Exchange Act) and, in that event, the provisions hereof
shall be applicable to such Incentive Award after the expiration of six
(6) months from the date of grant; or

 
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(ii) 
provide for the exchange or substitution of each Incentive Award outstanding
immediately prior to such Corporate Event (whether or not then exercisable) for
another award with respect to the Common Stock or other property for which such
Incentive Award is exchangeable and, incident thereto, make an equitable
adjustment as determined by the Board or Committee, in its discretion, in the
Option Price or exercise price of the Incentive Award, if any, or in the number
of Shares or amount of property (including cash) subject to the Incentive
Award; or

(iii) 
provide for assumption of the Plan and such outstanding Incentive Awards by the
surviving entity or its parent.

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

5.7           Termination of Employment, Death, Disability and Retirement

(a)
Termination of Employment. Unless otherwise expressly provided in the Grantee’s
Incentive Agreement or the Plan, if the Grantee’s Employment is terminated for
any reason other than due to his death, Disability, Retirement or for Cause, any
non-vested portion of any Stock Option or other Incentive Award at the time of
such termination shall automatically expire and terminate and no further vesting
shall occur after the termination date. In such event, except as otherwise
expressly provided in his Incentive Agreement, the Grantee shall be entitled to
exercise his rights only with respect to the portion of the Incentive Award that
was vested as of his termination of Employment date for a period that shall end
on the earlier of (i) the expiration date set forth in the Incentive Agreement
or (ii) ninety (90) days after the date of his termination of Employment.

(b)
Termination of Employment for Cause. Unless otherwise expressly provided in the
Grantee’s Incentive Agreement or the Plan, in the event of the termination of a
Grantee’s Employment for Cause, all vested and non-vested Stock Options and
other Incentive Awards granted to such Grantee shall immediately expire, and
shall not be exercisable to any extent, as of 12:01 a.m. (CST) on the date of
such termination of Employment.

 
 

(c)
Retirement. Unless otherwise expressly provided in the Grantee’s Incentive
Agreement or the Plan, upon the termination of Employment due to the Grantee’s
Retirement:

(i)
any non-vested portion of any outstanding Option or other Incentive Award shall
immediately terminate and no further vesting shall occur; and

(ii) 
any vested Option or other Incentive Award shall expire on the earlier of
(A) the expiration date set forth in the Incentive Agreement for such Incentive
Award; or (B) the expiration of (1) one year after the date of his termination
of Employment due to Retirement in the case of any Incentive Award other than an
Incentive Stock Option or (2) three months after his termination date in the
case of an Incentive Stock Option.

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

 
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(i)
any non-vested portion of any outstanding Option or other Incentive Award shall
immediately terminate upon termination of Employment and no further vesting
shall occur; and

(ii) 
any vested Incentive Award shall expire on the earlier of either (A) the
expiration date set forth in the Incentive Agreement or (B) the one year
anniversary date of the Grantee’s termination of Employment date.

In the case of any vested Incentive Stock Option held by an Employee following
termination of Employment, notwithstanding the definition of “Disability” in
Section 1.2, whether the Employee has incurred a “Disability” for purposes of
determining the length of the Option exercise period following termination of
Employment under this Section 5.7(d) shall be determined by reference to Code
Section 22(e)(3) to the extent required by Code Section 422(c)(6). The Committee
shall determine whether a Disability for purposes of this Section 5.7(d) has
occurred.
     
(e)
Continuation. Subject to the conditions and limitations of the Plan and
applicable law and regulation in the event that a Grantee ceases to be an
Employee or Outside Director, as applicable, for whatever reason, the Committee
and Grantee may mutually agree with respect to any outstanding Option or other
Incentive Award then held by the Grantee (i) for an acceleration or other
adjustment in any vesting schedule applicable to the Incentive Award; (ii) for a
continuation of the exercise period following termination for a longer period
than is otherwise provided under such Incentive Award; or (iii) to any other
change in the terms and conditions of the Incentive Award. In the event of any
such change to an outstanding Incentive Award, a written amendment to the
Grantee’s Incentive Agreement shall be required.  Notwithstanding the foregoing,
no amendment to a Grantee’s Incentive Award shall be made to the extent
compensation payable pursuant thereto as a result of such amendment would be
considered deferred compensation subject to Code Section 409A, unless otherwise
determined and provided by the Committee.

 
     

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

(a) 
all of the Stock Options and Stock Appreciation Rights then outstanding shall
become 100% vested and immediately and fully exercisable;

(b)
all of the restrictions and conditions of any Restricted Stock and any Other
Stock-Based Awards then outstanding shall be deemed satisfied, and the
Restriction Period with respect thereto shall be deemed to have expired, and
thus each such Incentive Award shall become free of all restrictions and fully
vested; and

(c) 
all of the Performance-Based Stock-Based Awards and any Other Stock-Based Awards
shall become fully vested, deemed earned in full, and promptly paid within
thirty (30) days to the affected Grantees without regard to payment schedules
and notwithstanding that the applicable performance cycle, retention cycle or
other restrictions and conditions have not been completed or satisfied.

For all purposes of this Plan, a “Change in Control” of the Company occurs upon
a change in the Company’s ownership, its effective control or the ownership of a
substantial portion of its assets, as follows:

 
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(a)
Change in Ownership.  A change in ownership of the Company occurs on the date
that any “Person” (as defined in below), other than (1) the Company or any of
its subsidiaries, (2) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (3) an
underwriter temporarily holding stock pursuant to an offering of such stock, or
(4) a corporation owned, directly or indirectly, by the shareholders of the
Company in substantially the same proportions as their ownership of the
Company’s stock, acquires ownership of the Company’s stock that, together with
stock held by such Person, constitutes more than 50% of the total fair market
value or total voting power of the Company’s stock.  However, if any Person is
considered to own already more than 50% of the total fair market value or total
voting power of the Company’s stock, the acquisition of additional stock by the
same Person is not considered to be a Change of Control.  In addition, if any
Person has effective control of the Company through ownership of 30% or more of
the total voting power of the Company’s stock, as discussed in paragraph (b)
below, the acquisition of additional control of the Company by the same Person
is not considered to cause a Change in Control pursuant to this paragraph (a);
or

(b)
Change in Effective Control.  Even though the Company may not have undergone a
change in ownership under paragraph (a) above, a change in the effective control
of the Company occurs on either of the following dates:

(1)           the date that any Person acquires (or has acquired during the
12-month period ending on the date of the most recent acquisition by such
Person) ownership of the Company’s stock possessing 30 percent or more of the
total voting power of the Company’s stock.  However, if any Person owns 30% or
more of the total voting power of the Company’s stock, the acquisition of
additional control of the Company by the same Person is not considered to cause
a Change in Control pursuant to this subparagraph (b)(1); or
 
(2)           the date during any 12-month period when a majority of members of
the Board is replaced by directors whose appointment or election is not endorsed
by a majority of the Board before the date of the appointment or election;
provided, however, that any such director shall not be considered to be endorsed
by the Board if his or her initial assumption of office occurs as a result of an
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or

(c)
Change in Ownership of Substantial Portion of Assets.  A change in the ownership
of a substantial portion of the Company’s assets occurs on the date that a
Person acquires (or has acquired during the 12-month period ending on the date
of the most recent acquisition by such Person) assets of the Company, that have
a total gross fair market value equal to at least 40% of the total gross fair
market value of all of the Company’s assets immediately before such acquisition
or acquisitions.  However, there is no Change in Control when there is such a
transfer to an entity that is controlled by the shareholders of the Company
immediately after the transfer, through a transfer to (i) a shareholder of the
Company (immediately before the asset transfer) in exchange for or with respect
to the Company’s stock; (ii) an entity, at least 50% of the total value or
voting power of the stock of which is owned, directly or indirectly, by the
Company; (iii) a Person that owns directly or indirectly, at least 50% of the
total value or voting power of the Company’s outstanding stock; or (iv) an
entity, at least 50% of the total value or voting power of the stock of which is
owned by a Person that owns, directly or indirectly, at least 50% of the total
value or voting power of the Company’s outstanding stock.

 
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For purposes of the foregoing definition,

(a)
“Person” shall have the meaning given in Code Section 7701(a)(1).  Person shall
include more than one Person acting as a group as defined by the Final Treasury
Regulations issued under Code Section 409A.

(b)
“Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under
Section 12 of the Securities Exchange Act of 1934, as amended.

The provisions of this Section 5.8 shall be interpreted in accordance with the
requirements of the Final Treasury Regulations under Code Section 409A, it being
the intent of the parties that this Section 5.8 shall be in compliance with the
requirements of said Code Section and said Regulations.

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

5.9           Financing

Subject to the requirements of the Sarbanes-Oxley Act of 2002, the Company may
extend and maintain, or arrange for and guarantee, the extension and maintenance
of financing to any Grantee to purchase Shares pursuant to exercise of an
Incentive Award upon such terms as are approved by the Committee in its
discretion.

SECTION 6
General

6.1           Effective Date and Grant Period

This Plan is adopted by the Board effective as of the Effective Date, subject to
the approval of the stockholders of the Company within one year from the
Effective Date. Incentive Awards may be granted under the Plan at any time prior
to receipt of such stockholder approval; provided, however, if the requisite
stockholder approval is not obtained then any Incentive Awards granted hereunder
shall automatically become null and void and of no force or effect.
Notwithstanding the foregoing, any Incentive Award that is intended to satisfy
the “performance-based exception” under Code Section 162(m) shall not be granted
until the terms of the Plan are disclosed to, and approved by, the stockholders
of the Company in accordance with the requirements of the “performance-based
exception” under Code Section 162(m).

6.2           Funding and Liability of Company

No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made, or otherwise
to segregate any assets. In addition, the Company shall not be required to
maintain separate bank accounts, books, records or other evidence of the
existence of a segregated or separately maintained or administered fund for
purposes of the Plan. Although bookkeeping accounts may be established with
respect to Grantees who are entitled to cash, Common Stock or rights thereto
under the Plan, any such accounts shall be used merely as a bookkeeping
convenience. The Company shall not be required to segregate any assets that may
at any time be represented by cash, Common Stock or rights thereto. The Plan
shall not be construed as providing for such segregation, nor shall the Company,
the Board or the Committee be deemed to be a trustee of any cash, Common Stock
or rights thereto. Any liability or obligation of the Company to any Grantee
with respect to an Incentive Award shall be based solely upon any contractual
obligations that may be created by this Plan and any Incentive Agreement, and no
such liability or obligation of the Company shall be deemed to be secured by any
pledge or other encumbrance on any property of the Company. The Company, the
Board or the Committee shall be required to give any security or bond for the
performance of any obligation that may be created by the Plan.

 
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6.3           Withholding Taxes

(a)
Tax Withholding. The Company shall have the power and the right to deduct or
withhold, or require a Grantee to remit to the Company, an amount sufficient to
satisfy federal, state, and local taxes, domestic or foreign, required by law or
regulation to be withheld with respect to any taxable event arising as a result
of the Plan or an Incentive Award hereunder. Upon the lapse of restrictions on
Restricted Stock, the Committee, in its discretion, may elect to satisfy the tax
withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum withholding taxes which could be imposed on the transaction as
determined by the Committee.

(b)
Share Withholding. With respect to tax withholding required upon the exercise of
Stock Options or SARs, upon the lapse of restrictions on Restricted Stock, or
upon any other taxable event arising as a result of any Incentive Awards,
Grantees may elect, subject to the approval of the Committee in its discretion,
to satisfy the withholding requirement, in whole or in part, by having the
Company withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to the minimum withholding taxes which could be imposed on the
transaction as determined by the Committee. All such elections shall be made in
writing, signed by the Grantee, and shall be subject to any restrictions or
limitations that the Committee, in its discretion, deems appropriate.

(c)
Incentive Stock Options. With respect to Shares received by a Grantee pursuant
to the exercise of an Incentive Stock Option, if such Grantee disposes of any
such Shares within (i) two years from the date of grant of such Option or
(ii) one year after the transfer of such shares to the Grantee, the Company
shall have the right to withhold from any salary, wages or other compensation
payable by the Company to the Grantee an amount sufficient to satisfy the
minimum withholding taxes which could be imposed with respect to such
disqualifying disposition.

(d)
Loans. To the extent permitted by the Sarbanes-Oxley Act of 2002 or other
applicable law, the Committee may provide for loans, on either a short term or
demand basis, from the Company to a Grantee who is an Employee to permit the
payment of taxes required by law.

 6.4           No Guarantee of Tax Consequences

Neither the Company nor the Committee makes any commitment or guarantee that any
federal, state or local tax treatment will apply or be available to any person
participating or eligible to participate hereunder.

6.5           Designation of Beneficiary by Participant

Each Grantee may, from time to time, name any beneficiary or beneficiaries (who
may be named contingently or successively) to whom any benefit under the Plan is
to be paid in case of his death before he receives any or all of such benefit.
Each such designation shall revoke all prior designations by the same Grantee,
shall be in a form prescribed by the Committee, and will be effective only when
filed by the Grantee in writing with the Committee during the Grantee’s
lifetime. In the absence of any such designation, benefits remaining unpaid at
the Grantee’s death shall be paid to the Grantee’s estate.

 
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6.6           Deferrals

The Committee shall not permit a Grantee to defer such Grantee’s receipt of the
payment of cash or the delivery of Shares that would, otherwise be due to such
Grantee by virtue of the lapse or waiver of restrictions with respect to
Restricted Stock, or the satisfaction of any requirements or goals with respect
to Performance-Based Stock-Based Awards or Other Stock-Based Awards.

6.7           Amendment and Termination

The Board shall have the power and authority to terminate or amend the Plan at
any time; provided, however, the Board shall not, without the approval of the
stockholders of the Company within the time period required by applicable law:

(a) 
except as provided in Section 5.6, increase the maximum number of Shares which
may be issued under the Plan pursuant to Section 1.4;

(b) 
amend the requirements as to the class of Employees eligible to purchase Common
Stock under the Plan;

(c)
extend the term of the Plan; or,

(d) 
if the Company is a Publicly Held Corporation (i) increase the maximum limits on
Incentive Awards to Covered Employees as set for compliance with the
“performance-based exception” under Code Section 162(m) or (ii) decrease the
authority granted to the Committee under the Plan in contravention of Rule 16b-3
under the Exchange Act.

No termination, amendment, or modification of the Plan shall adversely affect in
any material way any outstanding Incentive Award previously granted to a Grantee
under the Plan, without the written consent of such Grantee or other designated
holder of such Incentive Award.

In addition, to the extent that the Committee determines that (a) the listing
for qualification requirements of any national securities exchange or quotation
system on which the Company’s Common Stock is then listed or quoted, if
applicable, or (b) the Code (or regulations promulgated thereunder), require
stockholder approval in order to maintain compliance with such listing
requirements or to maintain any favorable tax advantages or qualifications, then
the Plan shall not be amended in such respect without approval of the Company’s
stockholders.

6.8           Requirements of Law

(a)
Governmental Entities and Securities Exchanges. The granting of Incentive Awards
and the issuance of Shares under the Plan shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any governmental agencies
or national securities exchanges as may be required. Certificates evidencing
shares of Common Stock delivered under this Plan (to the extent that such shares
are so evidenced) may be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the rules and regulations
of the Securities and Exchange Commission, any securities exchange or
transaction reporting system upon which the Common Stock is then listed or to
which it is admitted for quotation, and any applicable federal or state
securities law, if applicable. The Committee may cause a legend or legends to be
placed upon such certificates (if any) to make appropriate reference to such
restrictions.

 
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(b)
Securities Act Rule 701. If no class of the Company’s securities is registered
under Section 12 of the Exchange Act, then unless otherwise determined by the
Committee, grants of Incentive Awards to “Rule 701 Grantees” (as defined below)
and issuances of the underlying shares of Common Stock, if any, on the exercise
or conversion of such Incentive Awards are intended to comply with all
applicable conditions of Securities Act Rule 701 (“Rule 701”), including,
without limitation, the restrictions as to the amount of securities that may be
offered and sold in reliance on Rule 701, so as to qualify for an exemption from
the registration requirements of the Securities Act. Any ambiguities or
inconsistencies in the construction of an Incentive Award or the Plan shall be
interpreted to give effect to such intention. In accordance with Rule 701, each
Grantee shall receive a copy of the Plan on or before the date an Incentive
Award is granted to him, as well as the additional disclosure required by
Rule 701(e) if the aggregate sales price or amount of securities sold during any
consecutive 12-month period exceeds $5,000,000 as determined under Rule 701(e).
If Rule 701 (or any successor provision) is amended to eliminate or otherwise
modify any of the requirements specified in Rule 701, then the provisions of
this Section 6.8(b) shall be interpreted and construed in accordance with
Rule 701 as so amended. For purposes of this Section 6.8(b), as determined in
accordance with Rule 701, “Rule 701 Grantees” shall mean any Grantee other than
a director of the Company, the Company’s chairman, CEO, president, chief
financial officer, controller and any vice president of the Company, and any
other key employee of the Company who generally has access to financial and
other business related information and possesses sufficient sophistication to
understand and evaluate such information.

6.9           Rule 16b-3 Securities Law Compliance for Insiders

If the Company is a Publicly Held Corporation, transactions under the Plan with
respect to Insiders are intended to comply with all applicable conditions of
Rule 16b-3 under the Exchange Act. Any ambiguities or inconsistencies in the
construction of an Incentive Award or the Plan shall be interpreted to give
effect to such intention, and to the extent any provision of the Plan or action
by the Committee fails to so comply, it shall be deemed null and void to the
extent permitted by law and deemed advisable by the Committee in its discretion.

6.10         Compliance with Code Section 162(m) for Publicly Held Corporation

If the Company is a Publicly Held Corporation, unless otherwise determined by
the Committee with respect to any particular Incentive Award, it is intended
that the Plan shall comply fully with the applicable requirements so that any
Incentive Awards subject to Section 162(m) that are granted to Covered Employees
shall qualify for the  “performance-based exception” under Code Section 162(m),
except for grants of Non-statutory Stock Options with an Option Price set at
less than the Fair Market Value of a Share on the date of grant. If any
provision of the Plan or an Incentive Agreement would disqualify the Plan or
would not otherwise permit the Plan or Incentive Award to comply with
the  “performance-based exception” under Code Section 162(m) as so intended,
such provision shall be construed or deemed to be amended to conform to the
requirements of the  “performance-based exception” under Code Section 162(m) to
the extent permitted by applicable law and deemed advisable by the Committee;
provided, however, no such construction or amendment shall have an adverse
effect on the prior grant of an Incentive Award or the economic value to a
Grantee of any outstanding Incentive Award.

6.11        Notices

(a)
Notice From Insiders to Secretary of Change in Beneficial Ownership. Within two
business days after the date of a change in beneficial ownership of the Common
Stock issued or delivered pursuant to this Plan, an Insider should report to the
Secretary of the Company any such change to the beneficial ownership of Common
Stock that is required to be reported with respect to such Insider under
Rule 16(a)-3 promulgated pursuant to the Exchange Act. Whenever reasonably
feasible, Insiders will provide the Committee with advance notification of such
change in beneficial ownership.

 
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(b)
Notice to Insiders and Securities and Exchange Commission. The Company shall
provide notice to any Insider, as well as to the Securities and Exchange
Commission, of any “blackout period,” as defined in Section 306(a)(4) of the
Sarbanes-Oxley Act of 2002, in any case in which Insider is subject to the
requirements of Section 304 of said Act in connection with such “blackout
period.”

6.12        Pre-Clearance Agreement with Brokers

Notwithstanding anything in the Plan to the contrary, no shares of Common Stock
issued pursuant to this Plan will be delivered to a broker or dealer that
receives such shares for the account of an Insider unless and until the broker
or dealer enters into a written agreement with the Company whereby such broker
or dealer agrees to report immediately to the Secretary of the Company (or other
designated person) a change in the beneficial ownership of such shares.

6.13        Successors to Company

All obligations of the Company under the Plan with respect to Incentive Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.

6.14        Miscellaneous Provisions

(a)
No Employee, Outside Director, or other person shall have any claim or right to
be granted an Incentive Award under the Plan. Neither the Plan, nor any action
taken hereunder, shall be construed as giving any Employee or Outside Director
any right to be retained in the Employment or other service of the Company or
any Parent or Subsidiary.

(b)
The expenses of the Plan shall be borne by the Company.

(c)
By accepting any Incentive Award, each Grantee and each person claiming by or
through him shall be deemed to have indicated his acceptance of the Plan.

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

6.16        Gender, Tense and Headings

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

6.17        Governing Law

The Plan shall be interpreted, construed and constructed in accordance with the
laws of the State of Delaware without regard to its conflicts of law provisions,
except as may be superseded by applicable laws of the United States.

 
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6.18         Term of the Plan

Unless terminated earlier pursuant to Section 6.7 hereof, the Plan shall
terminate as of the close of business on May 3, 2016, and no Incentive Award may
be granted under the Plan thereafter, but such termination shall not affect any
Incentive Award issued or granted on or prior to such termination date.

6.19           Section 409A Compliance
 
To the extent that the Plan provides for the payment of amounts that constitute
“nonqualified deferred compensation” under Code Section 409A, the Plan is
intended to comply with the provisions of Code Section 409A so as to prevent the
inclusion of gross income of any amounts deferred hereunder in a taxable year
that is prior to the taxable year or years in which such amounts would otherwise
be actually distributed and made available to Grantees or beneficiaries.

IN WITNESS WHEREOF, the Company has caused this Plan to be duly executed in its
name and on its behalf by its duly authorized officer, effective as of December
31, 2008.

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

 
 
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