Exhibit 10.2

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “Agreement”) is made by and between Clayton
Williams Energy, Inc., a Delaware corporation (the “Company”), and L. Paul
Latham (“Employee”) effective as of March 1, 2010 (the “Effective Date”).

 

WHEREAS, the Company desires to employ Employee and Employee desires to be
employed by the Company and to commit himself to serve the Company on the terms
herein provided;

 

NOW, THERFORE, in consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

 

1.             Employment. The Company shall employ Employee, and Employee
accepts employment with the Company, upon the terms and conditions set forth in
this Agreement for the period beginning on the Effective Date and ending on the
third anniversary of such date (the “Initial Term”); provided, however, that
(a) on such third anniversary date (and on the fourth and fifth anniversary
dates of the Effective Date thereafter), the term of this Agreement will
automatically (without any action by either party) be extended for one
additional year (each, a “Renewal Period”), unless, at least 90 days prior to
either the third, fourth, or fifth anniversary date of the Effective Date, as
applicable, the Company or Employee has given written notice to the other party
(a “Non-Renewal Notice”) that the Company or Employee does not wish to extend
the term of the Agreement (a “Non-Renewal”), and (b) the Initial Term or any
Renewal Period, as applicable, may be terminated prior to the expiration thereof
in accordance with Section 4.  Either party may elect not to renew this
Agreement; provided, that, if no Non-Renewal Notice is given, and if this
Agreement is not terminated earlier in accordance with Section 4, the Agreement
will expire by its terms on the sixth anniversary of the Effective Date, unless
extended by mutual agreement of the parties hereto.  The term “Employment Term”
means the period from the Effective Date until the expiration of the Initial
Term and any applicable Renewal Period pursuant to this Section 1 or in
accordance with Section 4 of this Agreement.

 

2.             Position and Duties.

 

(a)           During the Employment Term, Employee shall hold the title of
Executive Vice President and Chief Operating Officer.  The Company and Employee
agree that the Employee shall have duties and responsibilities consistent with
the position set forth above in a company the size and of the nature of the
Company, and such other duties and authority that are assigned to Employee from
time to time by the Company’s Board of Directors (the “Board”), or such other
officer of the Company as shall be designated by the Board.  Employee shall
report to the Board, or to such other officer of the Company as shall be
designated by the Board.

 

(b)           Employee shall devote such of his business time and attention to
the business and affairs of the Company as is required to perform his duties and
responsibilities hereunder.  Employee shall perform his duties and
responsibilities to the best of his abilities in a diligent and professional
manner, and agrees to comply with all of the policies of the Company,

 

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including such policies with respect to legal compliance, conflicts of interest,
confidentiality and business ethics as are from time to time in effect.  During
the Employment Term, Employee shall not engage in any business activity which,
in the reasonable judgment of the Board, conflicts or interferes with the duties
and responsibilities of Employee hereunder, whether or not such activity is
pursued for gain, profit or other pecuniary advantage, without the prior written
approval of the Company or engage in or be employed by any other business;
provided, however, that the foregoing provisions of this Section 2 shall not
limit or prohibit Employee from (i) engaging in community, charitable and social
activities, personal investment activities and the endeavors set forth on
Exhibit A attached hereto, in each case not interfering with the Employee’s
performance and obligations hereunder or (ii) engaging (including as an
employee) in any business or other activities on behalf of Clayton W.
Williams, Jr., members of his family and entities owned or controlled by
Clayton W. Williams, Jr. or members of his family.  For the avoidance of doubt,
this Section 2 shall not limit or prohibit Employee from providing services to
or for the benefit of the Williams Entities pursuant to the Second Amended and
Restated Service Agreement dated as of March 1, 2005 by and among the Company
and the Williams Entities (as defined therein), as amended from time to time.

 

(c)           Employee acknowledges and agrees that Employee owes a duty of
loyalty, fidelity and allegiance to act at all times in the best interests of
the Company and to do no act that would injure the business, interests, or
reputation of the Company or any of its Affiliates.  In keeping with these
duties, Employee shall make full disclosure to the Company of all significant
business opportunities pertaining to the Company’s business and shall not
appropriate for Employee’s own benefit business opportunities concerning the
subject matter of the fiduciary relationship.  Except as set forth in
Section 5(d)(ii), for purposes of this Agreement, the term “Affiliate” shall
mean an individual or entity that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
specified individual or entity.

 

3.             Compensation.

 

(a)           Base Salary.  During the Employment Term, Employee’s base salary
shall be $351,540 per annum, which salary may be increased (but not decreased)
by the Board (or a designated committee thereof) in its discretion (the “Base
Salary”), which Base Salary shall be payable in regular installments in
accordance with the Company’s general payroll practices and subject to
withholding and other payroll taxes.

 

(b)           Annual Bonus.  Employee shall be eligible to receive one or more
bonuses each year during the Employment Term to be determined by the Board (or a
designated committee thereof), in its sole discretion based on performance or
other criteria to be adopted by the Board (or a designated committee thereof). 
Any bonus amount earned with respect to a calendar year shall be paid in a cash
lump sum no later than March 15 of the following calendar year.

 

(c)           Employee Benefits.  Employee will be entitled during the
Employment Term to receive such welfare benefits and other fringe benefits
(including vacation, medical, dental, life insurance, 401(k) and other employee
benefits and perquisites, such as club membership dues) as the Company may offer
from time to time to similarly situated executive

 

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level employees, subject to applicable eligibility requirements.  The Company
shall not, however, by reason of this Section 3(c), be obligated to institute,
maintain, or refrain from changing, amending, or discontinuing any such benefit
plan or program, so long as any such changes are similarly applicable to
similarly situated employees of the Company.

 

(d)           Business Expenses.  The Company shall reimburse Employee for all
reasonable expenses incurred by him in the course of performing his duties under
this Agreement to the extent consistent with the Company’s written policies in
effect from time to time with respect to travel, entertainment and other
business expenses, subject to the Company’s requirements with respect to
reporting and documentation of such expenses.  Notwithstanding any provision in
this Agreement to the contrary, the amount of expenses for which Employee is
eligible to receive reimbursement during any calendar year shall not affect the
amount of expenses for which Employee is eligible to receive reimbursement
during any other calendar year within the Employment Term.  Reimbursement of
expenses under this Section 3(d) shall be made no later than the last day of the
calendar year following the calendar year in which the expense was incurred. 
Employee is not permitted to receive a payment or other benefit in lieu of
reimbursement under this Section 3(d).

 

(e)           Long Term Incentive Compensation.  Employee may, as determined by
the Board (or a designated committee thereof) in its sole discretion,
periodically receive grants of, or payments under, equity or non-equity related
awards pursuant to the Company’s long-term incentive plan(s), including the APO
Incentive Plan, the APO Reward Plans, the SWR Reward Plan, the APO Working
Interest Trusts, the APO Working Interest Grant, or any similar or successor
plan(s) (collectively, “Incentive Plans”), subject to the terms and conditions
thereof.  Any grants previously awarded to Executive pursuant to the Company’s
Incentive Plans that are outstanding on the Effective Date hereof shall, except
as otherwise provided in this Agreement, continue to be governed by the terms
and conditions of the Incentive Plans.

 

(f)            Automobile Allowance.  During the Employment Term, Employee will
be entitled to receive a car allowance in accordance with the Company’s
automobile allowance policy in effect from time to time.

 

4.             Termination of Employment.  Unless otherwise agreed to in writing
by the Company and Employee, Employee’s employment hereunder may be terminated
under the following circumstances:

 

(a)           Death.  Employee’s employment hereunder shall terminate upon his
death.

 

(b)           Disability.  Employee’s employment hereunder shall terminate upon
a determination that he has incurred a Disability.  For purposes of this
Agreement, “Disability” means, at any time the Company sponsors a long-term
disability plan for the Company’s employees, “disability” as defined in such
long-term disability plan for the purpose of determining a participant’s
eligibility for benefits, provided, that if the long-term disability plan
contains multiple definitions of disability, “Disability” shall refer to that
definition of disability which, if Employee qualified for such disability
benefits, would provide coverage for the longest period of time.  The
determination of whether Employee has a Disability shall be made in good faith
by the person or persons required to make disability determinations under the
long-term

 

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disability plan.  If Employee is not covered under the Company’s long-term
disability plan or if the Company does not sponsor a long-term disability plan
at such time, then the term “Disability” hereunder shall mean a “permanent and
total disability” as defined in section 22(e)(3) of the Internal Revenue Code of
1986, as amended (the “Code”), and, in this case, the existence of any such
Disability shall be certified by a physician acceptable to both the Company and
Employee.  In the event the parties are not able to agree on the choice of a
physician, each party shall select a physician who, in turn, shall select a
third physician to render such certification.

 

(c)           Termination by the Company.  The Company may terminate Employee’s
employment with or without Cause.  For purposes of this Agreement, the term
“Cause” means Employee (i) has been convicted of a misdemeanor that involves
intentionally dishonest behavior or that the Company determines in good faith
will have a material adverse effect on the reputation of the Company or any
felony, (ii) has engaged in conduct which is materially injurious (monetarily or
otherwise) to the Company or any of its Affiliates (including misuse of the
Company’s or an Affiliate’s funds or other property), (iii) has engaged in gross
negligence or willful misconduct in the performance of his duties for the
Company, (iv) has willfully refused without proper legal reason to perform his
duties for the Company, (v) has breached any material provision of this
Agreement or any other agreement between the Company and Employee, or (vi) has
breached any material corporate policy maintained and established by the Company
that is of general applicability to executives of the Company; provided,
however, as to clauses (iv), (v) and (vi) contained in this Section 4(c), if
such acts or omissions could be cured by Employee (as reasonably determined by
the Board), the Company must give Employee written notice of the acts or
omissions constituting Cause and, in such case, no termination shall be for
Cause unless and until Employee fails to cure such acts or omissions within
10 days following receipt of such written notice.

 

(d)           Termination by Employee.  Employee may, upon giving the Company no
less than 30 days advance written notice, terminate Employee’s employment
without Good Reason or for Good Reason.  For purposes of this Agreement, the
term “Good Reason” shall mean, without the express written consent of Employee,
the occurrence of one of the following: (i) any action or inaction that
constitutes a material breach by the Company of this Agreement, (ii) a material
reduction in Employee’s Base Salary, including any series of salary reductions
(whether or not related) that are not agreed to by Employee in writing and that,
individually or in the aggregate, result in a material reduction when compared
to Employee’s Base Salary in effect on the Effective Date or as adjusted after
the Effective Date in accordance with Section 3(a) hereof or with Employee’s
prior written consent, (iii) a material diminution in Employee’s authority,
duties or responsibilities or the assignment of duties to Employee that are not
materially commensurate with Employee’s position with the Company, or (iv) a
change in the geographic location at which Employee must normally perform
services to a location outside of Midland County, Texas.  For the avoidance of
doubt, any reduction in Employee’s Base Salary, regardless of amount, could be
material if, in light of all other facts and circumstances, a reasonable person
in the position of Employee would consider it important.  In the case of
Employee’s allegation of Good Reason, (A) Employee shall provide notice to the
Company of the event alleged to constitute Good Reason within 60 days of the
occurrence of such event, and (B) the Company shall have the opportunity to
remedy the alleged Good Reason event within 30 days from receipt of notice of
such allegation.

 

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5.             Compensation Upon Termination.

 

(a)           For Cause or Without Good Reason.  In the event Employee’s
employment is terminated by the Company for Cause or by the Employee without
Good Reason, Employee shall be entitled to receive (i) Employee’s full Base
Salary through the Date of Termination at the rate then in effect,
(ii) reimbursement of any expenses to the extent such amounts have accrued
through the Date of Termination, and (iii) such employee benefits, if any, as to
which Employee may be entitled pursuant to the terms governing such benefits
(such amounts set forth in (i), (ii) and (iii) shall be collectively referred to
herein as the “Accrued Rights”).

 

(b)           Death or Disability.  In the event Employee’s employment
terminates by reason of his death or Disability, Employee (or his estate) shall
be entitled to receive the Accrued Rights and all outstanding equity and
non-equity based awards (including any awards or interests under the Incentive
Plans) held by Employee immediately prior to the Date of Termination shall
become fully vested as of such date; provided, that, notwithstanding the
foregoing, any awards or interests held by Employee as of the Date of
Termination under any Incentive Plan shall continue to be governed by the terms
and conditions of such plans relating to the forfeiture of awards that are fully
vested.  In addition, Employee shall be entitled to receive the following,
provided Employee (or his estate) delivers to the Company, within 45 days
following the Date of Termination, a properly executed release in accordance
with Section 8 of this Agreement:

 

(i)            a lump sum payment equal to 18 months’ worth of Employee’s Base
Salary in effect on the Date of Termination (determined without regard to any
reduction in Base Salary imposed by the Company in violation of Section 3(a)
hereof), payable as soon as practicable but no later than the earlier of
(A) March 15 following the calendar year in which termination occurs or (B) 90
days following the Date of Termination; and

 

(ii)           Employee (in the case of a termination due to Disability), his
spouse and eligible dependents (to the extent covered immediately prior to such
termination) shall continue to be eligible to participate in all of the
Company’s group health plans on the same terms and conditions as active
employees of the Company for a period of one (1) year following the Date of
Termination.  If benefits are continued pursuant to this Section 5(b)(ii) during
a period when, in the absence of the benefits provided in this Section 5(b)(ii),
Employee or his dependants would not be entitled to continuation coverage under
Section 4980B of the Code, Employee and his dependants shall receive
reimbursement for all medical expenses no later than the end of the calendar
year immediately following the calendar year in which the applicable expenses
were incurred.  The health care continuation coverage period under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”),
Code Section 4980B, or any replacement or successor provision of United States
tax law, shall run concurrently with the period during which continued benefits
are being provided pursuant to this Section 5(b)(ii).

 

(c)           Without Cause, For Good Reason or Non-Renewal.  In the event
Employee’s employment is terminated by the Company without Cause, by Employee
for Good Reason or due to a Non-Renewal that results from a Non-Renewal Notice
given by the Company, Employee shall be entitled to receive payment of the
following:

 

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(i)            the Accrued Rights;

 

(ii)           all outstanding equity and non-equity based awards (including any
awards or interests under the Incentive Plans) held by Employee immediately
prior to the Date of Termination shall become fully vested as of such date;
provided, that, notwithstanding the foregoing, any awards or interests held by
Employee as of the Date of Termination under any Incentive Plan shall continue
to be governed by the terms and conditions of such plans relating to the
forfeiture of awards that are fully vested;

 

(iii)          provided Employee delivers to the Company, within 45 days
following the Date of Termination, a properly executed release in accordance
with Section 8 of this Agreement, a lump sum payment equal to the sum of (A) two
(2) times Employee’s annualized Base Salary in effect on the Date of Termination
(determined without regard to any reduction in Base Salary imposed by the
Company in violation of Section 3(a) hereof), (B) two (2) times the average of
the bonus amount(s) actually paid to Employee for the three (3) calendar years
ending prior to the Date of Termination (not including any amounts paid to
Employee pursuant to any of the Company’s Incentive Plans), (C) the car
allowance Employee would have received pursuant to Section 3(f) of this
Agreement had his employment continued for an additional two (2) years, and
(D) the matching contributions that would have been made on behalf of Employee
pursuant to the Company’s 401(k) plan if Employee had continued participation in
such 401(k) plan for an additional two (2) years, payable as soon as practicable
but no later than the earlier of (I) March 15 following the calendar year in
which termination occurs or (II) 90 days following the Date of Termination; and

 

(iv)          provided Employee delivers to the Company, within 45 days
following the Date of Termination, a properly executed release in accordance
with Section 8 of this Agreement, Employee, his spouse and eligible dependents
(to the extent covered immediately prior to such termination) shall continue to
be eligible to participate in all of the Company’s group health plans on the
same terms and conditions as active employees of the Company for a period of 18
months following the Date of Termination.  If benefits continue pursuant to this
Section 5(c)(iv) during a period when, in the absence of the benefits provided
in this Section 5(c)(iv), Employee or his dependants would not be entitled to
continuation coverage under Section 4980B of the Code, Employee and his
dependants shall receive reimbursement for all medical expenses no later than
the end of the calendar year immediately following the calendar year in which
the applicable expenses were incurred. The health care continuation coverage
period under COBRA, Code Section 4980B, or any replacement or successor
provision of United States tax law, shall run concurrently with the period
during which continued benefits are being provided pursuant to this
Section 5(c)(iv).

 

(d)           Change in Control.

 

(i)            Notwithstanding any provision contained herein, if Employee’s
employment is terminated by the Company without Cause (other than by reason of
death or Disability), if Employee resigns for Good Reason or in the event of a
Non-Renewal that results from a Non-Renewal Notice given by the Company, in each
case, within 24 months following a Change in Control (as defined below),
Employee shall be entitled to receive:

 

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A.            the Accrued Rights;

 

B.            all outstanding equity and non-equity based awards (including any
awards or interests under the Incentive Plans) held by Employee immediately
prior to the Date of Termination shall become fully vested as of such date;
provided, that, notwithstanding the foregoing, any awards or interests held by
Employee as of the Date of Termination under any Incentive Plan shall continue
to be governed by the terms and conditions of such plans relating to the
forfeiture of awards that are fully vested;

 

C.            provided Employee delivers to the Company, within 45 days
following the Date of Termination, a properly executed release in accordance
with Section 8 of this Agreement, a lump sum payment equal to the sum of
(I) three (3) times Employee’s annualized Base Salary in effect on the Date of
Termination (determined without regard to any reduction in Base Salary imposed
by the Company in violation of Section 3(a) hereof), (II) three (3) times the
average of the bonus amount(s) actually paid to Employee for the three
(3) calendar years ending prior to the Date of Termination (not including any
amounts paid to Employee pursuant to any of the Company’s Incentive Plans),
(III) the car allowance Employee would have received pursuant to Section 3(f) of
this Agreement had his employment continued for an additional three (3) years,
and (IV) the matching contributions that would have been made on behalf of
Employee pursuant to the Company’s 401(k) plan if Employee had continued
participation in such 401(k) plan for an additional three (3) years, payable as
soon as practicable but no later than the earlier of (a) March 15 following the
calendar year in which termination occurs or (b) 90 days following the Date of
Termination; and

 

D.            provided Employee delivers to the Company, within 45 days
following the Date of Termination, a properly executed release in accordance
with Section 8 of this Agreement, Employee, his spouse and eligible dependents
(to the extent covered immediately prior to such termination) shall continue to
be eligible to participate in all of the Company’s group health plans on the
same terms and conditions as active employees of the Company for a period of 18
months following the Date of Termination.  If benefits continue pursuant to this
Section 5(d)(i)D during a period when, in the absence of the benefits provided
in this Section 5(d)(i)D, Employee or his dependants would not be entitled to
continuation coverage under Section 4980B of the Code, Employee and his
dependants shall receive reimbursement for all medical expenses no later than
the end of the calendar year immediately following the calendar year in which
the applicable expenses were incurred. The health care continuation coverage
period under COBRA, Code Section 4980B, or any replacement or successor
provision of United States tax law, shall run concurrently with the period
during which continued benefits are being provided pursuant to this
Section 5(d)(i)D.

 

(ii)           For purposes of this Agreement, the term “Change in Control”
shall mean:

 

A.            (I) Any “person” or “group” of related persons (as such terms are
used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)), other than Clayton Williams, Jr. or any Affiliate
or Related Person thereof (each, a “Permitted Holder”), is or becomes the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that such person or group shall be

 

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deemed to have “beneficial ownership” of all shares that such person or group
has the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, or more than 35% of the
total voting power of the outstanding capital stock (excluding any debt
securities convertible into equity) normally entitled to vote in the election of
directors (“Voting Stock”) of the Company (or its successor by merger,
consolidation or purchase of all or substantially all of its assets) (for
purposes of this clause, such person or group shall be deemed to beneficially
own any Voting Stock held by a parent entity, if such person or group
“beneficially owns” (as defined above), directly or indirectly, more than 35% of
the voting power of the Voting Stock of such parent entity); and (II) the
Permitted Holders “beneficially own” (as defined above), directly or indirectly,
in the aggregate less than 25% of the total voting power of the Voting Stock of
the Company (or its successor by merger, consolidation or purchase of all or
substantially all of its assets) or its parent entity and do not have the right
or ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the Company (or such successor)
or its parent entity; or

 

B.            The first day on which a majority of the members of the Board of
Directors of the Company are not, as of any date of determination, either (I) a
member of the Board of Directors of the Company on July 20, 2005, or
(II) individuals who were nominated for election or elected to the Company’s
Board of Directors with the approval of the majority of the directors described
in clause (I) (or approved for nomination or election by the majority of
directors described in clause (I) or (II) hereof) who were members of the
Company’s Board of Directors at the time of such nomination or election; or

 

C.            The sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and its
Related Subsidiaries taken as a whole to any “person” (as such term is used in
sections 13(d) and 14(d) of the Exchange Act) other than a Permitted Holder; or

 

D.            The adoption by the stockholders of the Company of a plan or
proposal for the liquidation or dissolution of the Company; or

 

E.             The resignation or other removal for any reason of Clayton W.
Williams, Jr. from his current position at the Company, including by reason of
the death or Disability of Clayton W. Williams, Jr.

 

The terms “Affiliate,” “Related Person” and “Restricted Subsidiary” as used in
the definition of Change in Control shall have the meanings given to such terms
in that certain Indenture, dated July 20, 2005, among the Company, the
Subsidiary Guarantors and Wells Fargo Bank, National Association, as Trustee, as
amended from time to time.  The term “Disability,” as used in the definition of
Change in Control shall have the meaning given to such term in that certain
Employment Agreement, dated the date hereof, between the Company and Clayton W.
Williams, Jr., as amended from time to time.

 

(e)           No Other Amounts.  Except as otherwise required by law (e.g.,
pursuant to COBRA) or as specifically provided herein, all of Employee’s rights
to Base Salary, severance, fringe benefits and bonuses hereunder (if any) shall
cease upon the termination of the

 

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Employment Term.  Upon termination of the Employment Term, the sole contractual
remedy of Employee and his successors, assigns, heirs, representatives and
estate shall be to receive the amounts described in Sections 5(a), 5(b), 5(c),
and 5(d), as applicable.

 

(f)            Notice of Termination.  Any termination of Employee’s employment
occurring in accordance with the terms of this Section 5 (other than by reason
of Employee’s death or by reason of a Non-Renewal) shall be communicated to the
other party by written notice that (i) indicates the specific termination
provisions of this Agreement relied upon, (ii) sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for the termination, and
(iii) specifies the Date of Termination (a “Notice of Termination”), and that is
delivered to the other party in accordance with Section 9(f) of this Agreement. 
The failure of a party to set forth in the Notice of Termination any fact or
circumstance that contributes to a showing of the basis for termination shall
not waive any right of such party hereunder or later preclude such party from
asserting such fact or circumstance in enforcing its rights hereunder.

 

(g)           Date of Termination.  For purposes of this Agreement, “Date of
Termination” means the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be; provided, however, that if
Employee’s employment is terminated by reason of his death, the Date of
Termination shall be the date of death of Employee and in the event of a
Non-Renewal, the Date of Termination shall be the last day of the Initial Term
or applicable Renewal Period.

 

(h)           Deemed Resignations.  Unless otherwise agreed to in writing by the
Company and Employee prior to termination of Employee’s employment, any
termination of Employee’s employment shall constitute an automatic resignation
of Employee as an officer of the Company and each Affiliate of the Company, and
an automatic resignation of the Employee from the Board.  Employee agrees to
promptly execute and deliver to the Company all consents and agreements
necessary to effectuate the termination of Employee’s status as an officer
and/or Employee’s resignation from the Board.

 

6.             Protection of Information.

 

(a)           Disclosure to and Property of the Company.  All information, trade
secrets, designs, ideas, concepts, improvements, product developments,
discoveries and inventions, whether patentable or not, that are conceived, made,
developed or acquired by Employee, individually or in conjunction with others,
during the term of his employment (whether during business hours or otherwise
and whether on the Company’s premises or otherwise) that relate to the Company’s
or any of its Affiliates’ business, products or services and all writings or
materials of any type embodying any such matters (collectively, “Confidential
Information”) shall be disclosed to the Company, and are and shall be the sole
and exclusive property of the Company or its Affiliates.  Confidential
Information does not, however, include any information that is available to the
public other than as a result of any unauthorized act of Employee.

 

(b)           No Unauthorized Use or Disclosure.  Employee agrees that Employee
will preserve and protect the confidentiality of all Confidential Information
and work product of the Company and its Affiliates, and will not, at any time
during or after the termination of

 

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Employee’s employment with the Company, make any unauthorized disclosure of, and
shall not remove from the Company premises, and will use reasonable efforts to
prevent the removal from the Company premises of, Confidential Information or
work product of the Company or its Affiliates, or make any use thereof, in each
case, except in the carrying out of Employee’s responsibilities hereunder. 
Notwithstanding the foregoing, Employee shall have no obligation hereunder to
keep confidential any Confidential Information if and to the extent (i) such
information becomes generally known to the public or within the relevant trade
or industry other than due to Employee’s violation of this Section 6(b), or
(ii) disclosure thereof is specifically required by law; provided, however, that
in the event disclosure is required by applicable law and Employee is making
such disclosure, Employee shall provide the Company with prompt notice of such
requirement, and shall use commercially reasonable efforts to give such notice
prior to making any disclosure so that the Company may seek an appropriate
protective order.

 

(c)           Remedies.  Employee acknowledges that money damages would not be a
sufficient remedy for any breach of this Section 6 by Employee, and the Company
or its Affiliates shall be entitled to enforce the provisions of this Section 6
by terminating payments then owing to Employee under this Agreement and/or by
specific performance and injunctive relief as remedies for such breach or any
threatened breach.  Such remedies shall not be deemed the exclusive remedies for
a breach of this Section 6, but shall be in addition to all remedies available
at law or in equity to the Company, including the recovery of damages from
Employee and remedies available to the Company pursuant to other agreements with
Employee.

 

(d)           No Prohibition.  Nothing in this Section 6 shall be construed as
prohibiting Employee, following the expiration of the 12 month period
immediately following Employee’s termination of employment with the Company,
from being employed by any Competing Business (as defined below) or engaging in
any Prohibited Activity (as defined below); provided, that during such
employment or engagement Employee complies with his obligations under this
Section 6.

 

7.             Non-Competition and Non-Solicitation.

 

(a)           Definitions.  As used in this Agreement, the following terms shall
have the following meanings:

 

(i)            “Competing Business” means any business, individual, partnership,
firm, corporation or other entity engaged in the exploration for and development
and production of oil and natural gas.

 

(ii)           “Prohibited Activity” means any service or activity on behalf of
a Competing Business that involves the planning, management, supervision, or
providing of services that are similar in nature or purpose to those services
Employee provided to the Company within the last 12 months of Employee’s
employment with the Company or any other activities that would involve the use
or disclosure of Confidential Information.

 

(iii)          “Restricted Area” means those geographic regions indentified as
areas of current exploration and areas of development activity in the Company’s
most recent Form 10-K and Form 10-Q, as applicable, filed with the U.S.
Securities and Exchange

 

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Commission.  The parties stipulate that the forgoing is a reasonable area
restriction because the area identified is the market area with respect to which
Employee will help the Company provide its products and services, help analyze,
and/or receive access to Confidential Information.

 

(b)           Protective Covenants and Restrictions.  Employee agrees that the
following protective covenants are reasonable and necessary for the protection
of the Company’s legitimate business interests, do not create any undue hardship
on Employee, and are not contrary to the public interest:

 

(i)            Non-compete.  Employee expressly covenants and agrees that,
during the Employment Term and for 12 months following termination of Employee’s
employment with the Company for any reason, he will not engage, directly or
indirectly, in and he will not and will cause his Affiliates not to, directly or
indirectly, own, manage, operate, join, control or participate in or be
connected with, or loan money to or sell or lease equipment to, any Competing
Business in the Restricted Area, other than pursuant to (A) any oil and gas
properties (I) owned by Employee as of the Effective Date hereof or
(II) acquired by Employee after the Effective Date pursuant to inheritance,
bequest or  the laws of descent or distribution, or (B) any awards or other
interests held by Employee, as of the Effective Date hereof or acquired
thereafter, under any Incentive Plan.  In the event of Employee’s termination of
employment by the Company for Cause or by the Employee without Good Reason, this
Section 7(b)(i) shall cease to apply as of Employee’s Date of Termination,
unless the Company continues to pay Employee his Base Salary in effect as of the
Date of Termination for 12 months following termination of Employee’s
employment.

 

(ii)           Non-solicitation.  Employee further expressly covenants and
agrees that during the Employment Term and for 24 months following termination
of Employee’s employment with the Company for any reason, he will not and he
will cause his Affiliates not to (A) cause, solicit, induce or encourage any
individual who, on the Date of Termination, is an employee of the Company or its
Affiliates to leave such employment or hire, employ or otherwise engage any such
individual (other than employees of the Company or its Affiliates who respond to
general advertisements for employment in newspapers or other periodicals of
general circulation), or (B) cause, induce or encourage any actual or material
prospective client, customer, supplier, landlord, lessor, or licensor of the
Company or its Affiliates to terminate or modify any such actual or prospective
relationship that exists on the Date of Termination.

 

(c)           Permitted Ownership.  Notwithstanding any of the foregoing or
anything else to the contrary in this Agreement, (i) Employee may own, for
investment purposes only, up to 5% of the outstanding stock or other equity
securities of any publicly held corporation or other entity whose stock or
equity securities are either listed on a national securities exchange or on the
NASDAQ National Market System, if Employee is not otherwise affiliated with such
corporation or entity and (ii) Employee is permitted to engage in the endeavors
set forth on Exhibit A attached hereto and the activities described in
clause (ii) of the third sentence of Section 2(b).

 

(d)           Reasonableness.  Employee and the Company agree and acknowledge
that the limitations as to time, geographical area and scope of activity to be
restrained as set forth in

 

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this Section 7 are the result of arm’s-length bargaining, are fair and
reasonable, and do not impose any greater restraint than is necessary to protect
the legitimate business interests of the Company in light of (i) the nature and
wide geographic scope of the Company’s operations; (ii) Employee’s level of
control over and contact with the Company’s business in the Restricted Area;
(iii) the fact that the Company’s business is conducted throughout the
Restricted Area; and (iv) the amount of compensation that Employee is receiving
in connection with the performance of his duties hereunder.

 

(e)           Relief and Enforcement.  Employee hereby represents to the Company
that he has read and understands, and agrees to be bound by, the terms of this
Section 7.  It is the desire and intent of the parties hereto that the
provisions of this Section 7 be enforced to the fullest extent permitted under
applicable law, whether now or hereafter in effect.  However, to the extent that
any part of this Section 7 may be found invalid, illegal or unenforceable for
any reason, it is intended that such part shall be enforceable to the extent
that a court of competent jurisdiction shall determine that such part, if more
limited in scope, would have been enforceable, and such part shall be deemed to
have been so written and the remaining parts shall as written be effective and
enforceable in all events.  Employee and the Company further agree and
acknowledge that, in the event of a breach or threatened breach of any of the
provisions of this Section 7, the Company shall be entitled to immediate
injunctive relief, as any such breach would cause the Company irreparable injury
for which it would have no adequate remedy at law.  Nothing herein shall be
construed so as to prohibit the Company from pursuing any other remedies
available to it hereunder, at law or in equity, for any such breach or
threatened breach.

 

(f)            Consulting and Litigation Assistance.  Employee agrees that,
during the period following Employee’s Date of Termination during which Employee
remains subject to the non-compete provisions of Section 7(b)(i) above, upon
request from the Company, Employee will assist the Company in a consulting
capacity and/or cooperate with the Company and its Affiliates in the defense of
any claims or actions that may be made by or against the Company or any of its
Affiliates that affect Employee’s prior areas of responsibility, except if
Employee’s reasonable interests are materially adverse to the Company or its
Affiliates in such claim or action.  Notwithstanding anything to the contrary in
the foregoing sentence, in the event the Company requests Employee’s assistance
and/or cooperation pursuant to this Section 7(f), Employee shall not be required
to devote more than five (5) hours per month to assisting the Company pursuant
to this Section 7(f); provided, that if, at the request of the Company, the
Employee agrees to devote in excess of five (5) hours per month to assisting the
Company pursuant to this Section 7(f), then the Company will compensate Employee
for each additional hour of assistance in excess of five (5) hours at an hourly
rate of $250 per hour.

 

8.             Release of Claims.  Notwithstanding any other provision in this
Agreement to the contrary, in consideration for receiving the severance benefits
described in Sections 5(b), 5(c)(iii), 5(c)(iv), 5(d)(i)C and/or 5(d)(i)D, as
applicable, Employee hereby agrees to execute (and not revoke) a general release
of claims against the Company and its Affiliates (excluding claims for
indemnification, claims for coverage under officer and director policies, and
claims as a stockholder of the Company).  If Employee fails to properly execute
and deliver such release (or revokes the release), Employee agrees that Employee
shall not be entitled to receive the severance benefits described in
Sections 5(b), 5(c)(iii), 5(c)(iv), 5(d)(i)C and/or 5(d)(i)D, as applicable. 
For purposes of this Agreement, a release shall be considered to have been
executed

 

12

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by Employee if it is signed by Employee’s legal representative, in the case of
Employee’s Disability, or on behalf of Employee’s estate in the case of
Employee’s death.

 

9.             General Provisions.

 

(a)           Amendments and Waiver.  The terms and provisions of this Agreement
may not be modified or amended, nor may any of the provisions hereof be waived,
temporarily or permanently, except pursuant to a written instrument executed by
the party to be bound by such modification or amendment.  The failure of any
party to enforce any of the provisions of this Agreement shall in no way be
construed as a waiver of such provisions and shall not affect the right of such
party thereafter to enforce each and every provision of this Agreement in
accordance with its terms.

 

(b)           Withholding.  The Company shall be entitled to withhold from any
compensation, benefits, or amounts payable under this Agreement all federal,
state, local or other taxes as may be required pursuant to any law or
governmental regulation or ruling.

 

(c)           Severability.  It is the desire and intent of the parties hereto
that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought.  Accordingly, if any particular provision of this
Agreement shall be adjudicated by a court of competent jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of this
Agreement or affecting the validity or enforceability of such provision in any
other jurisdiction.  Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.

 

(d)           Entire Agreement.  This Agreement constitutes the entire agreement
of the parties with regard to the subject matter hereof, and contains all the
covenants, promises, representations, warranties and agreements between the
parties with respect to employment of Employee by the Company.  Without limiting
the scope of the preceding sentence, all understandings and agreements preceding
the date of execution of this Agreement and relating to the subject matter
hereof are hereby null and void and of no further force and effect.

 

(e)           Successors and Assigns.  Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
parties hereto and their respective successors, permitted assigns, heirs and
personal representatives and estates, as the case may be.  Anything contained
herein to the contrary notwithstanding, unless otherwise expressly provided in
this Agreement, neither this Agreement nor any right or obligation hereunder of
any party may be assigned or delegated without the prior written consent of the
other party hereto; provided, however, that the Company may assign this
Agreement to any of its Affiliates.  Except as expressly provided herein, this
Agreement shall not confer any rights or remedies upon any person or legal
entity other than the parties hereto and their respective successors and
permitted assigns.

 

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(f)            Notices.  For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given (i) when received, if delivered personally or by courier,
(ii) on the date receipt is acknowledged, if delivered by certified mail,
postage prepaid, return receipt requested, or (iii) one day after transmission,
if sent by facsimile transmission with confirmation of transmission, as follows:

 

 

If to Employee, at:

Paul Latham

 

 

 

6 Desta Drive, Suite 6500

 

 

 

Midland, TX 79705

 

 

 

 

 

 

If to the Company, at

c/o Paul Latham

 

 

 

6 Desta Drive, Suite 6500

 

 

 

Midland, TX 79705

 

 

 

or to such other address as either party may furnish to the other in writing in
accordance herewith, except that notices or changes of address shall be
effective only upon receipt.

 

(g)           Construction.  Where specific language is used to clarify by
example a general statement contained herein, such specific language shall not
be deemed to modify, limit or restrict in any manner the construction of the
general statement to which it relates.  The language used in this Agreement
shall be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction shall be applied against any party.
  The word “including” means “including, without limitation.”

 

(h)           Governing Law.  The provisions of this agreement shall be governed
by and construed in accordance with the laws of the State of Texas, without
giving effect to any choice of law or conflicting provision or rule.

 

(i)            Mutual Contribution.  The parties to this Agreement have mutually
contributed to its drafting.  Consequently, no provision of this Agreement shall
be construed against any party on the grounds that such party drafted the
provision or caused it to be drafted.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement
as of the Effective Date.

 

 

CLAYTON WILLIAMS ENERGY, INC.

 

 

 

 

By:

/s/ L. Paul Latham

 

Name:

L. Paul Latham

 

Title:

Executive Vice President

 

 

 

 

 

 

 

EMPLOYEE:

 

 

 

 

 

 

 

/s/ L. Paul Latham

 

L. Paul Latham

 

SIGNATURE PAGE TO EMPLOYMENT AGREEMENT

 

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EXHIBIT A

 

PERMITTED ENDEAVORS

To

Paul Latham’s Employment Agreement

 

Oil & Gas.  Ownership and management of any oil and gas interests (of whatever
kind and whether owned directly, through partnership interest or otherwise) that
are owned as of the  Effective Date; inherited in the future; received under any
Company Incentive Plan or received under any incentive plan from a Williams
Entity or any entity owned or controlled by Clayton W. Williams, Jr.

 

Real Estate.  Ownership and management of any real estate interest (of whatever
kind, and whether owned directly , through partnership interest or otherwise)
owned as of the Effective Date, inherited in the future or received, purchased,
or authorized under any incentive plan or other agreement by a Williams Entity
or any entity owned or controlled by Clayton W. Williams, Jr.

 

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