NONQUALIFIED STOCK OPTION AWARD
AGREEMENT
THIS NONQUALIFIED
STOCK OPTION AWARD AGREEMENT (this “ Agreement
”) is entered into this 1st day of June, 2009, between Callon
Petroleum Company, a Delaware corporation (the “
Company ”) and Steven B. Hinchman (“
Grantee ”), an employee of the Company. The
Compensation Committee of the Company (the “ Committee
”) has this day authorized the grant of the option set forth
below to Grantee.
NOW, THEREFORE, in
consideration of the mutual covenants herein contained, the parties
do hereby agree as follows:
1. Grant
of Option . Subject to all of the terms, conditions and
provisions of this Agreement, the Company hereby grants to Grantee
a nonqualified stock option (the “ Option ”)
pursuant to which Grantee shall have the right and option to
purchase from the Company all or any part of an aggregate of
500,000 shares of the common stock of the Company, $.01 par
value per share (the “ Common Stock ”), which
shares shall consist of authorized but unissued shares or issued
shares reacquired by the Company. The Option is intended to comply
with the provisions governing nonqualified stock options under the
final Treasury Regulations issued on April 17, 2007, in order
to exempt the Option from application of Section 409A of the
Internal Revenue Code of 1986, as amended (the “ Code
”).
2. Option
Price . The option or purchase price payable by Grantee to the
Company in exercise of the Option shall be $2.755 per share, being
the average opening and closing price of the Common Stock of the
Company on this date (the “ Grant Date ”). Upon
exercise of the Option, the Grantee shall pay to the Company, in
full, the option price for the shares of Common Stock issuable
pursuant to such exercise with cash or Common Stock (valued at fair
market value on the date of such exercise). For purposes of
exercise of the Option, fair market value shall mean the closing
price of the Common Stock of the Company on the date of
exercise.
3.
Vesting . Subject to paragraphs (4), (5), (6), (7), (8),
(9), and (10) hereof, Grantee shall be eligible to exercise
that portion of the Option becoming vested pursuant to the vesting
schedule set forth below:
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(a)
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166,666 of the gross option shares
on such date that the Company’s Common Stock closes above
$5.00 per share on the NYSE for a period of twenty
(20) consecutive trading days;
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(b)
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166,667 of the gross option shares
on such date that the Company’s Common Stock closes above
$10.00 per share on the NYSE for a period of twenty
(20) consecutive trading days; and
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(c)
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166,667 of the gross option shares
on such date that the Company’s Common Stock closes above
$15.00 per share on the NYSE for a period of twenty
(20) consecutive trading days.
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4. Change
in Control . Notwithstanding paragraph (3) hereof, upon a
Change in Control, all unvested portions of the Option shall
automatically vest. For purposes hereof, a “ Change in
Control ” shall have occurred if any of the following
occur:
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(a)
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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 fifty percent (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 fifty percent (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;
or
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(b)
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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 the date during any twelve
(12) month period when a majority of members of the Board of
Directors (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
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(c)
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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 twelve
(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 eighty percent
(80%) 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
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(immediately before the asset
transfer) in exchange for or with respect to the Company’s
stock; (ii) an entity, at least fifty percent (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 fifty percent (50%) of the
total value or voting power of the Company’s outstanding
stock; or (iv) an entity, at least fifty percent (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 fifty percent
(50%) of the total value or voting power of the Company’s
outstanding stock.
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For purposes of
this paragraph (4),
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(i)
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“ Person ” shall
have the meaning given in Section 7701(a)(1) of the Code.
Person shall include more than one Person acting as a group as
defined by the final Treasury Regulations issued under
Section 409A of the Code.
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(ii)
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“ Affiliate ”
shall have the meaning set forth in Rule 12b-2 promulgated
under Section 12 of the Securities Exchange Act of 1934, as
amended.
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The provisions of
this paragraph (4) shall be interpreted in accordance with the
requirements of the final Treasury Regulations issued under
Section 409A of the Code, it being the intent of the parties
that this paragraph (4) shall be in compliance with the
requirements of said Section of the Code and said
Regulations.
5.
Termination of Employment upon Death . Notwithstanding
paragraph (3) hereof, in the event Grantee’s employment
with the Company is terminated due to the death of Grantee, the
Option granted pursuant to this Agreement shall be deemed to be one
hundred percent (100%) vested on the date of death and may be
exercised by Grantee’s estate, or by a person who acquires
the right to exercise such Option by bequest or inheritance or by
reason of the death of Grantee, provided that such option exercise
occurs within the earlier of (i) the remaining term of the
Option under paragraph (12), and (ii) one (1) year after
Grantee’s death.
6.
Termination of Employment upon Disability or Retirement .
Notwithstanding paragraph (3) hereof, in the event Grantee’s
employment with the Company is terminated due to the Disability or
Retirement of Grantee, all unvested portions of the Option granted
pursuant to this Agreement shall automatically vest and become
freely exercisable. For purposes hereof, “ Disability
” of Grantee shall be the physical or mental inability of
Grantee to carry out the normal and usual duties of his employment
on a full-time basis for an entire period of six
(6) continuous months together with the reasonable likelihood
as determined by the Board (excluding Grantee) of the Company that
Grantee, upon the advice of a qualified physician, will be unable
to carry out the normal and usual duties of his employment. For
purposes hereof,
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“
Retirement ” shall be the voluntary termination of
employment from the Company on any date after Grantee attains the
normal retirement age of seventy (70) years.
7.
Termination of Employment for Good Reason . Notwithstanding
paragraph (3) hereof, in the event Grantee’s employment
with the Company is terminated for Good Reason, all unvested
portions of the Option shall automatically vest and shall be
exercisable until the earlier of (a) the remaining term of the
Option under paragraph (12), and (b) one (1) year
following the effective date of termination. For purposes hereof,
“ Good Reason ” shall mean: (i) Grantee is
assigned any responsibilities or duties materially inconsistent
with his position, duties, responsibilities and status with the
Company as in effect at the date of this Agreement or subsequent
thereto; or his title or offices as in effect at the date of this
Agreement or as Grantee may be appointed or elected by the Chief
Executive Officer or Board in the future are changed; or Grantee is
required to report to or be directed by any person other than the
Chief Executive Officer and the Board; (ii) there is a
reduction in the salary of Grantee (as such salary shall have been
increased from time to time) payable to Grantee; (iii) failure
by the Company or any successor to the Company or its assets to
continue to provide to Grantee any material benefit, bonus, profit
sharing, incentive, remuneration or compensation plan, stock
ownership or purchase plan, stock option plan, life insurance,
disability plan, pension plan or retirement plan in which Grantee
was entitled to participate in as at the date of this Agreement or
subsequent thereto, or the taking by the Company of any action that
materially and adversely affects Grantee’s participation in
or materially reduces his rights or benefits under or pursuant to
any such plan or the failure by the Company to increase or improve
such rights or benefits on a basis consistent with practices in
effect prior to the date of this Agreement or with practices
implemented subsequent to the date of this Agreement with respect
to the executive employees of the Company generally, whichever is
more favorable to Grantee, but excluding such action that is
required by law; (iv) without Grantee’s consent, the
Company requires Grantee to relocate to any city or community other
than one within a fifty (50) mile radius of Natchez, Mississippi or
Houston, Texas, except for required travel on the Company’s
business to an extent substantially consistent with Grantees’
business obligations under this Agreement; (v) a failure by
the Company to comply with any material provision of this Agreement
which has not been cured within ten (10) days after notice of
such noncompliance has been given by Grantee to the Company;
(vi) there is a Change in Control; or (vii) any purported
termination of Grantee’s employment with the Company which is
not effected pursuant to a Notice of Termination satisfying the
requirements of paragraph (11) hereof (and for purposes of
this Agreement, no such purported termination shall be
effective).
8.
Termination of Employment for Cause . Notwithstanding
paragraph (3) hereof, if Grantee’s employment is
terminated for “Cause,” upon written Notice of
Termination for Cause given by the Company to Grantee, the Option
granted hereunder shall terminate and Grantee shall no longer have
the right and option to purchase from the Company any vested or
unvested portion of the Option. As used herein, “
Cause ” shall mean any of the following events:
(i) willful misconduct
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or intentional
and continual neglect of duties which in the business judgment of
the Board (excluding Grantee) has materially adversely affected the
Company; provided, however, that Grantee shall have first received
written notice from such Board advising Grantee of the acts or
omissions that constitute the misconduct or neglect of duties, and
such misconduct or neglect of duties continues after Grantee shall
have had a reasonable opportunity to correct the same; (ii) the
commission by Grantee of an act of fraud or embezzlement;
(iii)&
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