EXHIBIT 10.5
PROMISSORY NOTE

US$150,000,000.00   October 7, 2010

     CONCHO RESOURCES INC., a Delaware corporation (the “Company”), for value
received, hereby promises to pay to the order of PITCH ENERGY CORPORATION, a New
Mexico corporation, its successors and permitted assigns (the “Holder”), the
principal sum of One Hundred and Fifty Million Dollars ($150,000,000.00) or such
lesser amount as shall equal the aggregate unpaid principal balance of this
Note, in lawful money of the United States of America and in immediately
available funds, on the date set forth herein, and to pay interest on the unpaid
principal balance of this Note as specified in Section 2.3 hereof and as
otherwise provided herein, in like money and funds, for the period commencing on
the date hereof until this Note shall be paid in full.
     The outstanding principal balance of this Promissory Note (this “Note”) at
any time shall be the original amount of this Note, less the amount of payments
or prepayments of principal made on this Note by or for the account of the
Company, and less the amount of any offset as provided in Section 4.4
(collectively, the “Adjusted Principal Balance”).
1. The Purchase Agreement. This Note evidences the seller-financed portion of
the purchase price paid by the Company pursuant to that certain Asset Purchase
Agreement, dated July 19, 2010 (the “Purchase Agreement”), by and among the
Holder, the Company and each of the other Sellers (as defined therein) party
thereto.
2. Terms of this Note.
          2.1 Interest. Interest shall accrue (computed on the basis of a
360-day year consisting of twelve 30-day months) on the then outstanding
Adjusted Principal Balance at a rate of eight percent (8%) per annum (or the
rate specified in Section 3.2(c), if applicable). Interest on this Note shall be
due and payable (i) semi-annually in arrears on January 15th and July 15th of
each year commencing on January 15, 2011, or if such day is not a Business Day
(as defined below), the first Business Day following such date, and (ii) on the
Maturity Date (as defined below).
          2.2 Principal. The Adjusted Principal Balance of this Note will be due
and payable in its entirety on October 7, 2018 (the “Maturity Date”).
          2.3 Payments. All payments on or in respect of this Note, including
principal and interest, will be made in such coin and currency of the United
States as at the time of payment is legal tender for the payment of public and
private debts, by wire transfer of immediately available funds to the Holder’s
account as directed in writing by the Holder to the Company prior to the Closing
(as defined in the Purchase Agreement) and time to time thereafter, or, at the
option of the Holder, in such manner and at such other place in the United
States as the Holder shall have designated to the Company in writing pursuant to
the provisions of this Note. Any payment hereunder that is due on a day that is
not a Business Day shall be due and payable on the first Business Day following
such date. As used herein, “Business Day” shall mean any day other than
Saturday, Sunday or a day on which banking institutions in Midland, Texas are
authorized or obligated by law or executive order to close.
          2.4 Prepayment; Application. This Note may be redeemed or prepaid in
whole or in part by the Company at any time prior to the Maturity Date without
premium or penalty. All payments hereon shall be applied first, to accrued and
unpaid interest on the principal so redeemed or prepaid; second, to principal
outstanding under this Note; and third, to the extent of any excess, to the
Company.
          2.5 Binding. This Note will be binding upon the Company and its
successors and permitted assigns and will inure to the benefit of the Holder and
its successors, heirs, personal representatives and permitted assigns. The
Holder further agrees not to sell, assign, transfer or endorse this Note or any
right to receive any payment hereunder to anyone except subject to the terms and
conditions of this Note.
          2.6 Withholding Taxes. All payments on or in respect of this Note
shall be made free and clear of and without deduction for or on account of any
taxes, except as otherwise required by law. The Holder hereby represents and
warrants that it is not subject to, or is entitled to an exemption from,
withholding tax under applicable law and agrees to provide the Company with a
fully completed form W-9 and/or such other documentation prescribed by
applicable law to evidence that the Holder is not subject to, or is exempt from,
withholding from time to time as requested by the Company.

 

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3. Events of Default and Remedies.
     3.1 Events of Default. An “Event of Default” will exist if any of the
following occurs and is continuing:
     (a) the Company fails to make any payment of principal or interest on this
Note ten (10) days after such principal becomes due and payable or thirty
(30) days after such interest or other obligation becomes due and payable, in
each case whether by acceleration or otherwise;
     (b) the voluntary commencement of any insolvency, receivership, bankruptcy,
dissolution, liquidation, or reorganization proceeding, or any other proceeding,
whether voluntary or involuntary, by or against the Company, under any
bankruptcy or insolvency law or other similar laws, including, without
limitation, any federal or state law relating to the relief of debtors of any
jurisdiction, or involving any custodian, liquidator or trustee whether now or
hereafter in effect, and in any out-of-court composition, assignment for the
benefit of creditors, readjustment of indebtedness, reorganization, extension or
other debt arrangement of any kind (collectively, an “Insolvency Proceeding”);
or
     (c) the involuntary commencement of any Insolvency Proceeding if such
proceeding is not stayed within 90 days of the commencement thereof.
     3.2 Remedies.
     (a) If an Event of Default specified in Section 3.1(a) has occurred and is
continuing, the Holder will have the right to accelerate payment of the entire
principal of, and all interest accrued on, this Note, and, upon such
acceleration, this Note will thereupon become forthwith due and payable, without
any presentment, demand, protest or other notice of any kind, all of which are
expressly waived, and the Company will forthwith pay to the Holder the entire
outstanding principal of, and interest accrued on, this Note. With respect to an
Event of Default under Sections 3.1(b) or (c), acceleration will be automatic.
     (b) In case any one or more of the Events of Default specified in
Section 3.1 has occurred and is continuing, the Holder may further proceed to
protect and enforce its rights with respect to this Note either by suit, in
equity and/or by action at law, or by other appropriate proceedings, or may
proceed to enforce payment of this Note or to enforce any other legal or
equitable right of the Holder.
     (c) In case any one or more of the Events of Default specified in
Section 3.1 has occurred and is continuing, the Holder also may, upon demand, in
addition to the Holder’s other rights and remedies under this Note, assess the
Company an interest rate equal to nine percent (9%) per annum on the then
outstanding Adjusted Principal Balance, such rate of interest to accrue from the
date of such demand until the earlier of (A) such time as such Event of Default
is no longer continuing, at which time the interest rate shall be determined in
accordance with Section 2.1, or (B) such time as such outstanding Adjusted
Principal Balance has been paid in full.
     (d) No course of dealing on the part of the Holder or any delay or failure
on the part of the Holder to exercise any right will operate as a waiver of such
right or otherwise prejudice the Holder’s rights, powers and remedies.
4. Miscellaneous.
     4.1 Amendment and Waiver. This Note may be amended, and the observance of
any term of this Note may be waived or consented to, with and only with the
written consent of the Company and the Holder.
     4.2 Waiver. Any waiver or failure to insist upon strict compliance with any
obligation, covenant, agreement or condition of this Note will not operate as a
waiver of, or estoppel with respect to, any subsequent or other failure. Any
waiver of any provision of this Note shall be made pursuant to the provisions of
Section 4.1.
     4.3 Waiver of Implied Liens. The Holder specifically waives and releases
any implied vendor’s lien, implied purchase money lien or any other lien or
security interest of any kind or character against the Assets (as defined in the
Purchase Agreement), whether statutory, at law, in equity or otherwise, which
might arise or exist in connection with the consummation of the transactions
contemplated by the Purchase Agreement to secure this Note or any other
indebtedness or obligations of Company to the Holder.

 

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     4.4 Entire Agreement; Offset.
     (a) This Note and the other transaction documents contemplated by the terms
of the Purchase Agreement (the “Transaction Documents”) are an integral part of
the transaction as contemplated by the Purchase Agreement, and this Note, the
Purchase Agreement and the other Transaction Documents are intended by the
Company and the Holder to be treated for all purposes as an integrated and
single agreement, notwithstanding the fact that each of this Note, the Purchase
Agreement and the other Transaction Documents is a separate document. This Note,
together with the Purchase Agreement and the other Transaction Documents,
together with all exhibits and schedules to each document, constitute the entire
final agreement and understanding between the parties pertaining to the subject
matter of each document and supersede all prior and contemporaneous agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties, and may not be contradicted by evidence of prior, contemporaneous or
subsequent oral agreement of the parties. There are no other warranties,
representations or other agreements between the parties in connection with the
subject matter and there are no unwritten oral agreements between the parties.
     (b) The Company is entitled to reduce the outstanding principal amount of,
and accrued interest due on, this Note under certain circumstances pursuant to
Section 12.07 of the Purchase Agreement. The Company is hereby authorized to
offset and apply any amount to which the Company is entitled under the terms of
the Purchase Agreement (which, among other things, provides for offset by the
Company against damages resulting from breaches by the Holder and its affiliates
of the provisions of the Purchase Agreement) against amounts owing under this
Note, regardless of whether then due; provided that, if any dispute exists with
respect to any such amount, then until the resolution of such dispute, the
portion of the principal amount of this Note equal to the amount claimed by the
Company shall not be paid (and no default or Event of Default shall be deemed to
have occurred hereunder) and interest shall accrue thereon to the extent not
paid when otherwise due (except that interest which accrued pursuant to the
immediately preceding provision on any amount that the Company is ultimately
determined to have the right to offset shall not be payable by the Company);
provided further that, to the extent some or all of such amount is finally
determined to be owing to the Company, then the Company is hereby authorized to
offset and apply any such amount against amounts owing under this Note in
accordance with the provisions of the Purchase Agreement and this
Section 4.4(b). The right of offset provided for in this paragraph is in
addition to, and not in limitation of, any other right or remedy available to
the Company under the Purchase Agreement, this Note, the other Transaction
Documents or any other agreement, under applicable law, in equity, or otherwise.
     4.5 Notices. Any notice, communication, request, instruction or other
document required or permitted under this Note shall be given in writing and
delivered in person or sent by U.S. Mail postage prepaid, return receipt
requested, or overnight courier to the addresses for the parties set forth below
or by facsimile to the facsimile numbers for the parties set forth below. Any
such notice shall be deemed to have been delivered (a) as of the date of
delivery if it is delivered in person or by overnight courier, (b) on the date
receipt is acknowledged if delivered by U.S. Mail postage prepaid, return
receipt requested or (c) on the date sent by facsimile with confirmation of
transmission by the transmitting equipment if sent by facsimile.

          Addressed to:   With copy (which shall not constitute notice) to:
 
       
Holder:
  c/o Johnny C. Gray   James E. Haas
 
  P.O. Box 810   Losee, Carson & Haas, P.A.
 
  Artesia, New Mexico 88210   P.O. Box 1720
 
  Attention: Johnny C. Gray   Attention: Artesia, New Mexico 88210
 
  Fax No.: (575) 746-2523   Fax No.: (575) 746-6316
 
       
Buyer:
  Concho Resources Inc.    
 
  550 West Texas Avenue    
 
  Suite 100    
 
  Midland, Texas 79701    
 
  Attention: General Counsel    
 
  Fax No.: (432) 687-8012    

     Either party hereto may, by written notice so delivered to the other party
hereto, change its address for notice purposes under this Note.
     4.6 Assignment. This Note will be binding upon and inure to the benefit of
the Company and its successors and permitted assigns, but neither this Note nor
any of the rights, interests or obligations hereunder may be assigned by the
Company without the prior written consent of the Holder. This Note will be
binding upon and inure to the benefit of the Holder and its

 

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successors and permitted assigns, but neither this Note nor any of the rights,
interests or obligations hereunder may be assigned by the Holder without the
prior written consent of the Company. Any attempted sale, transfer, assignment
or pledge in violation of the preceding sentences shall be voided and of no
force or effect. This Note is not intended to confer any rights or remedies upon
any person except the Company and the Holder.
     4.7 Governing Law. THIS NOTE SHALL BE CONSTRUED AND INTERPRETED AND THE
RIGHTS OF THE PARTIES GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
     4.8 Headings; Internal References. The article and section headings
contained in this Note are solely for reference, and will not affect in any way
the meaning or interpretation of this Note. Any references in this Note to an
article, section, paragraph or clause will be deemed to be a reference to the
article, section, paragraph or clause contained in this Note unless expressly
stated otherwise. As used in this Note, “including” means “including without
limitation.”
     4.9 Severability. If any term, provision, covenant, agreement or
restriction of this Note is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants, agreements and restrictions of this Note will continue in full force
and effect and will in no way be affected, impaired or invalidated.
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                  COMPANY    
 
                CONCHO RESOURCES INC.    
 
           
 
  By:
Name:
Title:   /s/ Timothy A. Leach
 
Timothy A. Leach
Chief Executive Officer    

Agreed to and Accepted
this 7th day of October, 2010.
HOLDER
PITCH ENERGY CORPORATION

         
By:
Name:
  /s/ Johnny C. Gray
 
Johnny C. Gray    
Title:
  President