Document:

exv10w13

 

Exhibit 10.13

CONCHO RESOURCES INC.

2006 STOCK INCENTIVE PLAN

I. ESTABLISHMENT AND PURPOSE OF THE PLAN

     The purpose of the CONCHO RESOURCES INC. 2006 STOCK INCENTIVE PLAN (the “Plan”) is to provide
a means through which CONCHO RESOURCES INC., a Delaware corporation (the “Company”), and its
Affiliates may attract able persons to serve as Directors or Consultants or to enter the employ of
the Company and its Affiliates and to provide a means whereby those individuals upon whom the
responsibilities of the successful administration and management of the Company and its Affiliates
rest, and whose present and potential contributions to the Company and its Affiliates are of
importance, can acquire and maintain stock ownership, thereby strengthening their concern for the
welfare of the Company and its Affiliates. A further purpose of the Plan is to provide such
individuals with additional incentive and reward opportunities designed to enhance the profitable
growth of the Company and its Affiliates. Accordingly, the Plan provides for granting Incentive
Stock Options, options that do not constitute Incentive Stock Options, Restricted Stock Awards, or
any combination of the foregoing, as is best suited to the circumstances of the particular
employee, Consultant, or Director as provided herein.

     The Plan as set forth herein constitutes an amendment and restatement of the Prior Plan, which
Prior Plan was assumed by the Company in connection with the transactions contemplated by the
Combination Agreement. Except as provided in the following sentence, the Plan shall supercede and
replace in its entirety the Prior Plan. Notwithstanding any provisions herein to the contrary,
each stock option granted under the Prior Plan prior to the effective date of this amendment and
restatement shall be subject to the terms and provisions applicable to such stock option under the
Prior Plan, as in effect immediately prior to this amendment and restatement, subject to
adjustments in the number and class of shares of capital stock subject to each such stock option,
and in the exercise price thereof, in connection with the assumption of the Prior Plan and such
stock option, as provided in the Combination Agreement and in accordance with the rules set forth
in Treasury Regulation section 1.424-1(a).

II. DEFINITIONS

     The following definitions shall be applicable throughout the Plan unless specifically modified
by any paragraph:

     (a) “Affiliate” means any corporation, partnership, limited liability company or partnership,
association, trust, or other organization which, directly or indirectly, controls, is controlled
by, or is under common control with, the Company. For purposes of the preceding sentence,
“control” (including, with correlative meanings, the terms “controlled by” and “under common
control with”), as used with respect to any entity or organization, shall mean the

 

 

possession, directly or indirectly, of the power (i) to vote more than 50% of the securities
having ordinary voting power for the election of directors of the controlled entity or organization
or (ii) to direct or cause the direction of the management and policies of the controlled entity or
organization, whether through the ownership of voting securities or by contract or otherwise.

     (b) “Award” means, individually or collectively, any Option or Restricted Stock Award.

     (c) “Board” means the Board of Directors of the Company.

     (d) “Code” means the Internal Revenue Code of 1986, as amended. Reference in the Plan to any
section of the Code shall be deemed to include any amendments or successor provisions to such
section and any regulations under such section.

     (e) “Combination Agreement” means that certain Combination Agreement dated as of February 24,
2006, by and among the Company, Concho Equity Holdings Corp., Chase Oil Corporation, Caza Energy
LLC, and the other parties thereto, as amended.

     (f) “Committee” means a committee of the Board that is selected by the Board as provided in
Paragraph IV(a).

     (g) “Common Stock” means the common stock, par value $0.001 per share, of the Company, or any
security into which such common stock may be changed by reason of any transaction or event of the
type described in Paragraph IX.

     (h) “Company” means Concho Resources Inc., a Delaware corporation.

     (i) “Consultant” means any person who is not an employee or a Director and who is providing
advisory or consulting services to the Company or any Affiliate.

     (j) “Corporate Change” shall have the meaning assigned to such term in Paragraph IX(c) of the
Plan.

     (k) “Director” means an individual who is a member of the Board.

     (l) An “employee” means any person (including a Director) in an employment relationship with
the Company or any Affiliate.

     (m) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     (n) “Fair Market Value” means, as of any specified date, the mean of the high and low sales
prices of the Common Stock (i) reported by the National Market System of NASDAQ on that date or
(ii) if the Common Stock is listed on a national stock exchange, reported on the stock exchange
composite tape on that date (or such other reporting service approved by the Committee); or, in
either case, if no prices are reported on that date, on the last preceding date on which such
prices of the Common Stock are so reported. If the Common Stock is traded over the counter at the
time a determination of its fair market value is required to be made hereunder, its fair market
value shall be deemed to be equal to the average between the reported high and low

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or closing bid and asked prices of Common Stock on the most recent date on which Common Stock
was publicly traded. In the event Common Stock is not publicly traded at the time a determination
of its value is required to be made hereunder, the determination of its fair market value shall be
made by the Committee in such manner as it deems appropriate and as is consistent with the
requirements of section 409A of the Code. Notwithstanding the foregoing but subject to the
requirements of section 409A of the Code, the Fair Market Value of a share of Common Stock on the
date of an initial public offering of the Stock shall be the offering price to the public under
such initial public offering.

     (o) “Incentive Stock Option” means an incentive stock option within the meaning of section 422
of the Code

     (p) “Option” means an Award granted under Paragraph VII of the Plan and includes both
Incentive Stock Options to purchase Common Stock and Options that do not constitute Incentive Stock
Options to purchase Common Stock.

     (q) “Option Agreement” means a written agreement between the Company and a Participant with
respect to an Option.

     (r) “Participant” means an employee, Consultant, or Director who has been granted an Award.

     (s) “Plan” means the Concho Resources Inc. 2006 Stock Incentive Plan, as amended from time to
time.

     (t) “Prior Plan” means the Concho Equity Holdings Corp. 2004 Stock Option Plan, as amended and
in effect immediately prior to the effective date of the Plan, which Prior Plan was assumed by the
Company in connection with the transactions contemplated by the Combination Agreement.

     (u) “Restricted Stock Agreement” means a written agreement between the Company and a
Participant with respect to a Restricted Stock Award.

     (v) “Restricted Stock Award” means an Award granted under Paragraph VIII of the Plan.

     (w) “Rule 16b-3” means SEC Rule 16b-3 promulgated under the Exchange Act, as such may be
amended from time to time, and any successor rule, regulation, or statute fulfilling the same or a
similar function.

III. EFFECTIVE DATE AND DURATION OF THE PLAN

     The Plan shall become effective upon the date of its adoption by the Board, provided the Plan
is approved by the stockholders of the Company within 12 months thereafter. Notwithstanding any
provision in the Plan, no Option shall be exercisable and no Restricted Stock Award shall be
granted prior to such stockholder approval. No further Awards may be granted under the Plan after
10 years from the date the Plan is adopted by the Board. The Plan

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shall remain in effect until all Options granted under the Plan have been exercised or expired
and all Restricted Stock Awards granted under the Plan have vested or been forfeited.

IV. ADMINISTRATION

     (a) Composition of Committee. The Plan shall be administered by a committee of, and
appointed by, the Board. In the absence of the Board’s appointment of a Committee to administer
the Plan, the Board shall serve as the Committee. Notwithstanding the foregoing, upon the
expiration of the reliance period set forth in section 1.162-27(f)(2) of the Treasury regulations,
the Plan shall be administered by a committee of, and appointed by, the Board that shall be
comprised solely of two or more outside Directors (within the meaning of the term “outside
directors” as used in section 162(m) of the Code and applicable interpretive authority thereunder
and within the meaning of the term “Non-Employee Director” as defined in Rule 16b-3).

     (b) Powers. Subject to the express provisions of the Plan, the Committee shall have
authority, in its discretion, to determine which employees, Consultants, or Directors shall receive
an Award, the time or times when such Award shall be made, the type of Award that shall be made,
and the number of shares to be subject to each Option or Restricted Stock Award. In making such
determinations, the Committee shall take into account the nature of the services rendered by the
respective employees, Consultants, or Directors, their present and potential contribution to the
Company’s success, and such other factors as the Committee in its sole discretion shall deem
relevant.

     (c) Additional Powers. The Committee shall have such additional powers as are
delegated to it by the other provisions of the Plan. Subject to the express provisions of the
Plan, this shall include the power to construe the Plan and the respective agreements executed
hereunder, to prescribe rules and regulations relating to the Plan, to determine the terms,
restrictions, and provisions of the agreement relating to each Award, including such terms,
restrictions, and provisions as shall be requisite in the judgment of the Committee to cause
designated Options to qualify as Incentive Stock Options, and to make all other determinations
necessary or advisable for administering the Plan. The Committee may correct any defect or supply
any omission or reconcile any inconsistency in the Plan or in any agreement relating to an Award in
the manner and to the extent the Committee shall deem expedient to carry the Plan or any such
agreement into effect. The determinations of the Committee on the matters referred to in this
Paragraph IV shall be conclusive.

     (d) Delegation of Authority by the Committee. Notwithstanding the preceding
provisions of this Paragraph IV or any other provision of the Plan to the contrary, the Committee
may from time to time, in its sole discretion, delegate to the Chief Executive Officer of the
Company the administration (or interpretation of any provision) of the Plan and the right to grant
Awards under the Plan, insofar as such administration (and interpretation) and power to grant
Awards relates to any person who is not subject to section 16 of the Exchange Act (including any
successor section to the same or similar effect). Any such delegation may be effective only so
long as the Chief Executive Officer of the Company is a Director, and the Committee may revoke such
delegation at any time. The Committee may put any conditions and restrictions on the powers that
may be exercised by the Chief Executive Officer of the Company upon such

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delegation as the Committee determines in its sole discretion. In the event of any conflict
in a determination or interpretation under the Plan as between the Committee and the Chief
Executive Officer of the Company, the determination or interpretation, as applicable, of the
Committee shall be conclusive.

V. SHARES SUBJECT TO THE PLAN; GRANT OF AWARDS

     (a) Shares Subject to the Plan. Subject to adjustment in the same manner as provided
in Paragraph IX with respect to shares of Common Stock subject to Options then outstanding, the
aggregate maximum number of shares of Common Stock that may be issued under the Plan, and the
aggregate maximum number of shares of Common Stock that may be issued under the Plan through
Incentive Stock Options, shall not exceed 11,700,000 shares (inclusive of the shares subject to the
stock options granted under the Prior Plan which have been assumed hereunder). Shares shall be
deemed to have been issued under the Plan only to the extent actually issued and delivered pursuant
to an Award. To the extent that an Award lapses or the rights of its holder terminate, any shares
of Common Stock subject to such Award shall again be available for the grant of an Award under the
Plan. In addition, shares issued under the Plan and forfeited back to the Plan, shares surrendered
in payment of the exercise price or purchase price of an Award, and shares withheld for payment of
applicable employment taxes and/or withholding obligations associated with an Award shall again be
available for the grant of an Award under the Plan.

     (b) Grant of Awards. The Committee may from time to time grant Awards to one or more
employees, Consultants, or Directors determined by it to be eligible for participation in the Plan
in accordance with the terms of the Plan.

     (c) Stock Offered. Subject to the limitation set forth in Paragraph V(a), the stock
to be offered pursuant to the grant of an Award may be authorized but unissued Common Stock or
Common Stock previously issued and outstanding and reacquired by the Company. Any of such shares
which remain unissued and which are not subject to outstanding Awards at the termination of the
Plan shall cease to be subject to the Plan but, until termination of the Plan, the Company shall at
all times make available a sufficient number of shares to meet the requirements of the Plan.

VI. ELIGIBILITY

     Awards may be granted only to persons who, at the time of grant, are employees, Consultants,
or Directors. An Award may be granted on more than one occasion to the same person, and, subject
to the limitations set forth in the Plan, such Award may include an Incentive Stock Option, an
Option that is not an Incentive Stock Option, a Restricted Stock Award, or any combination thereof.

VII. STOCK OPTIONS

     (a) Option Period. The term of each Option shall be as specified by the Committee at
the date of grant, but in no event shall an Option be exercisable after the expiration of 10 years
from the date of grant.

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     (b) Limitations on Exercise of Option. An Option shall be exercisable in whole or in
such installments and at such times as determined by the Committee.

     (c) Special Limitations on Incentive Stock Options. An Incentive Stock Option may be
granted only to an individual who is employed by the Company or any parent or subsidiary
corporation (as defined in section 424 of the Code) at the time the Option is granted. To the
extent that the aggregate fair market value (determined at the time the respective Incentive Stock
Option is granted) of stock with respect to which Incentive Stock Options are exercisable for the
first time by an individual during any calendar year under all incentive stock option plans of the
Company and its parent and subsidiary corporations exceeds $100,000, such Incentive Stock Options
shall be treated as Options which do not constitute Incentive Stock Options. The Committee shall
determine, in accordance with applicable provisions of the Code, Treasury Regulations, and other
administrative pronouncements, which of a Participant’s Incentive Stock Options will not constitute
Incentive Stock Options because of such limitation and shall notify the Participant of such
determination as soon as practicable after such determination. No Incentive Stock Option shall be
granted to an individual if, at the time the Option is granted, such individual owns stock
possessing more than 10% of the total combined voting power of all classes of stock of the Company
or of its parent or subsidiary corporation, within the meaning of section 422(b)(6) of the Code
unless (i) at the time such Option is granted, the option price is at least 110% of the Fair Market
Value of the Common Stock subject to the Option and (ii) such Option by its terms is not
exercisable after the expiration of five years from the date of grant. Except as otherwise
provided in sections 421 or 422 of the Code, an Incentive Stock Option shall not be transferable
otherwise than by will or the laws of descent and distribution and shall be exercisable during the
Participant’s lifetime only by such Participant or the Participant’s guardian or legal
representative.

     (d) Option Agreement. Each Option shall be evidenced by an Option Agreement in such
form and containing such provisions not inconsistent with the provisions of the Plan as the
Committee from time to time shall approve, including, without limitation, provisions to qualify an
Option as an Incentive Stock Option under section 422 of the Code. Each Option Agreement shall
specify the effect of termination of (i) employment, (ii) the consulting or advisory relationship,
or (iii) membership on the Board, as applicable, on the exercisability of the Option. An Option
Agreement may provide for the payment of the option price, in whole or in part, by the delivery of
a number of shares of Common Stock (plus cash if necessary) having a Fair Market Value equal to
such option price. Moreover, an Option Agreement may provide for a “cashless exercise” of the
Option by establishing procedures satisfactory to the Committee with respect thereto. The terms
and conditions of the respective Option Agreements need not be identical. Subject to the consent
of the Participant, the Committee may, in its sole discretion, amend an outstanding Option
Agreement from time to time in any manner that is not inconsistent with the provisions of the Plan
(including, without limitation, an amendment that accelerates the time at which the Option, or a
portion thereof, may be exercisable).

     (e) Option Price and Payment. The price at which a share of Common Stock may be
purchased upon exercise of an Option shall be determined by the Committee but, subject to
adjustment as provided in Paragraph IX, such purchase price shall not be less than the Fair Market
Value of a share of Common Stock on the date such Option is granted. The Option or portion thereof
may be exercised by delivery of an irrevocable notice of exercise to the

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Company, as specified by the Committee. The purchase price of the Option or portion thereof
shall be paid in full in the manner prescribed by the Committee. Separate stock certificates shall
be issued by the Company for those shares acquired pursuant to the exercise of an Incentive Stock
Option and for those shares acquired pursuant to the exercise of any Option that does not
constitute an Incentive Stock Option.

     (f) Stockholder Rights and Privileges. The Participant shall be entitled to all the
privileges and rights of a stockholder only with respect to such shares of Common Stock as have
been purchased under the Option and for which certificates of stock have been registered in the
Participant’s name.

     (g) Options and Rights in Substitution for Options Granted by Other Employers.
Options and Stock Appreciation Rights may be granted under the Plan from time to time in
substitution for options and such rights held by individuals providing services to corporations or
other entities who become employees, Consultants, or Directors as a result of a merger or
consolidation or other business transaction with the Company or any Affiliate.

VIII. RESTRICTED STOCK AWARDS

     (a) Forfeiture Restrictions To Be Established by the Committee. Shares of Common
Stock that are the subject of a Restricted Stock Award shall be subject to restrictions on
disposition by the Participant and an obligation of the Participant to forfeit and surrender the
shares to the Company under certain circumstances (the “Forfeiture Restrictions”). The Forfeiture
Restrictions shall be determined by the Committee in its sole discretion, and the Committee may
provide that the Forfeiture Restrictions shall lapse upon (i) the attainment of one or more
performance measures established by the Committee, (ii) the Participant’s continued employment with
the Company or continued service as a Consultant or Director for a specified period of time, (iii)
the occurrence of any event or the satisfaction of any other condition specified by the Committee
in its sole discretion, or (iv) a combination of any of the foregoing. Each Restricted Stock Award
may have different Forfeiture Restrictions, in the discretion of the Committee.

     (b) Other Terms and Conditions. Common Stock awarded pursuant to a Restricted Stock
Award shall be represented by a stock certificate registered in the name of the Participant.
Unless provided otherwise in a Restricted Stock Agreement, the Participant shall have the right to
receive dividends with respect to Common Stock subject to a Restricted Stock Award, to vote Common
Stock subject thereto, and to enjoy all other stockholder rights, except that (i) the Participant
shall not be entitled to delivery of the stock certificate until the Forfeiture Restrictions have
expired, (ii) the Company shall retain custody of the stock until the Forfeiture Restrictions have
expired, (iii) the Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise
dispose of the stock until the Forfeiture Restrictions have expired, (iv) a breach of the terms and
conditions established by the Committee pursuant to the Restricted Stock Agreement shall cause a
forfeiture of the Restricted Stock Award, and (v) with respect to the payment of any dividend with
respect to shares of Common Stock subject to a Restricted Stock Award directly to the Participant,
each such dividend shall be paid no later than the end of the calendar year in which the dividends
are paid to stockholders of such class of shares or, if later, the fifteenth day of the third month
following the date the dividends are paid to stockholders of such class of

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shares. At the time of such Award, the Committee may, in its sole discretion, prescribe
additional terms, conditions, or restrictions relating to Restricted Stock Awards, including, but
not limited to, rules pertaining to the termination of employment or service as a Consultant or
Director (by retirement, disability, death, or otherwise) of a Participant prior to expiration of
the Forfeitures Restrictions. Such additional terms, conditions, or restrictions shall be set
forth in a Restricted Stock Agreement made in conjunction with the Award.

     (c) Payment for Restricted Stock. The Committee shall determine the amount and form
of any payment for Common Stock received pursuant to a Restricted Stock Award, provided that in the
absence of such a determination, a Participant shall not be required to make any payment for Common
Stock received pursuant to a Restricted Stock Award, except to the extent otherwise required by
law.

     (d) Committee’s Discretion to Accelerate Vesting of Restricted Stock Awards. The
Committee may, in its discretion and as of a date determined by the Committee, fully vest any or
all Common Stock awarded to a Participant pursuant to a Restricted Stock Award and, upon such
vesting, all restrictions applicable to such Restricted Stock Award shall terminate as of such
date. Any action by the Committee pursuant to this Subparagraph may vary among individual
Participants and may vary among the Restricted Stock Awards held by any individual Participant.
Notwithstanding the preceding provisions of this Subparagraph, the Committee may not take any
action described in this Subparagraph with respect to a Restricted Stock Award that has been
granted to a “covered employee” (within the meaning of Treasury Regulation section 1.162-27(c)(2))
if such Award has been designed to meet the exception for performance-based compensation under
section 162(m) of the Code.

     (e) Restricted Stock Agreements. At the time any Award is made under this Paragraph
VIII, the Company and the Participant shall enter into a Restricted Stock Agreement setting forth
each of the matters contemplated hereby and such other matters as the Committee may determine to be
appropriate. The terms and provisions of the respective Restricted Stock Agreements need not be
identical. Subject to the consent of the Participant and the restriction set forth in the last
sentence of Subparagraph (d) above, the Committee may, in its sole discretion, amend an outstanding
Restricted Stock Agreement from time to time in any manner that is not inconsistent with the
provisions of the Plan.

IX. RECAPITALIZATION OR REORGANIZATION

     (a) No Effect on Right or Power. The existence of the Plan and the Awards granted
hereunder shall not affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization, or other change in
the Company’s or any Affiliate’s capital structure or its business, any merger or consolidation of
the Company or any Affiliate, any issue of debt or equity securities ahead of or affecting Common
Stock or the rights thereof, the dissolution or liquidation of the Company or any Affiliate, any
sale, lease, exchange, or other disposition of all or any part of its assets or business, or any
other corporate act or proceeding.

     (b) Subdivision or Consolidation of Shares; Stock Dividends. The shares with respect
to which Awards may be granted are shares of Common Stock as presently constituted,

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but if, and whenever, prior to the expiration of an Award theretofore granted, the Company
shall effect a subdivision or consolidation of shares of Common Stock or the payment of a stock
dividend on Common Stock without receipt of consideration by the Company, the number of shares of
Common Stock with respect to which such Award may thereafter be exercised or satisfied, as
applicable (i) in the event of an increase in the number of outstanding shares, shall be
proportionately increased, and the purchase price per share shall be proportionately reduced, and
(ii) in the event of a reduction in the number of outstanding shares, shall be proportionately
reduced, and the purchase price per share shall be proportionately increased. Any fractional share
resulting from such adjustment shall be rounded up to the next whole share.

     (c) Recapitalizations and Corporate Changes. If the Company recapitalizes,
reclassifies its capital stock, or otherwise changes its capital structure (a “recapitalization”),
the number and class of shares of Common Stock covered by an Award theretofore granted shall be
adjusted so that such Award shall thereafter cover the number and class of shares of stock and
securities to which the Participant would have been entitled pursuant to the terms of the
recapitalization if, immediately prior to the recapitalization, the Participant had been the holder
of record of the number of shares of Common Stock then covered by such Award. If (i) the Company
shall not be the surviving entity in any merger or consolidation (or survives only as a subsidiary
of an entity), (ii) the Company sells, leases, or exchanges or agrees to sell, lease, or exchange
all or substantially all of its assets to any other person or entity, (iii) the Company is to be
dissolved and liquidated, (iv) any person or entity, including a “group” as contemplated by section
13(d)(3) of the Exchange Act, acquires or gains ownership or control (including, without
limitation, power to vote) of more than 50% of the outstanding shares of the Company’s voting stock
(based upon voting power), or (v) as a result of or in connection with a contested election of
Directors, the persons who were Directors of the Company before such election shall cease to
constitute a majority of the Board (each such event is referred to herein as a “Corporate Change”),
no later than (x) 10 days after the approval by the stockholders of the Company of such merger,
consolidation, reorganization, sale, lease, or exchange of assets or dissolution or such election
of Directors or (y) 30 days after a Corporate Change of the type described in clause (iv), the
Committee, acting in its sole discretion without the consent or approval of any Participant, shall
effect one or more of the following alternatives, which alternatives may vary among individual
Participants and which may vary among Options held by any individual Participant: (1) accelerate
the time at which Options then outstanding may be exercised so that such Options may be exercised
in full for a limited period of time on or before a specified date (before or after such Corporate
Change) fixed by the Committee, after which specified date all such unexercised Options and all
rights of Participants thereunder shall terminate, (2) require the mandatory surrender to the
Company by all or selected Participants of some or all of the outstanding Options held by such
Participants (irrespective of whether such Options are then exercisable under the provisions of the
Plan) as of a date, before or after such Corporate Change, specified by the Committee, in which
event the Committee shall thereupon cancel such Options, and the Company shall pay (or cause to be
paid) to each Participant an amount of cash per share equal to the excess, if any, of the amount
calculated in Subparagraph (d) below (the “Change of Control Value”) of the shares subject to such
Options over the exercise price(s) under such Options for such shares, or (3) make such adjustments
to Options then outstanding as the Committee deems appropriate to reflect such Corporate Change and
to prevent the dilution or enlargement of rights (provided, however, that the Committee may
determine in its sole discretion that no adjustment is necessary to such Options then outstanding),
including, without

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limitation, adjusting such an Option to provide that the number and class of shares of Common
Stock covered by such Option shall be adjusted so that such Option shall thereafter cover
securities of the surviving or acquiring corporation or other property (including, without
limitation, cash) as determined by the Committee in its sole discretion.

     (d) Change of Control Value. For the purposes of clause (2) in Subparagraph (c)
above, the “Change of Control Value” shall equal the amount determined in clause (i), (ii) or
(iii), whichever is applicable, as follows: (i) the per share price offered to stockholders of the
Company in any such merger, consolidation, sale of assets or dissolution transaction, (ii) the
price per share offered to stockholders of the Company in any tender offer or exchange offer
whereby a Corporate Change takes place, or (iii) if such Corporate Change occurs other than
pursuant to a tender or exchange offer, the fair market value per share of the shares into which
such Options being surrendered are exercisable, as determined by the Committee as of the date
determined by the Committee to be the date of cancellation and surrender of such Options. In the
event that the consideration offered to stockholders of the Company in any transaction described in
this Subparagraph (d) or Subparagraph (c) above consists of anything other than cash, the Committee
shall determine the fair cash equivalent of the portion of the consideration offered which is other
than cash.

     (e) Other Changes in the Common Stock. In the event of changes in the outstanding
Common Stock by reason of recapitalizations, reorganizations, mergers, consolidations,
combinations, split-ups, split-offs, spin-offs, exchanges, or other relevant changes in
capitalization or distributions to the holders of Common Stock occurring after the date of the
grant of any Award and not otherwise provided for by this Paragraph IX, such Award and any
agreement evidencing such Award shall be subject to adjustment by the Committee at its sole
discretion as to the number and price of shares of Common Stock or other consideration subject to
such Award so as to prevent the dilution or enlargement of rights. In the event of any such change
in the outstanding Common Stock or distribution to the holders of Common Stock or upon the
occurrence of any other event described in this Paragraph IX, the aggregate maximum number of
shares available under the Plan and the aggregate maximum number of shares that may be issued under
the Plan through Incentive Stock Options may be appropriately adjusted to the extent, if any,
determined by the Committee, whose determination shall be conclusive.

     (f) Stockholder Action. Any adjustment provided for in the above Subparagraphs shall
be subject to any required stockholder action.

     (g) No Adjustments Unless Otherwise Provided. Except as hereinbefore expressly
provided, the issuance by the Company of shares of stock of any class or securities convertible
into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon
the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or
obligations of the Company convertible into such shares or other securities, and in any case
whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number of shares of Common Stock subject to Awards theretofore granted or the
purchase price per share, if applicable.

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X. AMENDMENT AND TERMINATION OF THE PLAN

     The Board in its discretion may terminate the Plan at any time with respect to any shares of
Common Stock for which Awards have not theretofore been granted. The Board shall have the right to
alter or amend the Plan or any part thereof from time to time; provided that no change in the Plan
may be made that would impair the rights of a Participant with respect to an Award theretofore
granted without the consent of the Participant and provided, further, that the Board may not,
without approval of the stockholders of the Company, amend the Plan to increase the maximum
aggregate number of shares that may be issued under the Plan, increase the maximum number of shares
that may be issued under the Plan through Incentive Stock Options, or change the class of
individuals eligible to receive Awards under the Plan.

XI. MISCELLANEOUS

     (a) No Right To An Award. Neither the adoption of the Plan nor any action of the
Board or of the Committee shall be deemed to give any individual any right to be granted an Option,
a Restricted Stock Award, or any other rights hereunder except as may be evidenced by an Award
agreement duly executed on behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other segregation of funds or
assets to assure the performance of its obligations under any Award.

     (b) No Employment/Membership Rights Conferred. Nothing contained in the Plan shall
(i) confer upon any employee or Consultant any right with respect to continuation of employment or
of a consulting or advisory relationship with the Company or any Affiliate or (ii) interfere in any
way with the right of the Company or any Affiliate to terminate his or her employment or consulting
or advisory relationship at any time. Nothing contained in the Plan shall confer upon any Director
any right with respect to continuation of membership on the Board.

     (c) Other Laws; Withholding. The Company shall not be obligated to issue any Common
Stock pursuant to any Award granted under the Plan at any time when the shares covered by such
Award have not been registered under the Securities Act of 1933, as amended, and such other state
and federal laws, rules, and regulations as the Company or the Committee deems applicable and, in
the opinion of legal counsel for the Company, there is no exemption from the registration
requirements of such laws, rules, and regulations available for the issuance and sale of such
shares. No fractional shares of Common Stock shall be delivered, nor shall any cash in lieu of
fractional shares be paid. The Company shall have the right to deduct in connection with all
Awards any taxes required by law to be withheld and to require any payments required to enable it
to satisfy its withholding obligations.

     (d) No Restriction on Corporate Action. Nothing contained in the Plan shall be
construed to prevent the Company or any Affiliate from taking any action which is deemed by the
Company or such Affiliate to be appropriate or in its best interest, whether or not such action
would have an adverse effect on the Plan or any Award made under the Plan. No Participant,
beneficiary or other person shall have any claim against the Company or any Affiliate as a result
of any such action.

Page 11 -

 

     (e) Restrictions on Transfer. An Award (other than an Incentive Stock Option, which
shall be subject to the transfer restrictions set forth in Paragraph VII(c)) shall not be
transferable otherwise than (i) by will or the laws of descent and distribution, (ii) pursuant to a
qualified domestic relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder, or (iii) with the consent of the
Committee.

     (f) Governing Law. The Plan shall be governed by, and construed in accordance with,
the laws of the State of Delaware, without regard to conflicts of laws principles thereof.

ADOPTED EFFECTIVE JUNE 1, 2006.

Page 12 -exv10w15

 

Exhibit 10.15

NONSTATUTORY STOCK OPTION AGREEMENT

     AGREEMENT made as of the 12th day of June, 2006, 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 $6.00 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:

Page 1

 

 

	 	 	 	 	 
	 	 	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,

Page 2

 

 

(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
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. Transfer Restrictions; Repurchases. Shares of Stock purchased pursuant to the
exercise of this Option shall be subject to the transfer restrictions, repurchase provisions and
other terms and conditions set forth in Exhibit A attached hereto. Employee agrees that Employee
and Employee’s spouse, if any, will, at any time and from time to time as requested by the Company,
execute and deliver to the Company such other documents and instruments, if any, as the Committee
or the Board, in their discretion, may require to evidence such persons’ agreement to be bound by
the terms of Exhibit A. The terms and conditions of Exhibit A shall survive the termination of this
Option and this Agreement. Notwithstanding anything to the contrary in this Section 4 or Exhibit
A, (a) neither this Section 4 nor the terms of Exhibit A shall apply if the shares of stock
acquired by exercise of this Option are subject to or bound by the terms of that certain
Stockholders’ Agreement among the Company and certain securityholders thereof dated February 27,
2006 (the “Stockholders’ Agreement”) and (b) this Section 4 and Exhibit A (other than Section 7 of
Exhibit A) shall cease to apply on the date upon which the Company (or a successor thereto) first
becomes publicly held. For purposes of the preceding sentence, the Company (or a successor
thereto) shall be considered “publicly held” if the securities that are of the same class as the
Stock (or the securities for which the Stock are exchanged as described in Paragraph IX of the
Plan) shall be registered under Section 12 of the Exchange Act.

     5. 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

Page 3

 

 

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.

     6. Status of Stock. Employee understands that at the time of the execution of this
Agreement the shares of Stock to be issued upon exercise of this Option have not been registered
under the Securities Act of 1933, as amended (the “Act”), or any state securities law, and that the
Company does not currently intend to effect any such registration. Until the shares of Stock
acquirable upon the exercise of the Option have been registered for issuance under the Act, the
Company will not issue such shares unless the holder of the Option provides the Company with a
written opinion of legal counsel, who shall be satisfactory to the Company, addressed to the
Company and satisfactory in form and substance to the Company’s counsel, to the effect that the
proposed issuance of such shares to such Option holder may be made without registration under the
Act. 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
shall be acquired for investment without a view to distribution, within the meaning of the Act, and
shall not be sold, transferred, assigned, pledged or hypothecated in the absence of an effective
registration statement for the shares under the Act and applicable state securities laws or an
applicable exemption from the registration requirements of the Act and any applicable state
securities laws. Employee also 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.

     In addition, Employee 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 the terms and provisions of Exhibit A or the Stockholders’
Agreement, as applicable, and 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 the terms and provisions of Exhibit A or the Stockholders’ Agreement, as
applicable, or any 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.

     7. 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

Page 4

 

 

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.

     8. 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.

     9. 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.

     10. 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.

     11. 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.

Page 5

 

 

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.

     12. 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:	 	 
	 

	 	 	 	 
	 	 	 	 	Steven L. Beal, President
	 
	 	 	 	 
	 	 	 

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

Page 6

 

 

EXHIBIT A TO

NONSTATUTORY STOCK OPTION AGREEMENT

PROVISIONS RELATING TO TRANSFERS; REPURCHASES

     Capitalized terms used in this Exhibit and not otherwise defined herein shall have the meaning
given to them in Section 9 of this Exhibit. Unless the context requires otherwise, all references
in this Exhibit to Sections refer to the Sections of this Exhibit.

     1. General Rule. Employee may not Transfer all or any portion of the shares of Common
Stock issued upon exercise of the option (the “Option”) referenced in the Nonstatutory Stock Option
Agreement to which this Exhibit is attached (the “Option Shares”) other than in accordance with the
terms of this Exhibit, and any attempted Transfer that is not in accordance with this Exhibit shall
be, and is hereby declared, null and void and will not be recognized by the Company. Subject to
the provisions of Section 6, nothing in this Exhibit shall prohibit a Permitted Transfer of Option
Shares.

     2. Right of First Refusal.

     (a) The provisions of Section 2(b) shall not apply to (i) repurchases of Option Shares by the
Company to the extent covered in Section 5, (ii) a Transfer of Option Shares as part of a Sale of
the Company Transaction, which is covered in Section 3, (iii) a Transfer as part of a Merger
Transaction, which is covered in Section 4, or (iv) a Permitted Transfer.

     (b) If Employee desires to Transfer any Option Shares to any Person (including another
stockholder of the Company), pursuant to an offer made by another Person (an “Acquisition
Proposal”), then, before selling such shares, Employee shall first offer to sell to the Company the
Option Shares Employee desires to sell to the offering party on the same terms as offered by the
offering party (except that any non-cash consideration offered by the offering party may be paid in
cash by the Company). Employee shall promptly notify the Company in writing if Employee desires to
Transfer any Option Shares to another Person. Employee shall ensure that such notice (the
“Disposition Notice”) sets forth the following information in respect of the proposed Transfer:
the name and address of the prospective buyer (the “Proposed Transferee”), the number of Option
Shares such buyer proposes to acquire pursuant to the Acquisition Proposal (the “Subject Shares”),
the per-share purchase price offered by such Proposed Transferee and reasonable detail concerning
any non-cash portion of the proposed purchase price, if any.

     (c) The giving of a Disposition Notice by Employee to the Company shall constitute an offer by
Employee to sell all of the Subject Shares to the Company on the terms and conditions set forth in
the Disposition Notice, except that the Company may pay cash in lieu of any non-cash consideration
described in the Acquisition Proposal. The amount of cash payable in lieu of non-cash
consideration shall equal the fair market value of the non-cash consideration determined in good
faith by the Board within 15 days after the Company receives the Disposition Notice. The Board’s
determination shall be final and binding for these purposes so long as its valuation is made using
a reasonable and recognized valuation methodology. The option granted to the Company is only
exercisable for 15 days after the Company’s receipt of the Disposition

A-1

 

Notice unless the Board must determine the fair market value of any non-cash consideration, in
which case the option shall be exercisable for 15 days after the Board makes its determination. If
the Company elects to exercise the option, the Company shall communicate in writing such election
to Employee before the applicable 15-day period described above. The written election of the
Company to purchase shall constitute its irrevocable acceptance of the offer set forth in the
Disposition Notice with respect to all or a portion of the Subject Shares it elects to purchase.

     (d) The closing of the purchase and sale of the Subject Shares to the Company pursuant to this
Section 2 shall be at 9:00 a.m. on the 20th Business Day following the date the Company
gives Employee the election notice described in subsection (c) above. However, the Company and
Employee may mutually agree on a different closing date. At the closing, the consideration to be
paid by the Company in accordance with Section 2(c) shall be delivered by the Company to Employee,
and Employee shall represent and warrant to the Company that the Subject Shares are free and clear
of all liens, encumbrances and adverse claims. Employee shall deliver to the Company the stock
certificates representing the Subject Shares accompanied by duly executed stock powers and such
other matters as are deemed reasonably necessary by the Company for the proper transfer of the
Subject Shares. The Company and Employee shall cooperate in good faith in obtaining all necessary
governmental and other third-person approvals, waivers and consents required for the closing.

     (e) If the Company does not elect to purchase the Subject Shares in accordance with the
provisions of this Section 2, Employee shall be free to Transfer the Subject Shares so long as the
Transfer is on the same terms and to the same buyer as Employee described in the Disposition
Notice. The Transfer to such buyer must comply with the conditions described in Section 6. If the
Transfer to such buyer is not completed within 60 days after Employee delivers the Disposition
Notice to the Company, Employee will not be allowed to Transfer the Subject Shares without
repeating the procedures described in this Section 2.

     3. Sale of the Company Transaction.

     (a) If, in connection with any Sale of the Company Transaction, the holders of a majority of
the shares of the Common Stock then outstanding and entitled to vote on such matter approve such
transaction, then Employee agrees to, in the case of a stock sale or stock exchange, Transfer to
the buyer or, in the case of a recapitalization, Transfer to the Company, a number of Option Shares
equal to the product (rounded to the nearest whole share) of (i) the aggregate number of shares of
Common Stock proposed to be acquired by the buyer or to be repurchased by the Company, as
applicable, and (ii) a fraction, the numerator of which equals the number of Option Shares owned by
Employee, and the denominator of which equals the total number of outstanding shares of Common
Stock owned by all Persons including Employee.

     (b) In connection with a Transfer described in this Section 3, Employee shall (i) only be
required to represent and warrant as to the unencumbered title to his or her Option Shares subject
to the Transfer, (ii) be required to bear Employee’s pro rata share of any post-closing indemnity
obligations, (iii) be subject to the same post-closing purchase price adjustments, escrow terms,
offset rights and holdback terms as the other holders of Common Stock of the Company and (iv) be
required to deliver customary Transfer documentation.

A-2

 

     (c) Employee shall take such other actions as may be reasonably required and otherwise
cooperate in good faith with the Company and the other stockholders of the Company in connection
with consummating the proposed Sale of the Company Transaction.

     (d) To the extent elected by the Company, all of the consideration payable to all of the
selling stockholders of the Company in a Sale of the Company Transaction first shall be aggregated
by the Company, as disbursing agent, before distributing any such consideration to any of the
stockholders of the Company. The Company, acting solely as the disbursing agent of the
stockholders of the Company, shall then distribute the aggregate consideration to the stockholders
of the Company in the same manner and order of priority that such consideration would have been
distributed had such distribution been made in complete liquidation of the Company in accordance
with the various liquidation preferences and liquidation amounts governing the various classes or
series of capital stock of the Company.

     (e) If the Sale of the Company Transaction involves the issuance of any stock or other equity
consideration in a transaction not involving a public offering and Employee is not an accredited
investor (as defined under Rule 501 of Regulation D of the Securities Act), then the Company (at
the direction of the Board or request of the holders of a majority of the shares of Common Stock to
be sold in such transaction) may require Employee (i) to receive solely cash in such transaction,
(ii) to otherwise be cashed out (by repurchase or otherwise) by the Company or any other
stockholder of the Company prior to the consummation of such transaction and/or (iii) to appoint a
purchaser representative (as contemplated by Rule 506 of Regulation D of the Securities Act)
selected by the Company to act on behalf of Employee.

     (f) Employee hereby makes, constitutes and appoints the Secretary of the Company as Employee’s
true and lawful attorney-in-fact for Employee and in Employee’s name, place, and stead and for
Employee’s use and benefit, to sign, execute, certify, acknowledge, swear to, file and record any
instrument that is now or may hereafter be deemed necessary by the Company in its reasonable
discretion to carry out fully the provisions and the agreements, obligations and covenants of
Employee in this Section 3. Employee hereby gives such attorney-in-fact full power and authority
to do and perform each and every act or thing whatsoever requisite or advisable to be done in
connection with Employee’s obligations and agreements pursuant to this Section 3 as fully as
Employee might or could do personally, and hereby ratifies and confirms all that any such
attorney-in-fact shall lawfully do or cause to be done by virtue of the power of attorney granted
hereby. The power of attorney granted pursuant to this Section 3(f) is a special power of
attorney, coupled with an interest, and is irrevocable, and shall survive the bankruptcy,
insolvency, disability or death of Employee.

     4. Merger Transaction.

     (a) In connection with any transaction whereby the Company would merge or consolidate with and
into a Person that is not the Company’s parent or an Affiliate thereof or in connection with a sale
of all or substantially all of the assets of the Company (each, a “Merger Transaction”) that has
been approved by a majority of the holders of Common Stock entitled to vote for the approval of
such Merger Transaction, Employee agrees that he or she will irrevocably consent to, vote in favor
of and participate in such Merger Transaction on the same terms and conditions as are applicable to
the other holders of Common Stock.

A-3

 

     (b) In connection with any Merger Transaction, Employee shall (i) only be required to
represent and warrant as to the unencumbered title to her or her Option Shares subject to the
Merger Transaction, (ii) be required to bear Employee’s pro rata share of any post-closing
indemnity obligations, (iii) be subject to the same post-closing purchase price adjustments, escrow
terms, offset rights and holdback terms as the other holders of Common Stock of the Company and
(iv) be required to deliver customary stock powers, letters of transmittal or other similar
Transfer documentation. Employee agrees that he or she will take such actions as may be reasonably
required and otherwise cooperate in good faith with the Company and the other stockholders of the
Company in connection with consummating the proposed Merger Transaction.

     (c) To the extent elected by the Company, all of the consideration payable to the stockholders
of the Company in a Merger Transaction first shall be aggregated by the Company, as disbursing
agent, before distributing any such consideration to any of the stockholders of the Company. The
Company, acting solely as the disbursing agent of the stockholders of the Company, shall then
distribute the aggregate consideration to the stockholders of the Company in the same manner and
order of priority such consideration would have been distributed had such distribution been made in
complete liquidation of the Company in accordance with the various liquidation preferences and
liquidation amounts governing the various classes or series of capital stock of the Company.

     (d) If the Merger Transaction involves the issuance of any stock consideration in a
transaction not involving a public offering and Employee is not an accredited investor (as defined
under Rule 501 of Regulation D of the Securities Act), then the Company (at the direction of the
Board or request of the holders of a majority of shares of Common Stock entitled to vote on the
merger) may require Employee (i) to receive solely cash in such transaction, (ii) to otherwise be
cashed out (by repurchase or otherwise) by the Company or any other stockholder of the Company
prior to the consummation of such transaction and/or (iii) to appoint a purchaser representative
(as contemplated by Rule 506 of Regulation D of the Securities Act) selected by the Company to act
on behalf of Employee.

     (e) Employee shall not have any dissenters’ or appraisal rights with respect to Option Shares
required to be sold in any Merger Transaction, and Employee hereby releases and waives, and will
execute such further instruments as the Company reasonably requests to further evidence the release
and waiver of such rights.

     (f) Employee hereby makes, constitutes and appoints the Secretary of the Company as Employee’s
true and lawful attorney-in-fact for Employee and in Employee’s name, place, and stead and for
Employee’s use and benefit, to sign, execute, certify, acknowledge, swear to, file and record any
instrument that is now or may hereafter be deemed necessary by the Company in its reasonable
discretion to carry out fully the provisions and the agreements, obligations and covenants of
Employee in this Section 4. Employee hereby gives such attorney-in-fact full power and authority
to do and perform each and every act or thing whatsoever requisite or advisable to be done in
connection with Employee’s obligations and agreements pursuant to this Section 4 as fully as
Employee might or could do personally, and hereby ratifies and confirms all that any such
attorney-in-fact shall lawfully do or cause to be done by virtue of the power of attorney granted
hereby. The power of attorney granted pursuant to this

A-4

 

Section 4(f) is a special power of attorney, coupled with an interest, and is irrevocable, and
shall survive the bankruptcy, insolvency, disability or death of Employee.

     5. Repurchase Options.

     (a) Employee Repurchase Event. Within 30 days after the occurrence of any Employee
Repurchase Event, Employee or his or her personal representative (in the event of Employee’s death
or disability), as applicable, shall give written notice of such event to the Company. The failure
of Employee or Employee’s personal representative to give such notice shall in no way prevent the
Company from exercising its rights under this Section 5(a). During the 60-day period following the
Company’s receipt of written notice of the Employee Repurchase Event (or actual knowledge of the
occurrence of an Employee Repurchase Event), and during the 60-day period after each exercise of
the Option that occurs after the date of the Employee Repurchase Event, the Company may purchase,
at its sole election, all or any portion of the Option Shares held by Employee, by Employee’s
estate and by any other Person who received Option Shares directly or indirectly from Employee, for
a purchase price equal to the Market Value thereof. If the Company wishes to exercise a repurchase
option granted hereto, it must provide written notice within an applicable 60-day repurchase option
period to Employee specifying the number of Option Shares it elects to purchase. Within 10 days
after the exercise of a repurchase option by the Company, the then current holder or holders of
such Option Shares shall deliver the stock certificates representing the applicable Option Shares
to the Company, together with appropriate stock powers or stock assignments, in consideration for
the purchase price specified above paid in the form of cash from the Company. Delivery of the
Option Shares and related stock powers by the holder shall constitute a representation to the
Company that such person owns such Option Shares free and clear of all adverse charges, liens,
claims and encumbrances.

     (b) Spousal Trigger Event. Within 30 days after the occurrence of any Spousal Trigger
Event affecting Employee, Employee shall give written notice of such Spousal Trigger Event to the
Company. The failure of Employee to give such notice shall in no way prevent the Company from
exercising its rights under this Section 5(b). If Employee does not succeed to the entire
community property or other interest of Employee’s spouse in the Option and/or the Option Shares,
then the Company shall have the right, at its sole election, to purchase all or any portion of the
Option Shares then or thereafter owned by Employee’s spouse or such spouse’s heirs, descendants or
legal representatives or acquired by any other Person directly or indirectly from any of the
foregoing. The Company’s repurchase rights described in the preceding sentence shall be
exercisable during the 60-day period following the Company’s receipt of written notice of the
Spousal Trigger Event (or actual knowledge of the occurrence of a Spousal Trigger Event) and during
the 60-day period after each exercise of the Option that occurs after the date of the Spousal
Trigger Event by Employee’s spouse or such spouse’s heirs, descendants or legal representatives or
any other Person who directly or indirectly acquires a portion of the Option and/or Option Shares
from any of the foregoing. The purchase price for each Option Share to be paid by the Company in
the event it exercises a repurchase option granted hereto shall be the Market Value of such share
as of the date of such exercise. If the Company wishes to exercise a repurchase option granted
hereto, it must provide written notice within an applicable 60-day repurchase option period to
Employee, specifying the number of such Option Shares it elects to purchase. Upon receipt of any
such notice, Employee will promptly deliver

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such notice to Employee’s spouse or Employee’s spouse’s estate representative, heirs or other
appropriate Person, as applicable. Within 10 days after the exercise of a repurchase option by the
Company, the then current holder or holders of such Option Shares shall deliver the stock
certificates representing the applicable Option Shares to the Company, together with appropriate
stock powers or stock assignments, in consideration for the purchase price specified above paid in
the form of cash from the Company. Delivery of the Option Shares and related stock powers by the
holder shall constitute a representation to the Company that such person owns such Option Shares
free and clear of all adverse charges, liens, claims and encumbrances.

     6. Conditions to Transfers; Continued Applicability of Exhibit.

     (a) As a condition to any Transfer permitted under this Exhibit (including Permitted Transfers
and Transfers contemplated by Sections 2, 3, 4 and 5), any transferee of the Option Shares and his
or her spouse shall be required to sign an agreement with the Company substantially in the form of
this Exhibit. Notwithstanding such Person’s failure to execute an agreement in accordance with the
preceding sentence (whether such Transfer resulted by operation of law or otherwise), such Person
and such Option Shares shall be subject to the same restrictions as if such Option Shares were
still held by the transferor.

     (b) No Option Shares may be Transferred (other than pursuant to an effective registration
statement under the Securities Act) unless Employee first delivers to the Company evidence
reasonably satisfactory to the Company (such as an opinion of counsel) to the effect that such
Transfer is not required to be registered under the Securities Act; provided, the Company may waive
any requirement to deliver a legal opinion under this Section 6(b).

     7. Standstill. With respect to an initial public offering or any other underwritten
public offering, notwithstanding anything to the contrary in this Exhibit, Employee shall not
effect any public sale or distribution of any of the Option Shares, including any sale pursuant to
Rule 144, or any successor provision, under the Securities Act, during the 14 days prior to the
anticipated effective date of the applicable registration statement or during the period after such
effective date that the managing underwriter and the Company shall agree; provided, such
post-effective date standstill period shall not exceed 180 days or be less than 90 days.

     8. Common Stock Legend.

     (a) In addition to any other legend that may be required by law, each certificate for Option
Shares shall bear a legend in substantially the following form:

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT IN COMPLIANCE
THEREWITH. THIS SECURITY IS ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS
SET FORTH IN THE STOCKHOLDERS’ AGREEMENT DATED AS OF FEBRUARY 27, 2006, BY AND AMONG
THE COMPANY AND CERTAIN SECURITYHOLDERS AND/OR THE STOCK OPTION AGREEMENT DATED AS
OF JUNE 12, 2006, AS AMENDED OR RESTATED FROM TIME TO TIME, COPIES OF

A-6

 

EACH OF WHICH MAY BE OBTAINED UPON REQUEST FROM CONCHO RESOURCES INC. OR ANY
SUCCESSOR THERETO.

     (b) If any Option Shares cease to be subject to any and all restrictions on Transfer set forth
in this Exhibit, the Company shall, upon the written request of the holder thereof, issue to such
holder a new certificate evidencing such Option Shares without the second sentence of the legend
set forth above endorsed thereon.

     9. Definitions. As used in this Exhibit, the following terms shall have the
respective meanings set forth below:

     “Affiliate” has the meaning assigned to such term in the Company’s 2006 Stock Incentive Plan.

     “Board” means the Board of Directors of the Company.

     “Business Day” means any day except a Saturday, Sunday or other day on which commercial banks
in Midland, Texas are authorized or required by law to close.

     “Common Stock” means the common stock, par value $0.001 per share, of the Company, or any
security into which such common stock may be changed by reason of any transaction or event of the
type described in Article IX of the Company’s 2006 Stock Incentive Plan.

     “Employee Repurchase Event” means any of the following:

     (a) the termination of Employee’s employment with the Company or its Affiliates for any
reason;

     (b) the Transfer or attempted Transfer by Employee of all or any portion of Employee’s Common
Stock in violation of this Exhibit;

     (c) the failure of Employee to comply in any material respect with the terms of this Exhibit;

     (d) the occurrence of any of the following events affecting Employee: (i) an assignment of a
significant portion of the assets of Employee for the benefit of Employee’s creditors; (ii) the
commencement of bankruptcy, reorganization, arrangement or liquidation proceedings, state or
federal, by Employee or against Employee; or (iii) the attachment of, execution against, levy upon
or other seizure of Employee’s Common Stock; or

     (e) Employee’s death.

     “Market Value” means the fair market value determined in good faith by the Board.

     “Permitted Transfer” means (a) any Transfer to (i) any parent, sibling, child or grandchild of
Employee, (ii) any trust, limited partnership, limited liability company or other entity having as
its sole beneficiaries or owners Employee, any Persons described in clause (a)(i) preceding or any
combination of the foregoing or (iii) any institution qualified as tax-exempt

A-7

 

under section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or any trust the
beneficiaries of which include only such tax-exempt institutions, (b) any Transfer by any trust or
other entity described in clause (a)(ii) to its beneficiaries or equity owners, (c) any Transfer
designated as a “Permitted Transfer” by resolution of the majority of the disinterested directors
of the Board and (d) any Transfer to the Company or any subsidiary of the Company.

     “Person” means an individual, corporation, limited liability company, partnership,
association, trust or other entity or organization, including a government or political subdivision
or an agency or instrumentality thereof.

     “Sale of the Company Transaction” means any transaction or series of related transactions
(including a recapitalization, merger or other business combination) that, after giving effect
thereto, would result in the holders of all of the Common Stock outstanding immediately prior to
the consummation of such transaction having record ownership, directly or indirectly, of less than
50% of all the common stock of the surviving entity outstanding immediately after the consummation
of such transaction.

     “Securities Act” means the Securities Act of 1933, as amended.

     “Spousal Trigger Event” means the occurrence of any of the following:

     (a) the divorce of Employee; or

     (b) the death of Employee’s spouse.

     “Transfer” including the correlative terms “Transferring” or “Transferred” means any direct or
indirect transfer, assignment, sale, gift, pledge, hypothecation or other encumbrance, or any other
disposition (whether voluntary, involuntary or by operation of law) of Common Stock, including
derivative or similar transactions or arrangements whereby a portion or all of the economic
interest in, risk of loss or opportunity for gain with respect to, or voting or other rights of any
Common Stock are transferred or shifted to another Person.

A-8

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