austinreward.htm


    
      

    

    Exhibit
10.2

    


    CWEI
AUSTIN CHALK REWARD PLAN

    


    ARTICLE
I

    Purpose of
Plan

    


    1.1           Purpose
of Plan.  The purpose of
the Reward Plan (the “Plan”) is to reward eligible employees and other service
providers  listed on Exhibit A of Clayton Williams Energy, Inc., and
its wholly-owned affiliates (the “Employer”) for continued quality service to
the Employer, and to encourage retention of those employees and service
providers, by providing them the opportunity to receive bonus payments that are
based on profits derived from a portion of the Employer’s working interest in
certain wells drilled by Employer in the area described on Exhibit
B.

    


    ARTICLE
II

    Definitions and
Construction

    


    2.1           Definitions.  Where the
following words and phases appear in the Plan, each will have the respective
meaning set forth below, unless the context clearly indicated to the
contrary.

    


    
      	
               
      

            	
              (a)

            	
              Acquisition
      Costs:  The portion of any costs or expenses incurred by
      the Employer that are attributable to acquiring the Well
      Interests.

            


    

    


    
      	
               
      

            	
              (b)

            	
              Affiliate:  An
      “Affiliate” of any specified person means any other person, directly or
      indirectly, controlling or controlled by or under direct or indirect
      common control with such specified person.  For the purposes of
      this definition, “control” when used with respect to any person means the
      power to direct the management and policies of such person, directly or
      indirectly, through the ownership of voting securities, by contract or
      otherwise, and the terms “controlling” and “controlled” have meanings
      correlative to the foregoing.

            


    

    


    
      	
               
      

            	
              (
      c)

            	
              Agreed
      Rate:  3.88% per annum, compounded
    quarterly.

            


    

    


    
      	
               
      

            	
              (d)

            	
              Bonus
      Award:  The right granted to a Participant to receive
      payments, if any, under the terms and conditions of the
    Plan.

            


    

    


    
      	
               
      

            	
              (e)

            	
              Bonus
      Percentage:  The designated percentage set forth in each
      Participant’s Notice of Bonus Award that is used to calculate the amount
      of payments, if any, that such Participant may be entitled to under the
      Plan.

            


    

    


    
      	
               
      

            	
              (f)

            	
              Change
      of Control. 
      A “Change of Control” will be deemed to occur as of (i) the
      date  any “person” or “group” of related persons (as such terms
      are used in Sections 13(d) and 14(d) of the Exchange Act), other than one
      or more Permitted Holders, 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 deemed to have “beneficial ownership” of all shares that
      any such person or group has the right to acquire, whether such right is
      exercisable immediately or only after the passage
  of

            


    

    


    
      
        
          
             

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    time),
directly or indirectly, of more than 35% 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) (for the purposes of this clause, such
person or group shall be deemed to beneficially own any Voting Stock of the
Company 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 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 (ii) the
date of death of Clayton W. Williams, Jr.

    


    
      	
               
      

            	
              (g)

            	
              Code:  The
      Internal Revenue Code of 1986, as amended from time to
    time.

            


    

    


    
      	
               
      

            	
              (h)

            	
              Committee: The Compensation
      Committee of the Company’s board of
directors.

            


    

    


    
      	
               
      

            	
              (i)

            	
              Company:  Clayton
      Williams Energy, Inc.

            


    

    


    
      	
               
      

            	
              (j)

            	
              Effective
      Date:  June 1,
2007

            


    

    


    
      	
               
      

            	
              (k)

            	
              Eligible
      Person:  Each person who is employed by Employer or who
      performs services for the Employer as a consultant or independent
      contractor.

            


    

    


    
      	
               
      

            	
              (l)

            	
              Employer:  The
      Company and its wholly-owned
Affiliates.

            


    

    


    
      	
               
      

            	
              (m)

            	
              Exchange
      Act:  The Securities Exchange Act of 1934, as
      amended.

            


    

    


    
      	
               
      

            	
              (n)

            	
              Full
      Vesting Date:  May 5,
2013

            


    

    


    
      	
               
      

            	
              (o)

            	
              Notice
      of Bonus Award:  The notice provided to each Participant
      pursuant to Section 3.1, setting forth, among other things, the
      Participant’s Bonus Percentage under the
Plan.

            


    

    


    
      	
               
      

            	
              (p)

            	
              Participant:  Each
      Eligible Person who has been granted a Bonus Award under the Plan and
      participates in the Plan in accordance with the provisions of Article
      III.

            


    

    


    
      	
               
      

            	
              (q)

            	
              Payment
      Date:  With respect to each Plan Quarter, the date that
      payment, if any, is made to eligible Participants pursuant to Article
      V.

            


    

    


    
      	
               
      

            	
              (r)

            	
              Permitted
      Assignee:  Each Participant’s spouse, parents, or natural
      or adoptive lineal descendants, or one or more trusts or partnerships
      established exclusively for the benefit of each Participant’s spouse,
      parents or natural or adoptive lineal
  descendants.

            


    

    


    


    
      
        
          
             

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          2

          
            

          

        

        
           


        

      

    

    


    
      	
               
      

            	
              (s)

            	
              Permitted
      Holder:  Clayton W. Williams, Jr. and any Affiliate or
      Related Person thereof.

            


    

    


    
      	
               
      

            	
              (t)

            	
              Plan:  This
      CWEI Austin Chalk Reward Plan, as amended from time to
    time.

            


    

    


    
      	
               
      

            	
              (u)

            	
              Plan
      Quarter:  Each calendar quarter within a Plan
      Year.

            


    

    


    
      	
               
      

            	
              (v)

            	
              Plan
      Year:  Each twelve consecutive month period beginning
      each January 1.

            


    

    


    
      	
               
      

            	
              (w)

            	
              Quarterly
      Bonus Amount:  This amount, if any, for each Participant
      with respect to each Plan Quarter that is calculated in accordance with
      the provisions of Section 4.3.

            


    

    


    
      	
               
      

            	
              (x)

            	
              Quarterly
      Bonus Pool:  The bonus pool, if any, determined as of the
      end of each Plan Quarter in accordance with the provisions of Article
      IV.

            


    

    


    
      	
               
      

            	
              (y)

            	
              Related
      Person:  With respect to any Permitted Holder, a “Related
      Person” means:

            


    

    


    (1)           any
controlling stockholder or a majority (or more) owned subsidiary of such
Permitted Holder or, in the case of an individual, any spouse, family member
(including adopted children), heir or descendant of such Permitted Holder, any
trust created for the benefit of such individual or such individual’s estate,
executor, administrator, committee or beneficiaries; or

    


    (2)           any
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, owners or persons beneficially owning a majority (or more)
controlling interest of which consist of such Permitted Holder and/or such other
persons referred to in the immediately preceding clause (1).

    


    
      	
               
      

            	
              (z)

            	
              Sale
      Transaction:  A “Sale Transaction” will be deemed to
      occur on (1) any sale, exchange, or other disposition to a third party
      (excluding any Affiliate of the Employer) of (i) the Employer’s Well
      Interest or of the Employer’s rights or benefits with respect to the Well
      Interest, or (ii) all or substantially all of the Company’s assets, or (2)
      a Change of Control.

            


    

    


    
      	
               
      

            	
              (aa)

            	
              Voting
      Stock:

            	
                All
      classes of capital stock of a corporation then outstanding and normally
      entitled to vote in the election of
directors.

            


    

    


    
      	
               
      

            	
              (bb)

            	
              Well:  A
      well drilled by the Employer in the area described on Exhibit A, provided
      that the well has a spud date on or after the Effective Date and the
      primary objective of the well is the Austin Chalk, Buda or Georgetown
      formation.

            


    

    


    
      	
               
      

            	
              (cc)

            	
              Well
      Costs:  The Employer’s share of costs pursuant to any
      operating agreement for the drilling, completing, equipping, deepening, or
      sidetracking the Well, including, without limitation: (i) the costs of
      surveying and staking the Well, the costs of any surface damages, and the
      costs of clearing, coring, testing, logging, and evaluating the Well; (ii)
      the costs of casing, cement, and cement services for the Well; (iii) the
      cost of plugging and abandoning the Well (including
    standard

            


    

    


    
      
        
          
             

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    and
customary radiation activities associated therewith), if it is determined that
the Well would not produce in commercial  quantities and should be
abandoned; (iv) all direct charges and overhead chargeable to the Employer with
respect to the Well under any applicable operating agreement until such time as
all operations are carried out as required by applicable regulations and sound
engineering practices to make such Well ready for production, including such
charges and overhead attributable to the installation and testing of wellhead
equipment, or costs to plug and abandon a dry hole; (v) all costs incurred by
the Employer in recompleting or plugging back the Well; (vi)  all
costs incurred by the Employer in reworking the Well if the rework is covered by
an authority for expenditure under the applicable operating agreement; (vii) all
costs incurred by the Employer in locating, drilling, completing, equipping,
deepening, or sidetracking any enhanced recovery producer or injector Well
(including the costs of all necessary surface equipment such as steam
generators, compressors, water treating facilities, injection pumps, flow lines
and steam lines); and (viii) the costs of constructing production facilities,
pipelines and other facilities necessary to develop property acquired pursuant
to the terms  hereof and produce, collect, store, treat, deliver,
market, sell or otherwise dispose of oil, gas, and other hydrocarbons and
minerals therefrom; provided, that Well
Costs will not include any Acquisition Costs.

    


    
      	
               
      

            	
              (dd)

            	
              Well
      Interest:

            	
                7%
      of the Employer’s working interest in each
Well.

            


    

    


    
      	
               
      

            	
              (ee)

            	
              Well
      Interest Profits:  As of the applicable measurement date,
      an amount equal to the cumulative cash proceeds earned by the Employer
      with respect to all Well Interests, minus the sum of (i) Well Costs and
      other expenses incurred by the Employer with respect to such Well
      Interests, plus (ii) an internal rate of return on such costs equal to the
      Agreed Rate.

            


    

    


    2.2           Number
and Gender.  The masculine gender, when used herein, includes
the feminine gender, and, unless context indicates otherwise, the singular
includes the plural and the plural the singular.

    


    2.3           Headings.  The
headings of Articles and Section herein are included solely for convenience, and
if there is any conflict between headings and the text of the Plan, the text
will control.  All references to Sections and Articles are to this
Plan unless otherwise indicated.

    


    
      
        
          
             

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    ARTICLE
III

    Participation

    


    3.1           Selection
of Participants and Grant of Bonus Awards.  The Committee, in
its sole discretion, may select which, if any, Eligible Persons will be granted
Bonus Awards and become Participants in the Plan. Each Participant's Bonus
Percentage will be determined by, and in the sole discretion of, the Committee.
Each Bonus Award granted to a Participant will be evidenced by a Notice of Bonus
Award that will specify (a) the Participant's Bonus Percentage, (b) the
Participant's effective date of Plan participation, and (c) such other terms and
provisions as the Committee may determine in its sole discretion.

    


    3.2           Commencement of Participation. 
Each Eligible Person will become a Participant upon the effective date of
Plan participation specified in his Notice of Bonus Award, provided that such
Eligible Person returns to the Company an executed Notice of Bonus Award. Once
an Eligible Person becomes a Participant in the Plan, he will remain a
Participant until his Plan participation terminates in accordance with Section
3.3.

    


    3.3           Termination
of Participation.  A Participant's Plan participation will
terminate on the earliest to occur of the following:

    


    
      	
               
      

            	
              (a)

            	
              The
      date on which such Participant terminates employment or service with the
      Employer for any reason, but only if such termination date occurs prior to
      the Full Vesting Date; provided, however, that with respect to a
      Participant who is a consultant or independent contractor and who is not
      actively performing services for the Employer, such Participant will, for
      purposes of the Plan, be deemed to remain in the service of the Employer
      unless and until the Committee, in its sole discretion, determines that
      such service relationship has been
terminated;

            


    

    


    
      	
               
      

            	
              (b)

            	
              The
      date on which such Participant forfeits his Bonus Award after the Full
      Vesting Date pursuant to Section
6.2;

            


    

    


    
      	
               
      

            	
              (c)

            	
              The
      date of death of such Participant if there is no Permitted Assignee
      pursuant to Article VII; or

            


    

    


    
      	
               
      

            	
              (d)

            	
              The
      date of termination of the Plan or such Participant's Bonus Award pursuant
      to Article X.

            


    

    


    From and after the date a person's Plan
participation terminates, such person will not be entitled to receive any
payment under the Plan, pursuant to a Bonus Award or otherwise.

    


    ARTICLE
IV

    Quarterly Bonus Pool and
Quarterly Bonus Amounts

    


    4.1           Calculation
of Quarterly Bonus Pool.  As soon as administratively
practicable after the last day of each Plan Quarter, the Committee will
calculate the Quarterly Bonus Pool for such Plan Quarter in the following
manner:

    


    


    
      
        
          
             

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              (a)

            	
              If
      Well Interest Profits, determined as of the last day of the applicable
      Plan Quarter, equal a negative amount or zero, the Quarterly Bonus Pool
      for such Plan Quarter will be deemed to be equal to
  zero.

            


    

    


    
      	
               
      

            	
              (b)

            	
              If
      Well Interest Profits, determined as of the last day of the applicable
      Plan Quarter, equal an amount greater than zero, the Quarterly Bonus Pool
      for such Plan Quarter will be an amount equal to (i) Well Interest Profits
      determined as of the last day of such Plan Quarter, minus (ii) the sum of
      the Quarterly Bonus Pools for all preceding Plan Quarters (taking into
      account that a Quarterly Bonus Pool will be deemed to be equal to zero if
      it would otherwise be a negative
amount).

            


    

    


    4.2           Calculation
of Quarterly Bonus Pool in the Event of a Sale Transaction.  In
the event a Sale Transaction occurs with respect to a Plan Quarter, the
Quarterly Bonus Pool for such Plan Quarter will be calculated in the manner
described in Section 4.1, except that Well Interest Profits will be deemed to
include the amount of net sale proceeds from the Sale Transaction that the
Committee, using any reasonable method it deems appropriate, determines is
attributable to the Well Interest. In the event that the Sale Transaction does
not result in the receipt of any net sale proceeds (for example, a Change of
Control), the Committee will determine a deemed amount of net sale proceeds
attributable to the Well Interest, taking into account the relevant facts and
circumstances and using any reasonable method it deems appropriate.

    


    4.3           Calculation
of Participants' Quarterly Bonus Amounts. As soon as
administratively practicable after the last day of each Plan Quarter, the
Committee will calculate each Participant's Quarterly Bonus Amount for such Plan
Quarter, which will be an amount equal to the product of the Participant's Bonus
Percentage multiplied by the Quarterly Bonus Pool for such Plan Quarter (taking
into account that a Quarterly Bonus Pool will be deemed to be equal to zero if
it would otherwise be a negative amount).

    


    ARTICLE
V

    Payment of Quarterly Bonus
Amounts

    


    5.1     Payment
of Quarterly Bonus Amounts.  With respect to each Plan Quarter,
each Participant whose Plan participation has not terminated as of the Payment
Date for such Plan Quarter will be entitled to receive a payment, if any, equal
to one hundred percent (100%) of his Quarterly Bonus Amount for such Plan
Quarter. Such payment will be made by the Employer in cash in a single sum as
soon as administratively practicable following the last day of the applicable
Plan Quarter, but in no event later than two and one-half (2 1/2) months
following the last day of the Plan Year in which such Plan Quarter
ends.

    


    ARTICLE
VI

    Forfeiture of Bonus
Awards

    


    6.1           Forfeiture
of Bonus Award Prior to Full Vesting Date.  If a Participant's
Plan participation terminates in accordance with Section 3.3 prior to the Full
Vesting Date, such Participant's Bonus Award will be forfeited as of the date
that his Plan participation terminates. By way of example and not limitation, a
Participant who terminates employment with the Employer prior to the Full
Vesting Date will forfeit his Bonus Award as of the date of such termination of
employment.

    


    
      
        
          
             

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    6.2           Forfeiture
of Vested Bonus Award for Cause.  Each Participant will forfeit
his Bonus Award if such Participant:

    


    
      	
               
      

            	
              (a)

            	
              with
      respect to time periods during which such Participant is employed by or
      performing (or deemed to be performing) services for the Employer, (1)
      materially breaches the terms of his employment agreement or other
      services agreement with the Employer or any of its Affiliates, (2)
      materially breaches the terms of any corporate policy or code of conduct
      established by the Employer or any of its Affiliates, or (3) the
      Committee, in its sole discretion, determines that such Participant has
      engaged in gross negligence or willful misconduct in the performance of
      services for the Employer or any of its Affiliates, including, without
      limitation, a willful refusal without proper legal reason to perform his
      duties and responsibilities, or

            


    

    


    
      	
               
      

            	
              (b)

            	
              at
      any time, including time periods during which such Participant is not
      employed by or performing (or deemed to be performing) services for the
      Employer, (i) admits or enters a plea of no contest to or is convicted of
      a felony against the Employer or any of its Affiliates, (ii) materially
      breaches any provision of any agreement with the Employer or any of its
      Affiliates, or (iii) engages in dishonest or fraudulent conduct with
      respect to the business, reputation or affairs of the Employer or any of
      its Affiliates.

            


    

    


    The
forfeiture provisions of this Section 6.2 will apply regardless of whether a
Participant's employment or service relationship with the Employer was
terminated as a result of conduct described in subsections (a) or (b) above, and
regardless of whether such Participant continued Plan participation through the
Full Vesting Date.

    


    6.3           Forfeiture
of Bonus Award on Account of Participant's Death if No Permitted
Assignee.  A Participant
will forfeit his Bonus Award upon the Participant's date of death if the
Committee determines that the deceased Participant's Bonus Award was not
transferred to a Permitted Assignee pursuant to Article VII or that no Permitted
Assignee exists.

    


    6.4           Consequences
of Forfeiture of Bonus Award.  From and after the date a
Participant forfeits his Bonus Award, such person will not be entitled to
receive any payment under the Plan pursuant to a Bonus Award or
otherwise.

    


    
      
        
          
             

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    ARTICLE
VII

    Permitted Assignees of
Vested Bonus Award Upon Participant's Death

    


    7.1           Permitted Assignees of
Vested Bonus Award Upon Participant's Death.

    


    
      	
               
      

            	
              (a)

            	
              On
      or after the Full Vesting Date, all or any portion of each Participant's
      Bonus Award may be transferred, by operation of will or applicable law, to
      a Permitted Assignee upon such Participant's
  death.

            


    

    


    
      	
               
      

            	
              (b)

            	
              Each
      Permitted Assignee who is entitled to receive payments from the Plan under
      this Section 7.1, if any, will receive and hold only those rights and
      interests, and be subject to the same terms and conditions that would
      apply if such Permitted Assignee were a Participant in the Plan,
      including, without limitation, the restrictions on the transfer of a
      Participant's Bonus Award. As a condition to receipt of any rights and
      interests under this Section 7.1, a Permitted Assignee may be required to
      provide the Committee with any information necessary for the Committee to
      effect a transfer of such rights and interests, and to execute and deliver
      a written agreement with the Company agreeing to be bound by the terms of
      the Plan. Notwithstanding whether a Permitted Assignee has executed and
      delivered such an agreement, the acceptance of distributions from the Plan
      by a Permitted Assignee will be deemed to be an agreement by such
      Permitted Assignee to be bound by the Plan's
  terms.

            


    

    


    
      	
               
      

            	
              (c
      )

            	
              To
      the extent that a payment is made under the Plan to an individual who the
      Committee determines in good faith is a Permitted Assignee with respect to
      a deceased Participant's Bonus Award, any and all obligations with respect
      to such payment will be discharged and neither the Plan nor the Employer
      will have any obligation to another person claiming to be the
      Participant's Permitted Assignee with respect to such payment,
      notwithstanding any subsequent determination by the Committee, a court of
      law, or otherwise, that such payment was made based on a mistake of fact
      or a mistake of law.

            


    

    


    
      	
               
      

            	
              (d)

            	
              In
      the event that there is a dispute or uncertainty regarding the identity of
      the Permitted Assignee(s) to whom a deceased Participant's Bonus Award may
      have been transferred, the Committee will be permitted to retain any
      payment that would otherwise be payable with respect to such Bonus Award
      until the identity of such Permitted Assignee(s) can be determined. The
      amount of any such retained payment will be credited with interest at the
      Agreed Rate from the time such amount would otherwise be payable until the
      time such amount is paid. In addition, in the case of any bona fide
      dispute between parties concerning the right to a payment under the Plan,
      the Committee may, in its discretion, file an interpleader action in a
      court of competent jurisdiction, naming the parties to the dispute and, if
      applicable, may pay the disputed amount into the court to be distributed
      in accordance with the court's decision or take such other action as it
      determines, in its sole discretion, constitutes an appropriate way to
      resolve or otherwise settle the
dispute.

            


    

    


    
      
        
          
             

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    ARTICLE
VIII

    Administration

    


    8.1           Committee
Administration.
The Plan will be administered by the Committee.

    


    8.2           Meetings.  The
Committee will hold meetings upon such notice and at such time and place as it
may from time to time determine. Notice to a member will not be required if
waived in writing by that member. A majority of the members of the Committee
duly appointed will constitute a quorum for the transaction of business. All
resolutions or other actions taken by the Committee at any meeting where a
quorum is present will be by vote of a majority of those present at such meeting
and entitled to vote. Resolutions may be adopted or other action taken without a
meeting upon written consent signed by all of the members of the Committee.
Members of the Committee may participate in meetings by means of telephone
conference or similar communication whereby all persons participating in the
meeting can hear and speak to each other.

    


    8.3           Discretion
to Interpret Plan.  The Committee has absolute discretion to
construe any and all provisions of the Plan, including, but not limited to, the
discretion to resolve ambiguities, inconsistencies, or omissions conclusively.
The decisions of the Committee upon all matters within the scope of its
authority will be binding and conclusive upon all persons.

    


    8.4           Powers
and Duties.  In addition to the powers described in Section 8.3
and all other powers specifically granted under the Plan, the Committee will
have all powers necessary or proper to administer the Plan and to discharge its
duties under the Plan, including, but not limited to, the following
powers:

    


    
      	
               
      

            	
              (a)

            	
              To
      make and enforce such rules, regulations, and procedures as it may deem
      necessary or proper for the orderly and efficient administration of the
      Plan;

            


    

    


    
      	
               
      

            	
              (b)

            	
              To
      enter into an agreement with any individual or entity to perform services
      with respect to the Plan;

            


    

    


    
      	
               
      

            	
              (c)

            	
              In
      its discretion, to interpret and decide all matters of fact in determining
      the amount of and authorizing payments with respect to Bonus Awards under
      the Plan, its interpretation and decision thereof to be final and
      conclusive on all persons claiming a right with respect to such Bonus
      Awards;

            


    

    


    
      	
               
      

            	
              (d)

            	
              In
      its discretion, to determine eligibility under the terms of the Plan, its
      determination thereof to be final and conclusive on all
      persons;

            


    

    


    
      	
               
      

            	
              (e)

            	
              To
      prepare and distribute information explaining the
  Plan;

            


    

    


    
      	
               
      

            	
              (f)

            	
              To
      obtain from the Employer and Participants (or the assignee of a
      Participant) such information as may be necessary for the proper
      administration of the Plan;

            


    

    


    
      	
               
      

            	
              (g)

            	
              To
      sue or cause suit to be brought in the name of the Plan;
    and

            


    

    


    
      	
               
      

            	
              (h)

            	
              To
      establish a claims procedure and any other procedures for implementation
      of the Plan.

            


    

    


    
      
        
          
             

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    8.5           Expenses.  The
Employer will pay the reasonable expenses incident to the administration of the
Plan, including, but not limited to, the compensation of any legal counsel,
advisors, or other technical or clerical assistance as may be required; the
payment of any bond or security required by applicable law; and any other
expenses incidental to the operation of the Plan that the Committee determines
are proper.

    


    8.6           Reliance
on Reports, Certificates, and Participant Information.  The
Committee is entitled to rely conclusively upon all tables, valuations,
certificates, opinions, and reports furnished by an actuary, accountant,
controller, counsel, insurance company, or other person who is employed or
engaged for such purposes. Moreover, the Committee will be entitled to rely upon
information furnished to the Committee or the Employer by a Participant (or a
Permitted Assignee), including, but not limited to, such person's current
mailing address.

    


    8.7           Right to
Delegate.  The Committee, in its sole discretion, may delegate
to one or more employees or agents of the Employer its day-to-day ministerial
duties and powers (but only its day-to-day ministerial duties and powers) under
the Plan.

    


    8.8           Indemnification.  The
Company will indemnify and hold harmless each member of the Committee, and each
employee or agent of the Employer who is a delegate of the Committee, against
any and all expenses and liabilities arising out of such individual's
administrative functions or other responsibilities, including, but not limited
to, any expenses and liabilities that are caused by or result from an act or
omission constituting the negligence of such individual in the performance of
such functions or responsibilities, but excluding expenses and liabilities
arising out of such individual's own gross negligence or willful misconduct.
Expenses against which such person will be indemnified hereunder include, but
are not limited to, the amounts of any settlement, judgment, costs, counsel
fees, and related charges reasonably incurred in connection with a claim
asserted or a proceeding brought. Notwithstanding the foregoing provisions of
this Section, this Section will not apply to, and the Company will not indemnify
against, any expense that was incurred without the consent or approval of the
Company, unless such consent or approval has been waived in writing by the
Company.

    


    ARTICLE
IX

    Nature of the
Plan

    


    9.1           Unfunded,
Unsecured Plan.  The Plan will constitute an unfunded,
unsecured obligation of the Employer to make payments of incentive rewards to
certain persons from its general assets in accordance with the Plan. Each Bonus
Award granted under the Plan merely constitutes a mechanism for measuring such
incentive compensation and does not constitute any property right or interest in
the Company or any of its Affiliates, or in the Well or the Well Interest.
Neither the establishment of the Plan, the granting of Bonus Awards, nor any
other action taken in connection with the Plan will be deemed to create an
escrow or trust fund of any kind.

    9.2           No Rights
of Participant.  No Participant will have any security or other
interest in any assets of the Employer or any of its Affiliates as a result of a
Bonus Award. Further, no Participant will have any right to receive a property
interest in the Well or the Well Interest. Participants and all persons claiming
under Participants (including Permitted Assignees) will rely solely on the
unsecured promise of the Employer set forth herein, and nothing in the Plan or a
Notice of Bonus Award will be construed to give a Participant or anyone claiming
under a

    


    
      
        
          
             

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    Participant
(including a Permitted Assignee) any right, title, interest, or claim in or to
any specific asset, fund, entity, reserve, account, or property of any kind
whatsoever owned by the Employer or any of its Affiliates, or in which any such
entity may have an interest now or in the future, and each Participant will have
the right to enforce any claim hereunder only in the same manner as a general
creditor. Neither the establishment of the Plan nor the granting of any Bonus
Award will create any right in any Participant to make any decision, or provide
input with respect to any decision, relating to the business of the Employer or
any of its Affiliates.

    


    ARTICLE
X

    Amendment and
Termination

    


    10.1           Amendment
of Plan.  Notwithstanding any provision of any other
communication, either oral or written, made by the Employer or any of its
Affiliates, the Committee, or any other individual or entity to Eligible Persons
or to any other individual or entity, the Company reserves the absolute and
unconditional right to amend the Plan from time to time. All amendments to the
Plan will be in writing, and any oral statements or representations made by the
Employer or any of its Affiliates, the Committee, or any other individual or
entity that alter, modify, amend, or are inconsistent with the written terms of
the Plan will be invalid and unenforceable and may not be relied upon by any
Eligible Person, Permitted Assignee, service provider, or other individual or
entity. All amendments will be executed by such person or persons as the Company
in its discretion authorizes.

    


    10.2           Right to
Terminate.  Notwithstanding any provision of any other
communication, either oral or written, made by the Employer or any of its
Affiliates, the Committee, or any other individual or entity to any Eligible
Person, Permitted Assignee, service provider, or other individual or entity, the
Company reserves the absolute and unconditional right to terminate the Plan, in
whole or in part, and to terminate the Bonus Awards of some or all Participants
and each Permitted Assignee of such Participants, with such termination to be
effective as of the date selected by the Company in its sole
discretion.

    


    10.3           Effect of
Termination.  In the event of a termination of the Plan or a
termination of the Bonus Award with respect to one or more Participants pursuant
to Section 10.2, each such affected Participant (or his Permitted Assignee(s))
will receive a final payment under the Plan reflecting such Participant's Bonus
Award as of the date of such termination. The Committee will determine, in its
sole discretion and using any reasonable method and manner which it deems
appropriate, the final payment amount that each Participant (or his Permitted
Assignee(s)) is entitled to upon such termination, taking into account, in the
manner it deems appropriate, such information which is available to the
Committee as of the date that it makes its determination. A final payment
pursuant to this Section 10.3 will be distributed to a Participant (or his
Permitted Assignee(s)) as soon as administratively practicable after such
termination and in no event later than two and one-half (2 1/2) months following
the last day of the Plan Year in which such termination occurs; provided,
however, that, notwithstanding the foregoing to the contrary, to the extent that
such termination and final payment would be subject to section 409A of the Code,
such termination and final payment will be made in accordance with the
applicable requirements of section 409A of the Code and the authority
thereunder.

    


    


    
      
        
          
             

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    ARTICLE
XI

    General
Provisions

    


    11.1           No
Guarantee of Employment.  Nothing contained in the Plan will
grant any Eligible Person, or other individual who is an employee of the
Employer or any of its Affiliates, or who otherwise performs services for the
Employer or any of its Affiliates, the right to be retained in the service of
the Employer or any of its Affiliates, nor will anything contained in the Plan
limit in any way the right of the Employer or any of its Affiliates to discharge
or terminate the service of any individual, including an Eligible Person, at any
time, without regard to the effect such discharge or termination may have on any
of such individual's rights under the Plan.

    


    11.2           Withholding.  The
Employer will at all times be entitled with respect to a payment due under the
Plan: (a) to withhold, or cause to be withheld, from such payment to a
Participant (or Permitted Assignee), or from any other payment to such
Participant (or Permitted Assignee), an amount necessary to satisfy any and all
tax withholding obligations or other deductions with respect to any wages or
other payments made to a Participant (or Permitted Assignee), which arise under
applicable law or are authorized by the Participant (or Permitted Assignee), and
(b) to take any other action as may in its opinion be necessary to satisfy all
obligations for the payment of such taxes or such other deductions.

    


    11.3           Offset of
Amounts Owed to the Employer.  Whenever a
Participant (or Permitted Assignee) would be otherwise due any payment pursuant
to the Plan, the Employer will be entitled to deduct from such payment any
amounts that the Participant (or Permitted Assignee) owes the Employer or any of
its Affiliates, including, without limitation, overpayments made under the Plan
to either the Participant or a Permitted Assignee, before payment of such amount
to such Participant (or Permitted Assignee).

    


    11.4           Agreement
to be Bound by Plan.  Through the
acceptance of payments pursuant to the Plan, each Participant agrees to be bound
by the terms and conditions of the Plan.

    


    11.5           Nonalienation of
Benefits.

    


    
      	
               
      

            	
              (a)

            	
              Except
      as provided in Section 7.1, Section 11.3, and Section 11.5(b), or as the
      Committee may otherwise permit, in writing, in its sole discretion, no
      interest in or benefit payable under the Plan will be subject in any
      manner to anticipation, alienation, sale, transfer, assignment, pledge,
      encumbrance, or charge, and any action by a Participant to anticipate,
      alienate, sell, transfer, assign, pledge, encumber, or charge the same
      will be void and of no effect; nor will any interest in or benefit payable
      under the Plan be in any way subject to any legal or equitable process,
      including, but not limited to, garnishment, attachment, levy, seizure, or
      the lien of any person. This provision will be construed to provide each
      Participant, or other person claiming any interest or benefit in the Plan
      through a Participant, with the maximum protection afforded such
      Participant's interest in the Plan (and the benefits provided thereunder)
      by law against alienation, encumbrance, and any legal and equitable
      process, including, but not limited to, attachment, garnishment, levy,
      seizure, or other lien.

            


    

    


    


    
      
        
          
             

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              (b)

            	
              Notwithstanding
      Section 11.5(a), the Committee will comply with the terms and provisions
      of a "qualified domestic relations order" as defined in section 414(p) of
      the Code.

            


    

    


    11.6           Unknown
Whereabouts.  It will be the affirmative duty of each
Participant (and Permitted Assignee) to inform the Committee of, and to keep on
file with the Committee, his current mailing address. If a Participant (or
Permitted Assignee) fails to inform the Committee of his current mailing
address, neither the Committee, the Employer, or any Affiliate will be
responsible for any late payment or loss of benefits or for failure of any
notice to be provided or provided timely under the terms of the Plan to such
Participant (or Permitted Assignee).

    


    11.7           Code
Section 409A.  To the extent that the Plan is (or becomes)
subject to Code section 409A, or any successor provision, as amended from time
to time, the Committee may at all times interpret and construe the Plan's terms
to conform and comply with the requirements of Code section 409A (or any
successor provision). Further, notwithstanding any other provision of the Plan
to the contrary, the Committee retains the right to amend the Plan to conform
and comply with the requirements of Code section 409A (or any successor
provision).

    


    11.8           Jurisdiction.  Except
to the extent that any federal law applies to the Plan and preempts state law,
the Plan and all actions arising out of or in connection with the Plan shall be
governed by and construed, enforced, and administered according to the laws of
the state of Texas, without regard to the conflict of law provisions of the
State of Texas or of any other state or jurisdiction.

    


    11.9           Severability.  In
case any provision of the Plan is held to be illegal, invalid, or unenforceable
for any reason, such illegal, invalid, or unenforceable provision will not
affect the remaining provisions of the Plan, but the Plan will be construed and
enforced as if such illegal, invalid, or unenforceable provision had not been
included therein.

    


    11.10         Successors.  The
rights and obligations of the Company hereunder shall be binding upon and inure
to the benefit of the Company and its successors and assigns.

    


    
      
        
          
             

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    EXECUTED
this 19th day of June, 2008 to be effective
the 1st day of
June 2007.

    


    
      	 
      	 
      	
              CLAYTON
      WILLIAMS ENERGY, INC.

            


    

    


     

    
      	 
      	 
      	
              By:

            	/s/  L.
      Paul Latham  
	 
      	 
      	 
      	
              L.
      Paul Latham

            
	 
      	 
      	 
      	
              Executive
      Vice President

            
	 
      	 
      	 
      	 
      


    

    


    
      
        
          
             

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    EXHIBIT
A

    Schedule
of Participants

    


    
      	 
      	 
      	
              Total

            
	 
      	 
      	
              %

            
	
              Williams

            	
              Clayton

            	
              28.5714%

            
	
              Latham

            	
              Paul

            	
              3.5714%

            
	
              Riggs

            	
              Mel

            	
              3.5714%

            
	
              Lyssy

            	
              Sam

            	
              13.5714%

            
	
              Shultz

            	
              Jeff

            	
              2.8571%

            
	
              Pullin

            	
              Cash

            	
              1.4286%

            
	
              Welborn

            	
              Greg

            	
              3.5714%

            
	
              Uzzell

            	
              Ed

            	
              3.5714%

            
	
              Kennedy

            	
              John

            	
              2.8571%

            
	
              Wolfshol

            	
              Jim

            	
              2.8571%

            
	
              Gasser

            	
              Ron

            	
              2.8571%

            
	
              Wolfshohl

            	
              Clarence

            	
              2.8572%

            
	
              Grafe

            	
              David

            	
              14.2857%

            
	
              Stembridge

            	
              Joe

            	
              2.8571%

            
	
              Pollard

            	
              Mike

            	
              2.2500%

            
	
              Schwope

            	
              Kathy

            	
              0.5714%

            
	
              Thomas

            	
              Robert

            	
              1.1429%

            
	
              Alford

            	
              Danny

            	
              1.1429%

            
	
              Hamilton

            	
              Janet

            	
              0.7500%

            
	
              Smith

            	
              Mark

            	
              0.5714%

            
	
              Peacock

            	
              Ray

            	
              0.3572%

            
	
              Beebe

            	
              Willson

            	
              0.3572%

            
	
              Tisdale

            	
              Mark

            	
              0.8929%

            
	
              Polson

            	
              Dennis

            	
              0.8929%

            
	
              Pruitt

            	
              Donnie

            	
              0.7143%

            
	
              Roome

            	
              Joe

            	
              0.7143%

            
	
              Jones

            	
              Kim

            	
              0.1786%

            
	
              Kelly

            	
              Denise

            	
              0.1786%

            
	 
      	 
      	 
      
	 
      	
              Total

            	
              100.0000%

            


    

    


    


    


    


    


    
      
        
          
             

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    EXHIBIT
B

    Area

    


    All
of Robertson and Burleson Counties of Texas

     

     

     

     

    
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      16