UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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Callon Petroleum Company

(Name of Registrant as Specified In Its Charter)

 

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CALLON PETROLEUM COMPANY
200 NORTH CANAL STREET
NATCHEZ, MISSISSIPPI 39120

NOTICE OF THE 2009 ANNUAL MEETING OF SHAREHOLDERS

     To Our Shareholders:

     Notice is hereby given and you are cordially invited to attend the 2009 Annual Meeting of Shareholders of the Company which will be held in Natchez, Mississippi, on Thursday, April 30, 2009, at 9:00 a.m., in the Grand Ballroom of the Country Inns & Suites, 111 Broadway Street, Natchez, Mississippi 39120, for the following purposes:

	1.		To elect two Class III directors to hold office until the 2012 Annual Meeting of Shareholders;
	2.		To ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2009;
	3.		To approve and ratify the Callon Petroleum Company 2009 Stock Incentive Plan; and
	4.		To transact such other business as may properly come before the 2009 Annual Meeting or any adjournment or adjournments thereof.

     Specific details of the matters proposed to be put before the 2009 Annual Meeting are set forth in the proxy statement accompanying and forming part of this notice.

     Only shareholders of record at the close of business on March 9, 2009 will be entitled to notice of, and to vote at, the 2009 Annual Meeting, or any adjournment or postponements thereof. Each common share is entitled to one vote per share. Whether or not you plan to attend the 2009 Annual Meeting, we request that you sign, date and promptly mail the enclosed proxy in the pre-addressed envelope enclosed.

     Callon Petroleum Company’s proxy statement is attached. Financial and other information concerning the Company is contained in the Annual Report to Shareholders for the year ended December 31, 2008. Pursuant to new rules promulgated by the Securities and Exchange Commission (SEC), we have elected to provide access to the Company’s proxy materials both by sending you this full set of proxy materials, including a proxy card, and by notifying you of the availability of the proxy material on the Internet. This proxy statement, the accompanying proxy card and the Company’s 2008 Annual Report to Shareholders are available at the Company’s website at www.callon.com. In accordance with SEC rules, you may access the proxy statement at www.callon.com, which does not have “cookies” that identify visitors to the site.

		By Order of the Board of Directors
		/s/ Robert A. Mayfield
Natchez, Mississippi		Robert A. Mayfield
March 30, 2009		Corporate Secretary

     IF YOU CANNOT ATTEND THE MEETING IN PERSON, PLEASE SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE RETURN ENVELOPE ENCLOSED FOR YOUR USE. NO POSTAGE IS REQUIRED IF THE ENVELOPE IS MAILED IN THE UNITED STATES. STOCKHOLDERS WHO ATTEND THE 2009 ANNUAL MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON.

CALLON PETROLEUM COMPANY
200 North Canal Street
Natchez, Mississippi 39120
(601) 442-1601

     This proxy statement is furnished in connection with the solicitation of proxies on behalf of the Board of Directors of Callon Petroleum Company, a Delaware corporation, from shareholders of the Company for use at the 2009 Annual Meeting of Shareholders of the Company to be held on Thursday, April 30, 2009, at 9:00 a.m., in the Grand Ballroom of the Country Inns & Suites, 111 Broadway Street, Natchez, Mississippi 39120, and at any adjournment or postponement thereof. The purpose of the meeting is to consider and vote upon the matters described in the accompanying Notice of the 2009 Annual Meeting of Shareholders.

     A proxy in the form accompanying this proxy statement, when properly executed and returned, will be voted in accordance with the directions specified on the proxy, and otherwise in accordance with the judgment of the persons designated therein as proxies. Any proxy which does not withhold authority to vote or on which no other instructions are given will be voted for the election of the nominees named herein to the Board of Directors and in favor of the other proposals set forth in the notice. Any proxy may be revoked at any time before it is exercised by delivering, to the Corporate Secretary of the Company, written notice of revocation or a duly executed proxy bearing a later date, or by voting in person at the 2009 Annual Meeting. Proxies submitted by mail must be received on or before April 30, 2009. Submitting your proxy by mail will not affect your right to vote in person if you decide to attend the 2009 Annual Meeting. If a shareholder holds shares in a broker’s account and has given specific voting instructions, the shares will be voted in accordance with those instructions. If no voting instructions have been given, under rules of the New York Stock Exchange, the broker may decide how to vote with respect to those shares as to the Board nominees and the ratification of the Company’s independent registered public accounting firm for the 2009 fiscal year; without voting instructions, the broker may not decide how to vote with respect to those shares as to the approval of the Callon Petroleum Company 2009 Stock Incentive Plan.

     This proxy statement and the accompanying notice and form of proxy are being mailed to shareholders on or about March 30, 2009. The Annual Report for the Company’s fiscal year ended December 31, 2008 is also being mailed to shareholders contemporaneously with this proxy statement, although the Annual Report does not form a part of the material for the solicitation of proxies. The contents of this proxy statement have been approved by our Board of Directors.

     Proxies will be solicited primarily by mail, but employees of the Company may also solicit proxies in person or by telephone. Arrangements may be made with brokerage firms or other custodians, nominees, and fiduciaries to send proxy materials to the beneficial owners of our common stock for which the Company has agreed to pay those costs. In addition, the Company has retained the services of The Altman Group, Inc. to assist us in our solicitation efforts at an estimated cost of $5,500.

Matters to be Considered at the 2009 Annual Meeting of Shareholders

     Unless otherwise indicated, proxies in the form enclosed that are properly executed, duly returned, and not revoked will be voted in favor of (1) the election of two Class III director nominees to the Board of Directors named herein, (2) ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2009, and (3) the ratification and approval of the Callon Petroleum Company 2009 Stock Incentive Plan.

     The Board of Directors is not presently aware of any other proposals that may be brought before the 2009 Annual Meeting. In the event other proposals are brought before the 2009 Annual Meeting, the persons named in the enclosed proxy will vote in accordance with what they consider to be in the best interests of the Company and our shareholders.

VOTING REQUIREMENTS

     The Board of Directors has fixed the close of business on March 9, 2009 as the record date for the determination of shareholders entitled to notice of, and to vote at, the 2009 Annual Meeting. A complete list of all shareholders entitled to vote at the 2009 Annual Meeting will be open for examination by any shareholder during normal business hours for a period of ten days prior to the 2009 Annual Meeting at the offices of the Company, located at 200 North Canal Street, Natchez, Mississippi 39120. Such list will also be available at the 2009 Annual Meeting and may be inspected by any valid shareholder who is present.

     On the record date, our outstanding voting securities consisted of 21,637,470 shares of common stock. Holders of common stock will be entitled to one vote per share held of record on the record date for each proposal presented at the 2009 Annual Meeting.

QUORUM AND OTHER MATTERS

     The holders of a majority of the total shares of common stock issued and outstanding on the record date, whether present in person or represented by proxy, will constitute a quorum for the transaction of business at the 2009 Annual Meeting. For purposes of determining whether a quorum is present under Delaware law, broker non-votes and abstentions do count towards the establishment of a quorum.

     The election of directors requires the favorable vote of the holders of a plurality of shares of common stock present and voting, in person or by proxy, at the 2009 Annual Meeting. Abstentions and broker non-votes have no effect on determinations of plurality except to the extent that they affect the total votes received by any particular candidate.

     A majority of the votes represented by the shareholders present at the 2009 Annual Meeting, in person or by proxy, is necessary for the ratification of the appointment of the Company’s independent registered public accounting firm and the approval of the Callon Petroleum Company 2009 Stock Incentive Plan. If this appointment is not ratified by holders of our voting securities, the Audit Committee and the Board may reconsider its appointment and endorsement, respectively. Even if the selection is ratified, the Audit Committee may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders. Abstaining shares will be considered present at the 2009 Annual Meeting so that the effect of abstentions will be the equivalent of a “no” vote. With respect to broker non-votes, the shares will not be considered present at the 2009 Annual Meeting so that broker non-votes will have the practical effect of reducing the number of affirmative votes required to achieve a majority vote by reducing the total number of shares from which the majority is calculated. A broker “non-vote” occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and the broker has not received voting instructions from the beneficial owner.

     Votes cast at the meeting will be counted by the inspector of election.

PROPOSAL I

     Our Certificate of Incorporation provides for a classified Board of Directors. The Board of Directors is divided into three classes of equal size, designated as Class I (currently with two directors), Class II (currently with two directors) and Class III (currently with two directors). One class of directors is elected at each Annual Meeting of shareholders to serve for a three-year term.

     The term of the two Class III directors, Mr. Fred L. Callon and Mr. L. Richard Flury, will expire on the date of the 2009 Annual Meeting. Both Mr. Callon and Mr. Flury were nominated to serve as Class III directors until the 2012 Annual Meeting, or until his successor has been duly elected and qualified. Both were nominated by the Board of Directors upon the recommendation of the Nominating and Corporate Governance Committee and both have agreed to serve, if elected.

     All shares of common stock represented by the proxies will be voted “FOR” the election of both director nominees, except where authority to vote in the election of a director has been withheld. Should either of the nominees become unable or unwilling to serve as a director at the time of the 2009 Annual Meeting, the person or persons exercising the proxies will vote for the election of substitute nominee designated by the Board of Directors, or the Board of Directors may choose to reduce the number of members of the Board of Directors to be elected at the 2009 Annual Meeting in order to eliminate the vacancy. Messrs. Callon and Flury have consented to be nominated and have expressed their intention to serve if elected. The Board of Directors has no reason to believe that the nominees will be unable or unwilling to serve if elected. Only the nominees or a substitute nominee designated by the Board of Directors will be eligible to stand for election as a director at the 2009 Annual Meeting.

The Board of Directors recommends that you vote “FOR” the election of both nominees.

     The following table provides information with respect to the nominees, all current directors whose terms will continue after the 2009 Annual Meeting, and the present executive officers of the Company. Each executive officer has been elected to serve until his or her successor is duly appointed or elected by the Board of Directors or their earlier removal or resignation from office.

		Age
		as of
		Record				Company
Name		Date				Position Since				Present Company Position
Class I Directors:
(Term Expires in 2010)
Larry D. McVay			61				2007			Director
John C. Wallace			70				1994			Director
Class II Directors:
(Term Expires in 2011)
B. F. Weatherly			64				1994			Director, Executive Vice President and Chief Financial Officer
Richard O. Wilson			79				1995			Director
Class III Directors:
(Term Expires in 2009)
Fred L. Callon			59				1994			Director, Nominee, Chairman of the Board, President, and Chief Executive Officer
L. Richard Flury			61				2004			Director, Nominee
Other Executive Officers:
Mitzi P. Conn			40				2007			Corporate Controller
Robert A. Mayfield			58				2000			Corporate Secretary
Thomas E. Schwager			58				1997			Vice President
H. Clark Smith			56				2001			Chief Information Officer
Rodger W. Smith			59				1999			Vice President and Treasurer
Stephen F. Woodcock			57				1997			Vice President

     The following is a brief description of the background and principal occupation of each director and executive officer:

     Fred L. Callon has been Chairman of the Board of Directors of the Company since May 2004 and President and Chief Executive Officer of the Company and Callon Petroleum Operating Company since January 1997. Prior to January 1997, he was President and Chief Operating Officer of the Company, positions he had held with the Company or its predecessors since 1984. He has been employed by the Company or its predecessors since 1976. Mr. Callon graduated from Millsaps College in 1972 and received his M.B.A. degree from the Wharton School of Finance in 1974. Following graduation and until his employment by Callon Petroleum Operating Company, he was employed by Peat, Marwick, Mitchell & Co., certified public accountants. He is the nephew of the late John S. Callon, the Company’s founder.

     Mitzi P. Conn is the Corporate Controller for the Company and Callon Petroleum Operating Company. Prior to being appointed to that position in May 2007, she had served as assistant controller since May 2004. Mrs. Conn has held various other positions in finance and accounting since she joined the Company in June 1993. Prior thereto, she was a general accountant for Graham Resources, Inc. She received her B. S. degree in accounting from Southeastern Louisiana University in 1990 and is a member of the American Institute of Certified Public Accountants and the Mississippi Society of Certified Public Accountants.

     L. Richard Flury is a graduate of the University of Victoria (Canada). He spent over 30 years with Amoco Corporation, and later, BP plc, from which he retired as Chief Executive, Gas and Power and Renewables, on December 31, 2001, a position he had held since June of 1999.  Prior to Amoco’s merger with BP in 1998, he served

in various executive positions and was Chief Executive for Worldwide Exploration and Production and Executive Vice President of Amoco Corporation at the time of the merger. Currently, he is a member of the Board of Directors of Questar Corporation, a publicly-traded oil and gas company, and the Chicago Bridge and Iron Company, N.V., a publicly-traded engineering, procurement and construction company.

     Robert A. Mayfield is the Corporate Secretary and also oversees Tax Services for the Company and Callon Petroleum Operating Company. He was appointed Corporate Secretary in February 2000. Prior to his appointment as Corporate Secretary, he had served as the Manager of Tax Services and Securities and Exchange Commission Reporting since 1981. Prior to joining Callon, he was employed by McCormick Oil and Gas Company in Houston, Texas, where he served as an assistant to the tax manager. Mr. Mayfield received his B.S. degree in accounting from Louisiana Tech University in 1972 and is a member of the Society of Corporate Secretaries & Governance Professionals.

     Larry D. McVay was appointed to the Board of Directors in October 2007. From 2003 until his retirement from BP in 2006, he served as Chief Operating Officer of TNK-BP Holding, one of the largest oil producing companies in Russia. Mr. McVay is currently a Managing Director of Edgewater Energy Partners, LLC, an oil and gas consulting company. From 2000 to 2003, he served as Technology Vice President and Vice President of Health, Safety and Environment for BP. He also led the global E&P Operations Excellence effort for improving the operating efficiency of BP’s upstream operations. Mr. McVay has led a distinguished international oil and gas career spanning 38 years with Amoco, BP and TNK-BP. He worked in various engineering, management and leadership positions with Amoco and BP both domestically and internationally. Mr. McVay earned a mechanical engineering degree from Texas Tech University where he was recognized as a Distinguished Engineer in 1995. In January 2008 he became a member of the Board of Directors of Praxair, Inc., the largest industrial gases company in North and South America. In May 2008 Mr. McVay also became a member of the Board of Directors of Chicago Bridge and Iron, N.V., a publicly-traded engineering, procurement, and construction company.

     Thomas E. Schwager has been Vice President of Engineering and Operations for the Company and Callon Petroleum Operating Company since November 1997. Mr. Schwager has held various engineering positions with the Company and its predecessors since 1981. Prior to joining the Company, Mr. Schwager held engineering positions with Exxon Company USA in Louisiana and Texas. He received his B.S. degree in petroleum engineering from Louisiana State University in 1972. He is a registered professional engineer and a member of the Society of Petroleum Engineers.

     H. Clark Smith is Chief Information Officer for the Company and Callon Petroleum Operating Company. Prior to being appointed to that position in March 2001, he had served as Manager – Information Technology since January 1990 and in other computer related positions with the Company and its predecessors since 1983. At Mississippi State University, he majored in Industrial Technology. During his tenure with the Company, he has received extensive technical and management training from the University of Southern Mississippi, International Business Machines, Microsoft, Novell, and Arthur Andersen & Company. He has also served as Manager – Information Services with Jefferson Davis Regional Medical Center and as a principal of the consulting firm, Mississippi Computing Consultants.

     Rodger W. Smith is a Vice President and also serves as the Treasurer for the Company and Callon Petroleum Operating Company. Mr. Smith was appointed Treasurer in April 1999 and Corporate Controller in 2004. Prior to being appointed Treasurer, he served as Manager of Budget and Analysis since 1994. Prior to 1994, Mr. Smith was Manager of Exploration and Production Accounting and has been employed by the Company and its predecessors since 1983. Prior to his employment with the Company, he was employed by International Paper Company as a plant controller. He received his B.S. degree in accounting from the University of Southern Mississippi in 1973.

     John C. Wallace has been a member of the Board of Directors of the Company since 1994. Mr. Wallace is a Chartered Accountant having qualified with PricewaterhouseCoopers in Canada in 1963, after which he joined Baring Brothers & Co., Limited in London, England. For over twenty-five years, he has served as Chairman of Fred. Olsen Ltd., a London-based corporation that he joined in 1968 and which specializes in the business of shipping, renewable energy and property development. He received his B. Comm degree majoring in Accounting and Economics from McGill University in 1959. In November 2004 he successfully completed the International Uniform Certified Public Accountant Qualification Examination (“IQEX”) and has received a CPA Certificate from the State of Illinois. Mr. Wallace is a director of Ganger Rolf ASA and Bonheur ASA, Oslo, both publicly-traded shipping companies with interests in offshore energy services and renewable energy.

     B. F. Weatherly is the Executive Vice President and Chief Financial Officer for the Company and Callon Petroleum Operating Company. Prior to joining the Company in November 2006, he was a principal of CapSource Financial, Houston, Texas, an investment-banking firm, since 1989. He was also a general partner of CapSource Fund, L.P., Jackson, Mississippi, an investment fund, and held that position since 1997. Mr. Weatherly received a Master of Accountancy degree from the University of Mississippi in 1967. Mr. Weatherly has previously been associated with Arthur Andersen LLP, and has served as a Senior Vice President of Brown & Root, Inc. and Weatherford International, Inc.

     Richard O. Wilson retired in 2004 after working for over 50 years in offshore drilling and construction which included two years with Zapata Offshore and 21 years with Brown & Root, Inc. working in various managerial capacities in the Gulf of Mexico, Venezuela, Trinidad, Brazil, the Netherlands, the United Kingdom, Norway and Mexico. Mr. Wilson was a Director and Senior Group Vice President of Brown & Root, Inc. and Senior Vice

President of Halliburton, Inc. For 18 years he was associated with Fred. Olsen Interests where he served as Chairman of OGC International PLC, Dolphin A/S and Dolphin Drilling Ltd. He holds a B.S. degree in Civil Engineering from Rice University. Mr. Wilson is a Fellow in the American Society of Civil Engineers, a Director of Flotek Industries, Inc. and a Director of the Museum of Printing History in Houston, Texas. In 2000 Mr. Wilson was elected an Industry Pioneer by the Offshore Energy Center, Houston, Texas.

     Stephen F. Woodcock is Vice President of Exploration for the Company and Callon Petroleum Operating Company. Prior to being appointed to this position in November 1997, Mr. Woodcock had served as Manager of Geology and Geophysics since his initial employment by the Company and Callon Petroleum Operating Company in 1995. Prior thereto, he was Manager of Geophysics for CNG Producing Company and Division Geophysicist for Amoco Production Company. Mr. Woodcock received a master’s degree in geophysics from Oregon State University in 1975.

     All officers and directors of the Company are United States citizens, except Mr. Wallace, who is a citizen of Canada. L. Richard Flury holds both U.S. and Canadian citizenship.

The Board of Directors and Governance Matters

     General. In accordance with our by-laws and the laws of Delaware, our state of incorporation, our business and affairs are managed under the direction of the Board of Directors. The Board of Directors generally meets on a quarterly basis to review significant developments affecting the Company and to act on matters requiring Board approval. Between regularly scheduled meetings, the Board of Directors may also hold special meetings, execute unanimous written consents, and participate in telephone conference calls when an important matter requires Board action.

     During 2008, the Board of Directors of the Company met formally five times and executed six unanimous written consents. All of the Company’s directors attended all of the board meetings. In addition, to promote open discussion, the non-management directors meet in executive (private) sessions without management following each quarterly board meeting. The chairperson of such executive sessions is the chairperson of the Nominating and Corporate Governance Committee unless, at the first executive session held in each fiscal year, the independent directors select a different independent director to serve as the chairperson for all executive sessions held during that fiscal year. L. Richard Flury, chairman of the Compensation Committee presided over all executive sessions during 2008.

     In order to facilitate the various functions of the Board of Directors, the Board of Directors has created an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee, and a Strategic Planning Committee. These committees are more fully described in the following pages.

     Director Independence. It is the policy of the Board of Directors that a majority of the members of the Board be independent of the Company’s management. The Company’s Corporate Governance Principles contain the following guidelines to assist the Board in determining director independence in accordance with the applicable New York Stock Exchange and SEC rules:

	•		No director who is an employee or former employee of the Company, or whose immediate family member is an executive officer or former executive officer of the Company, shall be considered “independent” until three years after such employment has ended;
	•		No director who is receiving, or in the last three years has received, or whose immediate family member is receiving, or in the last three years has received, more than $120,000 per year in direct compensation from the Company, other than fees received in such director’s capacity as a member of the Board or any Board committee and pension payments or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service) shall be considered “independent.” Compensation received by an immediate family member for service as a non-executive employee of the Company need not be considered in determining independence;
	•		No director who is, or in the past three years has been, affiliated with or employed by, or whose immediate family member is, or in the past three years has been, affiliated with or employed in a professional capacity by, a present or former internal auditor or independent auditing firm of the Company shall be considered “independent”;
	•		No director who is, or in the past three years has been, employed as, or whose immediate family member is, or in the past three years has been, employed as, an executive officer by any company for which any executive officer of the Company serves as a member of its compensation committee (or, in the absence of a compensation committee, the board

			committee performing equivalent functions, or, in the absence of such committee, the Board of Directors) shall be considered “independent”;
	•		No director who is an executive officer or an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, the Company for property or services in an amount which, in any single fiscal year, exceeds the greater of $1,000,000 or 2% of such other company’s consolidated gross revenue shall be considered “independent” until three years after such payments fall below such threshold; and
	•		An “immediate family member” includes a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person’s home. When applying the three-year look-back provisions, it does not include individuals who are no longer immediate family members as a result of legal separation or divorce, or those who have died or become incapacitated.

     The Board of Directors has affirmatively determined that Messrs. Flury, McVay, Wallace and Wilson do not have any material relationships with the Company that may interfere with the exercise of their independence from management and the Company and are independent directors under applicable New York Stock Exchange rules, SEC rules and in accordance with our Corporate Governance Principles. Prior to his appointment as Executive Vice President and Chief Financial Officer in November 2006, the Board of Directors also affirmatively determined that Mr. B. F. Weatherly met the criteria and was an independent director. Upon his employment with the Company, he no longer qualified as an independent director. Mr. Weatherly resigned from all committees of the Board, but continues his role as a management member of the Board of Directors.

     Corporate Governance Principles. The Company believes that good corporate governance is important to ensure that Callon Petroleum Company is managed for the short- and long-term benefit of its shareholders. Available on the Company website, www.callon.com, under the section “Governance,” are copies of the Company’s:

	•		Corporate Governance Principles;
	•		Code of Business Conduct and Ethics;
	•		Audit Committee Charter;
	•		Compensation Committee Charter;
	•		Nominating and Corporate Governance Committee Charter; and
	•		Members serving on each of the Board of Directors’ Committees.

     Any amendments to or waivers of the foregoing documents will also be posted on the Company’s website. Copies of these documents are available in print, free of charge, to any shareholder upon request to the Company’s Corporate Secretary.

     Ethics. The Company’s Code of Business Conduct and Ethics sets forth our policies and expectations. The Code, which applies to every director, officer and employee, addresses a number of topics, including conflicts of interest, relationships with others, corporate payments, disclosure policy, compliance with laws, corporate opportunities and the protection and proper use of the Company’s assets. The Code meets the New York Stock Exchange’s requirements for a code of business conduct and ethics as well as the SEC’s definition of a code of ethics applicable to the Company’s senior officers. Neither the Board of Directors nor any Board committee has ever granted a waiver of the Code.

     Communication with the Board of Directors. In order to provide the Company’s shareholders and other interested parties with a direct and open line of communication to the Board of Directors, the Board of Directors has adopted procedures for communications to directors. Callon shareholders and other interested persons may communicate with the Chairman of the Company’s Audit Committee, or with the non-management directors of the Company as a group, by written communications addressed in care of Robert A. Mayfield, Corporate Secretary, Callon Petroleum Company, 200 North Canal Street, Natchez, MS 39120.

     All communications received in accordance with these procedures will be reviewed initially by senior management of the Company. Senior management will relay all such communications to the appropriate director or directors unless it is determined that the communication:

•

does not relate to the business or affairs of the Company or the functioning or constitution of the Board of Directors or any of its committees;

	•		relates to routine or insignificant matters that do not warrant the attention of the Board of Directors;
	•		is an advertisement or other commercial solicitation or communication;
	•		is frivolous or offensive; or
	•		is otherwise not appropriate for delivery to directors.

     The director or directors who receive any such communication will have discretion to determine whether the subject matter of the communication should be brought to the attention of the full Board of Directors or one or more of its committees and whether any response to the person sending the communication is appropriate. Any such response will be made only in accordance with applicable law and regulations relating to the disclosure of information.

     The Corporate Secretary will retain copies of all communications received pursuant to these procedures for a period of at least one year. The Board of Directors will review the effectiveness of these procedures from time to time and, if appropriate, recommend changes. As of the record date, no such communications have been received.

     Attendance at 2009 Annual Meeting of Shareholders. It is the policy of the Board that, to the extent possible, all directors attend the 2009 Annual Meeting of Shareholders. All then current directors attended the 2008 Annual Meeting of Shareholders.

Committees of the Board of Directors

Audit Committee Functions and Responsibilities

     The principal function of the Audit Committee is to assist the Board of Directors in the areas of financial reporting and accounting integrity. The Audit Committee reviews the accounting and auditing procedures and financial reporting practices of the Company and is responsible for the engagement of and overseeing all audit work conducted by the Company’s independent registered public accounting firm. The Audit Committee is governed by a charter that has been approved by the Board of Directors. The Audit Committee meets periodically with the Company’s management, internal auditor and its independent registered public accounting firm to review the Company’s financial information and systems of internal controls and ensures such parties are properly discharging their responsibilities. The independent registered public accounting firm reports directly to the Audit Committee and annually meets with the Audit Committee without management representatives present. The Audit Committee has the authority to investigate any matters brought to its attention and to retain outside legal, accounting or other consultants if deemed necessary.

     The Audit Committee is composed entirely of non-management members of the Board, each of whom satisfy the independence requirements for audit committee members under Rule 10A-3 of the Securities Exchange Act of 1934, and are “independent” and “financially literate” as defined by New York Stock Exchange rules. Members of the Audit Committee may not simultaneously serve on the audit committee of more than two other public companies. The Audit Committee is currently comprised of Messrs. Wallace (Chairman), Flury, McVay and Wilson. Prior to his resignation from the Audit Committee in connection with his employment with the Company, Mr. B. F. Weatherly also served as a member of the committee. Additionally, the Board of Directors has determined that Mr. Wallace has the accounting or financial management expertise to be considered a “financial expert” as defined and required by the New York Stock Exchange’s rules and by the Securities Exchange Act of 1934.

     The Audit Committee held four meetings and executed one unanimous written consent during 2008. All members of the Audit Committee attended all the meetings. The Audit Committee’s report on its activities during 2008 appears later in this proxy statement under the caption “Audit Committee Report.”

     Relationship with Independent Registered Public Accounting Firm. Management is responsible for establishing and maintaining internal controls over financial reporting and for assessing the effectiveness of those controls. The independent registered public accounting firm is responsible for performing independent audits of the Company’s consolidated financial statements and internal controls over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and issuing reports thereon. The Audit Committee’s responsibility is to monitor and oversee these processes. Ernst & Young LLP, an independent registered public accounting firm, served as the Company’s independent registered public accounting firm during 2007 and 2008 and was appointed by the Audit Committee to serve in that capacity for 2009.

     Audit Fees Paid to Independent Registered Public Accounting Firm.  Fees paid for professional services rendered related to the year ended December 31, 2007 by Ernst & Young LLP for the annual audit and quarterly reviews and for registration statements and other regulatory filings (including the requirements under Section 404 of the Sarbanes-Oxley Act) were $406,189, including out-of-pocket expenses. Fees paid for professional services rendered related to the year ended December 31, 2008 by Ernst & Young LLP for the annual audit and quarterly reviews and for registration statements and other regulatory filings (including the requirements under Section 404 of the Sarbanes-Oxley Act) were $491,471, including out-of-pocket expenses.   The Audit Committee has concluded that providing the tax-related services mentioned below is compatible with maintaining the principal registered public accounting firm’s independence.

     Audit-related Fees.  There were no audit-related fees paid in 2007 or 2008.

     Tax Fees. Professional services billed by Ernest & Young LLP for the review of the federal tax return, tax advise and tax planning for 2007 totaled $18,400. Professional services billed for the review of the federal tax return, tax advice and tax planning services for 2008 totaled $36,850.

     All Other Fees. There were no other fees paid to the Company’s independent registered public accounting firm in 2007 or 2008.

     Pre-Approval Policy of Audit, Audit-Related, Tax and Non-Audit Services. The Audit Committee pre-approves all audit services and non-audit services (including the fees and terms thereof) to be performed for the Company by its independent registered public accounting firm, as required by applicable law or listing standards and subject to the terms of the audit and non-audit services pre-approval policy adopted by the Audit Committee. The Committee may delegate authority to one or more of its members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of any such member to grant pre-approvals are consistent with the terms of the Pre-Approval Policy and are presented to the full Committee at its next scheduled meeting.

     Audit Committee Report

     Acting pursuant to its Charter, the Audit Committee reviewed and discussed the Company’s audited financial statements at, and for the year ended, December 31, 2008 with management and the Company’s independent registered public accounting firm and recommended to the Company’s Board of Directors that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. This recommendation was based on:

	•		the Audit Committee’s review of the audited financial statements;
	•		discussion of the financial statements with management;
	•		discussion with the Company’s independent registered public accounting firm, Ernst & Young LLP, of the matters required to be discussed by auditing standards generally accepted in the United States of America, including the communication matters required to be discussed by SAS 61;
	•		receipt from Ernst &Young LLP of the written disclosures and letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees);
	•		discussions with Ernst & Young LLP regarding its independence from the Company and its management;
	•		Ernst & Young LLP’s confirmation that it would issue its opinion that the consolidated financial statements present fairly, in all material respects, the financial position of the Company and its consolidated subsidiaries and the results of their operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America; and
	•		other matters the Audit Committee deemed relevant and appropriate.

John C. Wallace, Chairman
L. Richard Flury
Larry D. McVay
Richard O. Wilson

Compensation Committee Functions and Responsibilities

     The purpose of the Compensation Committee is to develop and administer an overall compensation program designed to optimize the opportunity for the Company to achieve its operating objectives and performance goals while properly blending it with the short- and long-term interests of the Company’s shareholders. The Committee annually reviews market and industry data to assess the Company’s competitive position with respect to each element of total compensation and to ensure the attraction, retention and appropriate reward to the Company’s CEO and other executive officers. In addition to the determination of annual base salaries, the Committee is responsible for determining and recommending variable annual bonuses in the form of cash and/or equity awards. The Committee maintains authority over the company’s stock incentive plans from which either stock options, restricted stock, or performance shares can be awarded as part of the total annual compensation package. Currently the variable portion of the annual compensation package is based on certain performance related criteria of the Company for which the Committee is responsible for establishing and approving. In addition to the above, the Committee has the following duties and responsibilities:

	•		review, recommend, and discuss with management the compensation discussion and analysis section included in the Company’s annual proxy statement; and
	•		prepare an annual report on executive compensation for inclusion in the Company’s proxy statement for the 2009 Annual Meeting of Shareholders.

     Consistent with the listing requirements of the New York Stock Exchange, the Compensation Committee is composed entirely of independent members of our Board of Directors. Each member meets the independence requirements set by the New York Stock Exchange and applicable federal securities laws. Current members are Messrs. Flury (chairman), McVay, Wallace and Wilson.

     The Compensation Committee held four meetings and executed two unanimous written consents during 2008. All members of the Compensation Committee attended all the meetings.

     Compensation Committee Interlocks and Insider Participation. The members of the Company’s Compensation Committee are Messrs. Flury (Chairman), McVay, Wallace and Wilson, none of whom are or have been officers or employees of the Company or any of its subsidiaries or had a relationship requiring disclosure under this caption.

Nominating and Corporate Governance Committee Functions and Responsibilities

     The purpose of the Nominating and Corporate Governance Committee is to:

	•		identify and recommend to the Board individuals qualified to be nominated for election to the Board;
	•		recommend to the Board the members and chairperson for each Board committee;
	•		periodically review and assess the Company’s Corporate Governance Principles and the Company’s Code of Business Conduct and Ethics and make recommendations for changes thereto to the Board;
	•		oversee the annual self-evaluation of the performance of the Board and the annual evaluation of the Company’s management; and
	•		recommend to the Board a successor to the CEO when a vacancy occurs.

     Each member of the Committee meets the independence requirements of the New York Stock Exchange and applicable federal securities laws. Current members are Messrs. Wilson (Chairman), Flury, McVay, and Wallace. The Nominating and Corporate Governance Committee held four meetings and one unanimous written consent during 2008. All members of the Nominating and Corporate Governance Committee attended all the meetings. Prior to the formation of this Committee, the entire Board of Directors performed these functions.

     Director Identification and Selection. The Nominating and Corporate Governance Committee has established certain criteria it considers as guidelines in considering nominations to the Company’s Board of Directors. The criteria include:

•

personal characteristics, including such matters as integrity, age, education, diversity of background and experience, absence of potential conflicts of interest with the Company or

			its operations, and the availability and willingness to devote sufficient time to the duties of a director of the Company;
	•		experience in corporate management, such as serving as an officer or former officer of a publicly held company;
	•		experience in the Company’s industry and with relevant social policy concerns;
	•		experience as a board member of another publicly held company;
	•		academic expertise in an area of the Company’s operations; and
	•		practical and mature business judgment.

     The criteria are not exhaustive and the Nominating and Corporate Governance Committee and the Board of Directors may consider other qualifications and attributes which they believe are appropriate in evaluating the ability of an individual to serve as a member of the Board of Directors. The Nominating and Corporate Governance Committee’s goal is to assemble a Board of Directors that brings to the Company a variety of perspectives and skills derived from high quality business and professional experience. In order to ensure that the Board consists of members with a variety of perspectives and skills, the Nominating and Corporate Governance Committee has not set any minimum qualifications and also considers candidates with appropriate non-business backgrounds. Other than ensuring that at least one member of the Board is a financial expert and a majority of the Board members meet all applicable independence requirements, the Committee does not have any specific skills that it believes are necessary for any individual director to possess. Instead, the Committee evaluates potential nominees based on the contribution such nominee’s background and skills could have upon the overall functioning of the Board. In accordance with the Company’s by-laws, any shareholder may nominate a person for election to the Board of Directors upon delivery of written notice to the Company of such nomination, stating the name and address of the nominee and describing his qualifications. Such notice shall be sent by certified mail or delivered to the principal office of the Company to the attention of the Board of Directors, with a copy to the President and Corporate Secretary of the Company.

     The Board of Directors believes that, based on the Nominating and Corporate Governance Committee’s knowledge of the Company’s Corporate Governance Principles and the needs and qualifications of the Board at any given time, the Nominating and Corporate Governance Committee is best equipped to select nominees that will result in a well-qualified and well-rounded board of directors. In making its nominations, the Nominating and Corporate Governance Committee identifies nominees by first evaluating the current members of the Board willing to continue their service. Current members with qualifications and skills that are consistent with the Committee’s criteria for Board service are re-nominated. As to new candidates, the committee will generally poll the Board members and members of management for recommendations. The committee may also review the composition and qualification of the boards of directors of the Company’s competitors, and may seek input from industry experts or analysts. The committee reviews the qualifications, experience and background of the candidates. Final candidates are interviewed by the independent directors and executive management. In making its determinations, the committee evaluates each individual in the context of the Board as whole, with the objective of assembling a group that can best represent shareholder interests through the exercise of sound judgment. After review and deliberation of all feedback and data, the committee makes its recommendation to the Board of Directors. The committee may in the future choose to engage third-party search firms in situations where particular qualifications are required or where existing contacts are not sufficient to identify an appropriate candidate.

BENEFICIAL OWNERSHIP OF SECURITIES

Management and Principal Shareholders

     The following table sets forth, as of the record date, certain information with respect to the ownership of shares of common stock held by (i) all persons known by the Company to be the beneficial owners of 5% or more of the outstanding common stock, (ii) each director, (iii) the nominees for director, (iv) each of the executive officers named in the Summary Compensation Table, and (v) all executive officers and directors of the Company as a group. Information set forth in the table with respect to beneficial ownership of common stock has been obtained from filings made by the named beneficial owners with the Securities and Exchange Commission (“Commission”) as of the record date or, in the case of executive officers and directors of the Company, has been provided to the Company by such individuals.

Name and Address of		Common Stock (a)
Beneficial Owner		Beneficial Ownership				Percent
Directors:
Fred L. Callon			294,936	(b)			1.35	%
L. Richard Flury			41,250	(c)			*
Larry D. McVay			11,250	(d)			*
John C. Wallace			—	(e)			*
B. F. Weatherly			69,145	(f)			*
Richard O. Wilson			118,703	(g)			*
Named Executive Officers:							*
Stephen F. Woodcock			90,382	(h)			*
Thomas E. Schwager			7,149	(i)			*
Rodger W. Smith			53,457	(j)			*
Directors and Executive Officers:
As a Group (12 persons)			785,501	(k)			3.53	%
Certain Beneficial Owners:
Donald Smith & Co., Inc.			1,841,827	(l)			8.51	%
152 W. 57th Street, 22nd Floor
New York, NY 10019
Barclays Global Investors, NA			1,670,035	(m)			7.72	%
400 Howard Street
San Francisco, CA 94105
Dimensional Fund Advisors LP			1,714,144	(n)			7.92	%
1299 Ocean Avenue
Santa Monica, CA 90401

voting power with respect to 1,677,658 shares of common stock and sole dispositive power with respect to 1,714,144 shares of common stock.

     With respect to shares issuable upon exercise of stock options, the holders or class of holders acquire investment power for these shares immediately upon a “change of control” as defined in the applicable plan.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s directors and executive officers, and persons who beneficially own more than ten percent of a registered class of the Company’s equity securities, to file with the Commission initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent shareholders are required by the Commission’s regulations to furnish the Company and the New York Stock Exchange copies of all Section 16(a) forms they file with the Commission.

     Based solely on review of the copies of such reports furnished to the Company during, or with respect to, the fiscal year ended December 31, 2008, and written representations from all of the Company’s officers and directors, to the Company’s knowledge, all of the Company’s officers, directors and greater than ten percent shareholders have complied with all Section 16(a) filing requirements for the year ended December 31, 2008.

Compensation Discussion and Analysis
of Executive Compensation

Oversight of Executive Compensation Program

     The Compensation Committee of our Board of Directors oversees our compensation programs. The primary function of the Committee is to assist our Board of Directors in the discharge of its fiduciary responsibilities relating to compensation of our Chief Executive Officer and other executives. From time to time the Committee has retained a compensation consultant to assess the effectiveness of the Company’s compensation programs.

     In 2008, the Compensation Committee again retained Hewitt Associates LLC to evaluate and make recommendations concerning Callon’s compensation practices and procedures. Specifically, Hewitt was asked to review the Compensation Committee Charter and the Company’s entire compensation program, both long-term and short-term incentives, but with particular emphasis on the higher paid executives. The Compensation Committee considered the advice of the consultant as only one factor among the other items discussed in this compensation discussion and analysis.

Compensation Program Philosophy and Objectives

     Our business strategy is to enhance stockholder value through sustained growth in our reserve base, production levels and resulting cash flows from operations. Our compensation program is designed to attract, retain, and motivate employees in order to effectively implement our strategy. Our compensation program has four objectives:

	•		To attract, retain and motivate qualified executives whose performance is key to the successful execution of our business strategy and the achievement of our short- and long-term corporate goals;
	•		To create a “pay for performance” oriented environment that rewards significant contributions to our short- and long-term strategic goals;
	•		To provide an executive compensation structure that is internally equitable based upon the level of responsibility of our executives; and
	•		To align the interests of our executive officers with those of our shareholders.

Elements of Compensation

     The Committee believes that the compensation environment for qualified executives in the domestic oil and gas industry is highly competitive, particularly as a result of current efforts to reduce dependence on foreign oil. We also believe that similar compensation pressure has resulted from increased financial reporting and corporate governance regulatory issues implemented within recent years. In order to compete in this environment, our executive officers’ compensation has the following components:

Component		Purpose		Philosophy Statement
Base Salary		•     Pay for expertise and experience •     Attract and retain •     Provide stable compensation level		•     In the aggregate, targeted at an appropriate level against the peers given relative size •     Reflective of individual experience and expertise
Annual Cash Reward and Incentive Compensation		•     Motivate superior operational and financial performance •     Provide annual recognition of performance		•     In the aggregate, targeted at an appropriate level against the peers given relative size •     Reflective of internal equity considerations •     Goals aligned with annual strategic objectives of the Company •     Modest to no payout for performance below expectations and potential for significantly increased payout for exceptional performance
Long-Term Equity		•     Directly align employees with shareholders •     Create significant retention hook		•     Ultimate value delivered influenced by the Company’s return to shareholders as compared against peer companies
Incentives		•     Match competitive practices to attract and retain employees		•     Appropriate opportunities based on a review of multiple reference points:       — Industry peer grant values
				— Historical grant practices
				— Internal relative positioning
Retirement and Health/Welfare Benefits		•     Provide financial security •     Help ensure a financial safety net •     Match competitive practices		•     Programs generally consistent, regardless of level, across the organization •     Benefit levels competitive with peer companies
Severance Protection		•     Protect executives in the case of job loss •     Match competitive practices to attract and retain employees		•     Benefit levels based on peer group practices with consideration to shareholder value
		•     For change in control protection, help ensure executives consider all possible transactions to increase shareholder value

     Base Salaries. There are two components to how the Compensation Committee determines base salaries for its executive officers. First, in January of each year, all our executive officers are considered for an across-the-board adjustment based on the approximate “cost of living” increase as published by the U. S. Department of Labor for the previous year. Based on their November 2007 report, the consumer price index for all urban consumers, before seasonal adjustment, increased 4.3% from the November 2006 level. Therefore, the salary adjustment approved by the Compensation Committee for 2008 was 4.0%.

     Second, at a regularly scheduled meeting, generally in March, the Committee uses information supplied by Hewitt to compare the current annual base salaries of the executive officers to current base salaries for similar executive positions at peer companies. Hewitt provides the Compensation Committee with market data from a group of peer companies in the industry that approximate Callon’s size and operate in similar locations. The peer group is adjusted each year based on changes in the industry. The Committee looks at Callon’s size from a revenue standpoint relative to the peer companies to help frame an appropriate level as a reference point for decision-making. The Committee also considers various factors such as each executive’s motivation level, leadership ability, overall knowledge and experience in his particular segment of our business, the competitive compensation environment for such individual, that person’s unique skills and his or her expected future contribution to the success of our company. The Committee feels that if these qualities are rewarded, the executives will be motivated to achieve our corporate goals and successfully implement our business strategies. Upon review of these various factors, at its March 2008 meeting, the Compensation Committee determined that no additional base salary adjustments were needed.

     The table below indicates the Peer Companies (“Original Peer Companies”) which were used for base salary comparison in March 2008.

Original Peer Companies
ATP Oil and Gas Corp.
Atwood Oceanics
Comstock Resources Inc.
Mariner Energy Inc.
Newfield Exploration Co.
Petroquest Energy Inc.
Plains Exploration & Production Co.
Stone Energy Co.
W & T Offshore Inc.

     Annual Cash Reward and Incentive Compensation. Executive officers, senior management and other non-management technical personnel have the potential to receive a significant portion of their annual cash compensation as a cash bonus. As with base salary, the Committee looks at Callon’s size from a revenue standpoint relative to the peer companies as a reference point for determining aggregate bonus amount. Each year, following the Board of Directors’ approval of the annual operating budget and financial forecast for the next year, generally at its regular November meeting, the Compensation Committee sets performance related cash bonus guidelines for the next year. While not material to the overall bonus determination, these guidelines are used as a reference point and no specific formula or weighting is considered. For 2008, the guidelines were based on the following three areas:

	•		Successfully moving the Entrada project to production within reasonable cost estimates;
	•		Operational and financial performance as measured by production, cash flow from operations, and income before taxes; and
	•		Developing a long-range strategic plan for the Company.

     Each year, the Committee also determines the overall bonus attainment percentage applicable to each eligible employee. For 2008, the Chief Executive Officer was eligible for a bonus generally targeted at 100% of his base salary. The Chief Financial Officer was eligible for a bonus generally targeted at 75% of his base salary while our other named executive officers were eligible for a bonus targeted at 50% of their base salary.

     After the end of the performance period, the Committee meets to evaluate the extent to which the guidelines were met. In addition, the Committee may also consider how unexpected events affecting the Company may impact the bonus attainment percentage. For example, a large acquisition may substantially change our budget and forecast prepared prior to the beginning of a year, thereby affecting the original guidelines established for payment of bonuses. In addition, as occurred in prior years, adverse weather conditions may damage our facilities and reduce our production, cash flows and other measures used as guidelines to assist in determining the amount of our bonuses. Also, our Committee encourages our executives to pursue long-term goals, even if these long-term goals may result in a reduction in our near-term performance. Accordingly, after determining the overall bonus attainment percentage, the Committee reserves the right to adjust an individual’s bonus amount based on individual achievements and contributions to the Company.

     At the March 2009 Compensation Committee meeting, the Committee subjectively evaluated the Company’s performance against the Adjusted Peer Companies (described below) and the guidelines set for fiscal 2008 noting that:

	•		The Entrada project was unexpectedly suspended in November 2008;
	•		Operational and financial performance against goals was negatively impacted by deferred oil and gas production as a result of downtime due to hurricanes;
	•		An unexpected and severe drop in commodity prices. Excluding the impact of the Entrada suspension, deferred production, and price declines, the operational and financial achievement was slightly above target; and

•

The Company’s management worked successfully in developing a long-range strategic plan and provided strong leadership to the Company during the difficult year.

     Although the Committee determined that the Company did not fully meet performance expectations for 2008, they noted that management showed resilience in the face of numerous challenges, and kept the company moving forward under a new strategy for 2009. Consequently, the Committee approved 2008 bonuses of 25% of target for the named executive officers.

     Long-term Equity Incentives. The Compensation Committee administers our long-term incentive plans and performs functions that include selecting award recipients, determining the timing of grants and assigning the number of shares awarded, fixing the time and manner in which awards are exercisable, setting option exercise prices and vesting and expiration dates, and from time to time adopting rules and regulations for our plans. For the grant of equity compensation to executive officers, our Compensation Committee will typically consider information provided by Hewitt and our Chief Executive Officer, related to the overall competitive environment associated with long-term compensation. All awards are priced at the fair market value on the grant date in accordance with SFAS No. 123R. We do not have any program, plan or obligation that requires us to grant equity compensation on specified dates. However, our Committee does follow a policy of not granting equity incentives when material non-public information exists that may affect the short-term price of our stock.

     As a result of recommendations from Hewitt, based on a review of the long-term incentive compensation practices of Peer Companies and in order to further align our executives with shareholders, on April 18, 2008 the Compensation Committee granted long-term equity incentives to the executive officers consisting of 50% time-based restricted shares and 50% performance-based shares. The time-based restricted shares will vest on the third anniversary following the award assuming continued employment with the Company. The performance-based shares will vest on the third anniversary following the award, assuming continued employment with the Company, in accordance with the achievement of a defined performance target related to the percentage increase or decrease in the Company’s “total shareholder return.” The percentage will be appropriately adjusted, if necessary, for stock splits occurring during the performance period. Callon’s total shareholder return and that of the peer companies will be calculated as follows:

		(EP + CD) - BP		= % increase or decrease
		BP

Ending price (EP) — equals the average daily closing price on the NYSE during the month of December 2010.

Beginning price (BP) — equals the NYSE closing price on February 1, 2008.

Cash Dividends (CD) — equals the cash dividends paid from February 1, 2008 thru December 31, 2010.

     The resulting percentage for Callon and the peer companies will then be ranked. Based on the relative ranking, the number of performance-based shares awarded will then be retroactively adjusted (“Adjusted Performance Shares”) in accordance with the following table:

Rank		Adjustment Percentage
1 or 2		150%
3 or 4		125%
5, 6 or 7		100%
8 or 9		50%
10 or 11		0%

     The following peer companies (“Adjusted Peer Companies”) are expected to be used to rank the Company’s performance in accordance with the calculation of total shareholder return above:

Adjusted Peer Companies
ATP Oil and Gas Corp.
McMoRan Exploration Co.
Comstock Resources Inc.

Mariner Energy Inc.
Swift Energy Co.
Petroquest Energy Inc.
W & T Offshore Inc.
Stone Energy Co.

     In the fall of 2008, Hewitt adjusted the Original Peer Group after an updated study of comparable companies. Atwood Oceanics, Newfield Exploration Co., and Plains Exploration & Production Co. were removed and replaced by McMoRan Exploration Co. and Swift Energy Co. The Compensation Committee may revise the list of peer companies based on mergers, acquisitions and other factors that may affect comparability to Callon.

     Information concerning all unvested performance shares and outstanding options held by our named executive officers is contained in the “Outstanding Equity Awards at December 31, 2008” table. No stock options were awarded to the named executive officers for 2008.

     Retirement and Health/Welfare Benefits. We provide Company certain benefits that we believe are standard in the industry to all of our employees. These benefits consist of a group medical and dental insurance program for employees and their qualified dependents, group life insurance for employees and their spouses, accidental death and dismemberment coverage for employees, long-term disability, a Company sponsored cafeteria plan and a 401-K employee savings and protection plan. The costs of these benefits are paid entirely by the Company. Employee life insurance amounts surpassing the Internal Revenue Service maximum are treated as additional compensation to all employees. The Company’s 401-K contribution to each qualified participant, including the named executive officers, is calculated based on 5% of the employee’s eligible salary, excluding overtime pay and annual cash bonuses, and is paid one-half in cash and one-half in Company common stock, limited to IRS regulation dollar limits. The Company also matches employee deferral amounts, including amounts deferred by named executive officers, up to a maximum of 5% of eligible compensation. The Company pays all administrative costs to maintain the plan.

     Our executive officers are entitled to certain benefits, or perquisites, that are not otherwise available to all of our employees. We provide our Chief Executive Officer, Chief Financial Officer and other executive officers with use of a company automobile. We purchase the automobile and pay for all maintenance, repairs, insurance and fuel. The employee is required to recognize taxable income using the Internal Revenue Service’s annual lease value method for personal use of the vehicle. Another benefit offered only to Mr. Fred L. Callon is the Company’s payment of a term life insurance policy for which Mr. Callon is the sole beneficiary and which the Company has no economic interest in the proceeds. The costs associated with these benefits for the named executive officers are reported as “Other Compensation” in the Summary Compensation Table. The Committee feels these perquisites are common to the oil and gas industry and the value of such benefits is considered in determining total compensation of our executives.

     Severance Protection. Callon has not entered into any employment agreements with our executive officers. Prior to 2008, the Company entered into an agreement with Fred Callon that provided for certain payments if his employment is terminated in conjunction with a change-in-control of the Company. The Committee believes that this agreement helped ensure that Mr. Callon considered all potential transactions that may increase shareholder value, regardless of whether or not he continued to be employed by the surviving entity.

     In late 2007, Hewitt provided information relative to industry compensation practices under a variety of termination scenarios. As a result of this analysis and in order to ensure all named executive officers are motivated to consider any transaction that would increase shareholder value, in early 2008, Mr. Callon’s previous agreement was terminated and the Compensation Committee entered into similar change-in-control agreements with all the named executive officers. These agreements match competitive practices and are similar in structure to Mr. Callon’s previous agreement except that Mr. Callon’s benefit levels are higher to reflect his position as the CEO of the Company. Additionally, the Committee also included a non-competition and non-solicitation provision in all of the change-in-control agreements (including Mr. Callon’s) in order to protect the Company in the event the benefits are triggered. Despite competitive market practices to the contrary, the Committee chose not to provide guaranteed severance benefits outside of a change-in-control. In the event of a termination of employment outside of a change-in-control, the Committee will consider the circumstances of each case separately.

     Internal Revenue Service Limitations. We have structured our compensation program to comply with Internal Revenue Code Sections 162(m) and 409A. Under Section 162(m) of the Internal Revenue Code, a limitation was placed on tax deductions of any publicly-held corporation for individual compensation to certain executives of such

corporation exceeding $1,000,000 in any taxable year, unless the compensation is performance-based. If an executive is entitled to nonqualified deferred compensation benefits that are subject to Section 409A, and such benefits do not comply with Section 409A, then the benefits are taxable in the first year they are not subject to a substantial risk of forfeiture. In such case, the Service Provider is subject to regular federal income tax, interest and an additional federal income tax of 20% of the benefit includible in income. The Company has one individual (Fred L. Callon) with non-performance based compensation paid in excess of the Internal Revenue Code Section 162(m) tax deduction limit. However, the Committee reserves the right to use its judgment to authorize compensation payments that do not comply with the exemptions in Section 162(m) when it believe that such payments are appropriate and in the best interest of the stockholders, after taking into consideration changing business conditions or the executive’s individual performance and/or changes in specific job duties and responsibilities.

     Insider Trading Policy. We have an Insider Trading Policy for which all employees and members of our Board of Directors are prevented from buying or selling Company stock during periodic “trading blackout” periods. A trading blackout period is placed in effect by senior management when material non-public information about the Company exists and may have an influence on the marketplace. There have been no violations to this policy by any named executive officer during 2008.

     Stock Ownership Policy. In March 2008, the Compensation Committee of the Board of Directors adopted a stock ownership policy which applies to the Chief Executive Officer and the other named executive officers. The provisions of the policy provide for the investment position, computed on December 31 of each year, of the Chief Executive Officer to be no less than three times his or her base salary. For other named executive officers, the investment position shall be no less than two times base salary. Investment position is defined as calculated value of shares owned, shares owned indirectly, equivalent shares invested in the officer’s 401-K plan, and unvested portion of time-based vesting of performance or restricted shares. Value attributable to shares represented by both vested and unvested stock options and the value of unvested performance-based vesting of performance or restricted shares are excluded. Each officer has a period of five years from the date of adoption to attain the required investment position. If a named officer becomes subject to a greater investment position due to a promotion or an increase in salary, he or she will be expected to attain the increased investment position within three years of the change. The Compensation Committee reserves the right to approve an alternate stock ownership guideline for named officers who can demonstrate a severe hardship in meeting the general guidelines.

     Primarily as a result of the economic downturn and its effect on the Company’s year-end stock price at December 31, 2008, none of the named officers met the minimum investment value position. The Compensation Committee will closely monitor officer share holdings and future equity related activity for each individual.

     Certain Relationships and Related Party Transactions. Our Audit Committee charter provides that the Company shall not enter into a related party transaction unless such transaction is approved by the Audit Committee after a review of the transaction by the Audit Committee for potential conflicts of interest. A transaction will be considered a “related party transaction” if the transaction would be required to be disclosed under Item 404 of Regulation S-K. In addition, our Code of Business Conduct and Ethics provides that an officer’s or a director’s conflict of interest with the Company may only be waived if the Nominating and Governance Committee approves the waiver and the full Board of Directors ratifies the waiver. The Committees have the authority to hire legal, accounting, financial or other advisors as it may deem necessary or desirable and/or to delegate responsibilities to executive officers of the Company in connection with discharging their duties. As of December 31, 2008, we are not aware of any related party transactions with our executive officers that may cause a conflict of interest with the Company.

Compensation Committee Report

     We have reviewed and discussed with management certain Compensation Discussion and Analysis provisions included in the Company’s 2009 Shareholder Meeting Schedule 14A Proxy Statement, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934. Based on the reviews and discussions referred to above, we recommend to the Board of Directors that the Compensation Discussion and Analysis referred to above be included in the Company’s 2009 Proxy Statement.

L. Richard Flury (Chairman)
Larry D. McVay
John C. Wallace
Richard O. Wilson

     The following table sets forth certain information with respect to the Chief Executive Officer of the Company and the four most highly compensated executive officers of the Company serving in such positions as of December 31, 2008, 2007, and 2006. We sometimes refer to the officers listed below as the “named executive officers.”

Name																		All Other
and						Annual				Cash				Stock				Compen-
Principal						Salary				Bonus				Awards				sation				Total
Position		Year				($)				($)				($)(4)				($)(5)				($)
Fred L. Callon			2008				464,520				116,125				485,379				52,572				1,118,596
Chairman and Chief Executive Officer			2007				446,654				558,319	(2)			277,152				52,140				1,459,265
											125,000	(3)
			2006				434,700				125,000				329,919				55,350				944,969
B. F. Weatherly			2008				364,000				68,250				384,113				43,520				859,883
Executive Vice President and Chief			2007				350,000				328,125	(2)			248,313				110,894				1,112,332
Financial Officer											75,000	(3)
			2006				35,566	(1)			50,000				163,184				44,983				293,733
Stephen F. Woodcock			2008				286,000				35,750				250,201				43,513				615,464
Vice President			2007				258,149				275,000	(2)			177,774				42,291				803,214
											50,000	(3)
			2006				217,726				75,000				219,987				39,960				552,673
Thomas E. Schwager			2008				260,000				32,500				213,055				45,870				551,425
Vice President			2007				232,885				187,500	(2)			149,682				45,056				665,123
											50,000	(3)
			2006				196,321				75,000				183,453				39,866				494,640
Rodger W. Smith			2008				218,400				27,300				158,522				46,872				451,094
Vice President and Treasurer			2007				198,390				135,000	(2)			104,202				41,495				514,087
											35,000	(3)
			2006				167,384				65,000				127,419				39,216				399,019

     Table of All Other Compensation

										Company
						Company				Contributed				Company
						Contributed				Common				Provided				Company				Company
						Cash to				Stock to				Group Life				Provided				paid
						401- K				401- K				Insurance				Auto				Other				Total
Name		Year				($)				($)(1)				($)				($)(2)				($)				($)
Fred L. Callon			2008				17,250				6,286				2,465				15,071				11,500	(3)			52,572
			2007				16,875				5,625				3,264				14,876				11,500	(3)			52,140
			2006				16,500				5,500				3,264				16,526				13,560	(3)			55,350
B. F. Weatherly			2008				17,250				5,906				3,784				16,580				—				43,520
			2007				14,766				5,625				3,264				17,894				69,345	(4)			110,894
			2006				673				673				272				865				42,500	(5)			44,983
Stephen F. Woodcock			2008				17,250				5,616				2,465				18,182				—				43,513
			2007				16,875				5,625				3,264				16,527				—				42,291
			2006				16,330				5,443				3,264				14,923				—				39,960
Thomas E. Schwager			2008				17,250				5,451				2,465				20,704				—				45,870
			2007				16,875				5,625				3,264				19,292				—				45,056
			2006				14,724				4,908				3,264				16,970				—				39,866
Rodger W. Smith			2008				16,920				5,463				2,465				22,024				—				46,872
			2007				14,879				4,960				2,940				18,716				—				41,495
			2006				12,554				4,185				2,860				19,617				—				39,216

     The following table presents grants of equity awards during the fiscal year ending December 31, 2008:

Estimated Future

Payouts Under

Equity

Incentive

Grant

Plan Awards (1)

Date

Thresh-

Maxi-

All Other Stock Awards:

Fair

Grant

old

Target

mum

Number of Shares of

Value

Name

Date

(#)

(#)

(#)

Stock or Units (2)

($)(3)

Fred L. Callon

04/18/2008

23,000

23,000/28,750

34,500

23,000

937,020

B. F. Weatherly

04/18/2008

15,000

15,000/18,750

22,500

15,000

611,100

Stephen F. Woodcock

04/18/2008

8,000

8,000/10,000

12,000

8,000

325,920

Thomas E. Schwager

04/18/2008

7,000

7,000/8,750

10,500

7,000

285,180

Rodger W. Smith

04/18/2008

6,000

6,000/7,500

9,000

6,000

244,440

Performance Share Formula

     As described above in the CD&A, equity incentive awards were granted to the named executive officers in 2008 in the form of performance-based restricted stock and time-based restricted stock. The payout or forfeiture of performance-based restricted stock is dependent upon the total shareholder return of our common stock over a three-year period relative to that of a peer group. Share price is equitably adjusted for stock splits and other similar corporate actions affecting stock. The threshold, target and maximum number of shares that may be paid under these awards granted in 2008 is shown in the “Estimated Future Payouts Under Equity Incentive Awards” column above. For grants made in 2008, if our common stock’s total return ranks fifth, sixth or seventh compared to the peer group companies, or third or fourth compared to the peer group companies, the payout will be at 100% or 125%, respectively, of the target amount. If the total return ranks first or second compared to the peer companies, the payout will be the maximum amount at 150% of the target amount. A minimum threshold payout of 50% of the target amount will be made if we rank eighth or ninth of the peer companies. If the total return ranks tenth or eleventh compared to the peer group companies, there will be no payout.

     The time-vested restricted stock will vest in a single installment three years from the date of grant.

Stock-Based Incentive Compensation Plans

     The Company currently maintains four common stock-based incentive plans for its directors and employees: the 1994 Plan, the 1996 Plan, the 2002 Plan, and the 2006 Plan.

          1994 Plan. The 1994 Plan was adopted on June 30, 1994 and approved by the Company’s sole shareholder on that date. Pursuant to the 1994 Plan, 600,000 shares of common stock were reserved for issuance upon the exercise of options or for grants of performance shares. The 1994 Plan terminated effective July 14, 2004, therefore, no awards were made after this date.

          1996 Plan. On August 23, 1996, the Board of Directors of the Company approved and adopted the 1996 Plan. The 1996 Plan was later approved by the shareholders of the Company on June 19, 1997. Pursuant to the 1996 Plan, 900,000 shares of common stock were reserved for issuance upon the exercise of options or for grants of performance shares. On August 20, 1998, the Board of Directors amended the 1996 Plan, as permitted pursuant to the terms of the 1996 Plan, to increase the number of shares of common stock reserved for issuance to 1,200,000 shares. On May 9, 2000, the shareholders of the Company approved an increase in the available number of shares of common stock reserved for issuance under the 1996 Plan to 2,200,000 shares. Activity for the period January 1, 2008 through March 9, 2009 included the expiration of 9,917 unexercised stock options, forfeiture of 11,800 performance shares, and the return to the plan of 58,409 shares as a result of stock options exercised during the period. As of March 9, 2009, there were 195,931 shares of common stock available for future grant under the 1996 Plan.

          2002 Plan. On February 14, 2002, the Board of Directors of the Company approved and adopted the 2002 Plan. Pursuant to the 2002 Plan, 350,000 shares of common stock are reserved for issuance upon the exercise of options or for grants of stock options, stock appreciation rights or units, restricted stock, or performance shares or units. This Plan qualified as a “broadly based” plan under the provisions of the New York Stock Exchange rules and regulations at the time it was adopted and therefore did not require shareholder approval. Because the 2002 Plan is a broadly based plan, the aggregate number of shares underlying awards granted to officers and directors cannot exceed 50% of the total number of shares underlying the awards granted to all employees during any three-year period. Activity for the period January 1, 2008 through March 9, 2009 included the expiration of 3,000 unexercised stock options and the return to the plan of 10,515 shares as a result of stock options exercised during the period. As of March 9, 2009, there were 42,466 shares of common stock available for future grant under the 2002 Plan.

          2006 Plan. On March 9, 2006, the Board of Directors of the Company approved and adopted the 2006 Plan, subject to shareholder approval. The 2006 Plan was approved by the shareholders in

conjunction with the 2006 Annual Meeting of Shareholders held on May 4, 2006. Pursuant to the 2006 Plan, 500,000 shares of common stock are reserved for issuance upon the exercise of options or for grants of stock options, stock appreciation rights or units, restricted stock, or performance shares or units. To date in 2009, there have been no awards granted. Activity for the period January 1, 2008 through March 9, 2009 included the award of 217,600 performance shares to officers and employees, 25,000 shares awarded as compensation to our independent members of the Board of Directors, the forfeiture of 2,000 performance shares and the return of 1,648 shares as a result of stock options exercised during the period. An additional 35,500 shares have been reserved by the 2006 Plan in the event a certain performance target is reached on April 18, 2011. As of March 9, 2009, there were 191,048 shares of common stock available for future grant under the 2006 Plan.

          1997 Employee Stock Purchase Plan. In 1997, the Board of Directors authorized the implementation of the Callon Petroleum Company 1997 Employee Stock Purchase Plan (the “1997 Purchase Plan”), which was approved by the Company’s shareholders on June 19, 1997. The Plan provided eligible employees of the Company with the opportunity to acquire a proprietary interest in the Company through participation in a payroll deduction-based employee stock purchase plan. An aggregate of 250,000 shares of common stock was reserved for issuance over the ten-year term of the 1997 Purchase Plan. The purchase price per share at which common stock could be purchased by the participant on each purchase date within an offering period was equal to eighty-five percent of the fair market value per share of common stock. As of March 9, 2009, all reserved shares have been issued.

     The Company does not have a long-term incentive plan for its employees other than the stock-based incentive compensation plans mentioned above and in the CD&A.

     The following table contains information concerning all unexercised and unvested stock awards at December 31, 2008 for the named executive officers:

		Option Awards												Stock Awards
																										Equity
																										Incentive
																						Equity				Plan
																						Incentive				Awards:
																						Plan				Market or
																						Awards:				Payout
																						Number of				Value of
		Number																				Unearned				Unearned
		of												Number of				Market				Shares,				Shares,
		Securities												Shares or				Value of Shares				Units or				Units or
		Underlying												Units of				or Units of				Other				Other
		Unexercised				Option								Stock that				Stock				Rights that				Rights that
		Options				Exercise				Option				Have Not				that Have				Have Not				Have Not
		(#)				Price				Expiration				Vested				Not vested				Vested				Vested
Name		Exercisable				($)				Date				(#)				($)(11)				(#)				($)(11)
Fred L. Callon			110,000	(1)			10.50				03/23/2010				—				—				—				—
			18,750	(2)			4.50				07/12/2012				—				—				—				—
			12,625	(3)			3.70				08/12/2012				—				—				—				—
			—				—				—				8,600	(7)			22,360				—				—
			—				—				—				20,000	(8)			52,000				—				—
			—				—				—				23,000	(10)			59,800				23,000	(10)			59,800
B. F. Weatherly			15,000	(4)			10.50				07/25/2010				—				—				—				—
			5,000	(5)			6.05				05/08/2012				—				—				—				—
			5,000	(6)			5.12				05/02/2013				—				—				—				—
			—				—				—				5,000	(7)			13,000				—				—
			—				—				—				22,500	(9)			58,500				—				—
			—				—				—				15,000	(10)			39,000				15,000	(10)			39,000

		Option Awards												Stock Awards
																										Equity
																										Incentive
																						Equity				Plan
																						Incentive				Awards:
																						Plan				Market or
																						Awards:				Payout
																						Number of				Value of
		Number																				Unearned				Unearned
		of												Number of				Market				Shares,				Shares,
		Securities												Shares or				Value of Shares				Units or				Units or
		Underlying												Units of				or Units of				Other				Other
		Unexercised				Option								Stock that				Stock				Rights that				Rights that
		Options				Exercise				Option				Have Not				that Have				Have Not				Have Not
		(#)				Price				Expiration				Vested				Not vested				Vested				Vested
Name		Exercisable				($)				Date				(#)				($)(11)				(#)				($)(11)
Stephen F. Woodcock			44,000	(1)			10.50				03/23/2010				—				—				—				—
			13,250	(2)			4.50				07/12/2012				—				—				—				—
			8,500	(3)			3.70				08/23/2012				—				—				—				—
			—				—				—				3,700	(7)			9,620				—				—
			—				—				—				16,000	(8)			41,600				—				—
			—				—				—				8,000	(10)			20,800				8,000	(10)			20,800
Thomas E. Schwager			—				—				—				3,500	(7)			9,100				—				—
			—				—				—				12,800	(8)			33,280				—				—
			—				—				—				7,000	(10)			18,200				7,000	(10)			18,200
Rodger W. Smith			20,000	(1)			10.50				03/23/2010				—				—				—				—
			—				—				—				2,500	(7)			6,500				—				—
			—				—				—				8,800	(8)			22,880				—				—
			—				—				—				6,000	(10)			15,600				6,000	(10)			15,600

     The following table indicates option exercises and stock vesting during 2008 for the named executive officers:

		Option Awards								Stock Awards
										Number of
										Shares
		Number of				Value				Acquired				Value
Name of		Shares Acquired				Realized On				on				Realized on
Executive		on Exercise				Exercise				Vesting				Vesting
Officer		(#)				($)				(#)				($)
Fred L. Callon			60,000				1,095,075				8,600	(1)			222,654	(4)
			—				—				10,000	(2)			199,900	(5)
B. F. Weatherly			5,000				85,531				5,000	(1)			129,450	(4)
			5,000				78,031				11,250	(3)			83,588	(6)
			5,000				65,063				—				—
			5,000				80,375				—				—
			5,000				76,600				—				—
			5,000				80,550				—				—
			5,000				70,050				—				—
Stephen F. Woodcock			25,000				468,000				3,700	(1)			95,793	(4)
			—				—				8,000	(2)			159,920	(5)
Thomas E. Schwager			—				—				3,500	(1)			90,615	(4)
			—				—				6,400	(2)			127,936	(5)
Rodger W. Smith			8,000				149,760				2,500	(1)			64,725	(4)
			1,600				37,152				4,400	(2)			87,956	(5)
			1,083				26,014				—				—

Potential Payments Upon Termination or Change-in-Control

     The following table shows the estimated gross taxable compensation payable under several scenarios. The information assumes, in each case, that the officer’s termination was effective as of December 31, 2008. In presenting this disclosure, we describe amounts earned through December 31, 2008 and, in those cases where the actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company, our estimates are of the amounts which would be paid out to the executives upon their termination.

										Accelerated				Continued
		Base				Cash				Stock Award				Employee
Name and		Salary				Bonus				Vesting				Benefits				Excise Tax				Total
Reason for Termination		($)(5)				($)(5)				($)(6)				($)(7)(8)				($)(9)				($)
Fred L. Callon
Change in Control (1)			1,393,560				1,393,560				193,960				116,005				619,129				3,716,214
Termination for Good Reason (2)			—				—				22,360				—				—				22,360
Termination for Cause (3)			—				—				—				—				—				—
Death, Disability, or Retirement (4)			—				—				193,960				—				—				193,960
Voluntary termination			—				—				—				—				—				—
B. F. Weatherly
Change in Control (1)			728,000				546,000				149,500				54,336				329,325				1,807,161
Termination for Good Reason (2)			—				—				13,000				—				—				13,000
Termination for Cause (3)			—				—				—				—				—				—
Death, Disability, or Retirement (4)			—				—				149,500				—				—				149,500
Voluntary termination			—				—				—				—				—				—
Stephen F. Woodcock
Change in Control (1)			572,000				286,000				92,820				54,336				—				1,005,156
Termination for Good Reason (2)			—				—				9,620				—				—				9,620
Termination for Cause (3)			—				—				—				—				—				—
Death, Disability, or Retirement (4)			—				—				92,820				—				—				92,820
Voluntary termination			—				—				—				—				—				—
Thomas E. Schwager
Change in Control (1)			520,000				260,000				78,780				54,336				—				913,116
Termination for Good Reason (2)			—				—				9,100				—				—				9,100
Termination for Cause (3)			—				—				—				—				—				—
Death, Disability, or Retirement (4)			—				—				78,780				—				—				78,780
Voluntary termination			—				—				—				—				—				—
Rodger W. Smith
Change in Control (1)			436,800				218,400				60,580				53,822				—				769,602
Termination for Good Reason (2)			—				—				2,500				—				—				2,500

										Accelerated				Continued
		Base				Cash				Stock Award				Employee
Name and		Salary				Bonus				Vesting				Benefits				Excise Tax				Total
Reason for Termination		($)(5)				($)(5)				($)(6)				($)(7)(8)				($)(9)				($)
Termination for Cause (3)			—				—				—				—				—				—
Death, Disability, or Retirement (4)			—				—				60,580				—				—				60,580
Voluntary termination			—				—				—				—				—				—

Vesting provisions Applicable to Performance Shares Awarded in April 2008

     Upon a change in control or upon the death or termination of employment due to disability of the employee, the performance period set for the performance shares granted in April 2008 and described in the CD&A will end on the effective date of the event and all unvested portions of the performance shares shall vest on such date. Upon retirement on any date after the employee attains the normal retirement age of 70 years, the performance period will end and all unvested portions of the performance shares shall vest on such retirement date. If the employee’s employment with the Company is terminated other than as set forth above, all unvested portions of the performance shares will be forfeited.

Employment Agreements, Termination of Employment and Change-in-Control Arrangements

     Severance Compensation Agreements. On April 18, 2008, the Company entered into a Severance Compensation Agreement with each of the named executive officers, which were subsequently amended effective on December 31, 2008 to comply with the final Treasury Regulations issued under Section 409A of the Internal Revenue Code of 1986, as amended (“Agreements”). The Agreements will terminate, except to the extent that any obligation of the Company hereunder remains unpaid as of such time, upon the earliest of (1) December 31, 2008; provided, however, that, commencing on December 31, 2008 and on each anniversary date thereafter (each such date, an “Anniversary Date”), the expiration date shall automatically be extended for one additional year unless, immediately prior to such Anniversary Date, either party shall have given written notice that it does not wish to extend this Agreement, but in no event shall the expiration date be earlier than the second anniversary of the effective date of a Change of Control; (2) the termination of the Executive’s employment with Callon based on death, Disability (as defined in Section 3.1 of the Agreement), or Cause (as defined in Section 3.2 of the Agreement; and (3) the voluntary resignation of the Executive for any reason other than Good Reason (as defined in Section 3.3 of the Agreement). As of December 31, 2008, all five Agreements were extended for one additional year.

     Pursuant to the Agreement, if the executive incurs a “separation from service” from the Company (as such term is defined in final Treasury Regulations issued under Code Section 409A and any other guidance issued thereunder) without cause by the Company or for good reason by him within two years

following a Change of Control of the Company (or in certain cases, prior to a change of control), then the executive is entitled to a single lump-sum cash payment (payable six months following the triggering event) in an amount equal to three times the sum of Mr. Callon’s (a) the annual base salary in effect immediately prior to the Change of Control or, if higher, in effect immediately prior to the separation from service, and (b) the greater of the average bonus earned with respect to the three most recently completed full fiscal years or the target bonus for the fiscal year in which the Change of Control occurs, based on a forecast that has been approved by the Board of the results for the fiscal year in which the Change of Control occurs. For the remaining named executive officers, the salary and bonus multiple is two times. In addition, the Company must maintain at its expense until thirty-six (36) months after a separation from service all life, disability, medical, dental, accident and health insurance coverage for Mr. Callon. For the remaining named executive officers, the continued benefit period is twenty-four (24) months. If the executive’s employment is terminated as a result of his death or disability, the Company is only required to make such payments if the termination occurred within six months of a Change of Control. “Good reason” is generally defined in the Agreement as a change in compensation, benefits, position, responsibilities, or location. A Change of Control is generally defined in the Agreement as (i) any person or group of persons acting in concert shall have become the beneficial owner of more than 50% of the outstanding common stock of the Company; (ii) the stockholders of the Company shall cause a change in the majority of the members of the Board of Directors within a twelve-month period; or (iii) the Company or its stockholders shall enter into an agreement to dispose of all or substantially all of the assets or outstanding capital stock of the Company.

     The Agreements also provide that, upon a Change of Control, all stock options shall automatically become fully exercisable and all performance shares, restricted stock, stock appreciation rights and other similar rights held by the executive shall become fully vested, provided however, that such acceleration of vesting shall not occur if it would be an impermissible acceleration under Section 409A of the Code. If the Company cannot provide for acceleration of vesting as a result of provisions in existence prior to a Change of Control, any plan or agreement, or Section 409A, the Company must provide in lieu thereof a lump-sum cash payment equal to the total value of the outstanding and unvested stock rights as of the date of separation from service.

     The Agreements incorporate a provision to provide for the possible impact of the federal excise tax on excess parachute payments. The so-called “golden parachute” tax rules subject “excess parachute payments” to a dual penalty: the imposition of a 20 percent excise tax upon the recipient and non-deductibility of such payments by the paying corporation. While the excise tax is seemingly evenhanded, the excise tax can discriminate against long-serving employees in favor of new hires, against individuals who do not exercise stock options in favor of those who do and against those who elect to defer compensation in favor of those who do not. For these reasons, we believe that the provision of the excise tax gross-up in the Agreement is appropriate. If any payment is subject to any excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, a “gross-up” payment will be made to place such executive in the same net after-tax position as would have been the case if no excise tax had been payable.

Compensation of Non-Management Directors

     Each non-management director receives an annual retainer of $40,000 per year with an additional $20,000 per year for the chairman of the Audit Committee and an additional $10,000 per year to the chairman of the Compensation Committee and the chairman of the Nominating and Corporate Governance Committee. Each non-management director is reimbursed for reasonable out-of-pocket costs incurred to attend Board meetings. In addition to cash compensation the Compensation Committee may, from time to time, grant performance shares. During 2008, the Compensation Committee awarded 6,250 shares of stock each to Messrs. Flury, McVay, Wallace, and Wilson. These shares vested immediately upon issuance. The table below indicates the total compensation earned and paid during 2008 for each non-management director:

		Fees
		Earned
		or Paid				Stock				Option				All Other
		in Cash				Awards				Awards				Compensation				Total
Name		($)(1)				($)(6)				($)				($)				($)
L. Richard Flury			50,000	(2)			57,950	(7)			—				—				257,388
							149,438	(10)
Larry D. McVay			50,000	(3)			83,086	(8)			—				—				282,524
							149,438	(10)
John C. Wallace			60,000	(4)			69,100	(9)			—				—				278,538
							149,438	(10)
Richard O. Wilson			50,000	(5)			69,100	(9)			—				—				268,538
							149,438	(10)