NONSTATUTORY STOCK OPTION AGREEMENT
Exhibit 10.16
AGREEMENT made as of the day of , 20 , between CONCHO RESOURCES INC., a
Delaware corporation (the “Company”), and (“Employee”).
To carry out the purposes of the CONCHO RESOURCES INC. 2006 STOCK INCENTIVE PLAN (the “Plan”),
by affording Employee the opportunity to purchase shares of the common stock of the Company, par
value $0.001 per share (“Stock”), and in consideration of the mutual agreements and other matters
set forth herein and in the Plan, the Company and Employee hereby agree as follows:
1. Grant of Option. The Company hereby irrevocably grants to Employee the right and
option (“Option”) to purchase all or any part of an aggregate of shares of Stock on the
terms and conditions set forth herein and in the Plan, which Plan is incorporated herein by
reference as a part of this Agreement. In the event of any conflict between the terms of this
Agreement and the Plan, the Plan shall control. Capitalized terms used but not defined in this
Agreement shall have the meaning attributed to such terms under the Plan, unless the context
requires otherwise. This Option shall not be treated as an incentive stock option within the
meaning of section 422(b) of the Code.
2. Purchase Price. The purchase price of Stock purchased pursuant to the exercise of
this Option shall be $ per share, which has been determined to be not less than the Fair
Market Value of the Stock at the date of grant of this Option. For all purposes of this Agreement,
Fair Market Value of Stock shall be determined in accordance with the provisions of the Plan.
3. Exercise of Option. Subject to the earlier expiration of this Option as herein
provided, this Option may be exercised, by written notice to the Company at its principal executive
office addressed to the attention of its Corporate Secretary (or such other officer or employee of
the Company as the Company may designate from time to time), at any time and from time to time
after the date of grant hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a percentage of the aggregate number of shares offered by this Option
determined by the number of full years from the date of grant hereof to the date of such exercise,
in accordance with the following schedule:
| Percentage of Shares | ||||
| Number of Full Years | That May Be Purchased | |||
Less than 1 year |
0 | % | ||
1 year |
25 | % | ||
2 years |
50 | % | ||
3 years |
75 | % | ||
4 years or more |
100 | % | ||
This Option may be exercised only while Employee remains an employee of the Company and will
terminate and cease to be exercisable upon Employee’s termination of employment with the Company,
except that:
(a) If Employee’s employment with the Company terminates by reason of disability
(within the meaning of section 22(e)(3) of the Code), this Option may be exercised by
Employee (or Employee’s estate or the person who acquires this Option by will or the laws of
descent and distribution or otherwise by reason of the death of Employee) at any time during
the period of one year following such termination, but only as to the number of shares
Employee was entitled to purchase hereunder as of the date Employee’s employment so
terminates.
(b) If Employee dies while in the employ of the Company, Employee’s estate, or the
person who acquires this Option by will or the laws of descent and distribution or otherwise
by reason of the death of Employee, may exercise this Option at any time during the period
of one year following the date of Employee’s death, but only as to the number of shares
Employee was entitled to purchase hereunder as of the date of Employee’s death.
(c) If Employee’s employment with the Company terminates for any reason other than as
described in (a) or (b) above, unless such employment is terminated for cause, this Option
may be exercised by Employee at any time during the period of three months following such
termination, or by Employee’s estate (or the person who acquires this Option by will or the
laws of descent and distribution or otherwise by reason of the death of Employee) during a
period of one year following Employee’s death if Employee dies during such three month
period, but in each case only as to the number of shares Employee was entitled to purchase
hereunder as of the date Employee’s employment so terminates. As used in this paragraph,
the term “cause” shall have the meaning assigned to such term in Employee’s employment
agreement with the Company or any Affiliate; provided, however, that if Employee does not
have such an employment agreement or Employee’s employment agreement does not define the
term “cause,” then “cause” shall mean that Employee (i) has engaged in gross negligence,
gross incompetence or willful misconduct in the performance of Employee’s duties with
respect to the Company or any Affiliate, (ii) has refused without proper legal reason to
perform Employee’s duties and responsibilities to the Company or any Affiliate faithfully
and to the best of Employee’s abilities, (iii) has materially breached any material
provision of a written agreement or corporate policy or code of conduct established by the
Company or any Affiliate, (iv) has willfully engaged in conduct that is materially injurious
to the Company or any Affiliate, (v) has failed to meet the performance objectives or
standards established for Employee’s job position by Employee’s employer, (vi) has committed
an act of fraud, embezzlement or willful breach of a fiduciary duty to the Company or any
Affiliate, or (vii) has been convicted of (or pleaded no contest to) a crime involving
fraud, dishonesty or moral turpitude or any felony (or a crime of similar import in a
foreign jurisdiction).
This Option shall not be exercisable in any event after the expiration of 10 years from the date of
grant hereof. The purchase price of shares as to which this Option is exercised shall be paid in
full at the time of exercise (a) in cash (including check, bank draft or money order payable to the
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order of the Company), (b) if the Stock is readily tradable on a national securities market or if
permitted by the Committee in its sole discretion, by delivering or constructively tendering to the
Company shares of Stock having a Fair Market Value equal to the purchase price (provided such
shares used for this purpose must have been held by Employee for such minimum period of time as may
be established from time to time by the Committee), (c) if the Stock is readily tradable on a
national securities market, through a “cashless exercise” in accordance with a Company established
policy or program for the same, if any, or (d) any combination of the foregoing. No fraction of a
share of Stock shall be issued by the Company upon exercise of an Option or accepted by the Company
in payment of the exercise price thereof; rather, Employee shall provide a cash payment for such
amount as is necessary to effect the issuance and acceptance of only whole shares of Stock. Unless
and until a certificate or certificates representing such shares shall have been issued by the
Company to Employee, Employee (or the person permitted to exercise this Option in the event of
Employee’s death) shall not be or have any of the rights or privileges of a shareholder of the
Company with respect to shares acquirable upon an exercise of this Option.
4. Withholding of Tax. To the extent that the exercise of this Option or the
disposition of shares of Stock acquired by exercise of this Option results in compensation income
or wages to Employee for federal, state or local tax purposes, Employee shall deliver to the
Company at the time of such exercise or disposition such amount of money or, if permitted by the
Committee in its sole discretion, shares of Stock as the Company may require to meet its minimum
obligation under applicable tax laws or regulations. No exercise of this Option shall be effective
until Employee (or the person entitled to exercise this Option, as applicable) has made
arrangements approved by the Company to satisfy all applicable minimum tax withholding requirements
of the Company.
5. Status of Stock. The Company intends to register for issuance under the Securities
Act of 1933, as amended (the “Act”), the shares of Stock acquirable upon exercise of this Option,
and to keep such registration effective throughout the period this Option is exercisable. In the
absence of such effective registration or an available exemption from registration under the Act,
issuance of shares of Stock acquirable upon exercise of this Option will be delayed until
registration of such shares is effective or an exemption from registration under the Act is
available. The Company intends to use its reasonable efforts to ensure that no such delay will
occur. In the event exemption from registration under the Act is available upon an exercise of
this Option, Employee (or the person permitted to exercise this Option in the event of Employee’s
death or incapacity), if requested by the Company to do so, will execute and deliver to the Company
in writing an agreement containing such provisions as the Company may require to assure compliance
with applicable securities laws.
Employee agrees that the shares of Stock which Employee may acquire by exercising this Option
will not be sold or otherwise disposed of in any manner which would constitute a violation of any
applicable federal or state securities laws. Employee also agrees that (i) the certificates
representing the shares of Stock purchased under this Option may bear such legend or legends as the
Committee deems appropriate in order to assure compliance with applicable securities laws, (ii) the
Company may refuse to register the transfer of the shares of Stock purchased under this Option on
the stock transfer records of the Company if such proposed transfer would in the opinion of counsel
satisfactory to the Company constitute a violation of any
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applicable securities law, and (iii) the Company may give related instructions to its transfer
agent, if any, to stop registration of the transfer of the shares of Stock purchased under this
Option.
6. Employment Relationship. For purposes of this Agreement, Employee shall be
considered to be in the employment of the Company as long as Employee remains an employee of either
the Company, an Affiliate, or a corporation or a parent or subsidiary of such corporation assuming
or substituting a new option for this Option. Without limiting the scope of the preceding
sentence, it is expressly provided that Employee shall be considered to have terminated employment
with the Company at the time of the termination of the “Affiliate” status under the Plan of the
entity or other organization that employs Employee. Any question as to whether and when there has
been a termination of such employment, and the cause of such termination, shall be determined by
the Committee (or its delegate) and its determination shall be final.
7. Surrender of Option. At any time and from time to time prior to the termination of
this Option, Employee may surrender all or a portion of this Option to the Company for no
consideration by providing written notice to the Company at its principal executive office
addressed to the attention of its Corporate Secretary (or such other officer or employee of the
Company as the Company may designate from time to time). Such notice shall specify the number of
shares with respect to which this Option is being surrendered and, if this Option is being
surrendered with respect to less than all of the shares then subject to this Option, then such
notice shall also specify the date upon which this Option became (or would become) exercisable in
accordance with Paragraph 3 with respect to the shares being surrendered.
8. Acknowledgements Regarding Section 409A of the Code. Employee understands that if
the purchase price of the Stock under this Option is less than the fair market value of such Stock
on the date of grant of this Option, then Employee may incur adverse tax consequences under section
409A of the Code. Employee acknowledges and agrees that (a) Employee is not relying upon any
determination by the Company, its Affiliates, or any of their respective employees, directors,
officers, attorneys or agents (collectively, the “Company Parties”) of the fair market value of the
Stock on the date of grant of this Option, (b) Employee is not relying upon any written or oral
statement or representation of the Company Parties regarding the tax effects associated with
Employee’s execution of this Agreement and Employee’s receipt, holding and exercise of this Option,
and (c) in deciding to enter into this Agreement, Employee is relying on Employee’s own judgment
and the judgment of the professionals of Employee’s choice with whom Employee has consulted.
Employee hereby releases, acquits and forever discharges the Company Parties from all actions,
causes of actions, suits, debts, obligations, liabilities, claims, damages, losses, costs and
expenses of any nature whatsoever, known or unknown, on account of, arising out of, or in any way
related to the tax effects associated with Employee’s execution of this Agreement and Employee’s
receipt, holding and exercise of this Option.
9. Binding Effect. This Agreement shall be binding upon and inure to the benefit of
any successors to the Company and all persons lawfully claiming under Employee.
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10. Entire Agreement. This Agreement constitutes the entire agreement of the parties
with regard to the subject matter hereof, and contains all the covenants, promises,
representations, warranties and agreements between the parties with respect to the Option granted
hereby; provided, however, that the terms of this Agreement shall not modify and shall be subject
to the terms and conditions of any employment and/or severance agreement between the Company (or an
Affiliate) and the Employee in effect as of the date a determination is to be made under this
Agreement. Without limiting the scope of the preceding sentence, except as provided therein, all
prior understandings and agreements, if any, among the parties hereto relating to the subject
matter hereof are hereby null and void and of no further force and effect. Any modification of
this Agreement shall be effective only if it is in writing and signed by both Employee and an
authorized officer of the Company.
11. Governing Law. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Texas, without regard to conflicts of laws principles thereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its officer
thereunto duly authorized, and Employee has executed this Agreement, all as of the day and year
first above written.
| CONCHO RESOURCES INC. | ||||
| By: | ||||
| Employee |
SPOUSAL CONSENT
Employee’s spouse, if any, is fully aware of, understands and fully consents and agrees to the
provisions of this Agreement and its binding effect upon any marital or community property
interests he/she may now or hereafter own, and agrees that the termination of his/her and
Employee’s marital relationship for any reason shall not have the effect of removing this Option or
any Stock purchased under this Agreement from coverage hereunder and that his/her awareness,
understanding, consent and agreement are evidenced by his/her signature below.
| Signature of Spouse | ||
| Printed Name of Spouse |
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