Document:

ex10_3.htm

    
      

    

    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:

              

      

    

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    
      
        	
              	
                (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.

    

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

    
      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.

              

      

    

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    
      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.

              

      

    

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

    
      
        	
              	
                (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.

              

      

    

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    
      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.

              

      

    

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

    
      
        	
              	
                (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.

    

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

    
      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.

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

    
      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.

    

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    
      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.

              

      

    

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

    
      
        	
              	
                 
      

              	
                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.

    

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

    
      
        	
              	
                (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.

              

      

    

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

    
      
        	
              	
                (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:

              

      

    

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

     

    
      
        	 	
                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.

              

      

    

    
      
         

      

      
        30

        
          

        

      

      
         

      

    

    
      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.

    

    
      
         

      

      
        31

        
          

        

      

      
         

      

    

    
      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.

                  	 

          

        

      

    

    
      
         

      

      
        32

        
          

        

      

      
         

      

    

    
      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.

              

      

    

    
      
         

      

      
        33

        
          

        

      

      
         

      

    

    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.

              

      

    

    
      
         

      

      
        34

        
          

        

      

      
         

      

    

    
      
        	
              	
                (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

              

      

    

    
      
         

      

      
        35

        
          

        

      

      
         

      

    

    
      
        	
              	
                (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:

              

      

    

    
      
         

      

      
        36

        
          

        

      

      
         

      

    

    
      
        	
              	
                (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:

    

    
      
         

      

      
        37

        
          

        

      

      
         

      

    

    
      
        	
              	
                (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.

              

      

    

    
      
         

      

      
        38

        
          

        

      

      
         

      

    

    
      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.

    

    
      
         

      

      
        39

        
          

        

      

      
         

      

    

    
      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.

    

    
      
         

      

      
        40

        
          

        

      

      
         

      

    

    
      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.

              

      

    

    
      
         

      

      
        41

        
          

        

      

      
         

      

    

    
      
        	
              	
                (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.

              

      

    

    
      
         

      

      
        42

        
          

        

      

      
         

      

    

    
      
        	
              	
                (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.

    

    
      
         

      

      
        43

        
          

        

      

      
         

      

    

    
      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

              	 
      

      

    

     

     

    44ex4_1.htm

    
      

    

    
      Exhibit
4.1

      ARTICLES
OF AMENDMENT

      TO
THE

      AMENDED
AND RESTATED

      ARTICLES
OF INCORPORATION

      OF

      HABERSHAM
BANCORP

      

      1.

      

      The name
of the Corporation is Habersham Bancorp.

      

      2.

      

      The
Amended and Restated Articles of Incorporation of the Corporation are hereby
amended by inserting the following new Article 5B(1) immediately following
Article 5B:

      

      “ARTICLE
5B(1)

      

      Of the
foregoing class of Preferred Stock, the Corporation hereby designates the
rights, privileges, preferences, and limitations of  the Series A
Preferred Stock set forth below:

      

      SERIES A
NONCUMULATIVE PERPETUAL PREFERRED STOCK

      Relative
Rights and Preferences and Other Terms

      As
Designated By the Board of Directors

      

      1.           Designation and Initial
Number.  The class of shares of preferred stock hereby
authorized shall be designated “Series A Noncumulative Perpetual Preferred
Stock” (hereinafter, the “Series A Preferred Stock”).  The
initial number of authorized shares of the Series A Preferred Stock shall be
10,000 shares, no
par value.  Defined terms used herein shall have the meanings ascribed
to them in their context or in Section 10 hereof.

      

      2.           Rank.  The
Series A Preferred Stock will, with respect to dividend rights and rights on
liquidation, winding-up and dissolution, rank (i) on a parity with each
other class or series of capital stock (except for Common Stock) of the
Corporation, the terms of which do not expressly provide that such class or
series will rank either junior or senior to the Series A Preferred Stock as to
dividend rights and rights on liquidation, winding-up and dissolution of the
Corporation (collectively referred to as “Parity Securities”), (ii) senior
to the Corporation’s Common Stock and each other class or series of capital
stock of the Corporation, the terms of which expressly provide that it ranks
junior to the Series A Preferred Stock as to dividend rights and rights on
liquidation, winding-up and dissolution of the Corporation (collectively
referred to as “Junior Securities”), and (iii) junior to each other class
or series of capital stock of the Corporation, the terms of which expressly
provide that it ranks senior to the Series A Preferred Stock as to dividend
rights and rights on liquidation, winding-up and dissolution of the Corporation
(collectively, referred to as “Senior Securities”). The Corporation has the
right to authorize and issue additional shares or classes or series of Junior
Securities, Parity Securities or Senior Securities without the consent of the
Holders.

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

       

      3.           Voting
Rights.  The Holders shall not be entitled to vote on any
matter except to the extent required by law.  On those matters on
which the Holders are entitled to vote, the Holders shall have the right to one
vote for each share of Series A Preferred Stock, shall be entitled to receive
notice of any shareholders meeting held to act upon such matters in accordance
with the Bylaws of the Corporation, and shall be entitled to vote in such manner
as provided by law.  Unless otherwise provided by law, the Holders
shall vote together with the holders of Common Stock as a single class, and not
as a separate class.

      

      
        	
                 
      

              	
                4.

              	
                Dividend
      Rights.

              

      

      

      (a)           From
and after the Effective Date, Holders shall be entitled to receive, when, as and
if declared by the Board of Directors, out of the funds legally available
therefor, non-cumulative cash dividends at an annual rate of 6.0% of the
Liquidation Preference (the “Dividends”).  Any Dividends will be
computed on the basis of a 360-day year of twelve 30-day months, and shall be
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year (each a “Dividend Payment Date”), or if any such day is not a
Business Day, on the first Business Day subsequent
thereto.   Each period from and including a Dividend Payment Date
to but excluding the following Dividend Payment Date is herein referred to as a
“Dividend Period.”

      

      (b)           Each
Dividend will be payable to Holders of record as they appear in the records of
the Corporation at the close of business on the fifteenth day of the month
preceding the month in which the relevant Dividend Payment Date occurs or, if
such date is not a Business Day, the first Business Day following such
date.

      

      (c)           Dividends
on the Series A Preferred Stock are non-cumulative. If the Board of Directors
does not declare a Dividend on the Series A Preferred Stock in respect of any
Dividend Period, the Holders will have no right to receive any Dividend for such
Dividend Period, and the Corporation will have no obligation to pay a Dividend
for such Dividend Period, whether or not Dividends are declared and paid for any
future Dividend Period with respect to the Series A Preferred Stock or the
Common Stock or any other class or series of the Corporation’s capital
stock.

      

      (d)           If
full Dividends payable pursuant to Subparagraph 4(a) on all outstanding shares
of the Series A Preferred Stock for any Dividend Period have not been declared
and paid, the Corporation shall not declare or pay dividends with respect to, or
redeem, purchase or acquire any of, its Junior Securities during the next
succeeding Dividend Period, other than (i) redemptions, purchases or other
acquisitions of Junior Securities in connection with any benefit plan or other
similar arrangement with or for the benefit of any one or more employees,
officers, directors or consultants or in connection with a dividend reinvestment
or shareholder stock purchase plan or (ii) any declaration of a dividend in
connection with any shareholders’ rights plan, including with respect to any
successor shareholders’ rights plan, or the issuance of rights, stock or other
property under any shareholders’ rights plan, including with respect to any
successor shareholders’ rights plan, or the redemption or repurchase of rights
pursuant thereto.  If Dividends payable pursuant to Subparagraph 4(a)
for any Dividend Period are not paid in full on the shares of the Series A
Preferred Stock and there are issued and outstanding shares of Parity Securities
with the same relevant payment date (or a payment date falling within the same
Dividend Period if the payment dates are not the same), then all dividends
declared on shares of the Series A Preferred Stock and such Parity Securities on
such date(s) shall be declared pro rata so that the respective amounts of such
dividends shall bear the same ratio to each other as full quarterly Dividends
per share payable on the shares of the Series A Preferred Stock pursuant to
Subparagraph 4(a) and all such Parity Securities otherwise payable on such
relevant payment date(s) (subject to their having been declared by the Board of
Directors out of legally available funds and including, in the case of any such
Parity Securities that bear cumulative dividends, all accrued but unpaid
dividends) bear to each other.

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      5.           Liquidation or
Dissolution.

      

      (a)           If
the Corporation voluntarily or involuntarily liquidates, dissolves or winds up,
the Holders at such time shall be entitled to receive, on a per share basis, the
Liquidation Preference, plus an amount equal to any declared but unpaid
dividends thereon to and including the date of such liquidation, dissolution or
winding up out of assets legally available for distribution to the Corporation’s
shareholders, before any distribution of assets is made to the holders of the
Common Stock or any other Junior Securities (such amount is herein referred to
as the “Liquidation Value”).

      

      (b)           To
the extent the payments required by Section 5(a) have been made in full to the
Holders and to holders of any Parity Securities, the remaining assets and funds
of the Corporation shall be distributed among the holders of the Junior
Securities, according to their respective rights and preferences and in each
case according to their respective shares.

      

      (c)           If
the assets of the Corporation available for distribution to shareholders upon
any liquidation, dissolution or winding-up of the affairs of the Corporation,
whether voluntary or involuntary, shall be insufficient to pay in full the
amounts payable with respect to all outstanding shares of the Series A Preferred
Stock as required by Section 5(a) and the corresponding amounts payable on any
Parity Securities, Holders and the holders of such Parity Securities shall share
ratably in any distribution of assets of the Corporation in proportion to the
full respective liquidating distributions to which they would otherwise be
respectively entitled.

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

       

      (d)           Neither
a change of control nor any purchase or redemption of stock of the Corporation
of any class shall be deemed to be a liquidation, dissolution or winding up of
the Corporation within the meaning of the provisions of this Section
5.

      

      6.           Maturity.  The
Series A Preferred stock shall be perpetual.

      

      7.           Repurchase
Provision.  Subject to regulatory approval and to such approval
as may be expressly required pursuant to the terms of any preferred stock issued
by the Corporation to and held by the U.S. Treasury, the Corporation shall have
the right to repurchase all or any part of the Series A Preferred Stock at any
time at a purchase price per share equal to the Liquidation
Value.  Any shares of Series A Preferred Stock that are
repurchased by the Corporation shall revert to authorized but unissued shares of
preferred stock (provided that any such cancelled shares of Series A
Preferred Stock may be reissued only as shares of any series of preferred stock
other than Series A Preferred Stock).

      

      8.           No Implied
Limitations.  Nothing herein shall limit, by inference or
otherwise, the discretionary right of the Board of Directors to divide any or
all of the shares of preferred stock of the Corporation into series and, within
the limitations set forth in the Georgia Business Corporate Code, to fix and
determine the relative rights and preferences of the shares of any series so
established, to the full extent provided in the Articles of Incorporation of the
Corporation.

      

      9.           General
Provisions.  In addition to the above provisions with respect
to the Series A Preferred Stock, such Series A Preferred Stock shall be subject
to, and entitled to the benefits of, the provisions set forth in the
Corporation’s Articles of Incorporation with respect to preferred stock
generally.

      

      10.           Definitions.  As
used herein with respect to the Series A Preferred Stock, the following terms
have the following meanings:

      

      (a)           The
term “Business Day” means any day other than a Saturday, Sunday or any other day
on which banks in Atlanta, Georgia are generally required or authorized by law
to be closed.

      

      (b)           The
term “Common Stock” has the meaning set forth in Section 2.

      

      (c)           The
term “Effective Date” means the effective date on which shares of the Series A
Preferred Stock are first designated in Articles of Amendment filed with the
Georgia Secretary of State pursuant to the provisions of O.C.G.A. §
14-2-602.

      

      (d)           The
term “Holder” means the Person in whose name the shares of the Series A
Preferred Stock are registered, which may be treated by the Corporation as the
absolute owner of the shares of Series A Preferred Stock for the purpose of
making payment and settling the related conversions and for all other
purposes.

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      

      (e)           The
term “Liquidation Preference” means, as to the Series A Preferred Stock, $1,000
per share.

      

      (f)           The
term “Person” means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint-stock company, limited
liability company or trust.

      

      11.           Notices.  All
notices required or permitted to be given by the Corporation with respect to the
Series A Preferred Stock shall be in writing, and if delivered by first class
United States mail, postage prepaid, to the Holders at their last addresses as
they shall appear upon the books of the Corporation, shall be conclusively
presumed to have been duly given, whether or not the Holder actually receives
such notice.”

      

      

      1.

      

      The
foregoing amendment was duly adopted by the Corporation’s Board of Directors on
December 20, 2008 and shall be effective upon filing with the Georgia Secretary
of State.  Shareholder approval was not required pursuant to the
provisions of Section 14-2-602 of the Georgia Business Corporation
Code.

      

      

      [Signature
appears on next page]

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

      IN WITNESS WHEREOF, the
Corporation has caused these Articles of Amendment to be signed by its duly
authorized officer this 29th day of December, 2008.

      

      
        
          	 
      	
                  HABERSHAM
      BANCORP

                
	 
      	 
      	 
      
	 
      	 
      	 
      
	 
      	
                  By:

                	
                  /s/ Edward D. Ariail

                
	 
      	 
      	
                  Edward
      D. Ariail

                
	 
      	 
      	
                  Vice
      President and Corporate

                
	 
      	 
      	
                  Secretary

                

        

      

       

       

      6

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