UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO.           )

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Concho Resources Inc.

(Name of Registrant as Specified in Its Charter)

 

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CONCHO RESOURCES INC.
550 West Texas Avenue
Suite 100
Midland, Texas 79701

 

NOTICE OF 2010 ANNUAL MEETING OF STOCKHOLDERS

 

To the Stockholders of Concho Resources Inc.:

 

Notice is hereby given that the 2010 Annual Meeting of Stockholders (the “Annual Meeting”) of Concho Resources Inc. will be held in the Wildcatter Room, Petroleum Club of Midland, 501 West Wall Avenue, Midland, Texas, on Wednesday, June 9, 2010, at 3:00 p.m. Central Time. The Annual Meeting is being held for the following purposes:

 

 

These proposals are described in the accompanying proxy materials. You will be able to vote at the Annual Meeting only if you were a stockholder of record at the close of business on April 16, 2010, the record date for the meeting.

 

By Order of the Board of Directors

 

C. William Giraud

Vice President, General Counsel and Secretary

 

Midland, Texas

April 28, 2010

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on June 9, 2010:

 

This Notice and Proxy Statement, along with the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and the Company’s 2009 Annual Report to Stockholders, are available free of charge at http:/www.conchoresources.com/proxy.

 

 

 

 

TABLE OF CONTENTS

 

CONCHO RESOURCES INC.
550 West Texas Avenue
Suite 100
Midland, Texas 79701

 

 

PROXY STATEMENT

 

This Proxy Statement is being furnished to you in connection with the solicitation of proxies by the Board of Directors of Concho Resources Inc. (the “Company”) for use at the 2010 Annual Meeting of Stockholders (the “Annual Meeting”). The Board of Directors of the Company requests your proxy for the Annual Meeting that will be held on Wednesday, June 9, 2010, at 3:00 p.m. Central Time, in the Wildcatter Room, Petroleum Club of Midland, 501 West Wall Avenue, Midland, Texas. By granting a proxy, you authorize the persons named in the proxy to represent you and vote your shares at the Annual Meeting. Those persons will also be authorized to vote your shares to adjourn the Annual Meeting from time to time and to vote your shares at any adjournments or postponements of the Annual Meeting.

 

If you attend the Annual Meeting, you may vote in person. If you are not present at the Annual Meeting, your shares may be voted only by a person to whom you have given a proper proxy.

 

You may revoke your proxy in writing at any time before it is exercised at the Annual Meeting by (i) delivering to the Secretary of the Company a written notice of the revocation; (ii) signing, dating and delivering to the Secretary of the Company a proxy with a later date; or (iii) attending the Annual Meeting and voting your shares in person. Your attendance at the Annual Meeting will not revoke your proxy unless you give written notice of revocation to the Secretary of the Company before your proxy is exercised or unless you vote your shares in person at the Annual Meeting before your proxy is exercised.

 

Please note that the rules that guide how brokers may vote your shares held in street name have recently changed. Brokers are no longer permitted to vote your shares for the election of directors without your instructions as to how to vote. Please return your proxy card so that your vote can be counted.

 

The approximate date on which this Proxy Statement, accompanying Notice of 2010 Annual Meeting of Stockholders and proxy card, and the Company’s 2009 Annual Report to Stockholders are first being sent or given to stockholders is April 28, 2010.

 

This Notice and Proxy Statement, along with the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and the Company’s 2009 Annual Report to Stockholders, are available free of charge at http://www.conchoresources.com/proxy.

 

Voting Stock.  The Company’s common stock, par value $.001 per share, is the only class of securities that entitles holders to vote generally at meetings of the Company’s stockholders. Each share of common stock outstanding on the record date is entitled to one vote.

 

Record Date.  The record date for stockholders entitled to notice of and to vote at the Annual Meeting is the close of business on April 16, 2010. As of the record date, 91,544,956 shares of common stock were outstanding and entitled to be voted at the Annual Meeting.

 

Quorum and Adjournments.  A quorum of stockholders is necessary to have a valid meeting of stockholders. The presence, in person or by proxy, of the holders of a majority of the votes eligible to be cast at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting. If a quorum is not present, the chairman has the power to adjourn the Annual Meeting from time to time, without notice other than an announcement at the Annual Meeting, until a

quorum is present. At any annual meeting reconvened following an adjournment at which a quorum is present, any business may be transacted that might have been transacted at the annual meeting as originally noticed.

 

Vote Required.  Only stockholders of record at the close of business on April 16, 2010 have the right to vote at the Annual Meeting. Directors will be elected by a plurality of all votes cast. Ratification of the selection of the Company’s independent registered public accounting firm will require the affirmative vote of the holders of a majority of the votes of the Company’s common stock cast affirmatively or negatively at the Annual Meeting with respect to the proposal. An automated system that the Company’s transfer agent administers will tabulate the votes.

 

Brokers who hold shares in street name for customers are required to vote shares in accordance with instructions received from the beneficial owners. The New York Stock Exchange’s (the “NYSE”) Rule 452 restricts when brokers who are record holders of shares may exercise authority to vote those shares. Brokers are permitted to vote on discretionary items if they have not received instructions from the beneficial owners, but they are not permitted to vote (a “broker non-vote”) on non-discretionary items absent instructions from the beneficial owner. With respect to the Annual Meeting, Rule 452 prohibits such brokers from exercising discretionary authority in the election of our directors, but such brokers may exercise discretionary authority with respect to the ratification of the selection of our independent registered public accounting firm.

 

Abstentions and broker non-votes will count in determining whether a quorum is present at the Annual Meeting. Neither abstentions nor broker non-votes will have any effect on the outcome of voting on director elections nor on the ratification of the selection of the independent registered public accounting firm of the Company.

 

Default Voting.  A proxy that is properly completed and returned will be voted at the Annual Meeting in accordance with the instructions on the proxy. If you properly complete and return a proxy, but do not indicate any contrary voting instructions, your shares will be voted as follows:

 

 

If any other business properly comes before the stockholders for a vote at the Annual Meeting, your shares will be voted in accordance with the discretion of the holders of the proxy. The Board of Directors knows of no matters, other than those previously stated herein, to be presented for consideration at the Annual Meeting.

 

The Company has classified its Board of Directors into three classes. Directors in each class are elected to serve for three-year terms and until either they are re-elected or their successors are elected and qualified or until their earlier resignation or removal. Each year, the directors of one class stand for re-election as their terms of office expire. Based on recommendations from its Nominating & Governance Committee, the Board of Directors has nominated the following individuals for election as Class III directors of the Company with their terms to expire in 2013, when they are to be re-elected or their successors are elected and qualified or until their earlier resignation or removal:

Ray M. Poage

A. Wellford Tabor

 

Messrs. Poage and Tabor currently serve as Class III directors of the Company. Their biographical information is contained in “Directors and Executive Officers” below.

 

The Board of Directors has no reason to believe that any of its nominees will be unable or unwilling to serve if elected. If a nominee becomes unable or unwilling to accept nomination or election, either the number of the Company’s directors will be reduced or the persons acting under your proxy will vote for the election of a substitute nominee that the Board of Directors nominates.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF EACH OF THE DIRECTOR NOMINEES.

 

The table below sets forth certain information, as of the date of this Proxy Statement, regarding the Company’s directors and executive officers:

 

 

Set forth below is biographical information about each of the Company’s executive officers and directors. Executive officers serve at the discretion of the Board of Directors.

 

Timothy A. Leach has been a director and the Chairman of the Board of Directors and Chief Executive Officer of the Company since its formation in February 2006, and the President of the Company since July 1, 2009. Prior to the Company’s formation, Mr. Leach served in similar roles with the Company’s predecessor since its formation in April 2004. Mr. Leach was Chairman of the Board and Chief Executive Officer of Concho Oil & Gas Corp. from its formation in January 2001 until its sale in January 2004. Mr. Leach was Chairman of the Board and Chief Executive Officer of Concho Resources Inc. (which was a different company than the Company) from its formation in August 1997 until its sale in June 2001. From September 1989 until May 1997, Mr. Leach was employed by Parker & Parsley Petroleum Company (now Pioneer Natural Resources Company) in a variety of capacities, including serving as Executive Vice President and as a member of Parker & Parsley Petroleum Company’s Executive Committee. He is a graduate of Texas A&M University with a Bachelor of Science degree in Petroleum Engineering.

 

C. William Giraud has been the Vice President — General Counsel and Secretary of the Company since November 2009. Prior to joining the Company, Mr. Giraud practiced corporate and securities law at Vinson & Elkins, L.L.P. since September 2005. He is a graduate of Wake Forest University with a Bachelor of Arts degree in Economics and a graduate of the University of Texas School of Law with a Doctor of Jurisprudence degree.

 

Jack F. Harper has been the Vice President — Business Development and Capital Markets of the Company since May 2007. Mr. Harper was the Director of Investor Relations and Business Development of the Company from July 2006 until May 2007. From October 2005 until July 2006, Mr. Harper was involved in private investments. From October 2002 until October 2005, Mr. Harper was employed by Unocal Corporation where he served as Manager of Planning and Evaluation and Manager of Business Development for Unocal Corporation’s wholly owned subsidiary, Pure Resources, Inc. From May 2000 until October 2002, Mr. Harper was employed by Pure Resources, Inc. in a variety of capacities, including in his last position as Vice President, Finance and Investor Relations. From December 1996 until May 2000, Mr. Harper was employed by Tom Brown, Inc., where his last position was Vice President, Investor Relations, Corporate Development and Treasurer. He is a graduate of Baylor University with a Bachelor of Business Administration degree in Finance.

 

Darin G. Holderness has been the Vice President — Chief Financial Officer and Treasurer of the Company since August 2008. From May 2008 until August 2008, Mr. Holderness was employed by Eagle Rock Energy Partners, L.P. as Senior Vice President and Chief Financial Officer. From November 2004 until May 2008,

Mr. Holderness served as Vice President and Chief Accounting Officer of Pioneer Natural Resources Company. Mr. Holderness holds a Bachelor of Business Administration degree in Accounting from Boise State University and is a certified public accountant.

 

Matthew G. Hyde joined the Company as its Vice President — Exploration in May 2008, and was appointed the Vice President — Exploration and Land of the Company in November 2008. From January 2008 to May 2008, Mr. Hyde was involved in private investments. From March 2001 to December 2007, Mr. Hyde was an Asset Manager of Oxy Permian, a business unit of Occidental Petroleum Corporation. From April 1998 to February 2001, Mr. Hyde served as President and General Manager of Occidental Petroleum Corporation’s international business unit in Oman. Prior to that role, Mr. Hyde served in a variety of domestic and international exploration positions for Occidental Petroleum Corporation, including Regional Exploration Manager responsible for Latin American exploration activities. He is a graduate of the University of Vermont and the University of Massachusetts where he obtained Bachelor of Arts and Master of Science degrees, respectively, in Geology. Mr. Hyde also holds a Master of Business Administration degree from the University of California Los Angeles.

 

E. Joseph Wright has been the Vice President — Engineering and Operations of the Company since its formation in February 2006. Mr. Wright was the Vice President — Operations & Engineering of Concho Equity Holdings Corp. from its formation in April 2004 until it was merged into another subsidiary of the Company at December 31, 2008. Mr. Wright was Vice President — Operations & Engineering of Concho Oil & Gas Corp. from its formation in January 2001 until its sale in January 2004. Mr. Wright served in various engineering and operations positions for Concho Resources Inc. (which was a different company than the Company), including serving as its Vice President — Operations, from 1998 until its sale in June 2001. From 1982 until February 1998, Mr. Wright was employed by Mewbourne Oil Company in several operations, engineering and capital markets positions. He is a graduate of Texas A&M University with a Bachelor of Science degree in Petroleum Engineering.

 

Steven L. Beal has been a director of the Company since its formation in February 2006, and a consultant to the Company since July 2009. Mr. Beal was the President and Chief Operating Officer of the Company from its formation in February 2006 until his retirement in June 2009. Mr. Beal was a director and the President and Chief Operating Officer of Concho Equity Holdings Corp. from its formation in April 2004 until it was merged into another subsidiary of the Company at December 31, 2008. Mr. Beal was a director and the Executive Vice President and Chief Financial Officer of Concho Oil & Gas Corp. from its formation in January 2001 until he became its President and Chief Operating Officer in August 2002, a position he held until its sale in January 2004. Mr. Beal was a director and the Vice President and Chief Financial Officer of Concho Resources Inc. (which was a different company than the Company) from its formation in August 1997 until its sale in June 2001. From October 1988 until May 1997, Mr. Beal was employed by Parker & Parsley Petroleum Company (now Pioneer Natural Resources Company) in a variety of capacities, including serving as its Senior Vice President and Chief Financial Officer and as a member of Parker & Parsley Petroleum Company’s Executive Committee. From 1981 until February 1988, Mr. Beal was employed by the accounting firm of Price Waterhouse (now PricewaterhouseCoopers). He is a graduate of the University of Texas with a bachelor of Business Administration degree in Accounting.

 

Tucker S. Bridwell has been a director of the Company since its formation in February 2006. Mr. Bridwell was a director of Concho Equity Holdings Corp. from its formation in April 2004 until February 2006. Mr. Bridwell has been the President of each of Mansefeldt Investment Corporation and the Dian Graves Owen Foundation since September 1997. He has over twenty-five years experience in the areas of finance and energy. Mr. Bridwell served as Chairman of the Board of Directors of First Permian, LLC from 2000 until its sale to Energen Corporation in April 2002. Mr. Bridwell is a director of Petrohawk Energy Corporation and First Financial Bankshares, Inc. He is a graduate of Southern Methodist University with a Bachelor of Business Administration degree in Accounting and a Master of Business Administration degree and is a certified public accountant.

 

William H. Easter III has been a director of the Company since February 2008. Mr. Easter’s career spans over thirty years in the areas of natural gas supply, processing, marketing and transportation, as well as crude oil and petroleum refining, marketing and transportation. Mr. Easter is the past Chairman of the Board of Directors, President and Chief Executive Officer of DCP Midstream, LLC (formerly Duke Energy Field Services, LLC), having retired from such company in January 2008. He joined DCP Midstream, LLC in January 2004 as Chairman, President and Chief Executive Officer. He also served as director of TEPPCO GP, LLC, the general partner of

TEPPCO Partners, L.P., from January 2004 until February 2005, and as a director of DCP Midstream GP, LLC, the general partner of DCP Midstream Partners, LP, from November 2005 to January 2008. From August 2002 through January 2004, Mr. Easter served as Vice President of State Government Affairs for ConocoPhillips. From 1998 to 2002, Mr. Easter served as General Manager of the Gulf Coast Refining, Marketing and Transportation Business Unit of Conoco Inc. Since his retirement from DCP Midstream, LLC in January 2008, Mr. Easter has been involved in private investments. He is also a member of the Board of Directors of the Memorial Hermann Hospital System in Houston, Texas. Mr. Easter earned his Bachelor of Business Administration degree in Finance from the University of Houston and his Master of Science in Management degree from The Graduate School of Business at Stanford University.

 

W. Howard Keenan, Jr. has been a director of the Company since its formation in February 2006. Mr. Keenan previously was a director of Concho Equity Holdings Corp from its formation in April 2004 until February 2006. Mr. Keenan has over thirty years of experience in the areas of finance and energy. Since 1997, he has been a Member of Yorktown Partners LLC, a private equity investment manager focused on the energy industry. Mr. Keenan is also a director of GeoMet, Inc. From 1975 to 1997, he was in the Corporate Finance Department of Dillon, Read & Co. Inc. and active in the private equity and energy areas, including the founding of the first Yorktown Partners fund in 1991. He is serving or has served as a director of multiple Yorktown Partners portfolio companies. Mr. Keenan holds a Bachelor of Arts degree in English from Harvard College and a Master of Business Administration degree from Harvard University.

 

Ray M. Poage has been a director of the Company since August 2007. Mr. Poage was a partner in KPMG from 1980 to June 2002 when he retired. During his tenure at KPMG, Mr. Poage was responsible for delivering tax and accounting services to both privately and publicly held companies engaged in the oil and natural gas industry. Since June 2002, Mr. Poage has been involved in private investments. Mr. Poage previously served as a director of Parallel Petroleum Corporation from 2003 until its sale in 2009. Mr. Poage received a Bachelor of Business Administration degree in Accounting from Texas Tech University and is a certified public accountant.

 

Mark B. Puckett has been a director of the Company since November 2009. Mr. Puckett began his career at Chevron Corporation in 1973 and retired in May 2008. During his tenure at Chevron, Mr. Puckett held a variety of positions of increasing responsibility in Chevron’s upstream operations, including Managing Director roles in Papua New Guinea and South Africa, before ultimately retiring as the President of Chevron’s Energy Technology Company, where he was responsible for managing the company’s technology resources across all business segments. In addition, Mr. Puckett served on Chevron’s management committee from 1997 until his retirement and served on Chevron’s upstream and gas leadership team from 2001 until his retirement. He is a member of the Society of Petroleum Engineers and the Dean’s Advisory Council, College of Engineering at Texas A&M University. Mr. Puckett earned a Bachelor of Science degree in Civil Engineering from Texas A&M University.

 

A. Wellford Tabor has been a director of the Company since its formation in February 2006. Mr. Tabor was a director of Concho Equity Holdings Corp. from its formation in April 2004 until February 2006. Mr. Tabor is the managing partner of Keeneland Capital. Prior to forming Keeneland Capital in May 2009, Mr. Tabor was a Partner at Wachovia Capital Partners, where he worked since 2000. Before that Mr. Tabor worked at The Beacon Group and at Morgan Stanley & Co. Mr. Tabor is also a director of several privately held companies and community organizations. Previously, he served as a director of James River Group, Inc. from September 2002 until June 2007. Mr. Tabor received an undergraduate degree in History from the University of Virginia and a Master of Business Administration degree from The Graduate School of Business at Stanford University.

 

The Board of Directors believes that sound governance practices and policies provide an important framework to assist it in fulfilling its duty to stockholders. The Company’s Corporate Governance Guidelines include provisions concerning the following:

 

 

 

The Company’s Corporate Governance Guidelines are reviewed periodically and as necessary by the Company’s Nominating & Governance Committee, and any proposed additions to or amendments of the Corporate Governance Guidelines will be presented to the Board of Directors for its approval.

 

Rather than adopting categorical standards, the Board of Directors assesses director independence on a case-by-case basis, in each case consistent with applicable legal requirements and the listing standards of the NYSE. After reviewing all relationships each director has with the Company, including the nature and extent of any business relationships between the Company and each director, as well as any significant charitable contributions the Company makes to organizations where its directors serve as board members or executive officers, the Board of Directors has affirmatively determined that the following directors have no material relationships with the Company and are independent as defined by the current listing standards of the NYSE: Messrs. Bridwell, Easter, Keenan, Poage, Puckett and Tabor. Mr. Leach, the Company’s Chief Executive Officer and President, is not considered by the Board of Directors to be an independent director because of his employment with the Company. Mr. Beal is not considered to be an independent director because of his previous position as an executive officer of the Company and his current role as a paid consultant to the Company.

 

The Board of Directors does not have a policy on whether or not the roles of Chairman and Chief Executive Officer should be separate or combined. The directors serving on our Board of Directors possess considerable professional and industry experience, significant experience as directors of both public and private companies and a unique knowledge of the challenges and opportunities that our Company faces. As such, the Board of Directors believes that it is in the best position to evaluate the needs of our Company and to determine how best to organize our Company’s leadership structure to meet those needs.

 

At present, the Board of Directors of the Company has chosen to combine the positions of Chairman and Chief Executive Officer. While the Board of Directors believes it is important to retain the flexibility to determine whether the roles of Chairman and Chief Executive Officer should be separated or combined in one individual, the Board of Directors currently believes that the current Chief Executive Officer is the individual with the necessary experience, commitment and support of the other members of the Board of Directors to effectively carry out the role of Chairman.

 

The Board of Directors believes this structure promotes better alignment of strategic development and execution, more effective implementation of strategic initiatives and clearer accountability for the Company’s success or failure. Moreover, the Board of Directors believes that combining the Chairman and Chief Executive Officer positions does not impede independent oversight. Six of the eight members of the Board of Directors are independent under NYSE rules and Mr. Bridwell, an independent director, acts as the Lead Director. The independent directors meet in an executive session after each regular board meeting, and Mr. Bridwell acts as Chairman of these sessions, and at which the independent directors have the opportunity to openly discuss management performance.

 

To facilitate candid discussion among the Company’s directors, the independent directors meet in executive session in conjunction with each regular board meeting and as otherwise determined by the Lead Director.

 

The Board of Directors elected Mr. Bridwell, an independent director, to serve as the Lead Director. In this capacity Mr. Bridwell provides, in conjunction with the Chairman, leadership and guidance to the Board of Directors. As the Lead Director, Mr. Bridwell also (i) serves as chairman of executive sessions of the independent directors and (ii) in consultation with the Chairman, establishes the agenda for each meeting of the Board of Directors, taking into account the suggestions of other directors. Interested parties who wish to communicate with the Board of Directors, its committees, the Chairman, the Lead Director or any other individual director should follow the procedures described below under “Interested Party Communications.”

 

In the normal course of its business, the Company is exposed to a variety of risks, including market risks relating to changes in commodity prices, interest rates, technical risks affecting the Company’s resource base, political risks and credit and investment risk. Our executive officers attend all regularly scheduled meetings of the Board of Directors, where they conduct presentations to the Board of Directors on various strategic matters involving our operations and are available to address any questions or concerns raised by the Board of Directors on risk management or any other matters. Our Board of Directors oversees the strategic direction of our Company, and in doing so considers the potential rewards and risks of our Company’s business opportunities and challenges, and monitors the development and management of risks that impact our strategic goals. The Audit Committee assists the Board of Directors in fulfilling its oversight responsibilities by monitoring the effectiveness of the Company’s systems of financial reporting, auditing, internal controls and legal and regulatory compliance. To address risks related to the Company’s hedging program, a group consisting of our Chief Executive Officer, our Chief Financial Officer and Mr. Easter, an independent director, regularly review the Company’s hedging strategy and positions.

 

A number of the members of the Board of Directors have served as members of senior management and/or directors of other public and private companies. In addition, all members of the Board of Directors have extensive experience in the oil and natural gas industry and are familiar with board processes.

 

More specifically, Mr. Leach has been Chairman and Chief Executive Officer of our Company since its formation and President since July 2009. Mr. Beal served as the President and Chief Operating Officer of our Company from its formation until his retirement in June 2009 and remains a consultant to the Company. In addition, both men previously served as executive officers of two Permian Basin-focused private oil and natural gas companies and in varying executive roles at Parker & Parsley Petroleum Company (now Pioneer Natural Resources Company). Messrs. Leach and Beal’s deep knowledge of the Company and the industry as a result of their long tenure with the Company and previous companies make them valuable members of the Board of Directors.

 

Mr. Easter’s experience as Chairman, President and Chief Executive Officer of DCP Midstream, LLC and his previous service on the board of directors of TEPPCO GP LLC has provided him with midstream and natural gas marketing expertise, as well as valuable management skills. Mr. Puckett, as a result of his 35 year career at Chevron Corporation, provides the Board of Directors a valuable source of engineering, drilling and oil and natural gas operations management expertise. In addition, as the Company expects to continue to grow in size and scale, the Board of Directors will benefit from Messrs. Easter and Puckett’s experience in managing large organizations.

 

Messrs. Bridwell, Keenan and Tabor each bring decades worth of experience in energy finance and oil and natural gas investments, as well as knowledge gained through past and current service on the board of directors of various public and private companies in the energy industry. All are familiar with the issues, trends and opportunities within the industry, providing the Company’s management with meaningful relationships and supplying the Board of Directors with critical expertise when evaluating potential acquisition opportunities and exploration projects.

Mr. Poage spent the majority of his 30 years of service at KPMG advising oil and natural gas companies on accounting and tax matters, which assists the Board of Directors when dealing with tax, audit and other accounting matters. In addition, his recent service as the chair of the audit committee of another public exploration and production company gives him valuable perspective on current issues facing audit committees.

 

The Board of Directors encourages all directors to attend the annual meetings of stockholders, if practicable. Five of the Company’s directors attended last year’s annual meeting.

 

The Company’s stockholders and other interested persons may communicate with the Board of Directors, any committee of the Board of Directors, the Chairman of the Board of Directors, the Lead Director or any other individual director by sending communications to: Concho Resources Inc., 550 West Texas Avenue, Suite 100, Midland, Texas 79701, Attention: General Counsel.

 

The envelope containing each communication should be marked “Communication with Directors” and clearly identify the intended recipient(s) of the communication. The Company’s General Counsel will review each communication received from stockholders and other interested parties and will forward the communication, as expeditiously as reasonably practicable, to the addressees if the communication (i) complies with the requirements of any applicable policy adopted by the Board of Directors relating to the subject matter of the communication; and (ii) falls within the scope of matters generally considered by the Board of Directors. To the extent the subject matter of a communication relates to matters that have been delegated by the Board of Directors to a committee or to an executive officer of the Company, the Company’s General Counsel may forward the communication to the chairperson of the committee or executive officer to which the matter has been delegated. The acceptance and forwarding of communication to the members of the Board of Directors or an executive officer does not imply or create any fiduciary duty of any member of the Board of Directors or executive officer to the person submitting the communication.

 

Information may be submitted confidentially and anonymously, although the Company may be obligated by law to disclose the information or identity of the person providing the information in connection with government or private legal actions and in other circumstances. The Company’s policy is not to take any adverse action, and not to tolerate any retaliation, against any person for asking questions or making good faith reports of possible violations of law, the Company’s policies or its Code of Business Conduct and Ethics.

 

The following materials are available on the Company’s website at www.conchoresources.com:

 

 

Stockholders may obtain a copy, free of charge, of each of these documents by sending a written request to Concho Resources Inc., 550 West Texas Avenue, Suite 100, Midland, Texas 79701, Attention: General Counsel.

 

The Board of Directors held ten meetings, and its independent directors met in executive session four times, during 2009. No director attended fewer than 75% of the meetings of the Board of Directors and of the committees of the Board of Directors on which that director served.

 

The Board of Directors has three standing committees: the Audit Committee, the Compensation Committee and the Nominating & Governance Committee.

 

The members of the Audit Committee are Messrs. Poage (Chairman), Bridwell, Easter and Puckett. The Board of Directors has determined that each of the members of the Audit Committee satisfies the standards of independence established under Securities and Exchange Commission (“SEC”) rules and regulations and the listing standards of the NYSE . The Board of Directors has further determined that each of the members of the Audit Committee is financially literate and that Mr. Poage is an “audit committee financial expert” as defined by the rules and regulations of the SEC. The Audit Committee held eight meetings during 2009.

 

The Audit Committee has the authority to retain, compensate, evaluate and terminate the Company’s independent registered public accounting firm. The functions of the Audit Committee, which are discussed in detail in its charter, include the duty to assist the Board of Directors in fulfilling its oversight responsibilities regarding general oversight of the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, and the independent registered public accounting firm’s qualifications, independence and performance. Among other things, the Audit Committee is responsible for overseeing the Company’s accounting and financial reporting processes; preparing the Audit Committee Report for inclusion in the Company’s proxy statement; selecting and evaluating the Company’s independent registered public accounting firm; reviewing and approving, as appropriate, any related person transactions; and overseeing any investigations into complaints concerning financial matters.

 

The members of the Compensation Committee are Messrs. Tabor (Chairman), Easter, Keenan and Puckett. The Board of Directors has determined that each of the members of the Compensation Committee satisfies the standards of independence established under the listing standards of the NYSE. The Compensation Committee held five meetings during 2009.

 

The functions of the Compensation Committee, which are discussed in detail in its charter, include the duty to administer the Company’s agreements, plans, policies and programs regarding compensation of the Company’s executive officers and directors. The Compensation Committee is also responsible for preparing the Compensation Committee Report for inclusion in the Company’s proxy statement and for assisting the Company’s management in preparing the Compensation Discussion and Analysis for inclusion in the Company’s proxy statement.

 

The Compensation Committee is delegated all authority of the Board of Directors as may be required or advisable to fulfill the purposes of the Compensation Committee. The Compensation Committee may form and delegate some or all of its authority to subcommittees when it deems appropriate.

 

Meetings may, at the discretion of the Compensation Committee, include members of the Company’s management, independent consultants or advisors, and such other persons as the Compensation Committee or its chairperson may determine. The Compensation Committee Chairman makes decisions regarding the agenda for regularly scheduled meetings and develops the agenda for special meetings based on information supplied by the person requesting the special meeting. The Company’s Chief Executive Officer makes recommendations to the Compensation Committee regarding the compensation of other executive officers and provides information to the Compensation Committee regarding the other executive officers’ performance; however, the Compensation Committee makes all final decisions regarding all executive officers’ compensation.

 

The Compensation Committee has the sole authority to retain, amend the engagement with, and terminate any compensation consultant to be used to assist in the evaluation of director and executive officer compensation. The Compensation Committee has engaged the services of Longnecker & Associates since 2007 to apprise the Compensation Committee of compensation-related trends, developments in the marketplace and industry best practices; inform the Compensation Committee of compensation-related regulatory developments; provide peer group survey data to establish compensation ranges for the various elements of compensation; provide an evaluation of the competitiveness of the Company’s non-employee director and executive compensation and benefits programs; assess the relationship between executive pay and performance; and advise on the design of the Company’s incentive compensation programs.

 

The members of the Nominating & Governance Committee are Messrs. Bridwell (Chairman), Keenan and Tabor. The Board of Directors has determined that each of the members of the Nominating & Governance Committee satisfies the standards of independence established under the listing standards of the NYSE. The Nominating & Governance Committee held four meetings during 2009.

 

The functions of the Nominating & Governance Committee, which are discussed in detail in its charter, include the duty to assist the Board of Directors by evaluating potential new members of the Board of Directors, recommending committee members and structure and advising the Board of Directors about appropriate corporate governance practices. The Company’s Policies and Procedures Relating to Disclosures Required by Item 407 of Regulation S-K provide that in identifying, evaluating and recommending to the Board of Directors director nominees, the Nominating & Governance Committee shall identify persons who (i) are selected on the basis of their business and professional experience and qualifications, including service on the boards of directors of other companies; (ii) have demonstrated leadership in other companies or government, finance or accounting, higher education or other fields or who are able to provide the Company with relevant expertise, industry knowledge or marketing acumen; (iii) possess the highest personal and professional ethics, integrity and values and are committed to the Company’s core values; (iv) are willing to commit the required time to serve as a member of the Board of Directors and its committees; and (v) will represent all stockholders rather than special interest groups or any group of stockholders. While the Board of Directors does not have a formal policy on diversity, in selecting nominees, the Nominating & Governance Committee seeks to have a Board of Directors that represents a diverse range of perspectives and experience relevant to our Company.

 

In determining whether to recommend a director for re-election to the Board of Directors, in accordance with such policies and procedures the Nominating & Governance Committee shall consider the director’s:

 

 

The Audit Committee of the Board of Directors has selected Grant Thornton LLP as the independent registered public accounting firm of the Company for the year ending December 31, 2010. Grant Thornton LLP has audited the Company’s and its predecessors’ financial statements since 2004. The audit of the Company’s annual consolidated financial statements for the year ended December 31, 2009 was completed by Grant Thornton LLP on February 26, 2010.

 

The Board of Directors is submitting the selection of Grant Thornton LLP for ratification at the Annual Meeting. The submission of this matter for ratification by stockholders is not legally required, but the Board of

Directors and the Audit Committee believe the submission provides an opportunity for stockholders through their vote to communicate with the Board of Directors and the Audit Committee about an important aspect of corporate governance. If the stockholders do not ratify the selection of Grant Thornton LLP, the Audit Committee will reconsider, but will not be required to rescind, the selection of that firm as the Company’s independent registered public accounting firm. Representatives of Grant Thornton LLP are expected to be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so. Such representatives are also expected to be available to respond to appropriate questions.

 

The Audit Committee has the authority and responsibility to retain, evaluate and replace the Company’s independent registered public accounting firm. The stockholders’ ratification of the appointment of Grant Thornton LLP does not limit the authority of the Audit Committee to change the Company’s independent registered public accounting firm at any time.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION OF THE SELECTION OF GRANT THORNTON LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 2010.

 

Pursuant to its charter, the Audit Committee’s principal functions include the duty to (i) annually review and reassess its performance and the adequacy of its charter; (ii) pre-approve audit or non-audit services proposed to be rendered by the Company’s independent registered public accounting firm; (iii) annually review the qualifications and independence of the independent registered public accounting firm’s senior personnel that are providing services to the Company; (iv) review with management and the independent registered public accounting firm the Company’s annual and quarterly financial statements, earnings press releases and financial information and earnings guidance provided to analysts and ratings agencies; (v) review with management the Company’s major financial risk exposures; (vi) review changes to the Company’s significant auditing and accounting principles and practices; (vii) review the independent registered public accounting firm’s internal quality-control procedures and the procedures for the Company’s financial reporting processes; and (viii) assist the Board of Directors in monitoring compliance with legal and regulatory requirements. While the Audit Committee has the responsibilities and powers set forth in its charter and the Company’s management and the independent registered public accounting firm are accountable to the Audit Committee, it is not the duty of the Audit Committee to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable laws, rules and regulations.

 

In performing its oversight role, the Audit Committee has reviewed and discussed the Company’s audited financial statements with the Company’s management and independent registered public accounting firm. The Audit Committee has also discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61, Communication with Audit Committees. The Audit Committee has received the written disclosures and the written statement from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence. The Audit Committee has also considered whether the provision of non-audit services by the independent registered public accounting firm to the Company is compatible with maintaining the independent registered public accounting firm’s independence and has discussed with the independent registered public accounting firm its independence.

 

Based on the reviews and discussions described in this Audit Committee Report, and subject to the limitations on the roles and responsibilities of the Audit Committee referred to herein and in its charter, the Audit Committee recommended to the Board of Directors that the Company’s audited financial statements for the year ended December 31, 2009 be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, which was filed with the SEC on February 26, 2010. The Audit Committee also selected Grant Thornton LLP as the Company’s independent registered public accounting firm for 2010.

Members of the Audit Committee rely, without independent verification, on the information provided to them and on the representations made by the Company’s management and independent registered public accounting firm. Accordingly, the Audit Committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit Committee’s considerations and discussions referred to above do not assure that (i) the audit of the Company’s financial statements has been carried out in accordance with generally accepted auditing standards, (ii) the Company’s financial statements are presented in accordance with generally accepted accounting principles, or (iii) Grant Thornton LLP is in fact independent.

 

Members of the Audit Committee:

 

Ray M. Poage (Chairman)

Tucker S. Bridwell

William H. Easter III

Mark B. Puckett

 

The table below sets forth the aggregate fees billed by Grant Thornton LLP, the Company’s independent registered public accounting firm, for the last two fiscal years:

 

 

 

 

The charter of the Audit Committee and its pre-approval policy require that the Audit Committee review and pre-approve the Company’s independent registered public accounting firm’s fees for audit, audit-related, tax and other services. The Chairman of the Audit Committee has the authority to grant pre-approvals, provided such approvals are within the pre-approval policy and are presented to the Audit Committee at a subsequent meeting. For the year ended December 31, 2009, the Audit Committee approved 100% of the services described above under the captions “Audit Fees,” “Audit-Related Fees” and “Tax Fees.”

 

The table below provides certain information about the Company’s equity compensation plans as of December 31, 2009:

 

 

 

 

The table below summarizes compensation paid by the Company to its directors during 2009:

 

 

 

 

 

The Board of Directors believes that providing a compensation package at the market median is necessary to attract and retain qualified directors. The Board of Directors believes that the compensation package should require a significant portion of the total compensation package to be equity-based to align the interests of the Company’s directors and stockholders. Mr. Leach, the Company’s Chief Executive Officer, receives no additional compensation for his service on the Board of Directors.

 

The elements of compensation for the Company’s directors during the year ended December 31, 2009 were:

 

 

The price used to determine the value of restricted shares granted for directors’ equity awards is the average of the high and low market-quoted sales prices of the Company’s common stock on the grant date of the award. Time of service related forfeiture restrictions on the Company’s restricted stock issued to directors lapse twelve months following the grant date of the award. All retainer and attendance fees are paid quarterly in cash to directors.

 

Additionally, each director is reimbursed for (i) travel and miscellaneous expenses to attend meetings and activities of the Board of Directors or its committees; (ii) travel and miscellaneous expenses related to such director’s participation in the Company’s general education and orientation program for directors; and (iii) travel and miscellaneous expenses for each director’s spouse who accompanies a director to attend meetings and activities of the Board of Directors or its committees.

 

The following Compensation Discussion and Analysis contains statements regarding future Company performance goals and measures. These goals and measures are disclosed in the limited context of the Company’s compensation and benefits programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. The Company specifically cautions investors not to apply these statements to other contexts.

 

General.  This Compensation Discussion and Analysis (i) explains the Company’s compensation philosophy, objectives, policies and practices with respect to its executive officers, and (ii) analyzes the elements of compensation for each of the individuals identified below, whom the Company refers to in this Compensation Discussion and Analysis as the Company’s “named executive officers.”

 

 

 

 

Compensation Philosophy and Objectives.  The success of the Company and its ability to maximize stockholder value is dependent on its ability to attract, retain and motivate the best available talent in the energy industry. As such, the Compensation Committee views the Company’s most important asset, its people, as an investment rather than an expense. Consequently, the Compensation Committee has developed overarching objectives for its executive compensation program, which are as follows:

 

 

To accomplish these objectives, the Company provides what it believes is a competitive total compensation package to the Company’s executive officers through a combination of base salary, performance-based annual cash incentive awards, long-term equity incentive compensation and broad-based benefit programs.

 

Total Compensation.  In determining total compensation for the Company’s executive officers, the Compensation Committee intends to align management incentives with long-term value creation for the Company’s stockholders. To that end, the Compensation Committee targets total compensation to be such that base salaries are near the market median and that annual cash incentives and long-term incentives provide the opportunity to realize total compensation at or above the 50th percentile of the Company’s peer group based on individual and Company performance.

 

Role of the Compensation Committee.  The Compensation Committee approves all compensation decisions relating to the Company’s executive officers, oversees the Company’s compensation benefit plans and administers the Company’s stock incentive plan (including reviewing and approving all equity grants to the Company’s executive officers). The Compensation Committee is empowered by the Board of Directors and by the Compensation Committee’s charter to make all decisions regarding compensation for the Company’s executive officers. In his role as chairman of the Compensation Committee, Mr. Tabor sets the Compensation Committee’s meeting agendas, meeting times and calendar. In addition, the Compensation Committee members speak frequently with each other concerning compensation matters outside of regularly scheduled Compensation Committee meetings. Mr. Tabor regularly reports to the entire Board of Directors regarding compensation matters and calls upon the counsel and expertise of other members of the Board of Directors as he and the other members of the Compensation Committee deem advisable.

 

Role of Executive Officers.  The Compensation Committee meets outside the presence of all of the Company’s executive officers to consider appropriate compensation for the Company’s Chief Executive Officer. When determining compensation for other executive officers, the Compensation Committee meets with the Chief Executive Officer. The Company’s Chief Executive Officer reviews other executive officers’ performance with the

Compensation Committee and makes recommendations with respect to appropriate base salaries, awards under the Company’s annual cash incentive plan and grants of long-term equity incentive awards for the other executive officers. Based in part on these recommendations from the Company’s Chief Executive Officer and other considerations discussed below, the Compensation Committee establishes and approves the compensation package for each of the Company’s other executive officers.

 

Use of Peer Group Comparisons.  The Compensation Committee has selected a group of companies that it considers a “peer group” for executive compensation analysis purposes. Longnecker & Associates, the Compensation Committee’s independent compensation consultant, compiles compensation data for the peer group from a variety of sources, including proxy statements and other publicly filed documents. The Compensation Committee uses the compensation data to compare the compensation of the Company’s executive officers to comparably titled persons at companies within its peer group, targeting base salaries for the Company’s executive officers which are near the market median of its peer group, and targeting annual cash and long-term incentives so that the Company’s executive officers will have the opportunity to realize total compensation at or above the 50th percentile of the Company’s peer group based on Company and individual performance.

 

Each year, the Compensation Committee reviews and re-determines the composition of the Company’s peer group so that the peer group consists of oil and gas exploration and production companies (i) with annual revenue and market capitalization similar to the Company, and (ii) who potentially compete with the Company for executive talent.

 

For 2009, the Company’s peer group consisted of:

 

•		Arena Resources, Inc.		•		Petrohawk Energy Corporation
•		Bill Barrett Corporation		•		Quicksilver Resources Inc.
•		Cabot Oil & Gas Corporation		•		Range Resources Corporation
•		Comstock Resources, Inc.		•		Rosetta Resources Inc.
•		Continental Resources, Inc.		•		St. Mary’s Land & Exploration Company
•		Denbury Resources Inc.		•		Swift Energy Company
•		Encore Acquisition Company		•		Whiting Petroleum Corporation
•		EXCO Resources, Inc.

 

Role of Compensation Consultant.  The Compensation Committee has retained Longnecker & Associates since 2007 as an independent compensation consultant to assist the Compensation Committee in developing the Company’s non-employee director and executive compensation program. In this capacity, Longnecker & Associates reports only to the Compensation Committee and does no other work for the Company. Representatives from Longnecker & Associates attend certain of the Compensation Committee meetings and advise the Compensation Committee on an ongoing basis with regard to general trends in director and executive compensation matters, including (i) competitive benchmarking; (ii) incentive plan design; (iii) peer group selection; and (iv) other matters requested from time to time by the Compensation Committee. The Compensation Committee has the sole authority to hire and terminate its compensation consultant.

 

Overview.  The Company’s executive officer compensation program is comprised of the following four components: base salaries, performance-based annual cash incentive awards, long-term equity incentive grants and a broad-based benefits program. The Compensation Committee determined the appropriate level for each compensation component for compensation during 2009 based on the Company’s recruiting and retention goals, its view of internal parity and consistency, peer group data and overall Company performance.

 

Base Salaries.  The Company pays base salaries to provide a minimum, fixed level of cash compensation for its executive officers. The Compensation Committee believes that paying base salaries near the market median is necessary to achieve the Company’s compensation objectives of attracting and retaining executives with the appropriate abilities and experience required to lead the Company. On an annual basis, the Compensation Committee reviews salary ranges and individual salaries for each of the Company’s executive officers as compared

to the salaries of comparably titled officers in the Company’s peer group companies. The Compensation Committee established 2009 base salary levels for each named executive officer after consideration of market median pay levels, the individual’s responsibilities, skills and experience, and the base salaries of others on the executive team. Based on that review, the Compensation Committee established 2009 base salary levels for the Company’s named executive officers, as follows:

 

 

In August 2009, the Compensation Committee increased Mr. Leach’s annual base salary from $475,000 to $550,000, effective June 30, 2009, in recognition of his increased duties following the retirement of Mr. Beal, who had previously served as the Company’s President and Chief Operating Officer. When hiring Mr. Giraud as the Company’s Vice President — General Counsel and Secretary, the Compensation Committee considered market median pay levels; Mr. Giraud’s responsibilities, skills and experience; and the base salaries of the others executive officers, which, after negotiations with Mr. Giraud, resulted in his 2009 base salary being set at $265,000.

 

For 2010, the Compensation Committee process for setting executive officer base salaries was similar to the process for 2009, and the Compensation Committee established 2010 base salary levels for the Company’s named executive officers as follows:

 

 

Performance-based Annual Cash Incentive Awards.  Each year, the Compensation Committee establishes an annual cash incentive program, because the Compensation Committee believes that the payment of annual cash incentive awards based upon the performance of the Company is necessary to achieve its compensation objectives of motivating and rewarding the Company’s executive officers as well as aligning the interests of the Company’s executive officers and stockholders with the performance of the Company.

 

The Compensation Committee has historically utilized performance-based annual cash incentive awards to reward achievement of certain performance goals with a time horizon of one year or less. For 2009, the Compensation Committee established the 2009 annual cash incentive compensation plan (the “2009 Incentive Compensation Plan”) to reward the Company’s executive officers for performance relative to certain performance metrics, which include:

 

 

These performance metrics were selected because the Compensation Committee and Longnecker & Associates believe that these performance metrics were relevant, objective measures of performance for the Company and management. They are also among those indicators used by the management of the Company to

evaluate the performance of the Company. In addition, the Compensation Committee retained the ability to apply its discretion to awards under the 2009 Incentive Compensation Plan based on extenuating market circumstances or individual performance. The Compensation Committee sets the target annual cash incentive award amounts such that a payout at the target level will result in each executive officer receiving a cash incentive award at or near the 50th percentile of comparably titled officers in the Company’s peer group. Pursuant to the 2009 Incentive Compensation Plan, the Compensation Committee set the target annual cash incentive award amount for 2009 as 100% of Mr. Leach’s base salary, although awards to him may range from 0% to 200% of his base salary depending on performance relative to performance metrics and subject to the discretion of the Compensation Committee. The annual cash incentive award for the other executive officers is allocated by the Compensation Committee from a bonus pool. The target amount of the annual cash incentive award pool is 75% of the aggregate base salaries of all executive officers other than the Chief Executive Officer, although the pool could range from 0% to 150% of their aggregate base salaries depending on performance relative to performance metrics and subject to the discretion of the Compensation Committee. Once the annual cash incentive award pool amount is established, the Compensation Committee approves the allocation of annual cash incentive awarded to those executive officers after recommendations from and discussions with the Company’s Chief Executive Officer.

 

The payout of annual cash incentive awards, if any, is based upon the Company’s level of achievement with respect to the performance metrics, which are derived each year from the Company’s annual capital budgeting process and are based upon certain assumptions made by the Company’s management. If the Company achieves expected performance, the short term incentive program should pay out at target levels. In order to create additional incentive for exceptional Company performance, individual awards can be up to 150% of the base salary for each named executive officer (200% for Mr. Leach), but it is not expected that payment at this level would be triggered in most years. In evaluating the Company’s achievement relative to various performance metrics, the Compensation Committee does not employ a formula or weighting of performance metrics, but rather subjectively evaluates performance in light of oil and gas industry fundamentals and assesses how effectively management adapts to changing industry conditions and opportunities during the year. The five performance metrics selected with respect to the 2009 Annual Incentive Compensation Plan are shown in the table below, together with the goals and actual levels of achievement.

 

 

 

 

In February 2010, the Compensation Committee reviewed the Company’s 2009 results relative to these performance metrics and determined that the Company’s performance exceeded the goals for production growth, proved reserves growth and net asset value per share growth. Additionally, the Compensation Committee noted that the Company was able to produce these results while achieving organic finding and development costs of $6.39 per Boe. Based on its review of those metrics, as well as consideration of the Company’s successful management transition following Mr. Beal’s retirement and completion of several acquisitions, the Compensation Committee approved an annual cash incentive award for Mr. Leach equal to 182% of his 2009 base salary and established a bonus pool for the Company’s other executive officers equal to 137% of those officers’ aggregate base salaries. Allocations from the bonus pool to each executive officer were approved by the Compensation Committee after recommendations from and discussion with the Company’s Chief Executive Officer.

 

For 2010, the Compensation Committee has established the 2010 annual cash incentive compensation plan (the “2010 Incentive Compensation Plan”). The 2010 Incentive Compensation Plan is designed to reward the Company’s executive officers for achieving both short- and long-term performance and strategic goals. Performance will be judged based on successful execution of the Company’s annual business plan objectives and on stock price and other performance criteria relative to peer companies. In evaluating the executive officers’ performance, the Compensation Committee may consider certain objectives, including growth of oil and natural gas production and proved reserves, achievement of income and/or cash flow targets, finding and development costs, changes in net asset value per share, successful completion of acquisitions and other items they may consider to be critical to our success. The objectives are not weighted because the relative importance of these, or any other objectives, is flexible and changes over time, and because the relative responsibilities of each executive officer in the achievement of the objectives may differ. The Compensation Committee intends to take a broad view in applying the 2010 Incentive Compensation Plan and will review the Company’s performance and accomplishments of its strategic initiatives as a whole throughout the entire year.

 

Pursuant to the 2010 Incentive Compensation Plan, the Compensation Committee has set the target annual cash bonus amount for 2010 to be 100% of base salary for Mr. Leach, although the award to Mr. Leach may range from 0% to 200% of his base salary depending on the Compensation Committee’s evaluation. The target annual cash bonus for the other executive officers will be allocated by the Compensation Committee from a bonus pool. The bonus pool for these executive officers is expected to be equal to 75% of the aggregate of their base salaries, although the bonus pool may range from 0% to 150% of the aggregate of their base salaries, depending on the Compensation Committee’s evaluation.

 

Long-term Equity Incentive Compensation.  The annualized value of the long-term equity incentive compensation is intended to be the largest component of each named executive officer’s overall compensation package, because the Compensation Committee believes significant emphasis on stock-based compensation effectively aligns the interests of the Company’s named executive officers with those of its stockholders, providing incentive to the Company’s named executive officers to focus on the long-term success of the Company. In addition, the Company utilizes multi-year vesting periods, typically four years, when granting long-term equity incentive compensation to facilitate the compensation objective of retaining the Company’s named executive officers.

 

The value of each named executive officer’s annual long-term incentive award is set in the first quarter each year and is based significantly on the Compensation Committee’s review of peer group data provided by Longnecker & Associates that reflects the value of equity grants as a percentage of base salary for similarly titled positions at the Company’s peer group companies. Awards are targeted at the median of the Company’s peer group, which is consistent with the Compensation Committee’s overall compensation philosophy. In addition to peer group data, the Compensation Committee considers and reviews individual performance to determine the value of the long-term equity incentive award. The Compensation Committee considers the unvested portion of prior equity awards when determining future award levels. Awards are determined based on a dollar value, which, (i) with respect to stock options, is converted to a number of stock options by reference to the estimated Black-Scholes value of the stock options on the date of grant and (ii) with respect to shares of restricted stock, is converted to a number of shares by using the average of the high and low sales prices of the Company’s common stock on the date of grant.

Based on the foregoing considerations, the Company granted restricted stock and stock options in February 2009 to its named executive officers as follows:

 

 

In addition to annual grants to executive officers, the Compensation Committee has the discretion to approve long-term incentive awards in connection with hiring new executive officers. When hiring Mr. Giraud as the Company’s Vice President — General Counsel and Secretary in November 2009, the Company awarded him 24,857 shares of restricted stock, which vest in three equal annual installments beginning one year from the date of grant.

 

For 2010, the Compensation Committee process for making long-term incentive awards was similar to the process for 2009, although the Compensation Committee decided to make awards of restricted stock only, as opposed to part restricted stock and part stock options in 2009. The Compensation Committee chose restricted stock, rather than stock options, because (i) restricted stock awards are less dilutive than stock options, (ii) in the Compensation Committee’s opinion, restricted stock provides a more effective retention incentive and (iii) the majority of the Company’s competitors have recently shifted towards restricted stock. In February 2010, the Company granted restricted stock to its current named executive officers as follows:

 

 

Stock Ownership Guidelines.  The Compensation Committee established stock ownership guidelines under which the Company’s Chief Executive Officer is expected to own shares of the Company’s common stock having a market value of at least five times his base salary, and each of the Company’s other executive officers is expected to own shares of the Company’s common stock having a market value of at least three times his respective base salary. All executive officers are expected to meet these guidelines within five years of becoming an executive officer. The Company’s stock ownership guidelines are designed to increase an executive’s equity stake in the Company and to align an executive’s interests more closely with those of the Company’s stockholders.

 

Potential Payments Upon a Termination or Change of Control.  The Company maintains an employment agreement with each of the named executive officers that provides potential severance payments upon the termination of their employment in certain situations. On December 19, 2008, the Company entered into new employment agreements with all of its then-executive officers, which became effective on January 1, 2009. In connection with the January 2009 agreements, the Compensation Committee was advised by Longnecker & Associates regarding market competitive levels for the compensation related terms and conditions in the new employment agreements. The January 2009 employment agreements for all of the Company’s executive officers were designed so that all of the officers would have employment agreements with the same term and similar severance and change of control provisions. When Mr. Giraud joined the Company as an executive officer during 2009, the Company entered into a substantially similar employment agreement with him effective November 5, 2009. Mr. Copeland was previously a party to a January 2009 employment agreement; however, effective as of November 5, 2009, the Company entered into a new employment agreement with Mr. Copeland to reflect his retirement as an executive officer and to anticipate his retirement from the Company on December 31, 2010. Mr. Beal was also previously a party to a January 2009 employment agreement, but in connection with his transition

from an employee to a consultant, the Company entered into a consulting agreement with Mr. Beal effective July 1, 2009, which contains limited payments in connection with a termination of his consulting services in the event of Mr. Beal’s death.

 

Generally, in the event that the employment of the executive officers are terminated by the Company other than for “cause” (and not by reason of death or disability) or if they terminate their employment following a “change in duties,” the executives will receive severance equal to eighteen months of base salary (twenty-four months of base salary in the case of Mr. Leach), as well as up to twelve months continued medical benefits. If the same termination events fall within the two year period immediately following a change of control, each of the Company’s named executive officers is entitled to an increased severance payment equal to two years of base salary and average annual bonus, accelerated vesting of any unvested equity compensation awards, and up to eighteen months continued medical benefits. In addition, Mr. Giraud will receive a payment of $500,000 if, (a) prior to November 5, 2010, the Company enters into an agreement that could result in a change of control, or a change of control actually occurs, and (b) he becomes subject to an involuntary termination generally during the one year period following the applicable change in control event.

 

The Company believes that these severance and change of control arrangements mitigate some of the risk that exists for executives working in a publicly owned company. These arrangements are intended to attract and retain qualified executives that could have job alternatives that may appear to them to be less risky absent these arrangements. Because of recent significant volatility in the oil and gas industry, the transactional nature of the industry historically, and the quality of the Company’s workforce and asset base there is a possibility that the Company could be acquired in the future. Accordingly, the Company believes that the larger severance packages resulting from terminations related to change of control transactions provide an incentive for executives to continue to help successfully execute such a transaction from its early stages until consummation. The Compensation Committee believes that these severance and change of control arrangements provide important protection to the Company’s executive officers, are consistent with the practices of peer companies and are appropriate for the attraction and retention of executive talent. More information on these severance and change of control agreements can be found below under “Potential Payments Upon a Termination or Change of Control.”

 

Other Benefits.  The Company’s executive officers are eligible to participate in all of the Company’s employee benefit plans, such as medical, dental, vision, group life, disability, and accidental death and dismemberment insurance and 401(k) plan, in each case on the same basis as other employees, subject to applicable law. The Company also provides vacation and other paid leave to all employees, including the Company’s executive officers, which are comparable to those provided within the oil and natural gas industry.

 

During 2009, the Company owned and operated an airplane and purchased hours in an additional aircraft program to facilitate the travel of executives in as safe a manner as possible and with the best use of their time. Under his employment agreement, Mr. Leach is entitled to utilize the Company’s aircraft for business travel and reasonable personal travel in North America. The immediate family members of Mr. Leach are also permitted to utilize the Company’s aircraft for reasonable personal use in North America. Mr. Leach is not obligated to reimburse the Company for the use of such aircraft except when his immediate family members use such aircraft without Mr. Leach accompanying them on the flight, in which case he is obligated to reimburse the Company for the variable costs of such use. The amount of personal use of the Company’s aircraft is subject to review and adjustment by the Compensation Committee.

 

The value of personal aircraft usage described above is based on the Company’s direct operating cost. This methodology calculates the Company’s incremental cost based on the average weighted cost of fuel, on-board catering, aircraft maintenance, landing fees, trip-related hangar and parking costs, and other variable costs. Since the Company’s aircraft is used primarily for business travel, the methodology excludes fixed costs which do not change based on usage, such as pilot and other employee charges, purchase costs of the aircraft and non-trip-related hangar expenses. On occasions when the spouse or other family members of an executive officer accompanies the executive on a flight, no additional direct operating cost is incurred under the foregoing methodology.

 

Tax and Accounting Policies.  Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), places a limit of $1 million on the amount of compensation that the Company may deduct in any one year with respect to each of the Company’s Chief Executive Officer and other three most highly paid executive officers

(other than its Chief Financial Officer). There is an exception to the $1 million limitation for performance-based compensation meeting certain requirements. The Company’s annual cash incentive plan does not meet the definition of performance-based compensation for purposes of Section 162(m) of the Code primarily because it is not formula driven, the performance goals applicable under the plan have not been approved by the Company’s stockholders and the Compensation Committee retains the right to make subjective evaluations of performance, including an assessment of how effectively management adapts to changing industry conditions and opportunities during the year. Pursuant to a transition rule that applies to the Company, compensation attributable to the exercise of a stock option or the vesting of a restricted stock award granted under the Company’s 2006 Stock Incentive Plan will not be subject to the deduction limitation under Section 162(m) of the Code if the grant of the stock option or restricted stock award occurs on or before the earliest of (i) the material modification of such plan; (ii) the issuance of all shares of the Company’s common stock available for issuance under such plan; or (iii) the first meeting of the Company’s stockholders at which directors are to be elected that occurs after December 31, 2010. To maintain flexibility in compensating the Company’s executive officers in a manner designed to promote varying corporate goals, the Compensation Committee has not adopted a policy requiring all compensation to be deductible.

 

The Company accounts for equity compensation to its employees under FASB ASC Topic 718, which requires the Company to estimate and record an expense over the service period of the award. However, for tax purposes, subject to any limitations under Section 162(m) of the Code, income recognized by employees from nonqualified stock options granted at fair market value should be deductible by the Company, but, to the extent that a stock option constitutes an incentive stock option, the Company will not be allowed a compensation deduction if there is no disqualifying disposition by the optionee. In addition, subject to any limitations under Section 162(m) of the Code, if the Company grants shares of restricted stock, the related compensation expense should be fully deductible by the Company at the time the award is otherwise taxable to the grantee.

 

The Company structures annual cash incentive compensation so that it is taxable to its executives at the time it becomes available to them. For tax purposes, cash compensation is recorded as an expense at the time the obligation is accrued.

 

The compensation paid to the Company’s executive officers generally consists of base salaries, annual cash incentive payments, awards under the Concho Resources Inc. 2006 Stock Incentive Plan, contributions to the Company’s defined contribution 401(k) retirement plan and miscellaneous perquisites. The table below sets forth information regarding fiscal 2009 compensation awarded to, earned by or paid to the Company’s named executive officers, which includes the Company’s Chief Executive Officer, Chief Financial Officer, three most highly compensated executive officers other than its Chief Executive Officer and Chief Financial Officer and Mr. Beal and Mr. Copeland, who both retired in 2009. The table also sets forth information regarding fiscal year 2008 compensation for Messrs. Leach, Holderness, Wright and Beal because they were also named executive officers in 2008 and fiscal year 2007 compensation for Messrs. Leach, Beal and Wright because they were also named executive officers in 2007.

 

 

 

 

						Company				Life
						Contributions to				Insurance				Use of				Consulting				Health				Director				Total All Other
Name						401(k) Plan				Premiums				Aircraft				Fees				Premiums				Fees				Compensation
Timothy A. Leach			2009			$	14,700			$	814			$	69,073			$	—			$	—			$	—			$	84,587
			2008				15,475				38				37,188				—				—				—				52,701
			2007				15,225				55				17,615				—				—				—				32,895

						Company				Life
						Contributions to				Insurance				Use of				Consulting				Health				Director				Total All Other
Name						401(k) Plan				Premiums				Aircraft				Fees				Premiums				Fees				Compensation
C. William Giraud			2009				—				26				—				—				—				—				26
Darin G. Holderness			2009				14,700				814				—				—				—				—				15,514
			2008				3,750				13				—				—				—				—				3,763
Matthew G. Hyde			2009				14,700				1,292				—				—				—				—				15,992
E. Joseph Wright			2009				14,700				814				4,281				—				—				—				19,795
			2008				15,000				38				—				—				—				—				15,038
			2007				15,000				55				—				—				—				—				15,055
Steven L. Beal			2009				7,956				646				22,446				120,000				5,580				13,000				169,628
			2008				15,475				38				61,097				—				—				—				76,610
			2007				15,225				55				9,022				—				—				—				24,302
David W. Copeland			2009				14,181				1,292				—				—				—				—				15,473

 

 

The table below sets forth the range of potential annual cash incentive awards for 2009 performance as a dollar amount for each of the named executive officers under the Company’s 2009 Annual Incentive Compensation Plan. The table also sets forth the number of shares of restricted stock and the number of stock options awarded during 2009 to the Company’s named executive officers under the Concho Resources Inc. 2006 Stock Incentive Plan.

 

 

 

 

The table below sets forth, for each named executive officer, information about equity awards outstanding as of December 31, 2009:

 

 

 

 

 

The table below sets forth, for each named executive officer, information about option exercises and lapses of restrictions on restricted stock awards during 2009:

 

 

 

 

The Company maintains employment agreements with each of its executive officers that provide for potential severance payments upon a termination of the executive’s employment under various circumstances, and the timing and form of the potential payment of benefits under the employment agreements may vary depending on whether the termination occurs in connection with a change of control. The executive officers’ employment agreements are all substantially similar, so the following discussion will apply to each of the executive officers unless specifically noted otherwise. The Company and Messrs. Leach, Holderness, Hyde, and Wright entered into their current executive employment agreements on December 19, 2008 effective as of January 1, 2009; the Company and Mr. Giraud entered into employment agreements effective November 5, 2009. In connection with Mr. Copeland’s retirement, the Company and Mr. Copeland entered into an amended and restated employment agreement on November 5, 2009. In connection with Mr. Beal’s retirement, the Company transitioned Mr. Beal’s employment relationship to that of a consultant, and entered into a consulting agreement with Mr. Beal effective July 1, 2009.

 

Employment Agreement Terms for Messrs. Leach, Giraud, Holderness, Hyde and Wright.  An “involuntary termination” is defined in the employment agreements as a termination of an executive’s employment that is not a voluntary resignation by the executive, unless such resignation occurs on or before a date that is sixty days following the date the executive receives a notice that a change in duties has occurred; an involuntary termination also does not include a termination for “cause” or any termination that results from the executive’s death or disability. A “change in duties” has two alternative definitions depending on whether or not the event happens within the two year period beginning on the date a change of control has occurred (the “change of control period”). A change of duties within a change of control period means (i) a material reduction in the nature or scope of an executive’s authorities or duties; (ii) a reduction in an executive’s base salary; (iii) a diminution in an executive’s eligibility to participate in bonus, stock option, incentive award and other compensation plans; (iv) a material diminution in an executive’s employee benefits and perquisites, or (v) a change in the location of an executive’s principal place of employment by more than ten miles. A change of duties prior to or following a change of control period will consist of a reduction in the rank of an executive’s title as an officer of the Company, a reduction in an executive’s base salary, or a material diminution in an executive’s employee benefits and perquisites from those substantially similar to those provided to similarly situated executives.

 

A termination for “cause” generally means that an executive (i) has engaged in gross negligence, gross incompetence or willful misconduct in the performance of his duties; (ii) has materially breached any material provision of his employment agreement, corporate policy or code of conduct established by the Company; (iii) has willfully engaged in conduct that is materially injurious to the Company; (iv) has committed an act of fraud,

embezzlement or willful breach of a fiduciary duty to the Company; (v) has been convicted of a crime involving fraud, dishonesty or moral turpitude or any felony; (vi) has refused, without proper reason, to perform his duties; or (vii) has used Company securities owned or controlled by the executive as collateral for a securities margin account.

 

An executive will have incurred a “disability” if, as a result of an executive’s incapacity due to physical or mental illness, the executive has not been able to perform his full-time duties for a period of six consecutive months, and is unable to return to full-time employment within thirty days of receiving a notice of a termination.

 

A “change of control” is generally defined as: (i) a merger, consolidation, or the sale of all or substantially all of the Company’s assets if, (a) the holders of the Company’s securities prior to the transaction no longer own 50% or more of the securities of the resulting company immediately following the transaction in essentially the same proportion that existed immediately prior to the transaction, or (b) the members of the Company’s Board of Directors immediately prior to the transaction do not also constitute a majority of the board of directors of the resulting entity immediately after the transaction; (ii) the dissolution or complete liquidation of the Company; (iii) the date any person or entity acquires ownership or control of 50% or more of the combined voting power of the Company’s outstanding securities; or (iv) the members of the Company’s Board of Directors cease to constitute a majority of the board as a result of or in connection with a contested election of directors.

 

Potential Severance Benefits for Messrs. Leach, Giraud, Holderness, Hyde and Wright.  In the event that one of these executive’s employment is terminated due to his death or disability, the executive or his estate will receive a payment equal to his annual base salary, to be paid out in eighteen equal monthly installments (or twenty-four months in the case of Mr. Leach), as well as a lump sum payment within thirty days of the termination that equals the pro-rated annual target bonus for the year in which the termination occurs.

 

If an involuntary termination occurs outside of a change of control period, the executive will continue to receive his base salary for eighteen months (or twenty-four months in the case of Mr. Leach) and the Company will reimburse him for up to twelve months for the amount by which the cost of his continued coverage under the Company’s group health plans exceeds the employee contribution amount that the Company charges its active senior executives for similar coverage.

 

An involuntary termination within the change of control period, however, will trigger a severance payment equal to two times the sum of his annual base salary and average annual bonus; the average annual bonus will typically be calculated using the bonus with respect to the previous two years, although if an executive has not been employed for such a time period, the bonus will be calculated: (1) for Messrs. Leach, Holderness, Hyde and Wright, by using the average of any bonuses which have in fact been paid for years prior to the termination, or by annualizing any bonus which related to a partial year, and (2) for Mr. Giraud, by deeming him to have been paid a bonus equal to 75% of his base salary for any given year. The severance payments will either be paid in a single payment on or before the fifth day following the executive’s termination of employment, subject to any delay required under Section 409A of the Code, or divided into eighteen monthly installments (or twenty-four monthly installments in the case of Mr. Leach), depending on the nature of the change of control. All of the executive’s stock options and restricted stock awards will vest in full, and the Company will reimburse the executive for up to eighteen months for the amount by which the cost of his continued coverage under the Company’s group health plans exceeds the employee contribution amount that the Company charges the Company’s active senior executives for similar coverage. In addition, Mr. Giraud will receive an additional payment of $500,000 if, (a) prior to November 5, 2010, the Company enters into an agreement that could result in a change of control, or a change of control actually occurs, and (b) he becomes subject to an involuntary termination generally during the one year period following the applicable change in control event. If any of the severance payments described in this paragraph or the preceding paragraph are not made when due, the Company shall also pay interest on the amount payable from the date it should have been made until such time as the payment is actually made, interest to be the prime or base rate of interest announced by JPMorgan Chase Bank (or any successor thereto) at its principal New York office.

 

The employment agreements do not provide for tax “gross-up” payments. If the total amount of payments to be provided by the Company in connection with a change of control would cause any of the named executive officers to incur “golden parachute” excise tax liability, then the payments provided under the employment agreement will be reduced to the extent necessary to eliminate the application of the excise tax if that will leave him in a better after-

tax position than if no such reduction had occurred; this generally means that the full payment would be reduced to $1.00 less than three times the executive’s base amount (as defined in Section 280G of the Code).

 

Restrictions and Conditions to Receiving Severance Benefits under the Employment Agreements.  Each executive must execute and not revoke a general release agreement before receiving any severance or benefits pursuant to his employment agreement. The release shall discharge the Company and its affiliates, as well as officers, directors and employees of the Company and its affiliates, from any claims or judicial actions arising out of the executive’s employment or termination of employment. The release must be executed and irrevocable within 55 days of the executive’s termination of employment.

 

Section 409A of the Code can subject an executive to a 20% tax, in addition to normal income taxes, in the event that payments are not structured to be compliant with Section 409A of the Code and its regulations. If the executives are “specified employees” according to Section 409A of the Code at the time of their termination of employment, the payment of severance benefits may be delayed for a period of six months in order to remain in compliance with this Code section, despite the timing otherwise provided for in the employment agreements. This six month delay period will not be considered a “late” payment, however, for purposes of crediting late payments with interest as described above.

 

The named executive officers are also subject to non-compete and related restrictions. During the term of his employment agreement and for a period of one year following a termination of employment for any reason (the “non-compete period”), the executive may not hire, contract or solicit the Company’s employees for his own benefit or for the benefit of any other person or entity, nor may he encourage any Company employee to leave the Company’s employ for any reason. Within the geographical area or market where the Company is conducting (or within the twelve months prior to the executive’s termination of employment, has conducted) business, the executive may not participate in the ownership, management, operation of or have any financial interest in a business that is similar to the Company or that is a competitor of the Company, attempt to solicit or divert the Company’s customers or vendors, or call upon a prospective acquisition candidate on his own behalf or on behalf of another entity if the Company is also negotiating for that potential acquisition. However, in the event the executive resigns under circumstances that would not be considered an involuntary termination or either party provides written notice to the other that the term of the employment agreement will not automatically renew, then the post-employment restriction relating to the participation in the ownership, management, operation or financial interest in a competitive operation will only apply for a number of months (not in excess of twelve) selected by the Company and the Company must continue to pay the executive his base salary for the number of months, if any, selected by the Company.

 

Employment Agreement with Mr. Copeland.  Mr. Copeland was previously a party to an employment agreement similar to those described above for Messrs. Holderness, Hyde and Wright that provided for certain severance or change in control provisions, although his new employment agreement effective November 5, 2009 superseded any previous contracts between Mr. Copeland and the Company regarding his employment. Mr. Copeland’s current employment agreement notes that he has an “at-will” employment relationship with the Company, and the Company may terminate his employment relationship for any reason, with or without cause. In the event that Mr. Copeland’s termination of employment occurs prior to December 31, 2010 by reason of his death, “disability,” or by the Company without “cause,” all of Mr. Copeland’s outstanding stock options and restricted stock shall become fully vested, and he will continue to receive his base salary until December 31, 2010; provided, however, that all such benefits will be subject to Mr. Copeland’s execution of a general release in the Company’s favor (except in the case of his death).

 

The terms “disability” and “cause” in Mr. Copeland’s new agreement remain unchanged from the same terms as described in the executive officer’s agreements above, and Mr. Copeland will also be subject to the potential payment delays described above with regard to Section 409A of the Code. While Mr. Copeland will be subject to the same confidentiality restrictions as the remaining executive officers and a one-year nonsolicitation restriction following his termination, he will not have a non-compete obligation following a termination of employment.

 

Consulting Agreement with Mr. Beal.  Mr. Beal was previously a party to an employment agreement similar to that described above for Mr. Leach, and the consulting agreement the Company entered into with Mr. Beal effective July 1, 2009 does not terminate certain post-employment rights and obligations of either the Company or

Mr. Beal under such employment agreement. The consulting agreement states that Mr. Beal will make himself available to the Company to perform consulting and advisory services related to our oil and gas industry. The Company and Mr. Beal intend that the consulting services Mr. Beal provides to the Company will exceed 20% of the average level of services Mr. Beal was providing to the Company as an employee. Mr. Beal will receive monthly compensation in the amount of $20,000, plus a health care reimbursement amount. During any month in which Mr. Beal is entitled to elect continued medical coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the health care reimbursement amount will equal the difference between the amount Mr. Beal pays to continue such coverage and the employee contribution amount that active senior executives of the Company pay for similar coverage. Following Mr. Beal’s eligible COBRA continuation period, the health care reimbursement amount shall equal the lesser of (1) the amount actually paid by Mr. Beal to receive medical and dental coverage for him and his dependents, and (2) the difference, if any, between the amount the Company could have charged Mr. Beal for his COBRA continuation coverage and the employee contribution amount Mr. Beal would have paid for such coverage as an active executive employee.

 

For purposes of certain equity-based compensation awards held by Mr. Beal at the time of his transition to a consultant, the consulting agreement provides that Mr. Beal shall not have been deemed to have incurred a termination of employment for purposes of the individual agreements governing such awards so long as he is providing consulting services to the Company. In the event that the Company terminates Mr. Beal’s consulting relationship without cause prior to June 12, 2010 for certain options granted in 2006 and certain restricted stock granted in 2007, or prior to February 27, 2012 for certain options granted in 2008, the awards shall become 100% vested and exercisable.

 

In the event of Mr. Beal’s death while he is providing consulting services to the Company, his estate shall receive the pro-rata portion of his monthly compensation for the month of his death, as well as a lump sum payment of $60,000. Upon a termination of the consulting relationship for cause, all Company obligations to Mr. Beal shall cease. If Mr. Beal voluntarily resigns, or the Company terminates his services without cause, Mr. Beal shall receive the pro-rata portion of his monthly compensation for the month of the termination.

 

“Cause” under Mr. Beal’s consulting agreement is generally defined in the same manner as in the executive employment agreements, absent the provision prohibiting the use of personally owned Company’s securities as collateral for a securities margin account.

 

Long-Term Incentive Plan.  In addition to the accelerated vesting of equity compensation awards as noted within the executive employment agreements and Mr. Beal’s consulting agreement, certain stock option and restricted awards granted under the Company’s 2006 Stock Incentive Plan (the “2006 Plan”) also provide for the accelerated vesting of such awards in various termination of employment and change of control scenarios. While the named executive officers are generally granted restricted stock awards under the 2006 Plan that have a vesting period of four years, (a) for restricted stock awards made on or before December 31, 2008, the restricted shares will vest in full upon the occurrence of a change of control, and (b) for restricted stock awards made after December 31, 2008, the occurrence of a termination of employment by reason of death or disability or the occurrence of an involuntary termination within the two year-period after a change of control will result in the full vesting of the restricted shares. The definitions for change of control and involuntary termination in the 2006 Plan restricted stock award agreements are identical to the same terms as found in the employment agreements. The Company does not currently provide for accelerated vesting of stock options upon a termination of an executive’s employment pursuant to the 2006 Plan or an individual award agreement, but as noted above, the executive employment agreements will govern the accelerated vesting of stock options following an involuntary termination within the change of control period.

The table below summarizes potential payments to each named executive officer assuming that one of the events described in the table below occurs. The table assumes that the event occurred on December 31, 2009, when the closing price of the Company’s common stock was $44.90. The values below are the Company’s best estimate of the severance payments and benefits the executives would receive upon a termination of employment (or a termination of the consulting relationship with respect to Mr. Beal) or a change of control as of December 31, 2009, as a true value could not be determined with absolute certainty until an actual termination or change of control of the Company occurs. The Company has also assumed for purposes of these calculations that all payments were made in a timely manner and that no interest accrued on the original payment amount.