Document:

EXHIBIT 10

EXHIBIT 10.21

 

East Texas/Chalk Working Interest

Trust Agreement dated May 30, 2001

 

 

Exhibit 10.21

 

EAST

TEXAS/CHALK WORKING INTEREST TRUST

 

Dated May

30, 2001

 

Clayton Williams Energy, Inc.

 

 

TABLE OF CONTENTS

 

	

  ARTICLE I .  DEFINITIONS

  
	

  ARTICLE II .  CREATION AND

  PURPOSE OF TRUST; ACQUISITION OF WORKING INTEREST

  
	

  Section

  2.01

  	

  Creation of Trust.

  
	

  Section

  2.02

  	

  Purposes.

  
	

  Section

  2.03

  	

  Substitute Assignments.

  
	

  ARTICLE III .  CREATION OF UNITS

  AND CERTIFICATES

  
	

  Section

  3.01

  	

  Creation of Units.

  
	

  Section

  3.02

  	

  Certificates as Evidence of Ownership of Units.

  
	

  Section

  3.03

  	

  Rights of Unit Owners; Forfeiture of Interest.

  
	

  Section

  3.04

  	

  Character of Rights.

  
	

  Section

  3.05

  	

  Mutilated, Destroyed, Lost or Stolen Certificates.

  
	

  Section

  3.06

  	

  Protection of Trustees.

  
	

  ARTICLE IV .  ACCOUNTING AND

  DISTRIBUTIONS

  	 

	

  Section

  4.01

  	

  Fiscal Year and Accounting Method.

  
	

  Section

  4.02

  	

  Distributions.

  
	

  Section

  4.03

  	

  Income Tax Reporting.

  
	

  ARTICLE V .  TERM OF THE

  TRUST;  DISSOLUTION AND DISTRIBUTION

  
	

  Section

  5.01

  	

  Term of the Trust.

  
	

  Section

  5.02

  	

  Distribution After Termination.

  
	

  ARTICLE VI .  ADMINISTRATION OF

  TRUST AND POWERS OF THE TRUSTEES

  
	

  Section

  6.01

  	

  General Authority.

  
	

  Section

  6.02

  	

  No Power to Dispose of the Working Interest.

  
	

  Section

  6.03

  	

  No Power to Engage in Business or Make Investments.

  
	

  Section

  6.04

  	

  Payment of Liabilities of Trust.

  
	

  Section

  6.05

  	

  No Power to Borrow.

  
	

  Section

  6.06

  	

  Cash Reserves and Cash Held Pending Distribution.

  
	

  Section

  6.07

  	

  Settlement of Claims.

  
	

  Section

  6.08

  	

  Income and Principal.

  
	

  Section

  6.09

  	

  Effective Trustees’ Powers on Trust Property.

  
	

  Section

  6.10

  	

  No Requirement of Diversification.

  
	

  ARTICLE VII .  RIGHTS AND

  LIABILITIES OF TRUSTEES  

  
	

  Section

  7.01

  	

  General Liability of Trustee.

  
	

  Section

  7.02

  	

  Limitation of Liability of Unit Owners.

  
	

  Section

  7.03

  	

  Indemnification of Trustees.

  
	

  Section

  7.04

  	

  Compensation of Trustees — Services.

  
	

  Section

  7.05

  	

  Compensation of Trustees — Expenses.

  
	

  Section

  7.06

  	

  Reliance on Experts.

  
	

  Section

  7.07

  	

  No Security Required.

  
	

  Section

  7.08

  	

  Transactions in Multiple Capacities.

  
	

  Section

  7.09

  	

  Relief of Trustees from Certain Duties, Restrictions, and

  Liabilities.

  
	

  Section

  7.10

  	

  Appointment of Ancillary Trustees.

  
			

 

 

 

	

  ARTICLE VIII .  OFFICE OF

  TRUSTEES

  
	

  Section

  8.01

  	

  Removal of Trustees.

  
	

  Section

  8.02

  	

  Resignation of Trustees.

  
	

  Section

  8.03

  	

  Appointment of Successor Trustees.

  
	

  Section

  8.04

  	

  Rights of Successor Trustee.

  
	

  ARTICLE IX .  REVOCABILITY AND

  AMENDABILITY

  
	

  Section

  9.01

  	

  Revocability.

  
	

  Section

  9.02

  	

  Amendability.

  
	

  ARTICLE X .  MISCELLANEOUS

  
	

  Section

  10.01

  	

  Inspection of Trustees’ Books.

  
	

  Section

  10.02

  	

  Filing of Trust Agreement.

  
	

  Section

  10.03

  	

  Savings Clause.

  
	

  Section

  10.04

  	

  Notices.

  
	

  Section

  10.05

  	

  Situs of the Trust.

  
	

  Section

  10.06

  	

  Acceptance by Trustees.

  
	

  Section

  10.07

  	

  Counterparts.

  
	

  Section

  10.08

  	

  Headings.

  
	

  Section

  10.09

  	

  Independent Conduct.

  

 

ii

 

EAST TEXAS/CHALK WORKING

INTEREST TRUST

 

This Trust Agreement made as of this 30th

day of May, 2001, by and between Clayton

Williams Energy, Inc., hereinafter referred to as “Company” or

“Trustor”, and Stanley Beard, Robert L. Parker and Jordan R. Smith, members of

the Compensation Committee of Trustor, hereinafter referred to as “Trustees”.

 

WHEREAS, Trustor holds interests in certain

undeveloped oil and gas leases as described on Exhibit B attached hereto; and

 

WHEREAS, Trustor desires to provide an incentive for

certain employees of Trustor to remain as employees of Trustor and to receive

additional compensation therefor; and

 

WHEREAS, Trustor believes that the establishment of

this Trust and the contribution of certain after-payout working interests to

this Trust for the benefit of certain of the employees of the Trustor,

hereinafter referred to as “Unit Owners”, will benefit both the Trustor and the

Unit Owners; and

 

WHEREAS, the Trustee will hold the after-payout

working interests and other assets of the Trust Estate, as hereinafter defined,

as is provided herein.

 

NOW, THEREFORE, Trustor has GRANTED, ASSIGNED AND

DELIVERED unto the Trustee hereunder One Hundred Dollars ($100.00), the receipt

of which is hereby acknowledged and accepted by the Trustee, to have and to

hold in trust as hereinafter set out and all other properties, real or

personal, which may hereafter be received by the Trustee as additions to the

Trust pursuant to this Trust Agreement (the “Trust Estate”).  To accomplish the purposes of this Trust,

the Trustor and Trustee agree as follows:

 

ARTICLE I. 

DEFINITIONS

 

After-Payout Working Interests or Working Interests.  Those working interests which are subject to payout provisions

which are selected by the Trustor to be contributed to the Trust Estate.

 

Assignment

of After-Payout Working Interest.  Those assignments, as the case may be, of after-payout working

interests carved out of Trustor’s oil and gas lease inventory either to this

Trust or from this Trust back to Trustor, substantially in the form set forth

on Exhibit “A”.

 

Certificates.  Those documents that evidence ownership in

the Units by the Unit Owners and referred to in Section 3.02 hereof.

 

Payout.  That point in time beginning with the first

day of the month after the month in which all costs of production, ad valorem

taxes, drilling, completing, equipping and/or plugging all of the

 

 

wells comprising the

Trust Estate has occurred.  Land and

leasing costs, bonuses, delay rentals, will not constitute a “cost” for

purposes of Payout.  The cost of seismic

and seismic interpretation may be included as a cost for purposes of Payout on

a per prospect basis.  Such

determination will be made at the sole discretion of the Trustees.

 

Termination

of Employment.  The

cessation of employment with the Trustor by a Unit Owner for any reason, other

than such Unit Owner’s death or total and permanent disability.

 

Termination

of Trust.  The

cessation, liquidation and winding up of this Trust which will be on the later

to occur of (a) one (1) year from the date of this Trust Agreement, or (b)

complete payout of all after-payout working interests comprising the Trust

Estate.

 

Total

and Permanent Disability. 

With respect to a Unit Owner, the inability of the person to perform all

of the substantial and material duties and functions of his or her occupation

such person was performing at the time of becoming a Unit Owner.

 

Trust.  The trust created by this Trust Agreement.

 

Trust

Agreement.  This

Agreement by and between Trustor and the Trustees.

 

Trust

Estate.  The

After-Payout Working Interests and cash held by the Trustee pursuant to this

Agreement initially comprised of those leases set forth on Exhibit “B”.

 

Units.  The fractional beneficial ownership of the

Trust Estate which initially shall comprise 100 separate equal and distinct

units as described in Section 3.01 hereof.

 

Unit

Owner(s). 

Employee(s), independent contractors or consultants of Trustor selected

to participate as beneficiaries of this Trust.

 

ARTICLE II.  CREATION AND PURPOSE OF TRUST;

ACQUISITION

OF WORKING INTEREST

 

Section 2.01  Creation of Trust.  There is hereby created a Revocable

Trust for the benefit of the Unit Owners, who initially will be certain

employees of the Trustor who are selected to participate hereunder.  The Trust shall be known as the “EAST

TEXAS/CHALK WORKING INTEREST TRUST” and the Trustees may conduct all affairs of

the Trust in such name.  The One Hundred

Dollars ($100.00) initially placed in the Trust shall constitute the initial

Trust Estate of the Trust.

 

2

 

Section 2.02  Purposes.  The purposes of the Trust are:

 

(1)           To

protect and conserve, for the benefit of the Unit Owners, the Trust Estate;

 

(2)           To

receive cash attributable to the After-Payout Working Interests after Payout;

and

 

(3)           To

pay or provide for the payment of any liabilities incurred in carrying out the

purposes of the Trust and thereafter to distribute the remaining amounts

received by the Trust pro rata to the Unit Owners as provided herein.

 

It is the intention and

agreement of the Trustor and the Trustees to create an “Express Trust” within

the meaning of Section 2 of the Texas Trust Act, for the benefit of the Unit

Owners, and a “Grantor Trust” for federal income tax purposes of which the

Trustor is the Grantor.  As set forth

above and amplified herein, the Trust is intended to be a passive entity whose

activities are limited to the receipt of cash and revenues attributable to the

After-Payout Working Interests, and the distribution of such cash and revenues,

after Payout, and after payment of or provision for Trust expenses and

liabilities to the Unit owners.  It is

neither the purpose nor the intention of the parties hereto to create, and nothing

in this Trust Agreement shall be construed as creating, a partnership, joint

venture, joint stock company, or business association between or among the Unit

owners hereunder, present or future, or among or between the Unit Owners or any

of them and the Trustees or Trustor.

 

Section 2.03  Substitute Agreements.   The Trustor may, but shall not be required

to, amend the Trust Estate by executing and delivering to the Trustees before

the expiration of one (1) year from date of this Trust, one or more substitute

Assignments of After-Payout Working Interests. 

In such case, the substitute Assignment of After-Payout Working

Interests will be in the same form as, the original Assignment of After-Payout

Working Interests then held by the Trustees. 

On receipt of a substitute Assignment of After-Payout Working Interests,

the Trustees shall re-assign to the Trustor the conveyance of working interest

then held by the Trustees and accept in its place the substitute Assignment of

After Pay-Out Working Interest until a further substitution, if any, is made

pursuant to this Section 2.03.

 

ARTICLE III.  CREATION OF UNITS AND CERTIFICATES

 

Section 3.01  Creation of Units. 

The entire beneficial interest in the Trust Estate is hereby divided

into one hundred (100) separate equal and distinct Units.  The Units shall be granted to the Unit

Owners in amounts as determined in the discretion of the Compensation Committee

of the Board of Directors of the Trustor. 

The initial Unit Ownership is set forth on Schedule 1 attached hereto.

 

Section 3.02  Certificates as Evidence of Ownership of Units. 

The ownership of the Units shall be evidenced by Certificates in

substantially the form set forth in Exhibit C attached hereto.  Notwithstanding anything else stated herein

to the contrary, the Trustees may, for all purposes set forth in this Trust

Agreement, including, without limitation, the making of

 

3

 

distributions and voting,

treat the holder of any Certificate as shown on the Trustees’ records as the

owner of the Units evidenced thereby.

 

Section 3.03  Rights of Unit Owners; Forfeiture of Interest.  The Unit Owners shall have no rights to

vote on any decisions made by either the Trustor or the Trustees with respect

to this Trust.  In addition, this Trust

shall be a spendthrift trust and prior to distribution of the working interests

as provided in Article V hereof, the Unit Owners shall have no right to sell,

assign, pledge, hypothecate, mortgage or dispose of the Units.  In addition, in the event of the termination

of employment or the consulting agreement or contract of any Unit Owner prior

to the expiration of one (1) year from the date of this Trust for any reason,

other than death or total and permanent disability, his Units shall be deemed

to be forfeited and shall be reallocated among the remaining participating Unit

Owners, pro rata.

 

Section 3.04  Character of Rights.  The sole interest of each Unit Owner shall be his pro rata

portion of the beneficial interest and the obligations expressly created under

this Trust Agreement.  Such interest of

a Unit Owner is and shall be construed for all purposes to be intangible

personal property.  No Unit Owner shall

have the right to seek or secure any partition during the term of this Trust or

during the period of liquidation and winding up, and may not possess specific

trust property.

 

Section 3.05  Mutilated, Destroyed, Lost or Stolen

Certificates.  In the

event that any Certificate is mutilated, destroyed, lost or stolen, the

Trustees in their discretion may issue to the holder of such Certificate as

shown by the records of the Trustees, a new Certificate in exchange and

substitution for the mutilated Certificate, or in lieu of and substitution for

the Certificate so destroyed, lost or stolen.

 

Section 3.06  Protection of Trustees.  The Trustees shall be protected in acting

upon any notice, credential, certificate, assignment, or other document or

instrument believed by the Trustees to be genuine and to be signed by the

proper party or parties.

 

ARTICLE IV.  ACCOUNTING AND DISTRIBUTIONS

 

Section 4.01  Fiscal Year and Accounting Method.   The Trust fiscal year shall be the year

beginning on the first of the month following the month in which this Trust

Agreement is executed.  The Trustees

shall maintain the books of the Trust on a cash basis  except to the extent that such books must be kept on any other

basis pursuant to requirements for reporting by the Trustor to the Securities

and Exchange Commission or any other governmental regulatory body.

 

Section 4.02  Distributions.  In the event that during the term of the

Trust but prior to the expiration of the one year period the contributed

properties have “paid out”, as defined, the Trustees shall distribute to the

Unit Owners all income of the Trust in the proportion in which the Units are

held on a quarterly basis.

 

Section 4.03  Income Tax Reporting.   For federal and state income tax purposes, the Trustees shall file

such returns and statements as in their judgment are required to comply with applicable

provisions in the 1986 Code and regulations thereunder, and any state taxation

laws and regulations thereunder.  Until

dissolution of this Trust and distribution of the underlying

 

4

 

assets, the Trustor shall

be considered the owner of the properties for purposes of allocation of items

of income, gain, loss, deduction and credit.

 

ARTICLE V.  TERM OF THE TRUST;

DISSOLUTION

AND DISTRIBUTION

 

Section 5.01  Term

of the Trust. 

The Trust shall continue for a term ending on the later to occur of (a)

the expiration of one (1) year from the date of the Trust; or (b) Payout of the

contributed properties.

 

Section 5.02  Distribution After Termination.  Upon termination of the Trust as set

forth under Section 5.01 above, the producing properties comprising the Trust

shall be distributed in the form of Assignment of Working Interest in

accordance with the number of Units owned by each Unit Owner.  Any non-producing property or property that

has not been drilled during the term of the Trust shall be re-assigned by the

Trustees back to the Trustor.  Upon

distribution of the interests to the Unit Owner, the Unit Owner shall own same

free and clear of all liens, subject to the payment of lease operating expenses

and subject to the Unit Owners’ execution of an Operating Agreement.

 

ARTICLE VI.  ADMINISTRATION OF TRUST

AND

POWERS OF THE TRUSTEES

 

Section 6.01  General

Authority.  Subject to the limitations set forth in this

Trust Agreement, the Trustees are authorized to, and shall take such actions

as, in their judgment, are necessary, desirable or advisable to achieve the

purposes of the Trust.

 

Section 6.02  No Power to Dispose of the Working Interest.

 The Trustees may not sell or

otherwise dispose of the working interests other than a distribution to Unit

Owners or the re-assignment to Trustor as is provided herein.

 

Section 6.03  No Power to Engage in Business or Make Investments.  The Trustees shall not, in their

capacities as Trustees under the Trust, acquire any oil and gas property other

than the After-Payout Working Interests, nor engage in any business or

investment activity of any kind whatsoever. 

Nothing contained in this Section 6.03 shall prevent the Trustees from taking

those actions as are expressly permitted by other portions hereof or reasonably

related thereto, including the dissolution of the Trust.

 

Section 6.04  Payment of Liabilities of Trust.   The Trustees are authorized to, and shall use

all money received by it for the payment of all liabilities of the Trust,

including, but not limited to, all expenses, taxes and liabilities incurred of

all kinds, and reimbursement to them of all expenses pursuant to Section 7.04

and 7.05 hereof.

 

Section 6.05  No

Power to Borrow. 

The Trustees shall not have authority to borrow funds or otherwise

pledge, mortgage or hypothecate the assets of the Trust.

 

5

 

Section 6.06  Cash Reserves and Cash Held Pending Distribution.

 The Trustees, in their sole

discretion, may, but are not obligated to, establish a cash reserve if (a) (i)

a claim is asserted or likely to be asserted against the Trust and the Trust

has received an opinion of counsel stating that the party or parties asserting

the claim, or likely to assert the claim, have a reasonable probability of

succeeding in such claim, or (ii) a claim against the Trust has been successful

but such claim is not currently due and payable; and (b) the probable amount of

such potential or successful claim is such that it cannot be satisfied out of

the monthly income amount at the time that it is reasonably probable the claim

will have to be paid.  The Trustees may,

in their sole discretion, at any time, decrease or eliminate any cash reserve

previously established in the Trust.  The Trustees shall

be under no obligation to invest and shall not invest in any manner any cash

being held by them for ultimate distribution.

 

Section 6.07  Settlement of Claims.   The Trustees are authorized to maintain, defend and settle in the

Trust’s name, any claim or controversy by or against the Trust without the

joinder or consent of any Unit Owner.

 

Section 6.08  Income and Principal.  The Trustees may, but shall not be required to, keep separate

accounts or records for income and principal. 

To the extent that such separate accounts or records are kept, the

Trustees may allocate the receipts, disbursements and reserves of the Trust

between income or principal in the discretion of the Trustees, and the

Trustees’ discretion need not accord with the provisions of any requirement of

applicable law which may be lawfully negated by this Trust Agreement.  Regardless of any such characterization,

however, the Trustees shall not make any distribution, accumulate any funds, or

maintain any reserve except as expressly provided in this Trust Agreement.  The Trustees shall not maintain a reserve

for depletion of the assets represented in the Trust Estate.

 

Section 6.09  Effective Trustees’ Powers on Trust Property.

 The powers granted the Trustees

under this Trust Agreement may be exercised upon such terms as the Trustees

deem advisable and may affect Trust Estate for any length of time regardless of

the duration of the Trust.

 

Section 6.10  No Requirement of Diversification.  The Trustees shall be under no obligation to

diversify the Trust Estate or to dispose of any wasting assets.

 

ARTICLE VII.  RIGHTS AND LIABILITIES OF TRUSTEES

 

Section 7.01  General Liability of Trustee.  The Trustees are empowered to act in their

discretion and shall not be personally or individually liable for any act or

omission except in the case of negligence, bad faith, fraud, or any liability

the Trustees may have vis-à-vis the Unit Owners as provided in Section 7.02

hereof.

 

Section 7.02  Limitation of Liability of Unit Owners.

 In engaging in any activity or

transaction which results or could result in any kind of liability, the

Trustees shall take all the steps necessary to ensure that such liability shall

be satisfiable in all events (including the exhaustion of the Trust Estate) only

out of the Trust Estate, that such liability shall not be satisfiable out of

any amounts distributed to Unit Owners or other assets owned by Unit Owners,

 

6

 

and that no Unit Owner

shall have any personal liability therefore. 

In the event of failure by the Trustees to take such steps, the Trustees

shall be fully and exclusively liable for any resulting liability (other than

liability for state and federal income taxes or liabilities for refunds, fines,

penalties, or interest relating to the oil or gas pricing overcharges)

vis-à-vis the Unit Owners; provided, however, that the Trustees shall be

entitled to be indemnified and reimbursed from the Trust Estate, as provided in

Section 7.03 infra.

 

Section 7.03  Indemnification of Trustees.   The Trustees shall be indemnified by, and

receive reimbursement from, the Trust Estate against and from any and all

liability, expense, claim, damage, or loss incurred by them individually or as

Trustees in the administration of the Trust and the Trust Estate or any part or

parts thereof, or in the doing of any act done or performed or omission

occurring on account of their being Trustees, except (1) such liability,

expense, claim, damage, or loss arising from their negligence, bad faith, or

fraud, and (2) any loss resulting from Trustees’ expenses (direct or indirect)

in carrying out the administrative tasks required hereunder exceeding the

compensation and reimbursement provided for pursuant to Sections 7.04 and 7.05

hereof.  The Trustees shall have a lien

upon the Trust Estate to secure them for such indemnification and reimbursement

and for compensation to be paid to the Trustees.

 

Except as provided in this Section 7.03, neither the Trustees nor any

agent or employee of the Trustees shall be entitled to any reimbursement or

indemnification from any Unit Owner for any liability, expense, claim, damage,

or loss incurred by the Trustees or any such agent or employee; and the rights

of the Trustees or any employee or agent of the Trustees to reimbursement and

indemnification, if any, shall be limited solely to the Trust Estate, whether

or not such reimbursement and indemnification shall be insufficient fully to

reimburse or indemnify the Trustees or any such agent or employee.

 

Section 7.04  Compensation of Trustees — Services.  The Trustees shall not be compensated for

services rendered hereunder, but shall continue to be compensated by the

Trustor in their capacity as members of the Compensation Committee.

 

Section 7.05  Compensation of Trustees — Expenses.   The out-of-pocket costs incurred by the

Trustees such as travel, legal services, stationery, binders, envelopes, ledger

sheets, transfer sheets, checks, disbursements such as postage and insurance,

filing fees, listing fees, and fees and expenses incurred for experts or other

professionals hired pursuant to Section 7.06 will be paid by the Trustor.

 

The initial organizational costs of the Trust, fees of legal counsel,

engineering costs, and the initial cost of organizing the Trust shall be paid

by the Trustor.

 

Section 7.06  Reliance on Experts.   To perform any act required or permitted by

this Trust Agreement the Trustees may, but shall not be required to, consult

with counsel, accountants, geologists, engineers, and other parties deemed by

the Trustees to be qualified as experts on the matters submitted to them, who

may be employees of the Trustee.  The

Trustees are authorized to make payments of all reasonable fees for services or

expense thus incurred out of the Trust Estate.

 

7

 

Section 7.07  No Security Required.  No bond or other security shall be required of the Trustees.

 

Section 7.08  Transactions in Multiple Capacities.

 To the extent allowed by applicable

law, the Trustees shall not be prohibited in any way in exercising its powers

or from dealing with itself in any other capacity, fiduciary or otherwise.

 

Section 7.09  Relief of Trustees from Certain Duties, Restrictions, and

Liabilities. 

Pursuant to Article 7425b-22 of the Texas Trust Act, the Trustor hereby

relieves the Trustees from any or all duties, restrictions, and liabilities

otherwise imposed upon the Trustees by the Texas Trust Act except for such

duties, restrictions, and liabilities as are imposed (a) by Sections 10, 11,

and 12 of the Texas Trust Act; (b) by the terms and conditions of this Trust

Agreement; or (c) by any other applicable law, rule, or regulation.

 

Section 7.10  Appointment of Ancillary Trustees.   If at any time it becomes necessary under the

laws of any jurisdiction other than Texas for a trustee qualified under such

laws to make any action with respect to assets held in the Trust Estate, or if

at any time in its discretion the Trustees determine it would be useful or

desirable in connection with the administration of the Trust Estate, the

Trustor may appoint in writing an individual, bank, or trust company legally

qualified to act in such other jurisdiction to serve as ancillary Trustee for

such purposes.  Such ancillary Trustee

shall have all rights, privileges, powers, responsibilities, and duties as are

delegated in writing by the appointing Trustee and consistent with the

provisions of this Trust Agreement. 

Such ancillary Trustee shall be responsible to the Trustees for all

assets with respect to which the ancillary Trustee is empowered to act.  To the extent permitted under the laws of

such other jurisdiction, the Trustor may remove an ancillary Trustee at any

time, without cause and without the necessity of any court proceeding, and may

appoint a successor ancillary Trustee from time to time and at any time.

 

ARTICLE VIII. 

OFFICE OF TRUSTEES

 

Section 8.01  Removal of Trustees.  A Trustee may be removed as a Trustee at any time by the Trustor.

 

Section 8.02  Resignation of Trustees.  A Trustee may resign at any time, with or

without cause, by giving written notice by certified mail to the Trustor and to

each Unit Owner.  Such resignation shall

be effective as of the date specified in such Notice.

 

The resigning Trustee shall account to its successor for the

administration of the Trust Estate as may be required by the Successor

Trustee.  All successors to such

resigning Trustee shall be fully protected in relying upon such accounting.

 

Section 8.03  Appointment of Successor Trustees.  In the event a Trustee has been removed or

has given notice of its intention to resign, a successor Trustee shall be

appointed by the Trustor within ten (10) days of the resignation of the prior

Trustee.  Notice of appointment of

successor Trustee shall be given by the Trustee to each Unit Owner.

 

8

 

Section 8.04  Rights of Successor Trustee.   Immediately upon the appointment of any

successor Trustee (including a temporary successor Trustee), all rights,

titles, duties, powers, and authority of the succeeded Trustee hereunder shall

be vested in and undertaken by the successor Trustee which shall be entitled to

receive from the Trustee which it succeeds, in addition to the accounting

referred to in Section 8.02, all of the Trust Estate held by it hereunder and

all records and files in connection therewith. 

No successor Trustee shall be obligated to examine or seek alteration of

any accounting of any preceding Trustee, nor shall any successor Trustee be

liable personally for failing to do so or for any act or omission of any

preceding Trustee.  The preceding

sentence shall not prevent any successor Trustee or anyone else from taking any

action otherwise permissible in connection with such accounting.

 

ARTICLE IX.  REVOCABILITY AND AMENDABILITY

 

Section 9.01  Revocability.

 This Trust Agreement and the Trust

hereunder are revocable at the sole discretion of the Trustor.

 

Section 9.02  Amendability. 

The Trustor and the Trustees (without the consent of the Unit Owners)

may, from time to time, and at any time prior to the termination of the Trust,

enter into an agreement amending the terms of this Trust Agreement to cure any

ambiguity, correct or supplement any provision contained herein, make such

other provisions in regard to matters or questions arising under this Trust

Agreement, as the Trustor may deem necessary or desirable and whether or not it

affects adversely the interests of the Unit Owners.

 

ARTICLE X. 

MISCELLANEOUS

 

Section 10.01  Inspection of Trustees’ Books.  The Unit Owners and their duly

authorized agents, attorneys, and auditors shall have the right during

reasonable business hours at their own cost and expense to examine, inspect and

make audits of the Trust and records of the Trustees in reference thereto.

 

Section 10.02  Filing of Trust Agreement.   Except as otherwise required by law, neither

this Trust Agreement nor any executed copy hereof need be filed in any county

or other jurisdiction in which any of the properties comprising the Trust

Estate are located, but the same may be filed for record in any county or other

jurisdiction by the Trustees.  In order

to avoid the necessity of filing this Trust Agreement for record, the Trustees

agree that for the purposes of vesting the record title in any successor

Trustee, the retiring Trustee will, upon appointment of any successor Trustee,

execute and deliver to such successor Trustee appropriate assignments or

conveyances.

 

Section 10.03  Savings

Clause.   If any

provision of this Trust Agreement or the application thereof to any person,

property, or circumstances shall be finally determined by a court of proper

jurisdiction to be illegal, invalid, or unenforceable to any extent, the

remainder of this Trust Agreement or the application of such provision to persons,

properties, or circumstances other than those as to which it is held illegal,

invalid, or unenforceable, shall not

 

9

 

be affected thereby, and

every provision of this Trust Agreement shall be valid and enforced to the

fullest extent permitted by law.

 

Section 10.04  Notices.  Any notice or demand which is required or

permitted under this Agreement to be given or served upon any party may be

given or served by being deposited, postage prepaid, by registered or certified

mail, in a post office or letter box addressed, or by hand delivery to the

parties at the following addresses:

 

Trustor:                  Clayton Williams Energy, Inc.

 

6 Desta Drive, Suite 6500

 

Midland, TX  79705

 

Trustees:               Robert L. Parker

 

8 East Third Street

 

Tulsa, OK  74103

 

 

Stanley S. Beard

 

500 W. Texas,

Suite 705

 

Midland, TX  79701

 

 

Jordan R. Smith

 

515 W. Greens

Road, Suite 1000

 

Houston, TX  77067

 

Any notice or other communication by the Trustees or Trustor to any

Unit Owner shall be deemed to have been sufficiently given, for all purposes,

when deposited, postage prepaid, in a post office or letter box addressed to

said holder at its last address as shown on the records of the Trustees.

 

Section 10.05  Situs

of the Trust. 

The situs of the Trust hereby created is Texas, and the laws of Texas

shall control with respect to the construction, administration, and validity of

the Trust.

 

10

 

Section 10.06  Acceptance by Trustees.  The Trustees, by joining in the execution of

this Trust Agreement, accept the Trust herein created and provided for, and

accept all of the rights, powers, privileges, duties, and responsibilities of

the Trustees hereunder, and agree to exercise and perform the same in accordance

with the terms and provisions contained herein.

 

Section 10.07  Counterparts.

 This Trust Agreement may be

executed in a number of counterparts, each of which shall constitute an

original, but such counterparts shall together constitute but one and the same

instrument.

 

Section 10.08  Headings.  The headings of the Sections and Articles of

this Agreement are inserted for convenience only and shall not constitute a

part hereof.

 

Section 10.09  Independent Conduct.  The Trustees, and the Trustor on behalf of all future Unit

Owners, hereby reserve and retain the right to engage in all businesses and

activities of any kind whatsoever (irrespective of whether the same may be in

competition with the Trust), and to receive compensation or profit therefor,

for their own respective accounts and without in any manner being obligated to

disclose or offer such business and activities or assets or compensation or

profit to each other or to the Trust.

 

In Witness Whereof, Trustor and Trustees hereunto set their hands effective

as of the day and year first above written.

 

	

   

  	

  TRUSTOR:

  
	

   

  	

   

  
	

   

  	

  CLAYTON WILLIAMS ENERGY, INC.

  
	

   

  	

   

  
	

   

  	

  By: 

  	

  /Paul Latham

  	

   

  
	

   

  	

   

  
	

   

  	

  TRUSTEES:

  
	

   

  	

   

  
	

   

  	

  /s/ Stanley S. Beard

  	

   

  
	

   

  	

  Stanley S. Beard

  	

   

  
	

   

  	

   

  
	

   

  	

  /s/ Robert L. Parker

  	

   

  
	

   

  	

  Robert L. Parker

  
	

   

  	

   

  
	

   

  	

  /s/ Jordan R. Smith

  	

   

  
	

   

  	

  Jordan R. Smith

  

 

11

 

SCHEDULE 1

 

EAST TEXAS/CHALK WORKING INTEREST

TRUST

 

Ownership

Summary

 

	

  Groner, Jerry

  	

   

  	

  19.4281

  	

  %

  
	

  Benton, Greg

  	

   

  	

  16.3003

  	

  %

  
	

  Lyssy, Sam

  	

   

  	

  16.3003

  	

  %

  
	

  Kennedy, John

  	

   

  	

  8.1502

  	

  %

  
	

  Wolfshohl, Clarence

  	

   

  	

  7.9495

  	

  %

  
	

  Irvin, Logan

  	

   

  	

  7.0904

  	

  %

  
	

  Riggs, Mel

  	

   

  	

  5.7521

  	

  %

  
	

  Latham, Paul

  	

   

  	

  5.1571

  	

  %

  
	

  Collins, Jim

  	

   

  	

  3.3160

  	

  %

  
	

  Pollard, Mike

  	

   

  	

  2.2894

  	

  %

  
	

  Norwood, Ed

  	

   

  	

  2.2198

  	

  %

  
	

  Tisdale, Mark

  	

   

  	

  1.2393

  	

  %

  
	

  Stembridge, Joe

  	

   

  	

  1.0773

  	

  %

  
	

  Eller, Bobby

  	

   

  	

  0.8332

  	

  %

  
	

  Knape, David

  	

   

  	

  0.8184

  	

  %

  
	

  Pruitt, Donnie

  	

   

  	

  0.5213

  	

  %

  
	

  Cunningham, Mickey

  	

   

  	

  0.4426

  	

  %

  
	

  Thomas, Robert

  	

   

  	

  0.4208

  	

  %

  
	

  Polson, Dennis

  	

   

  	

  0.3770

  	

  %

  
	

  Jones, Kim

  	

   

  	

  0.1585

  	

  %

  
	

  Alford, Danny

  	

   

  	

  0.1584

  	

  %

  
	

   

  	

   

  	

  100.0000

  	

  %

  

 

12EXHIBIT 10

EXHIBIT

10.22

 

Louisiana Working Interest Trust Agreement dated May 30, 2001

 

 

Exhibit

10.22

 

LOUISIANA

WORKING INTEREST TRUST

 

Dated May

30, 2001

 

Clayton Williams Energy, Inc.

 

 

TABLE OF CONTENTS

 

	

  ARTICLE I .  DEFINITIONS

  
	

  ARTICLE II .  CREATION AND

  PURPOSE OF TRUST; ACQUISITION OF WORKING INTEREST

  
	

  Section

  2.01

  	

  Creation of Trust.

  
	

  Section

  2.02

  	

  Purposes.

  
	

  Section

  2.03

  	

  Substitute Assignments.

  
	

  ARTICLE III .  CREATION OF UNITS

  AND CERTIFICATES

  
	

  Section

  3.01

  	

  Creation of Units.

  
	

  Section

  3.02

  	

  Certificates as Evidence of Ownership of Units.

  
	

  Section

  3.03

  	

  Rights of Unit Owners; Forfeiture of Interest.

  
	

  Section

  3.04

  	

  Character of Rights.

  
	

  Section

  3.05

  	

  Mutilated, Destroyed, Lost or Stolen Certificates.

  
	

  Section

  3.06

  	

  Protection of Trustees.

  
	

  ARTICLE IV .  ACCOUNTING AND

  DISTRIBUTIONS

  
	

  Section

  4.01

  	

  Fiscal Year and Accounting Method.

  
	

  Section

  4.02

  	

  Distributions.

  
	

  Section

  4.03

  	

  Income Tax Reporting.

  
	

  ARTICLE V .  TERM OF THE

  TRUST;  DISSOLUTION AND DISTRIBUTION

  
	

  Section

  5.01

  	

  Term of the Trust.

  
	

  Section

  5.02

  	

  Distribution After Termination.

  
	

  ARTICLE VI .  ADMINISTRATION OF

  TRUST AND POWERS OF THE TRUSTEES

  
	

  Section

  6.01

  	

  General Authority.

  
	

  Section

  6.02

  	

  No Power to Dispose of the Working Interest.

  
	

  Section

  6.03

  	

  No Power to Engage in Business or Make Investments.

  
	

  Section

  6.04

  	

  Payment of Liabilities of Trust.

  
	

  Section

  6.05

  	

  No Power to Borrow.

  
	

  Section

  6.06

  	

  Cash Reserves and Cash Held Pending Distribution.

  
	

  Section

  6.07

  	

  Settlement of Claims.

  
	

  Section

  6.08

  	

  Income and Principal.

  
	

  Section

  6.09

  	

  Effective Trustees’ Powers on Trust Property.

  
	

  Section

  6.10

  	

  No Requirement of Diversification.

  
	

  ARTICLE VII .  RIGHTS AND

  LIABILITIES OF TRUSTEES

  
	

  Section

  7.01

  	

  General Liability of Trustee.

  
	

  Section

  7.02

  	

  Limitation of Liability of Unit Owners.

  
	

  Section

  7.03

  	

  Indemnification of Trustees.

  
	

  Section

  7.04

  	

  Compensation of Trustees — Services.

  
	

  Section

  7.05

  	

  Compensation of Trustees — Expenses.

  
	

  Section

  7.06

  	

  Reliance on Experts.

  
	

  Section

  7.07

  	

  No Security Required.

  
	

  Section

  7.08

  	

  Transactions in Multiple Capacities.

  
	

  Section

  7.09

  	

  Relief of Trustees from Certain Duties, Restrictions, and

  Liabilities.

  
	

  Section

  7.10

  	

  Appointment of Ancillary Trustees.

  

 

 

	

  ARTICLE VIII .  OFFICE OF

  TRUSTEES

  
	

  Section

  8.01

  	

  Removal of Trustees.

  
	

  Section

  8.02

  	

  Resignation of Trustees.

  
	

  Section

  8.03

  	

  Appointment of Successor Trustees.

  
	

  Section

  8.04

  	

  Rights of Successor Trustee.

  
	

  ARTICLE IX .  REVOCABILITY AND

  AMENDABILITY

  
	

  Section

  9.01

  	

  Revocability.

  
	

  Section

  9.02

  	

  Amendability.

  
	

  ARTICLE X .  MISCELLANEOUS

  
	

  Section

  10.01

  	

  Inspection of Trustees’ Books.

  
	

  Section

  10.02

  	

  Filing of Trust Agreement.

  
	

  Section

  10.03

  	

  Savings Clause.

  
	

  Section

  10.04

  	

  Notices.

  
	

  Section

  10.05

  	

  Situs of the Trust.

  
	

  Section

  10.06

  	

  Acceptance by Trustees.

  
	

  Section

  10.07

  	

  Counterparts.

  
	

  Section

  10.08

  	

  Headings.

  
	

  Section

  10.09

  	

  Independent Conduct.

  

 

ii

 

LOUISIANA WORKING

INTEREST TRUST

 

This Trust Agreement made as of this 30th

day of May, 2001, by and between Clayton

Williams Energy, Inc., hereinafter referred to as “Company” or

“Trustor”, and Stanley Beard, Robert L. Parker and Jordan R. Smith, members of

the Compensation Committee of Trustor, hereinafter referred to as “Trustees”.

 

WHEREAS, Trustor holds interests in certain

undeveloped oil and gas leases as described on Exhibit B attached hereto; and

 

WHEREAS, Trustor desires to provide an incentive for

certain employees of Trustor to remain as employees of Trustor and to receive

additional compensation therefor; and

 

WHEREAS, Trustor believes that the establishment of

this Trust and the contribution of certain after-payout working interests to

this Trust for the benefit of certain of the employees of the Trustor,

hereinafter referred to as “Unit Owners”, will benefit both the Trustor and the

Unit Owners; and

 

WHEREAS, the Trustee will hold the after-payout

working interests and other assets of the Trust Estate, as hereinafter defined,

as is provided herein.

 

NOW, THEREFORE, Trustor has GRANTED, ASSIGNED AND

DELIVERED unto the Trustee hereunder One Hundred Dollars ($100.00), the receipt

of which is hereby acknowledged and accepted by the Trustee, to have and to

hold in trust as hereinafter set out and all other properties, real or

personal, which may hereafter be received by the Trustee as additions to the

Trust pursuant to this Trust Agreement (the “Trust Estate”).  To accomplish the purposes of this Trust,

the Trustor and Trustee agree as follows:

 

ARTICLE I. 

DEFINITIONS

 

After-Payout Working Interests or Working Interests.  Those working interests which are subject to payout provisions

which are selected by the Trustor to be contributed to the Trust Estate.

 

Assignment

of After-Payout Working Interest.  Those assignments, as the case may be, of after-payout working

interests carved out of Trustor’s oil and gas lease inventory either to this

Trust or from this Trust back to Trustor, substantially in the form set forth

on Exhibit “A”.

 

Certificates.  Those documents that evidence ownership in

the Units by the Unit Owners and referred to in Section 3.02 hereof.

 

Payout.  That point in time beginning with the first

day of the month after the month in which all costs of production, ad valorem

taxes, drilling, completing, equipping and/or plugging all of the

 

 

wells comprising the

Trust Estate has occurred.  Land and

leasing costs, bonuses, delay rentals, will not constitute a “cost” for

purposes of Payout.  The cost of seismic

and seismic interpretation may be included as a cost for purposes of Payout on

a per prospect basis.  Such

determination will be made at the sole discretion of the Trustees.

 

Termination

of Employment.  The

cessation of employment with the Trustor by a Unit Owner for any reason, other

than such Unit Owner’s death or total and permanent disability.

 

Termination

of Trust.  The

cessation, liquidation and winding up of this Trust which will be on the later

to occur of (a) one (1) year from the date of this Trust Agreement, or (b)

complete payout of all after-payout working interests comprising the Trust

Estate.

 

Total

and Permanent Disability. 

With respect to a Unit Owner, the inability of the person to perform all

of the substantial and material duties and functions of his or her occupation

such person was performing at the time of becoming a Unit Owner.

 

Trust.  The trust created by this Trust Agreement.

 

Trust

Agreement.  This

Agreement by and between Trustor and the Trustees.

 

Trust

Estate.  The

After-Payout Working Interests and cash held by the Trustee pursuant to this

Agreement initially comprised of those leases set forth on Exhibit “B”.

 

Units.  The fractional beneficial ownership of the

Trust Estate which initially shall comprise 100 separate equal and distinct

units as described in Section 3.01 hereof.

 

Unit

Owner(s). 

Employee(s), independent contractors or consultants of Trustor selected

to participate as beneficiaries of this Trust.

 

ARTICLE II.  CREATION AND PURPOSE OF TRUST;

ACQUISITION

OF WORKING INTEREST

 

Section 2.01  Creation of Trust.  There is hereby created a Revocable Trust

for the benefit of the Unit Owners, who initially will be certain employees of

the Trustor who are selected to participate hereunder.  The Trust shall be known as the “LOUISIANA

WORKING INTEREST TRUST” and the Trustees may conduct all affairs of the Trust

in such name.  The One Hundred Dollars ($100.00)

initially placed in the Trust shall constitute the initial Trust Estate of the

Trust.

 

2

 

Section 2.02  Purposes.  The purposes of the Trust are:

 

(4)                                  To protect and conserve, for the benefit of the Unit Owners, the Trust

Estate;

 

(5)                                  To receive cash attributable to the After-Payout Working Interests after

Payout; and

 

(6)                                  To pay or provide for the payment of any liabilities incurred in carrying

out the purposes of the Trust and thereafter to distribute the remaining

amounts received by the Trust pro rata to the Unit Owners as provided herein.

 

It is the intention and

agreement of the Trustor and the Trustees to create an “Express Trust” within

the meaning of Section 2 of the Texas Trust Act, for the benefit of the Unit

Owners, and a “Grantor Trust” for federal income tax purposes of which the

Trustor is the Grantor.  As set forth

above and amplified herein, the Trust is intended to be a passive entity whose

activities are limited to the receipt of cash and revenues attributable to the After-Payout

Working Interests, and the distribution of such cash and revenues, after

Payout, and after payment of or provision for Trust expenses and liabilities to

the Unit owners.  It is neither the

purpose nor the intention of the parties hereto to create, and nothing in this

Trust Agreement shall be construed as creating, a partnership, joint venture,

joint stock company, or business association between or among the Unit owners

hereunder, present or future, or among or between the Unit Owners or any of

them and the Trustees or Trustor.

 

Section 2.03  Substitute Agreements.  The Trustor may, but shall not be required

to, amend the Trust Estate by executing and delivering to the Trustees before

the expiration of one (1) year from date of this Trust, one or more substitute

Assignments of After-Payout Working Interests. 

In such case, the substitute Assignment of After-Payout Working

Interests will be in the same form as, the original Assignment of After-Payout

Working Interests then held by the Trustees. 

On receipt of a substitute Assignment of After-Payout Working Interests,

the Trustees shall re-assign to the Trustor the conveyance of working interest

then held by the Trustees and accept in its place the substitute Assignment of

After Pay-Out Working Interest until a further substitution, if any, is made

pursuant to this Section 2.03.

 

ARTICLE III.  CREATION OF UNITS AND CERTIFICATES

 

Section 3.01  Creation of Units.  The entire beneficial interest in the Trust

Estate is hereby divided into one hundred (100) separate equal and distinct

Units.  The Units shall be granted to

the Unit Owners in amounts as determined in the discretion of the Compensation

Committee of the Board of Directors of the Trustor.  The initial Unit Ownership is set forth on Schedule 1 attached

hereto.

 

Section 3.02  Certificates as Evidence of Ownership of Units.  The ownership of the Units shall be

evidenced by Certificates in substantially the form set forth in Exhibit C

attached hereto.  Notwithstanding

anything else stated herein to the contrary, the Trustees may, for all purposes

set forth in this Trust Agreement, including, without limitation, the making of

 

3

 

distributions and voting,

treat the holder of any Certificate as shown on the Trustees’ records as the

owner of the Units evidenced thereby.

 

Section 3.03  Rights of Unit Owners; Forfeiture of Interest.  The Unit Owners shall have no rights to vote

on any decisions made by either the Trustor or the Trustees with respect to

this Trust.  In addition, this Trust

shall be a spendthrift trust and prior to distribution of the working interests

as provided in Article V hereof, the Unit Owners shall have no right to sell,

assign, pledge, hypothecate, mortgage or dispose of the Units.  In addition, in the event of the termination

of employment or the consulting agreement or contract of any Unit Owner prior

to the expiration of one (1) year from the date of this Trust for any reason,

other than death or total and permanent disability, his Units shall be deemed

to be forfeited and shall be reallocated among the remaining participating Unit

Owners, pro rata.

 

Section 3.04  Character of Rights.  The sole interest of each Unit Owner shall

be his pro rata portion of the beneficial interest and the obligations

expressly created under this Trust Agreement. 

Such interest of a Unit Owner is and shall be construed for all purposes

to be intangible personal property.  No

Unit Owner shall have the right to seek or secure any partition during the term

of this Trust or during the period of liquidation and winding up, and may not

possess specific trust property.

 

Section 3.05  Mutilated, Destroyed, Lost or Stolen Certificates.  In the event that any Certificate is

mutilated, destroyed, lost or stolen, the Trustees in their discretion may

issue to the holder of such Certificate as shown by the records of the

Trustees, a new Certificate in exchange and substitution for the mutilated

Certificate, or in lieu of and substitution for the Certificate so destroyed,

lost or stolen.

 

Section 3.06  Protection of Trustees.  The Trustees shall be protected in acting

upon any notice, credential, certificate, assignment, or other document or

instrument believed by the Trustees to be genuine and to be signed by the

proper party or parties.

 

ARTICLE IV.  ACCOUNTING AND DISTRIBUTIONS

 

Section 4.01  Fiscal Year and Accounting Method.  The Trust fiscal year shall be the year

beginning on the first of the month following the month in which this Trust

Agreement is executed.  The Trustees

shall maintain the books of the Trust on a cash basis  except to the extent that such books must be kept on any other

basis pursuant to requirements for reporting by the Trustor to the Securities

and Exchange Commission or any other governmental regulatory body.

 

Section 4.02  Distributions.  In the event that during the term of the

Trust but prior to the expiration of the one year period the contributed

properties have “paid out”, as defined, the Trustees shall distribute to the

Unit Owners all income of the Trust in the proportion in which the Units are

held on a quarterly basis.

 

Section 4.03  Income Tax Reporting.  For federal and state income tax purposes,

the Trustees shall file such returns and statements as in their judgment are

required to comply with applicable provisions in the 1986 Code and regulations

thereunder, and any state taxation laws and regulations thereunder.  Until dissolution of this Trust and

distribution of the underlying

 

4

 

assets, the Trustor shall

be considered the owner of the properties for purposes of allocation of items

of income, gain, loss, deduction and credit.

 

ARTICLE V.  TERM OF THE TRUST;

DISSOLUTION

AND DISTRIBUTION

 

Section 5.01  Term of the Trust.  The Trust shall continue for a term ending

on the later to occur of (a) the expiration of one (1) year from the date of

the Trust; or (b) Payout of the contributed properties.

 

Section 5.02  Distribution After Termination.  Upon termination of the Trust as set forth

under Section 5.01 above, the producing properties comprising the Trust shall

be distributed in the form of Assignment of Working Interest in accordance with

the number of Units owned by each Unit Owner. 

Any non-producing property or property that has not been drilled during

the term of the Trust shall be re-assigned by the Trustees back to the

Trustor.  Upon distribution of the

interests to the Unit Owner, the Unit Owner shall own same free and clear of

all liens, subject to the payment of lease operating expenses and subject to

the Unit Owners’ execution of an Operating Agreement.

 

ARTICLE VI.  ADMINISTRATION OF TRUST

AND

POWERS OF THE TRUSTEES

 

Section 6.01  General Authority.  Subject to the limitations set forth in this

Trust Agreement, the Trustees are authorized to, and shall take such actions

as, in their judgment, are necessary, desirable or advisable to achieve the

purposes of the Trust.

 

Section 6.02  No Power to Dispose of the Working Interest.  The Trustees may not sell or otherwise

dispose of the working interests other than a distribution to Unit Owners or

the re-assignment to Trustor as is provided herein.

 

Section 6.03  No Power to Engage in Business or Make Investments.  The Trustees shall not, in their capacities

as Trustees under the Trust, acquire any oil and gas property other than the

After-Payout Working Interests, nor engage in any business or investment

activity of any kind whatsoever. 

Nothing contained in this Section 6.03 shall prevent the Trustees from

taking those actions as are expressly permitted by other portions hereof or

reasonably related thereto, including the dissolution of the Trust.

 

Section 6.04  Payment of Liabilities of Trust.  The Trustees are authorized to, and shall

use all money received by it for the payment of all liabilities of the Trust,

including, but not limited to, all expenses, taxes and liabilities incurred of

all kinds, and reimbursement to them of all expenses pursuant to Section 7.04

and 7.05 hereof.

 

Section 6.05  No Power to Borrow.  The Trustees shall not have authority to

borrow funds or otherwise pledge, mortgage or hypothecate the assets of the

Trust.

 

5

 

Section 6.06  Cash Reserves and Cash Held Pending Distribution.  The Trustees, in their sole discretion, may,

but are not obligated to, establish a cash reserve if (a) (i) a claim is

asserted or likely to be asserted against the Trust and the Trust has received

an opinion of counsel stating that the party or parties asserting the claim, or

likely to assert the claim, have a reasonable probability of succeeding in such

claim, or (ii) a claim against the Trust has been successful but such claim is

not currently due and payable; and (b) the probable amount of such potential or

successful claim is such that it cannot be satisfied out of the monthly income

amount at the time that it is reasonably probable the claim will have to be

paid.  The Trustees may, in their sole

discretion, at any time, decrease or eliminate any cash reserve previously

established in the Trust.  The Trustees shall

be under no obligation to invest and shall not invest in any manner any cash

being held by them for ultimate distribution.

 

Section 6.07  Settlement of Claims.  The Trustees are authorized to maintain,

defend and settle in the Trust’s name, any claim or controversy by or against

the Trust without the joinder or consent of any Unit Owner.

 

Section 6.08  Income and Principal.  The Trustees may, but shall not be required

to, keep separate accounts or records for income and principal.  To the extent that such separate accounts or

records are kept, the Trustees may allocate the receipts, disbursements and

reserves of the Trust between income or principal in the discretion of the

Trustees, and the Trustees’ discretion need not accord with the provisions of

any requirement of applicable law which may be lawfully negated by this Trust

Agreement.  Regardless of any such

characterization, however, the Trustees shall not make any distribution,

accumulate any funds, or maintain any reserve except as expressly provided in

this Trust Agreement.  The Trustees

shall not maintain a reserve for depletion of the assets represented in the

Trust Estate.

 

Section 6.09  Effective Trustees’ Powers on Trust Property.  The powers granted the Trustees under this

Trust Agreement may be exercised upon such terms as the Trustees deem advisable

and may affect Trust Estate for any length of time regardless of the duration

of the Trust.

 

Section 6.10  No Requirement of Diversification.  The Trustees shall be under no obligation to

diversify the Trust Estate or to dispose of any wasting assets.

 

ARTICLE VII.  RIGHTS AND LIABILITIES OF TRUSTEES

 

Section 7.01  General Liability of Trustee.  The Trustees are empowered to act in their

discretion and shall not be personally or individually liable for any act or

omission except in the case of negligence, bad faith, fraud, or any liability

the Trustees may have vis-à-vis the Unit Owners as provided in Section 7.02

hereof.

 

Section 7.02  Limitation of Liability of Unit Owners.  In engaging in any activity or transaction

which results or could result in any kind of liability, the Trustees shall take

all the steps necessary to ensure that such liability shall be satisfiable in

all events (including the exhaustion of the Trust Estate) only out of the Trust

Estate, that such liability shall not be satisfiable out of any amounts

distributed to Unit Owners or other assets owned by Unit Owners, 

 

6

 

and that no Unit Owner

shall have any personal liability therefore. 

In the event of failure by the Trustees to take such steps, the Trustees

shall be fully and exclusively liable for any resulting liability (other than

liability for state and federal income taxes or liabilities for refunds, fines,

penalties, or interest relating to the oil or gas pricing overcharges)

vis-à-vis the Unit Owners; provided, however, that the Trustees shall be

entitled to be indemnified and reimbursed from the Trust Estate, as provided in

Section 7.03 infra.

 

Section 7.03  Indemnification of Trustees.  The Trustees shall be indemnified by, and

receive reimbursement from, the Trust Estate against and from any and all

liability, expense, claim, damage, or loss incurred by them individually or as

Trustees in the administration of the Trust and the Trust Estate or any part or

parts thereof, or in the doing of any act done or performed or omission

occurring on account of their being Trustees, except (1) such liability,

expense, claim, damage, or loss arising from their negligence, bad faith, or

fraud, and (2) any loss resulting from Trustees’ expenses (direct or indirect)

in carrying out the administrative tasks required hereunder exceeding the

compensation and reimbursement provided for pursuant to Sections 7.04 and 7.05

hereof.  The Trustees shall have a lien

upon the Trust Estate to secure them for such indemnification and reimbursement

and for compensation to be paid to the Trustees.

 

Except as provided in this Section 7.03, neither the Trustees nor any

agent or employee of the Trustees shall be entitled to any reimbursement or

indemnification from any Unit Owner for any liability, expense, claim, damage,

or loss incurred by the Trustees or any such agent or employee; and the rights

of the Trustees or any employee or agent of the Trustees to reimbursement and

indemnification, if any, shall be limited solely to the Trust Estate, whether

or not such reimbursement and indemnification shall be insufficient fully to

reimburse or indemnify the Trustees or any such agent or employee.

 

Section 7.04  Compensation of Trustees — Services.  The Trustees shall not be compensated for

services rendered hereunder, but shall continue to be compensated by the

Trustor in their capacity as members of the Compensation Committee.

 

Section 7.05  Compensation of Trustees — Expenses.  The out-of-pocket costs incurred by the

Trustees such as travel, legal services, stationery, binders, envelopes, ledger

sheets, transfer sheets, checks, disbursements such as postage and insurance,

filing fees, listing fees, and fees and expenses incurred for experts or other

professionals hired pursuant to Section 7.06 will be paid by the Trustor.

 

The initial organizational costs of the Trust, fees of legal counsel,

engineering costs, and the initial cost of organizing the Trust shall be paid

by the Trustor.

 

Section 7.06  Reliance on Experts.  To perform any act required or permitted by

this Trust Agreement the Trustees may, but shall not be required to, consult

with counsel, accountants, geologists, engineers, and other parties deemed by

the Trustees to be qualified as experts on the matters submitted to them, who

may be employees of the Trustee.  The

Trustees are authorized to make payments of all reasonable fees for services or

expense thus incurred out of the Trust Estate.

 

7

 

Section 7.07  No Security Required.  No bond or other security shall be required

of the Trustees.

 

Section 7.08  Transactions in Multiple Capacities.  To the extent allowed by applicable law, the

Trustees shall not be prohibited in any way in exercising its powers or from

dealing with itself in any other capacity, fiduciary or otherwise.

 

Section 7.09  Relief of Trustees from Certain Duties, Restrictions, and

Liabilities.  Pursuant to Article 7425b-22 of the Texas Trust Act, the Trustor

hereby relieves the Trustees from any or all duties, restrictions, and

liabilities otherwise imposed upon the Trustees by the Texas Trust Act except

for such duties, restrictions, and liabilities as are imposed (a) by Sections

10, 11, and 12 of the Texas Trust Act; (b) by the terms and conditions of this

Trust Agreement; or (c) by any other applicable law, rule, or regulation.

 

Section 7.10  Appointment of Ancillary Trustees.  If at any time it becomes necessary under

the laws of any jurisdiction other than Texas for a trustee qualified under

such laws to make any action with respect to assets held in the Trust Estate,

or if at any time in its discretion the Trustees determine it would be useful

or desirable in connection with the administration of the Trust Estate, the

Trustor may appoint in writing an individual, bank, or trust company legally

qualified to act in such other jurisdiction to serve as ancillary Trustee for

such purposes.  Such ancillary Trustee

shall have all rights, privileges, powers, responsibilities, and duties as are

delegated in writing by the appointing Trustee and consistent with the

provisions of this Trust Agreement. 

Such ancillary Trustee shall be responsible to the Trustees for all

assets with respect to which the ancillary Trustee is empowered to act.  To the extent permitted under the laws of

such other jurisdiction, the Trustor may remove an ancillary Trustee at any

time, without cause and without the necessity of any court proceeding, and may

appoint a successor ancillary Trustee from time to time and at any time.

 

ARTICLE VIII. 

OFFICE OF TRUSTEES

 

Section 8.01  Removal of Trustees.  A Trustee may be removed as a Trustee at any

time by the Trustor.

 

Section 8.02  Resignation of Trustees.  A Trustee may resign at any time, with or

without cause, by giving written notice by certified mail to the Trustor and to

each Unit Owner.  Such resignation shall

be effective as of the date specified in such Notice.

 

The resigning Trustee shall account to its successor for the

administration of the Trust Estate as may be required by the Successor

Trustee.  All successors to such

resigning Trustee shall be fully protected in relying upon such accounting.

 

Section 8.03  Appointment of Successor Trustees.  In the event a Trustee has been removed or

has given notice of its intention to resign, a successor Trustee shall be

appointed by the Trustor within ten (10) days of the resignation of the prior

Trustee.  Notice of appointment of

successor Trustee shall be given by the Trustee to each Unit Owner.

 

8

 

Section 8.04  Rights of Successor Trustee.  Immediately upon the appointment of any

successor Trustee (including a temporary successor Trustee), all rights,

titles, duties, powers, and authority of the succeeded Trustee hereunder shall

be vested in and undertaken by the successor Trustee which shall be entitled to

receive from the Trustee which it succeeds, in addition to the accounting

referred to in Section 8.02, all of the Trust Estate held by it hereunder and

all records and files in connection therewith. 

No successor Trustee shall be obligated to examine or seek alteration of

any accounting of any preceding Trustee, nor shall any successor Trustee be

liable personally for failing to do so or for any act or omission of any

preceding Trustee.  The preceding

sentence shall not prevent any successor Trustee or anyone else from taking any

action otherwise permissible in connection with such accounting.

 

ARTICLE IX.  REVOCABILITY AND AMENDABILITY

 

Section 9.01  Revocability.  This Trust Agreement and the Trust hereunder

are revocable at the sole discretion of the Trustor.

 

Section 9.02  Amendability.  The Trustor and the Trustees (without the

consent of the Unit Owners) may, from time to time, and at any time prior to

the termination of the Trust, enter into an agreement amending the terms of

this Trust Agreement to cure any ambiguity, correct or supplement any provision

contained herein, make such other provisions in regard to matters or questions

arising under this Trust Agreement, as the Trustor may deem necessary or

desirable and whether or not it affects adversely the interests of the Unit

Owners.

 

ARTICLE X. 

MISCELLANEOUS

 

Section 10.01  Inspection of Trustees’ Books.  The Unit Owners and their duly authorized

agents, attorneys, and auditors shall have the right during reasonable business

hours at their own cost and expense to examine, inspect and make audits of the

Trust and records of the Trustees in reference thereto.

 

Section 10.02  Filing of Trust Agreement.  Except as otherwise required by law, neither

this Trust Agreement nor any executed copy hereof need be filed in any county

or other jurisdiction in which any of the properties comprising the Trust

Estate are located, but the same may be filed for record in any county or other

jurisdiction by the Trustees.  In order

to avoid the necessity of filing this Trust Agreement for record, the Trustees

agree that for the purposes of vesting the record title in any successor

Trustee, the retiring Trustee will, upon appointment of any successor Trustee,

execute and deliver to such successor Trustee appropriate assignments or

conveyances.

 

Section 10.03  Savings Clause.  If any provision of this Trust Agreement or

the application thereof to any person, property, or circumstances shall be

finally determined by a court of proper jurisdiction to be illegal, invalid, or

unenforceable to any extent, the remainder of this Trust Agreement or the

application of such provision to persons, properties, or circumstances other

than those as to which it is held illegal, invalid, or unenforceable, shall not

 

9

 

be affected thereby, and

every provision of this Trust Agreement shall be valid and enforced to the

fullest extent permitted by law.

 

Section 10.04  Notices.  Any notice or demand which is required or

permitted under this Agreement to be given or served upon any party may be

given or served by being deposited, postage prepaid, by registered or certified

mail, in a post office or letter box addressed, or by hand delivery to the

parties at the following addresses:

 

	

  Trustor:

  	

   

  	

  Clayton Williams

  Energy, Inc.

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  6 Desta Drive, Suite

  6500

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Midland, TX  79705

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  Trustees:

  	

   

  	

  Robert L. Parker

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  8 East Third Street

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Tulsa, OK  74103

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Stanley S. Beard

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  500 W. Texas, Suite 705

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Midland, TX  79701

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Jordan R. Smith

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  515 W. Greens Road,

  Suite 1000

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Houston, TX  77067

  

 

Any notice or other communication by the Trustees or Trustor to any

Unit Owner shall be deemed to have been sufficiently given, for all purposes,

when deposited, postage prepaid, in a post office or letter box addressed to

said holder at its last address as shown on the records of the Trustees.

 

Section 10.05  Situs of the Trust.  The situs of the Trust hereby created is

Texas, and the laws of Texas shall control with respect to the construction,

administration, and validity of the Trust.

 

10

 

Section 10.06  Acceptance by Trustees.  The Trustees, by joining in the execution of

this Trust Agreement, accept the Trust herein created and provided for, and

accept all of the rights, powers, privileges, duties, and responsibilities of

the Trustees hereunder, and agree to exercise and perform the same in

accordance with the terms and provisions contained herein.

 

Section 10.07  Counterparts.  This Trust Agreement may be executed in a

number of counterparts, each of which shall constitute an original, but such

counterparts shall together constitute but one and the same instrument.

 

Section 10.08  Headings.  The headings of the Sections and Articles of

this Agreement are inserted for convenience only and shall not constitute a

part hereof.

 

Section 10.09  Independent Conduct.  The Trustees, and the Trustor on behalf of

all future Unit Owners, hereby reserve and retain the right to engage in all

businesses and activities of any kind whatsoever (irrespective of whether the

same may be in competition with the Trust), and to receive compensation or

profit therefor, for their own respective accounts and without in any manner

being obligated to disclose or offer such business and activities or assets or

compensation or profit to each other or to the Trust.

 

In Witness Whereof, Trustor and Trustees hereunto set their hands

effective as of the day and year first above written.

 

	

   

  	

  TRUSTOR:

  
	

   

  	

   

  
	

   

  	

  CLAYTON WILLIAMS ENERGY, INC.

  
	

   

  	

   

  
	

   

  	

  By: 

  	

  /Paul Latham

  
	

   

  	

   

  
	

   

  	

  TRUSTEES:

  
	

   

  	

   

  
	

   

  	

  /s/Stanley S. Beard

  
	

   

  	

  Stanley S. Beard

  
	

   

  	

   

  
	

   

  	

  /s/Robert L. Parker

  
	

   

  	

  Robert L. Parker

  
	

   

  	

   

  
	

   

  	

  /s/Jordan R. Smith

  
	

   

  	

  Jordan R. Smith

  

 

11

 

SCHEDULE 1

 

LOUISIANA

WORKING INTEREST TRUST

 

Ownership Summary

 

	

  Reesby, Pat

  	

   

  	

  31.1305

  	

  %

  
	

  Beckham, Kelly

  	

   

  	

  10.3764

  	

  %

  
	

  Benton, Greg

  	

   

  	

  9.0892

  	

  %

  
	

  Wettaw, Richard

  	

   

  	

  6.2261

  	

  %

  
	

  Riggs, Mel

  	

   

  	

  5.7521

  	

  %

  
	

  Groner, Jerry

  	

   

  	

  5.7313

  	

  %

  
	

  Kennedy, John

  	

   

  	

  5.2580

  	

  %

  
	

  Latham, Paul

  	

   

  	

  5.1571

  	

  %

  
	

  Lyssy, Sam

  	

   

  	

  4.8086

  	

  %

  
	

  Bolin, Tom

  	

   

  	

  3.8913

  	

  %

  
	

  Irvin, Logan

  	

   

  	

  3.3330

  	

  %

  
	

  Wolfshohl, Clarence

  	

   

  	

  3.0655

  	

  %

  
	

  Pollard, Mike

  	

   

  	

  2.2894

  	

  %

  
	

  Tisdale, Mark

  	

   

  	

  1.2393

  	

  %

  
	

  Collins, Jim

  	

   

  	

  0.5737

  	

  %

  
	

  Pruitt, Donnie

  	

   

  	

  0.5213

  	

  %

  
	

  Cunningham, Mickey

  	

   

  	

  0.4426

  	

  %

  
	

  Thomas, Robert

  	

   

  	

  0.4208

  	

  %

  
	

  Polson, Dennis

  	

   

  	

  0.3770

  	

  %

  
	

  Jones, Kim

  	

   

  	

  0.1585

  	

  %

  
	

  Alford, Danny

  	

   

  	

  0.1584

  	

  %

  
	

   

  	

   

  	

  100.0000

  	

  %

  

 

12

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