Document:

exv10w5

 

EXHIBIT 10.5

Form of

NON-RECOURSE GUARANTY

     THIS NON-RECOURSE GUARANTY (this “Guaranty”), dated as of April 4, 2008, made by
CALLON PETROLEUM OPERATING COMPANY, a Delaware corporation (“Guarantor”), in favor of CIECO
ENERGY (ENTRADA) LLC, a Delaware limited liability company (“Lender”).

WITNESSETH:

     WHEREAS, pursuant to a Credit Agreement, dated as of April 4, 2008 (together with all
amendments and other modifications, if any, from time to time thereafter made thereto, the
“Credit Agreement”), between Callon Entrada Company, a Delaware corporation
(“Borrower”) and Lender, Lender has agreed to make Loans to Borrower in accordance with the
Credit Agreement; and

     WHEREAS, as a condition precedent to the making of the initial Loan under the Credit
Agreement, Guarantor is required to execute and deliver this Guaranty; and

     WHEREAS, it is in the best interests of Guarantor to execute this Guaranty inasmuch as
Guarantor will derive substantial direct and indirect benefits from the Loans made to Borrower by
Lender pursuant to the Credit Agreement;

     NOW THEREFORE, for good and valuable consideration the receipt of which is hereby
acknowledged, and in order to induce Lender to make the Loans to Borrower pursuant to the Credit
Agreement, Guarantor agrees, for the benefit of Lender, as follows:

ARTICLE I

DEFINITIONS

     Section 1.1. Certain Terms. The following terms (whether or not underscored) when used in this Guaranty, including its
preamble and recitals, shall have the following meanings (such definitions to be equally applicable
to the singular and plural forms thereof):

     “Borrower” is defined in the first recital.

     “Credit Agreement” is defined in the first recital.

     “Guaranteed Obligations” is defined in Section 2.1.

     “Guarantor” is defined in the preamble.

     “Guaranty” is defined in the preamble.

     “Lender” is defined in the preamble.

     “Solvent” means, with respect to any Person at any time, a condition under which (a)
the fair saleable value of such Person’s assets is, on the date of determination, greater than the
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amount of such Person’s liabilities (including contingent and unliquidated liabilities) at
such time; (b) such Person is able to pay all of its liabilities as such liabilities mature; and
(c) such Person does not have unreasonably small capital with which to conduct its business. For
purposes of this definition (i) the amount of a Person’s contingent or unliquidated liabilities at
any time shall be that amount which, in light of all the facts and circumstances then existing,
represents the amount which can reasonably be expected to become an actual or matured liability;
(ii) the “fair saleable value” of an asset shall be the amount which may be realized within a
reasonable time either through collection or sale of such asset at its regular market value; and
(iii) the “regular market value” of an asset shall be the amount which a capable and diligent
business person could obtain for such asset from an interested buyer who is willing to purchase
such asset under ordinary selling conditions.

     “Taxes” is
defined in clause (a) of Section 2.8.

     “U.C.C.” means the Uniform Commercial Code as in effect in the State of Texas.

     Section 1.2. Credit Agreement Definitions. Unless otherwise defined herein or the context otherwise requires, terms used in this
Guaranty, including its preamble and recitals, have the meanings provided in the Credit Agreement.

     Section 1.3. U.C.C. Definitions. Unless otherwise defined herein or the context otherwise requires, terms for which meanings
are provided in the U.C.C. are used in this Guaranty, including its preamble and recitals, with
such meanings.

ARTICLE II

GUARANTY PROVISIONS

     Section 2.1. Guaranty. Guarantor hereby absolutely, unconditionally and irrevocably (all of the following
guaranteed and indemnified obligations being collectively called the “Guaranteed
Obligations”)

     (a) guarantees the full and punctual payment when due, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or otherwise, of all Obligations of
Borrower now or hereafter existing under the Credit Agreement, the Note, and each other Loan
Document, whether for principal, interest, fees, expenses or otherwise, and all other
obligations of Borrower to Lender, howsoever created, arising or evidenced, whether direct
or indirect, absolute or contingent or now or hereafter existing or due or to become due
(including in all cases all such amounts which would become due but for the operation of the
automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. §362(a),
and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11
U.S.C. §502(b) and §506(b)); and

     (b) indemnifies and holds harmless Lender and any holder of the Note for any and all
costs and expenses (including reasonable attorney’s fees and expenses) incurred by Lender or
such holder, as the case may be, in enforcing any rights under this Guaranty;
PROVIDED THAT IT IS THE INTENTION OF GUARANTOR THAT THIS INDEMNIFICATION APPLY IN
THE CASE OF THE ORDINARY NEGLIGENCE OF LENDER OR ANY HOLDER OF THE NOTE BUT GUARANTOR SHALL
HAVE

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NO OBLIGATION HEREUNDER TO THE EXTENT THAT SUCH COSTS AND EXPENSES ARISE FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE LENDER OR ANY HOLDER OF THE NOTE;

This Guaranty constitutes a guaranty of payment when due and not of collection, and Guarantor
specifically agrees that it shall not be necessary or required that Lender or any holder of the
Note exercise any right, assert any claim or demand or enforce any remedy whatsoever against
Borrower (or any other Person) before or as a condition to the obligations of Guarantor hereunder.

     Section 2.2. Acceleration of Guaranty. Guarantor agrees that in the event of the death, incompetency, or dissolution or insolvency
of Guarantor, or an assignment by Guarantor for the benefit of creditors, or the commencement of
any case or proceeding in respect of Guarantor under any bankruptcy, insolvency or similar laws,
and if such event shall occur at a time when any of the Guaranteed Obligations may not then be due
and payable, Guarantor will pay to Lender forthwith the full amount which would be payable
hereunder by Guarantor if all such Guaranteed Obligations were then due and payable.

     Section 2.3. Guaranty Absolute, etc. Except as otherwise provided for in this Guaranty, this Guaranty shall in all respects be a
continuing, absolute, unconditional and irrevocable guaranty of payment, and shall remain in full
force and effect until all Guaranteed Obligations have been paid in full, all obligations of
Guarantor hereunder shall have been paid in full and all the obligations of Borrower pursuant to
the Credit Agreement, the Note and the other Loan Documents shall have been paid in full and
terminated. Guarantor guarantees that the Guaranteed Obligations will be paid strictly in
accordance with the terms of the Credit Agreement and each other Loan Document under which they
arise, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of Lender or any holder of the Note with respect thereto.
The liability of Guarantor under this Guaranty shall be absolute, unconditional and irrevocable
irrespective of: (a) any lack of validity, legality or enforceability of the Credit Agreement, the
Note or any other Loan Document; (b) the failure of Lender or any holder of the Note (i) to assert
any claim or demand or to enforce any right or remedy against Borrower or any other Person
(including any other guarantor) under the provisions of the Credit Agreement, the Note, any other
Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor of,
or collateral securing, any Guaranteed Obligations; (c) any change in the time, manner or place of
payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other
extension, compromise or renewal of any Guaranteed Obligation; (d) any reduction, limitation,
impairment or termination of any Guaranteed Obligations for any reason, including
any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to
(and Guarantor hereby waives any right to or claim of) any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness,
irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any
Guaranteed Obligations; (e) any amendment to, rescission, waiver, or other modification of, or any
consent to departure from, any of the terms of the Credit Agreement, the Note or any other Loan
Document; (f) any addition, exchange, release, surrender or non-perfection of any collateral, or
any amendment to or waiver or release or addition of, or consent to departure from, any other
guaranty, held by Lender or any holder of the Note securing any of the Guaranteed Obligations; or
(g) any other

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circumstance which might otherwise constitute a defense available to, or a legal or
equitable discharge of, Borrower, any surety or any guarantor.

     Section 2.4. Reinstatement, etc. Guarantor agrees that this Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment (in whole or in part) of any of the Guaranteed Obligations
is rescinded or must otherwise be restored by Lender or any holder of the Note, upon the
insolvency, bankruptcy or reorganization of Borrower or otherwise, as though such payment had not
been made.

     Section 2.5. Waiver, etc. Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice
with respect to any of the Guaranteed Obligations and this Guaranty and any requirement that Lender
or any holder of the Note protect, secure, perfect or insure any security interest or Lien, or any
property subject thereto, or exhaust any right or take any action against Borrower or any other
Person (including any other guarantor) or entity or any collateral securing any Guaranteed
Obligations.

     Section 2.6. Waiver of Subrogation. Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter
acquire against Borrower that arise from the existence, payment, performance or enforcement of
Guarantor’s obligations under this Guaranty or any other Loan Document, including any right of
subrogation, reimbursement, exoneration, or indemnification, any right to participate in any claim
or remedy of Lender against Borrower or any collateral which Lender now has or hereafter acquires,
whether or not such claim, remedy or right arises in equity, or under contract, statute or common
law, including the right to take or receive from Borrower, directly or indirectly, in cash or other
property or by set-off or in any manner, payment or security on account of such claim or other
rights. If any amount shall be paid to Guarantor in violation of the preceding sentence and the
Guaranteed Obligations shall not have been paid in cash in full and all the obligations of Borrower
pursuant to the Credit Agreement, the Note and the other Loan Documents shall not have been
terminated, such amount shall be deemed to have been paid to Guarantor for the benefit of, and held
in trust for, Lender, and shall forthwith be paid to Lender to be credited and applied upon the
Guaranteed Obligations, whether matured or unmatured. Guarantor acknowledges that it will receive
direct and indirect benefits from the financing arrangements contemplated by the Credit Agreement and that the waiver set forth in
this Section is knowingly made in contemplation of such benefits.

     Section 2.7. Successors, Transferees and Assigns; Transfers of Note, etc. This Guaranty shall: (a) be binding upon Guarantor, and its successors, transferees and
assigns; and (b) inure to the benefit of and be enforceable by Lender, any holder of the Note and
each of their respective successors, transferees and assigns. Without limiting the generality of
the foregoing clause (b), Lender may assign or otherwise transfer (in whole or in part) the Note
held by it to any other Person or entity, and such other Person or entity shall thereupon become
vested with all rights and benefits in respect thereof granted to Lender under any Loan Document
(including this Guaranty) or otherwise.

     Section 2.8. Payments Free and Clear of Taxes, etc. Guarantor hereby agrees that:

     (a) All payments by Guarantor hereunder shall be made in accordance with the Credit
Agreement free and clear of and without deduction for any present or future

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income, excise,
stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any
nature whatsoever imposed by any taxing authority, but excluding franchise taxes and taxes
imposed on or measured by Lender’s net income or receipts (such non-excluded items being
called “Taxes”). In the event that any withholding or deduction from any payment to
be made by Guarantor hereunder is required in respect of any Taxes pursuant to any
applicable law, rule or regulation, then Guarantor will (i) pay directly to the relevant
authority the full amount required to be so withheld or deducted, (ii) promptly forward to
Lender an official receipt or other documentation satisfactory to Lender evidencing such
payment to such authority, and (iii) pay to Lender such additional amount or amounts as is
necessary to ensure that the net amount actually received by Lender will equal the full
amount Lender would have received had no such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against Lender with respect to any payment
received by Lender hereunder, Lender may pay such Taxes and Guarantor will promptly pay such
additional amounts (including any penalties, interest or expenses) as is necessary in order
that the net amount received by Lender after the payment of such Taxes (including any Taxes
on such additional amount) shall equal the amount Lender would have received had not such
Taxes been asserted.

     (b) If Guarantor fails to pay any Taxes when due to the appropriate taxing authority or
fails to remit to Lender the required receipts or other required documentary evidence,
Guarantor shall indemnify Lender for any incremental Taxes, interest or penalties that may
become payable by Lender as a result of any such failure.

     (c) Without prejudice to the survival of any other agreement of Guarantor hereunder,
the agreements and obligations of Guarantor contained in this Section 2.8 shall
survive the payment in full of the principal of and interest under the Note and any other
Guaranteed Obligations.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

     Guarantor hereby represents and warrants unto Lender as set forth in this Section (i) as of
the date of this Agreement, (ii) on the date, and both before and after giving effect to the making
of any Loan, and (iii) on the date of delivery of the financial information required pursuant to
Section 7.1.1(c) of the Credit Agreement, as follows:

     Section 3.1. Organization. Guarantor is a corporation duly incorporated and is validly existing and in good standing
under the laws of the state of its incorporation; and the Guarantor is duly qualified and in good
standing as a foreign corporation in each jurisdiction where, because of the nature of its
activities or properties, such qualification is required and where the failure so to qualify would
have a material adverse effect on the financial condition, business, operations and prospects of
the Guarantor.

     Section 3.2. Due Authorization. Guarantor has the full legal power, right and capacity to enter into and perform this
Guaranty and the other Loan Documents. The consummation of the transactions contemplated by this
Guaranty and the other Loan Documents are within Guarantor’s power, have received all necessary
corporate, governmental and other approvals,

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exemptions, authorizations, licenses and permits (if
any shall be required), and (a) do not and will not contravene or conflict with any provision of
the articles of incorporation or bylaws of Guarantor; (b) do not and will not contravene or
conflict with any provision of any law, rule, regulation, order, writ, judgment, decree,
determination or award presently in effect having applicability to Guarantor, and (c) do not and
will not result in the breach or termination of any provision of, or constitute a default under,
any indenture, mortgage, deed of trust or other agreement or instrument to which Guarantor is a
party or by which Guarantor or its properties may be bound, including, without limitation, any
confidentiality agreement or restrictions or disclosure of information.

     Section 3.3. Validity and Binding Nature. This Guaranty and any other Loan Documents to which it is party have been duly executed and
delivered and constitute the legal, valid and binding obligations of Guarantor, enforceable against
Guarantor in accordance with their terms, except as enforcement thereof may be limited by
bankruptcy, insolvency and similar laws applicable to creditors generally.

     Section 3.4. No Consent. No authorization, consent or approval, or any formal exemption, of any governmental body or
regulatory authority (federal, state or local) is or will be necessary to the valid execution,
delivery or performance by Guarantor of this Guaranty or any other Loan Documents to which it is
party.

     Section 3.5. Notice of Default. As of the Effective Date, Guarantor has not received any notice of default and is not in
default in any material respect under and has not breached in any material respect (i) any order,
writ, injunction or decree of any court or of any commission or other administrative agency, or
(ii) any material agreement or material contract or obligation to which Guarantor is a party or by
which Guarantor is bound, or to which Guarantor may be subject, or affecting the Subject Interests
or any portion thereof.

     Section 3.6. Pending Litigation. Except as set forth on Schedule II to the Credit Agreement, there are no actions, suits or
proceedings by or before any court, arbitrator or any governmental commission, board, bureau or
other administrative agency pending, or to the knowledge of Guarantor threatened, against Borrower
or Guarantor or any of the Subject Interests, which could reasonably be expected to have a Material
Adverse Effect or which purports to affect the legality, validity or enforceability of this
Guaranty or any of the other Loan Documents.

     Section 3.7. Compliance. Guarantor has complied in all material respects with all applicable statutes, rules,
regulations, orders and restrictions of any domestic or foreign government or any instrumentality
or agency thereof, having jurisdiction over the conduct of its businesses or any of its properties.
As of the Effective Date, Guarantor has not received any notice to the effect that Borrower and
its Subsidiaries or Guarantor, their operations or their properties, including, but not limited to,
the Subject Interests, are not in compliance with any of the requirements of applicable
Environmental Laws, or are the subject of any federal or state investigations evaluating whether
any remedial action is needed to respond to a Release of any Hazardous Material, whether from their
properties, including, but not limited to, the Subject Interests, or elsewhere.

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     Section 3.8. Representation with Respect to True and Complete Disclosure. All material factual information heretofore or contemporaneously furnished by or on behalf
of Guarantor to Lender for purposes of or in connection with this Guaranty or the other Loan
Documents or any transaction contemplated hereby or thereby, including, but not limited to, factual
data supporting any reserve reports and financial statements, is, true, correct and accurate in all
material respects on the date as of which such information is dated or certified and does not
contain any material misstatement of fact or omit to state a material fact or any fact necessary to
make the statements contained therein not misleading, and all estimated material so furnished was
prepared on the basis of assumptions, data, information, tests or conditions believed to be valid
or accurate or to exist at the time such material was prepared and so furnished.

     Section 3.9. SECTION 3.8 Ownership. As of the date hereof, Guarantor is the legal and beneficial direct owner of one hundred
percent (100%) of the outstanding ownership interests of Borrower, free and clear of all liens,
security interests, options or other charges or encumbrances.

     Section 3.10. Solvency. After giving effect to the Loan under the Credit Agreement, Guarantor is Solvent.

ARTICLE IV

COVENANTS, ETC.

     Guarantor covenants and agrees that, so long as any portion of the Guaranteed Obligations
shall remain unpaid or so long as any portion of the obligations of Borrower pursuant to the Credit
Agreement, the Note and the other Loan Documents shall not have been terminated, Guarantor will,
unless Lender shall otherwise consent in writing, perform the obligations set forth in this Article
IV.

     Section 4.1. Other Agreements. Guarantor will not enter into any agreement containing any provision which would be
violated or breached by the performance of its obligations hereunder or under any instrument or
document delivered or to be delivered by Guarantor hereunder or in connection herewith.

     Section 4.2. Certain Notices. During the term hereof, Guarantor will not change its name, identity, principal place of
business without notifying Lender of any such change at least 30 days prior to the effective date
of such change.

     Section 4.3. Further Assurances. Guarantor and Lender will execute and deliver all such other and additional instruments,
notices, releases and other documents and will do all such other acts and things as may be
necessary or appropriate more fully to evidence the intent of the parties hereunder.

     Section 4.4. Ownership of Borrower. Guarantor will maintain direct ownership of no less than one hundred percent (100%) of the
outstanding ownership interests of Borrower or any successor company by merger, free and clear of
all liens, security interests, options or other charges or encumbrances other than Liens in favor
of Lender under the Loan Documents.

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     Section 4.5. Notice of Default. Guarantor shall furnish or cause to be furnished to Lender copies of the following
information: any notice of Guarantor’s default or breach in any material respect under (i) any
order, writ, injunction or decree of any court or of any commission or other administrative agency,
or (ii) any material agreement or material contract or obligation to which Guarantor is a party or
by which Guarantor is bound, or to which Guarantor may be subject, or affecting the Subject
Interests or any portion thereof.

ARTICLE V

MISCELLANEOUS PROVISIONS

     Section 5.1. Loan Document. This Guaranty is a Loan Document executed pursuant to the Credit Agreement and shall
(unless otherwise expressly indicated herein) be construed, administered and applied in accordance
with the terms and provisions thereof.

     Section 5.2. Binding on Successors, Transferees and Assigns; Assignment of Guaranty. In addition to, and not in limitation of, Section 2.7, this Guaranty shall be binding upon
Guarantor and its successors, transferees and assigns and shall inure to the benefit of and be
enforceable by Lender and any holder of the Note and their respective successors, transferees and
assigns (to the full extent provided pursuant to Section 2.7); provided, however, that Guarantor
may not assign any of its obligations hereunder without the prior written consent of Lender and any
holder of the Note.

     Section 5.3. Amendments, etc. No amendment to or waiver of any provision of this Guaranty, nor consent to any departure
by Guarantor herefrom, shall in any event be effective unless the same shall be in writing and
signed by Guarantor and Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.

     Section 5.4. Notices. All notices and other communications hereunder to Guarantor shall be in writing or by
facsimile and addressed, delivered or transmitted to such party at its address or facsimile number
set forth below its signature hereto or at such other address, or facsimile number as may be
designated by such party in a notice to the other parties. Any notice or other communication shall
be effective (i) if given by facsimile transmission, when transmitted to the facsimile number
specified on the signature page hereof and confirmation of receipt is received (the receipt
thereof shall be deemed to have been acknowledged upon the sending Party’s receipt of its facsimile
machine’s confirmation of successful transmission; provided that if the day on which such facsimile
is received in not a Business Day or is after 4:00 p.m. on a Business Day, then the receipt of such
facsimile shall be deemed to have been acknowledged on the next following Business Day), (ii) if
given by mail, three (3) Business Days after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when
delivered (or, in the case of electronic transmission, received) at the address specified on the
signature page hereof; except that notices to the Lender shall not be effective until received by
the Lender.

     Section 5.5. No Waiver; Remedies. In addition to, and not in limitation of, Section 2.3 and Section 2.5, no failure on the
part of Lender or any holder of the Note to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or

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partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of any other right.
The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

     Section 5.6. Section Captions. Section captions used in this Guaranty are for convenience of reference only, and shall not
affect the construction of this Guaranty.

     Section 5.7. Setoff. In addition to, and not in limitation of, any rights of Lender or any holder of the Note
under applicable law, Lender and each such holder shall, upon the occurrence of any Default
described in Section 8.1.3 of the Credit Agreement or any Event of Default, have the right to
appropriate and apply to the payment of the obligations of Guarantor owing to it hereunder, whether
or not then due, and Guarantor hereby grants to Lender and each such holder a continuing security
interest in, any and all balances, credits, deposits, accounts or moneys of Guarantor then or
thereafter maintained with Lender or such holder and any and all property of every kind or
description of or in the name of Guarantor now or hereafter, for any reason or purpose whatsoever,
in the possession or control of, or in transit to, Lender, such holder or any agent or bailee for
Lender or such holder.

     Section 5.8. Severability. Wherever possible each provision of this Guaranty shall be interpreted in such manner as to
be effective and valid under applicable law, but if any provision of this Guaranty shall be
prohibited by or invalid under such law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision or the remaining
provisions of this Guaranty.

     Section 5.9. Governing Law, Entire Agreement, etc. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH INTERNAL LAWS OF THE
STATE OF TEXAS. THIS GUARANTY AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING
AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR
AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.

     Section 5.10. Forum Selection And Consent To Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY
OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL
OR WRITTEN) OR ACTIONS OF LENDER OR GUARANTOR SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE
COURTS OF THE STATE OF TEXAS OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY PROPERTY MAY
BE BROUGHT, AT LENDER’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH PROPERTY MAY BE FOUND. GUARANTOR HEREBY
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND OF
THE UNITED STATES DISTRICT COURT FOR THE STATE OF TEXAS FOR THE PURPOSE OF ANY SUCH LITIGATION AS
SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH SUCH LITIGATION. GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE

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OF PROCESS BY
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF TEXAS.
GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. TO THE EXTENT THAT GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY
FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE,
ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF
OR ITS PROPERTY, GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS
UNDER THIS GUARANTY.

     Section 5.11. WAIVER OF JURY TRIAL. GUARANTOR AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR
IN CONNECTION WITH, THIS GUARANTY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF LENDER OR GUARANTOR. GUARANTOR ACKNOWLEDGES AND AGREES THAT IT
HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR LENDER ENTERING INTO THE CREDIT AGREEMENT. LENDER ACKNOWLEDGES AND AGREES
THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION.

     Section 5.12. No Oral Agreements. THIS WRITTEN GUARANTY TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

     THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

     Section 5.13. Non-Recourse Nature of Guaranty; Assignment. Notwithstanding the terms
and provisions of this Guaranty or any other Loan Document, Guarantor shall not have any
liability for any of the Guaranteed Obligations, except for (i) the rights and remedies of
Lender with respect to the “Collateral” as defined in and pursuant to the Pledge Agreement and
applicable law, (ii) the rights and remedies of Lender with respect to the “Mortgaged Property” as
defined in and pursuant to the Mortgage executed by Guarantor in favor of Lender and applicable
law, and (iii) any liability of Guarantor hereunder or under applicable law as a result of any
breach of or failure to observe or comply with any of its covenants, representations, warranties
and other obligations arising under this Guaranty, the Pledge Agreement or such Mortgage; and
Lender, for itself and on behalf of its successors and assigns and their respective Affiliates,
hereby acknowledges and agrees that it shall have no claim against Guarantor for any Guaranteed
Obligations except as set forth in the immediately preceding clauses (i), (ii) and (iii).

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Notwithstanding anything to the contrary in this Guaranty or any other Loan Document, Guarantor
shall perform all acts necessary to effectuate the acknowledgement by MMS of the assignment and
conveyance of the Mortgaged Property to Borrower in accordance with Section 7.1.15(e) of the Credit
Agreement. Upon receipt by the Lender of satisfactory evidence, in its reasonable discretion, of
the recognition and acknowledgement by the MMS of the assignment and conveyance of the Mortgaged
Property from Guarantor to the Borrower, Lender agrees to promptly terminate this Guaranty.

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

11

 

     IN WITNESS WHEREOF, Guarantor has duly executed and delivered this Guaranty as of the date
first above written.

	 	 	 	 	 
	 	 	 
	 	                                              /s/ CALLON PETROLEUM OPERATING COMPANY, as Guarantor
 	 
	 	 	 
	 	 	 
	 

12exv10w6

 

Exhibit 10.6

Execution Copy

AMENDMENT NO. 3

     This Amendment No. 3 dated as of April 4, 2008 (“Amendment”) is among Callon Petroleum
Company, a Delaware corporation (“Borrower”), the Lenders, and Union Bank of California,
N.A., as administrative agent (“Administrative Agent”).

INTRODUCTION

     A. The Borrower, the Lenders, and the Administrative Agent are parties to the Amended and
Restated Credit Agreement dated as of August 30, 2006, as amended by Amendment No. 1 dated as of
April 18, 2007 and Amendment No. 2 dated as of December 31, 2007 (“Credit Agreement”).

     B. The Borrower has requested and the Majority Lenders have agreed to make certain amendments
to the Credit Agreement.

     THEREFORE, the Borrower, the Majority Lenders and the Administrative Agent hereby agree as
follows:

     Section 1. Definitions. Unless otherwise defined in this Amendment, each term used in
this Amendment that is defined in the Credit Agreement has the meaning assigned to such term in the
Credit Agreement.

     Section 2. Amendments.

     (a) Section 1.02 of the Credit Agreement is hereby amended as follows:

          (i) The definitions of the terms “Entrada Entity” and “Permitted Entrada Transaction” are
hereby amended and restated, in their respective entireties, to read as follows:

“Entrada Entity” means Callon Entrada Company, a Delaware corporation.

“Permitted Entrada Transaction” means (i) the sale, conveyance and
assignment by the Borrower or any of its Subsidiaries of a portion of the Entrada
Assets to CIECO in accordance with the terms of the CIECO PSA and the other CIECO
PSA Documents, (ii) the contribution by the Borrower and/or CPOC of all or any
portion of its remaining ownership interests in the Entrada Assets to the Entrada
Entity, which contribution may occur either prior to, contemporaneously with or
after the sale, conveyance and assignment contemplated in the immediately preceding
clause (i), which Entrada Entity and/or its assets may be managed or operated under
one or more management services agreements, contract operating agreements or similar
agreements with the Borrower or any of its Subsidiaries, including, without
limitation, CPOC, (iii) the incurrence by the Entrada Entity of Debt, the proceeds
of which are to be used to fund the costs and expenses incurred to develop and/or
produce its interests in the Entrada Assets pursuant to and in accordance with the
CIECO Credit Agreement and the other CIECO Loan Documents, (iv) the granting of
Liens on (w) the Entrada Assets, (x) all other
assets of the Entrada Entity, (y) the equity interests of the Entrada Entity, and/or
(z) any segregated deposit accounts established and maintained by Borrower or any of
its Subsidiaries to hold only loan proceeds of such Debt pending

 

 

disbursement and/or
any revenues and proceeds of production or other amounts attributable to the Entrada
Assets or the Entrada Entity, in each case to secure such Debt, and (v) the
contribution or advance by the Borrower or any of its other Subsidiaries of
additional cash or other assets to the Entrada Entity from time to time not to
exceed, in the aggregate at any time outstanding, the greater of (x) the aggregate
amount of dividends, distributions or repayment of advances made by the Entrada
Entity to the Borrower or any of its other Subsidiaries net of any outstanding
contributions or advances previously made under this clause (v), and (y)
$10,000,000, and (vi) the indemnification of any Person against loss from the
failure of the Entrada Entity to comply with, or the guarantee of performance by the
Entrada Entity of, certain of its obligations arising under or related to the
documents and agreements evidencing or governing its Debt or relating to the
development and operations of its assets (other than the obligation of the Entrada
Entity to repay the principal and interest of the Debt described in clause (iii) of
this definition) by the Borrower or any of its other Subsidiaries in accordance with
the terms of the CIECO Loan Documents.”

          (ii) The following new definitions will be added in correct alphabetical order therein as
follows:

“CIECO” means CIECO Energy (Entrada) LLC, a Delaware limited liability
company.

“CIECO Credit Agreement” means that certain Credit Agreement executed by the
Entrada Entity and CIECO in connection with the consummation of the transactions
contemplated by the CIECO PSA, as the same may be modified or amended from time to
time to the extent permitted herein.

“CIECO Loan Documents” means the CIECO Credit Agreement and all promissory
notes, mortgages, security agreements, financing statements, and other documents,
agreements and instruments entered into in connection therewith or relating thereto.

“CIECO PSA” means that certain Purchase and Sale Agreement dated as of
February 7, 2008 between CPOC and CIECO Energy (US) Ltd., as the same may be from
time to time amended, supplemented, restated or otherwise modified and in effect to
the extent permitted herein.

“CIECO PSA Documents” means any and all documents, instruments and
agreements entered into and/or delivered in connection with or relating to the
CIECO PSA and the transactions contemplated thereby as the same may be from time to
time amended, supplemented, restated or otherwise modified and in effect to the
extent permitted herein.

     (b) Section 9.03(j) of the Credit Agreement is hereby amended in its entirety to read as
follows:

“in addition to the contribution, transfer and conveyance of all or a
portion of the Entrada Assets to the Entrada Entity, cash investments,
loans,

2

 

advances, or contribution of assets or property made by the Borrower
or any Guarantor in or to the Entrada Entity in an amount not to exceed an
aggregate amount equal to that described in clause (v) of the definition of
Permitted Entrada Transaction in Section 1.02 of this Agreement; provided
that, at the request of the Borrower, Majority Lenders may, in their sole
discretion, increase such amount; and”

     (c) Section 9.24 of the Credit Agreement is hereby amended in its entirety as follows:

          “Section 9.24 CIECO Loan Documents.

     (a) The Borrower shall not, and shall cause the Entrada Entity to not, make any
optional termination or reduction of the aggregate Commitment (as defined in the
CIECO Credit Agreement) other than in accordance with the terms and conditions
thereof.

     (b) The Borrower will not amend, supplement or otherwise modify any of the CIECO Loan
Documents without the prior written consent of the Administrative Agent and the Majority
Banks if the effect of such amendment, supplement or modification would (A) shorten the
final maturity date of such Debt or any other scheduled date for the payment of principal,
interest or other sums payable in respect of such Debt, (B) increase the maximum principal
amount of such Debt to an amount that exceeds $175,000,000, (C) impose rates of interest
(other than imposing the default rate as provided for in the CIECO Loan Documents),
prepayment charges, premiums, closing fees or other fees or other amounts that are
materially greater than the respective amounts thereof in effect immediately prior to such
amendment, modification or supplement, or (C) impose any representations, warranties,
covenants, conditions, mandatory prepayments, events of default, remedies or other
provisions that are materially more restrictive or burdensome than the terms and provisions
of the CIECO Loan Documents as in effect on the date hereof.

     (d) The last sentence of Section 8.09(a) of the Credit Agreement is hereby amended and
restated, in its entirety, as follows:

     “Notwithstanding the foregoing, (i) none of the Borrower’s or any of its
Subsidiaries’ ownership interest in and to Medusa Spar, LLC shall be part of the
collateral security for the Obligations and (ii) none of the Borrower’s or any of
its Subsidiaries’ ownership in and to (A) the Entrada Field or related equipment,
accounts receivable, deposit accounts, contracts, general intangibles or other
assets (collectively, the “Entrada Assets”) or (B) any equity interests of
the Entrada Entity or any Subsidiary of the Entrada Entity (for so long as the
Entrada Entity or such Subsidiary of the Entrada Entity does not own any material or
significant asset other than Entrada Assets) shall be collateral security for the
Obligations unless the Borrower has notified the Administrative Agent, in writing,
that it has elected to include such Entrada Assets or any other assets owned by such
Entrada Entity as a portion of the Borrowing Base.”

3

 

     (e) Section 8.12(c) of the Credit Agreement is hereby amended and restated, in its entirety,
to read as follows:

     “(c) On or before April 11, 2008, the Borrower shall have closed on the
purchase and sale agreement, farmout agreement, joint exploration or development or
similar agreement referenced in clause (b) above.”

     Section 3. Representations and Warranties. The Borrower represents and warrants that
(a) the execution, delivery and performance of this Amendment are within the corporate power and
authority of the Borrower and have been duly authorized by appropriate proceedings, (b) the Liens
under the Security Instruments are valid and subsisting and secure the Borrower’s obligations under
the Credit Agreement as amended hereby, (c) this Amendment constitutes the legal, valid, and
binding obligation of the Borrower, enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights
of creditors generally and general principles of equity, (d) the representations and warranties of
the Borrower contained in the Loan Documents are true and correct as of the date hereof, except as
otherwise previously disclosed to the Administrative Agent, and (e) no Default or Event of Default
has occurred and is continuing as of the date hereof.

     Section 4. Reaffirmation of Guaranty. Each Guarantor hereby ratifies, confirms, and
acknowledges that its obligations under the Guaranty Agreement are in full force and effect and
that each Guarantor continues to unconditionally and irrevocably, jointly and severally, guarantee
the full and punctual payment, when due, whether at stated maturity or earlier by acceleration or
otherwise, all of the Obligations (subject to the terms of the Guaranty Agreement), as such
Obligations may have been amended by this Amendment. Each Guarantor hereby acknowledges that its
execution and delivery of this Amendment does not indicate or establish an approval or consent
requirement by the Guarantors under the Guaranty Agreement in connection with the execution and
delivery of amendments to the Credit Agreement, the Notes or any of the other Loan Documents.

     Section 5. Effectiveness. The Credit Agreement shall be amended as provided in this
Amendment on the date first set forth above when:

     (a) the Administrative Agent shall have received this Amendment duly executed by the Borrower,
the Majority Lenders and the Administrative Agent thereto; and

     (b) the initial transactions contemplated by the CIECO PSA and the CIECO Credit Agreement
shall have been consummated (including, without limitation, the termination of the ML Loan
Documents, repayment of all amounts owed by Borrower with respect thereto, and release of all Liens
securing the obligations and indebtedness of Borrower thereunder) and the Borrower shall have
delivered to the Administrative Agent a copy of the CIECO PSA, the initial material CIECO PSA
Documents, the CIECO Credit Agreement and the initial material CIECO
Loan Documents, each in form and substance reasonably acceptable to the Administrative Agent
and the Majority Lenders.

4

 

     Section 6. Choice of Law. This Amendment shall be governed by, and construed and
enforced in accordance with, the laws of the State of Texas.

     Section 7. Counterparts. This Amendment may be signed in any number of separate
counterparts (including facsimile transmission), all of which when taken together shall be deemed
to be an original.

     This written agreement and the Loan Documents, as defined in the Credit Agreement,
represent the final agreement among the parties and may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements of the parties. 

     There are no unwritten oral agreements between the parties.

[Remainder of this page intentionally left blank. Signature page follows.] 

5

 

Executed as of the date first written above.

	 	 	 	 	 
	 	/s/ CALLON PETROLEUM COMPANY

 	 
	 	 	 
	 	 	 
	 	 	 

6

 

	 	 	 	 	 
	 	/s/ UNION BANK OF CALIFORNIA, N.A.,

as Lender and Administrative Agent

 	 
	 	 	 
	 	 	 
	 	 	 

7

 

	 	 	 	 	 
	 	/s/ GUARANTY BANK,

as Lender and Syndication Agent

 	 
	 	 	 
	 	 	 
	 	 	 

8

 

	 	 	 	 	 
	 	/s/ NATIXIS,

as Lender

 

9

 

	 	 	 	 	 

	 	 	 	 	 
	 	For Purposes of Section 4 Only.

GUARANTORS:

/s/ CALLON PETROLEUM OPERATING COMPANY

 
	 

	 	 	 	 	 
	 	/s/ CALLON OFFSHORE PRODUCTION, INC.

 
	 

	 	 	 	 	 
	 	/s/ MISSISSIPPI MARKETING, INC.

 	 
	 	 	 
	 	 	 
	 	 	 
	 

10

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