SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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| ¨ | Soliciting Material Pursuant to 240.14a-11 (c) or 240.14a-12 |
CONTINENTAL RESOURCES, INC.
(Name of Registrant as Specified in its Charter)
NOT APPLICABLE
(Name of Person(s) Filing Proxy Statement if Other Than Registrant)
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CONTINENTAL RESOURCES, INC.
302 N. Independence
Enid, Oklahoma 73701
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 28, 2009
TO THE HOLDERS OF SHARES OF COMMON STOCK:
The 2009 Annual Meeting of Shareholders of Continental Resources, Inc. (the “Company, “we”, or “us”) will be held at the Company’s corporate office located at 302 N. Independence, Enid, Oklahoma, 73701 on May 28, 2009, at 10 a.m., local time, for the following purposes:
| 1. | To elect three (3) members to our Board of Directors (“Board”) to serve until the Annual Meeting of Shareholders in 2012 and until their successors are duly elected and qualified. Please see “Proposal 1: Election of Directors—General.” |
| 2. | To ratify the selection of Grant Thornton LLP (“Grant Thornton”) as our independent registered public accounting firm. |
| 3. | To transact such other business as may properly be brought before the Annual Meeting or any adjournment thereof. |
The Annual Meeting may be recessed from time to time and, at any reconvened meeting, action with respect to the matters specified in this notice may be taken without further notice to shareholders unless required by the bylaws.
Shareholders of record of our common stock, $0.01 par value (“Common Stock”), at the close of business on April 10, 2009 are entitled to notice of, and to vote on all matters, at the Annual Meeting. A list of all shareholders will be available for inspection at the Annual Meeting and, during normal business hours ten days prior thereto, at our offices, 302 N. Independence, Enid, Oklahoma.
In accordance with rules adopted by the Securities and Exchange Commission (the “SEC”), we are pleased to furnish these proxy materials to shareholders over the Internet.
It is important that your shares be represented and voted at the Annual Meeting whether or not you plan to attend. Therefore, we urge you to vote your shares as soon as possible. If you received notice of how to access the proxy materials over the Internet and a proxy card was not sent to you, you may vote only online. If you received a proxy card and other proxy materials by mail, you may vote online or by signing and dating the proxy card and returning it in the envelope provided. Voting over the Internet or by returning the proxy card will ensure your representation at the meeting but does not deprive you of your right to attend the meeting and to vote your shares in person.
BY THE ORDER OF THE BOARD OF DIRECTORS
/s/ Don Fischbach
Don Fischbach
Secretary
DATED: April 9, 2009
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 28, 2009
This proxy statement, the accompanying proxy card and our annual report to shareholders are also available on the internet at www.proxyvote.com.
Whether or not you plan to attend the Annual Meeting, please vote your shares as soon as possible. You can vote your shares over the Internet or if you receive a proxy card by mail, by signing and dating the proxy card and returning it in the envelope provided. If you receive more than one proxy card because you own shares that are registered differently, then please vote all of your shares shown on all of your proxy cards following instructions listed on each of the individual cards.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 28, 2009
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| HOW CAN I FIND OUT THE RESULTS OF THE VOTING AT THE ANNUAL MEETING? |
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| CORPORATE GOVERNANCE GUIDELINES AND COMMUNICATIONS WITH THE BOARD |
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| SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
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| PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
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PROXY STATEMENT
CONTINENTAL RESOURCES, INC.
302 N. Independence
Enid, Oklahoma 73701
2009 ANNUAL MEETING OF SHAREHOLDERS
QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL AND VOTING
When and where is the Annual Meeting?
Our 2009 Annual Meeting of Shareholders (the “Annual Meeting”) will be held in the Ballroom at our corporate offices located at 302 N. Independence in Enid, Oklahoma, 73701, on May 28, 2009, at 10 a.m., local time.
Why am I receiving these materials?
This proxy statement, the accompanying proxy card and our annual report were provided to you because our Board is soliciting your proxy to vote at the Annual Meeting. You are invited to attend the Annual Meeting to vote on the proposals described in this proxy statement. However, you do not need to attend the meeting to vote your shares.
Under rules adopted by the Securities and Exchange Commission (the “SEC”), we are furnishing proxy materials to our shareholders primarily via the Internet, instead of mailing printed copies of those materials to each shareholder. On or about April 17, 2009, we plan to mail to the majority of our shareholders a Notice of Internet Availability containing instructions on how to access our proxy materials, including our proxy statement and our annual report. The Notice of Internet Availability also instructs shareholders on how to access a proxy card to vote over the Internet.
This new process is designed to expedite shareholders’ receipt of proxy materials, help conserve natural resources and lower the cost of the annual meeting. However, if you would prefer to receive printed proxy materials, please follow the instructions included in the Notice of Internet Availability.
We intend to mail this proxy statement, the accompanying proxy card and our annual report on or about April 17, 2009 to registered shareholders of record entitled to vote at the Annual Meeting, including those shareholders of record entitled to vote at the Annual Meeting who notify us that they would prefer to receive printed proxy materials.
Who can vote at the Annual Meeting?
The record date for determining shareholders entitled to notice of the Annual Meeting and to vote has been established as of the close of business on April 10, 2009. On that date, we had 169,604,384 shares of Common Stock outstanding and eligible to vote.
Shareholder of Record: Shares Registered in Your Name
If on April 10, 2009 your shares were registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, then you are a shareholder of record. As a shareholder of record, you may vote in person at the meeting or vote by proxy. Whether or not you plan to attend the meeting, we urge you to vote your shares.
Beneficial Owner: Shares Registered in the Name of a Broker or Bank
If on April 10, 2009 your shares were held, not in your name, but rather in an account at a brokerage firm, bank, dealer, or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered to be the shareholder of record for purposes of voting at the Annual Meeting. As a beneficial owner,
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you have the right to direct your broker or other agent on how to vote the shares in your account. You are also invited to attend the Annual Meeting. However, since you are not the shareholder of record, you may not vote your shares in person at the meeting unless you request and obtain a valid proxy from your broker or other agent.
There are two matters scheduled for a vote:
| • | Election of three (3) directors to serve until the Annual Meeting of Shareholders in 2012 and until their successors are duly elected and qualified (please see “Proposal 1: Election of Directors – General”); and |
| • | Ratification of Grant Thornton as our independent registered public accounting firm. |
You may either vote “For” a nominee to the Board or you may “Withhold” your vote for any nominee you specify. For the other matter to be voted on, you may vote “For” or “Against” or abstain from voting. The procedures for voting are as follows:
Shareholder of Record: Shares Registered in Your Name
If you are a shareholder of record, you may vote in person at the Annual Meeting or vote by proxy using the proxy card or over the Internet. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the meeting and vote in person if you have not already voted by proxy:
| • | To vote in person, come to the Annual Meeting and we will give you a ballot when you arrive. |
| • | To vote using the proxy card, simply complete, sign, and date the proxy card and return it promptly in the envelope provided. If you return your signed proxy card to us before the Annual Meeting, we will vote your shares as you direct. |
| • | To vote over the Internet, please follow either the instructions included on your proxy card or the voting instructions you receive by e-mail or that are being provided via the Internet. If you vote over the Internet, you do not need to complete and mail a proxy card. |
Beneficial Owner: Shares Registered in the Name of a Broker or Bank
If you are a beneficial owner of shares registered in the name of your broker, bank, or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from us. Simply complete and mail the proxy card to ensure that your vote is counted. To vote in person at the Annual Meeting, you must obtain a valid proxy from your broker, bank, or other agent. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a proxy form.
On each matter to be voted upon, you have one vote for each share of common stock you own as of April 10, 2009.
Who is paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In addition to these mailed proxy materials, our directors, employees, and agents may also solicit proxies in person, by telephone, or by other means of communication.
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Directors and employees will not be paid any additional compensation for soliciting proxies. We may also reimburse brokerage firms, banks, and other agents for the cost of forwarding proxy materials to beneficial owners.
What does it mean if I receive more than one proxy card?
If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign, and return each proxy card to ensure that all of your shares are voted.
Can I change my vote after submitting my proxy?
Yes. You can revoke your proxy at any time before the final vote at the meeting. If you are the record holder of your shares, you may revoke your proxy in any one of three ways:
| • | You may enter a new vote over the Internet or by submitting another properly completed proxy card with a later date. |
| • | You may send a written notice that you are revoking your proxy to Continental Resources, Inc., 302 N. Independence, Enid, Oklahoma 73701, Attention: Don Fischbach, Secretary. |
| • | You may attend the Annual Meeting and vote in person. Simply attending the meeting will not, by itself, revoke your proxy. |
If your shares are held by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker or bank.
Votes will be counted by the inspector of election appointed for the meeting, who will separately count “For” and “Withhold Authority” for election of directors and, with respect to proposals other than the election of directors, “For” and “Against” votes, abstentions, and broker non-votes. Abstentions will be counted towards the vote total for each proposal, and will have the same effect as “Against” votes. Broker non-votes have no effect and will not be counted towards the vote total for any proposal.
If your shares are held by your broker as your nominee (that is, in “street name”), you will need to obtain a proxy form from the institution that holds your shares and follow the instructions included on that form regarding how to instruct your broker to vote your shares. If you do not give instructions to your broker, your broker can vote your shares with respect to “discretionary” items, but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine under the rules of the New York Stock Exchange (“NYSE”) on which your broker may vote shares held in street name in the absence of your voting instructions. On non-discretionary items for which you do not give your broker instructions, the shares will be treated as broker non-votes.
Shares represented by proxies which are marked “withhold authority” with respect to the election of any one or more nominees for election as directors will be counted for the purpose of determining the number of shares represented by proxy at the meeting. Because directors are elected by a plurality rather than a majority of the shares present in person or represented by proxy at the Annual Meeting, proxies marked “withhold authority” with respect to any one or more nominee will not affect the outcome of the nominee’s election unless the nominee receives no affirmative votes or unless other candidates are nominated for election as directors.
Shares represented by limited proxies will be treated as represented at the meeting only as to such matter or matters for which authority is granted in the limited proxy. Shares represented by proxies returned by brokers where the brokers’ discretionary authority is limited by stock exchange rules will be treated as represented at the Annual Meeting only as to such matter or matters voted on in the proxies.
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How many votes are needed to approve each proposal?
Directors will be elected by a plurality of the votes of the shares present in person or represented by proxy at the Annual Meeting.
For the ratification of Grant Thornton as our independent registered public accounting firm, Proposal No. 2 must receive a “For” vote from the majority of shares present and entitled to vote either in person or by proxy. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes will have no effect.
All other matters properly brought before the Annual Meeting will be decided by a majority of the votes cast on the matter, unless otherwise required by law.
What is the quorum requirement?
A quorum of shareholders is necessary to hold a valid meeting. A quorum will be present if at least a majority of the outstanding shares are represented by shareholders present at the meeting or by proxy. On the record date, there were 169,604,384 shares outstanding and entitled to vote. Therefore, 84,802,193 shares must be represented by shareholders present at the meeting or by proxy to have a quorum.
Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee), or if you vote in person at the meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, a majority of the votes present at the meeting may adjourn the meeting to another date.
How can I find out the results of the voting at the Annual Meeting?
Preliminary voting results will be announced at the Annual Meeting. Final voting results will be published in our quarterly report on Form 10-Q for the second quarter of 2009.
PROPOSAL 1: ELECTION OF DIRECTORS
Our Board currently consists of six members. Our directors are divided into three classes serving staggered three-year terms. Class I, Class II, and Class III directors will serve until our annual meetings of shareholders in 2010, 2011 and 2012, respectively. The Board has nominated and proposes that each of Robert J. Grant, Mark E. Monroe and Ellis L. “Lon” McCain, whose terms as directors expire as of the Annual Meeting of Shareholders for 2009, be re-elected as a director for a term to continue until the 2012 Annual Meeting of Shareholders and until their successor has been elected and qualified, or until their earlier resignation or removal.
In April, 2008, the size of our Board was reduced from seven (7) members to six (6) members in order to account for the decision by Jack H. Stark not to stand for re-election at the 2008 Annual Meeting of Shareholders. In accordance with the Third Amended and Restated Certificate of Incorporation of Continental Resources, Inc. and the corporate governance guidelines of the NYSE, the Board intends to re-apportion its directors so as to make all classes as nearly equal in number as is practicable. In furtherance of this objective, following the election of the aforementioned directors, our Board anticipates that it will re-classify Mr. Robert J. Grant as a Class II director and, pursuant to this re-classification, Mr. Grant shall serve as a director for a term to continue until the 2011 Annual Meeting of Shareholders and until his successor has been elected and qualified, or until his earlier resignation or removal.
The election of a director requires the affirmative vote of a plurality of the shares of Common Stock voting in person or by proxy at the Annual Meeting. All proxies received by our Board will be voted, in the absence of instructions to the contrary, “For” the re-election of Messrs. Grant, Monroe and McCain to the Board.
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Should a nominee for election to the Board be unable to serve for any reason, the Board may, unless the Board by resolution provides for a lesser number of directors, designate a substitute nominee in which event all proxies received without instructions will be voted for the election of such substitute nominee. However, to the best knowledge of our Board, the named nominees will each serve if elected.
The Board recommends that the shareholders vote “FOR” the re-election of Robert J. Grant, Mark E. Monroe and Ellis L. “Lon” McCain to the Board.
The following outlines certain information about each of the director nominees as well as our other directors as of April 10, 2009:
| Name |
Age | Director Since |
Existing Term Expires | |||
| Harold G. Hamm |
63 | 1967 | 2010 | |||
| David L. Boren |
67 | 2009 | 2010 | |||
| Robert J. Grant |
70 | 2006 | 2009 | |||
| Lon McCain |
61 | 2006 | 2009 | |||
| Mark E. Monroe |
54 | 2001 | 2009 | |||
| H.R. Sanders, Jr. |
76 | 2001 | 2011 |
Harold G. Hamm has served as Chief Executive Officer (“CEO”) and a director since our inception in 1967 and currently serves as Chairman of the Board. In addition, Mr. Hamm assumed the position of President as of October 31, 2008. He serves as Chairman of the board of directors of the general partner of Hiland Partners LP, one of our affiliates and a NASDAQ publicly traded midstream master limited partnership, and he serves as Chairman of the board of directors of the general partner of Hiland Holdings GP, LP (“Hiland Holdings”), also publicly traded on NASDAQ. Hiland Holdings owns the general partner interest and units in Hiland Partners LP. Mr. Hamm also serves as a director of Complete Production Services, Inc., an NYSE publicly traded oil and gas service company. Mr. Hamm served as Chairman of the Oklahoma Independent Petroleum Association from June 2005 to June 2007. He was President of the National Stripper Well Association, founder and Chairman of Save Domestic Oil, Inc., and served on the board of the Oklahoma Energy Explorers.
David L. Boren has been a director since March 2009. Mr. Boren serves as President of the University of Oklahoma, a position he has held since November of 1994. Prior to becoming President of the university, he served in the United States Senate representing Oklahoma from 1979 to 1994. During his service in the Senate he was the longest serving Chairman of the U.S. Select Committee on Intelligence. From 1975 to 1979 Mr. Boren was Governor of Oklahoma. Before being elected Governor, he served 8 years in the Oklahoma House of Representatives. He engaged in the private practice of law from 1969 to 1974. He also served as a professor of Political Sciences at Oklahoma Baptist University from 1970 to 1974. In 1986, Mr. Boren founded the Oklahoma Foundation for Excellence, a private foundation which rewards and encourages excellence in public education. He continues to serve as its Chairman. He received his BA degree from Yale University in 1963, his Master’s Degree in Economics from Oxford University in 1965 as a Rhodes Scholar and his Juris Doctorate Degree from the University of Oklahoma in 1968. He previously served as a director of ConocoPhillips Inc. and Hiland Partners GP, LLC, the general partner of Hiland Partners, LP, and currently serves as a director of Texas Instruments, AMR Corporation and Torchmark Corporation.
Robert J. Grant has been a director since January 2006 and currently serves as Chairman of our Audit Committee. He was an audit partner of Deloitte & Touche LLP and a predecessor firm from 1969 to 2000. He served as partner in charge of the Dallas, Texas office audit department for ten years and a member of the firm’s audit management group for twelve years. He has been a member of the Independent Petroleum Association of America, the American Petroleum Institute, and the Texas Independent Producers and Royalty Owners Association, and currently is a member of the American Institute of Certified Public Accountants and the Texas Society of Certified Public Accountants. Mr. Grant graduated from the University of Detroit with a MBA and BA in accounting.
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Ellis L. “Lon” McCain has been a director since February 2006. He was Vice President, Treasurer, and Chief Financial Officer of Westport Resources Corporation, a publicly traded exploration and production company, from 2001 until the sale of Westport to Kerr McGee Corporation and his retirement in 2004. From 1992 until joining Westport in 2001, Mr. McCain was Senior Vice President and Principal of Petrie Parkman & Co., an investment banking firm specializing in the oil and gas industry. From 1978 until joining Petrie Parkman, Mr. McCain held senior financial management positions with Presidio Oil Company, Petro-Lewis Corporation, and Ceres Capital. He was an Adjunct Professor of Finance at the University of Denver from 1982 through 2005. Mr. McCain currently serves on the board of Crimson Exploration, Inc., a domestic exploration and production company traded on the OTC Bulletin Board, TransZap, Inc., a privately held provider of accounting software, and Cheniere Energy Partners, GP, LLC, the general partner of Cheniere Energy Partners, L.P., a publicly traded partnership. Mr. McCain received a Bachelor of Business Administration and a Masters of Business Administration/Finance from the University of Denver.
Mark E. Monroe has served as a director since November 2001. Mr. Monroe became President and Chief Operating Officer (“COO”) in October 2005 and resigned from such positions effective October 31, 2008. He was Chief Executive Officer and President of Louis Dreyfus Natural Gas Corp. prior to its merger with Dominion Resources, Inc. in October 2001. After the merger, Mr. Monroe was a consultant and served as a member of the Board of Directors of Unit Corporation, a NYSE publicly traded onshore drilling and oil and gas exploration and production company from October 2003 through October 2005. Prior to the formation of Louis Dreyfus Natural Gas Corp. in 1990, he was Chief Financial Officer of Bogert Oil Company. He has served as Chairman of the Oklahoma Independent Petroleum Association, served on the Domestic Petroleum Council and the National Petroleum Council, and on the boards of the Independent Petroleum Association of America, the Oklahoma Energy Explorers, and the Petroleum Club of Oklahoma City. Mr. Monroe is a Certified Public Accountant and received his Bachelor of Business Administration degree from the University of Texas at Austin.
H.R. Sanders, Jr. has been a director since November 2001 and currently serves as Chairman of our Compensation Committee. He served as a board member of Devon Energy Corporation from 1981 through 2000. In addition, he held the position of Executive Vice President for Devon Energy from 1981 until his retirement in 1997. From 1970 to 1981, Mr. Sanders was a Senior Vice President for Republic Bank of Dallas, N.A. with direct responsibility for independent oil, gas, and mining loans. Mr. Sanders is a former member of the Independent Petroleum Association of America, Texas Independent Producers and Royalty Owners Association, and Oklahoma Independent Petroleum Association, and a former director of Triton Energy Corporation and Toreador Resources Corporation.
We are a “controlled company” within the meaning of the listing standards of the NYSE because our Chairman, CEO and President, Harold G. Hamm, owns more than 50% of our outstanding shares of common stock. Consequently, we are not required to comply with certain of the NYSE listed company requirements, such as the requirement to have a majority of “independent” directors on our Board, or the requirement to have compensation and nominating committees comprised entirely of independent directors. However, we are required to have an independent Audit Committee under the NYSE’s listed company requirements. The Board uses the independence standards of the NYSE corporate governance rules for determining whether directors are independent. The Board additionally follows the rules of the SEC in determining independence for Audit Committee members. The Board has determined that prior to his resignation Mr. George S. Littell had, and Messrs. Grant, McCain, Boren and Sanders currently have, no relationship with the Company other than as a director and shareholder of the Company and are independent under these NYSE and SEC rules for purposes of service on the Board and its committees. Members of each committee are elected annually by the Board and serve for one-year terms, or until their successors are elected and qualified.
The Board held seven (7) meetings during the year ended December 31, 2008 and did not act by unanimous consent during such period. In March 2009, George S. Littell resigned from the Board and was subsequently
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replaced by Mr. David L. Boren. Mr. Littell did not serve on any standing committees of the Board during the year ended December 31, 2008. During such year, all directors attended at least 75% of the meetings of the full Board and the committees on which they served.
We do not have a specific policy regarding Board member’s attendance at annual meetings of shareholders. All directors attended the 2008 Annual Meeting of Shareholders and plan to attend the Annual Meeting. All actions taken by the shareholders prior to our initial public offering in May 2007 were taken by unanimous consent.
Our Board has two standing committees: an Audit Committee and a Compensation Committee. Each committee is governed by a written charter approved by the full Board. These charters form an integral part of our corporate governance policies, and a copy of each charter is available at our website, www.contres.com.
The table below provides the composition of each standing committee of our Board:
| Name |
Audit Committee | Compensation Committee | ||
| Harold G. Hamm |
X | |||
| Robert J. Grant |
X | |||
| Lon McCain |
X | X | ||
| H.R. Sanders, Jr |
X | X |
Audit Committee. The Audit Committee currently consisting of Messrs. Grant, McCain, and Sanders, with Mr. Grant serving as the Chairman. The Board, in its business judgment, has determined that each of the Audit Committee members qualifies as an “audit committee financial expert” within the meaning of the SEC’s rules and regulations and satisfies the standards of independence established by the SEC and the NYSE listing requirements. The report of the Audit Committee is set forth under “Ratification of Selection of Independent Registered Public Accounting Firm–Audit Committee Report” in this proxy statement.
The Audit Committee is appointed by our Board to assist it and to perform an oversight function by:
| • | selecting and overseeing our relationship with our independent registered public accounting firm; |
| • | reviewing with our independent registered public accounting firm the scope and results of our annual audit; |
| • | reviewing our financial statements and reports including Forms 10-K and Forms 10-Q; |
| • | reviewing all our significant financial reporting issues and practices; |
| • | monitoring our internal control policies; |
| • | establishing our procedures for receipt, retention, and treatment of complaints received by us regarding accounting, internal accounting control or auditing matters; |
| • | reviewing proposals of related party transactions; |
| • | reviewing our Code of Ethics; and |
| • | reviewing the performance of our internal audit function. |
Pursuant to its charter, the Audit Committee has the authority to retain outside counsel or other experts to advise the Audit Committee in connection with the exercise of its powers and responsibilities. In discharging its oversight role, the Audit Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company. The Audit Committee meets at least annually with our senior management, our manager of internal auditing and our independent auditors to discuss any matters that the Audit Committee or any of these groups believe should be discussed in private. The Audit Committee makes regular reports to the Board.
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In 2008, the Audit Committee discussed the interim financial information contained in each quarterly earnings announcement with the CFO and independent auditors prior to public release. The Audit Committee held 13 meetings during 2008.
Compensation Committee. The Compensation Committee currently consisting of Messrs. Hamm, McCain, and Sanders, with Mr. Sanders serving as the Chairman. The Board, in its business judgment, has determined that each of the members of the Compensation Committee, other than Mr. Hamm, satisfies the standards of independence established by the SEC and the NYSE listing requirements. The report of the Compensation Committee is set forth under “Executive Compensation and Other Information–Compensation Committee Report” in this proxy statement.
Pursuant to its charter, the responsibilities of the Compensation Committee are as follows:
| • | determine awards to employees of stock or other equity compensation; |
| • | establish performance criteria for and evaluate the performance of the CEO; |
| • | review and approve compensation of senior executives; and |
| • | review and make recommendations to the Board with respect to director compensation. |
During 2008, the Compensation Committee met four (4) times. The role that the Compensation Committee plays in establishing our executive officer compensation is further described below in “Executive Compensation and Other Information—Compensation Discussion and Analysis.”
If the Board so approves, the Compensation Committee has the sole authority to retain or terminate consultants, including the authority to approve the consultant’s fees and other retention terms. In 2008, the Compensation Committee employed Longnecker & Associates (“Longnecker”), whose engagement is described in the Compensation Discussion and Analysis section herein.
Corporate Governance Guidelines and Communications with the Board
We adopted Corporate Governance Guidelines and a Code of Ethics in accordance with the rules of the NYSE in May 2006. The Code of Business Conduct and Code of Ethics are applicable to all employees and directors, including our principal executive, financial, and accounting officers. In addition, each of the standing committees of the Board has a charter which has been approved by the full Board. Copies of the Corporate Governance Guidelines, Code of Ethics, and committee charters are available at our website, www.contres.com. In addition, printed copies of these documents are available to any shareholder who requests them from our Secretary. We intend to disclose amendments to, or waivers from, our Code of Ethics by posting to our website.
Our Corporate Governance Guidelines require that the non-management directors meet in regularly scheduled executive sessions. Mr. Littell was selected by the Board to preside and presided over such executive sessions in 2008. During 2008, one (1) executive session was held.
Any shareholder or interested party desiring to communicate with, or make any concerns known to, us, directors generally, non-management directors or an individual director only may do so by submitting them in writing to Continental Resources, Inc., Attn: Vice President of Investor Relations, 302 N. Independence, Enid, Oklahoma 73701, with information to identify the person submitting the communication or concern, including the name, address, telephone number, and an e-mail address (if applicable), together with information indicating the relationship of such person to us. Our Vice President of Investor Relations is responsible for maintaining a record of any such communications or concerns and submitting them to the appropriate addressee(s) for potential action or response. We will establish the authenticity of any communication or concern before forwarding. We are not obligated to investigate or forward any anonymous submissions from persons who are not our employees.
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Since we are a “controlled company” under the listing standards of the NYSE, the Board has, for the time being, decided against establishing a nominating committee. Our Corporate Governance Guidelines state that the entire Board is responsible for assessing the skills and characteristics of board members and for screening potential board candidates. We do not have established criteria for the nomination of directors or any specific minimum qualifications or skills that a nominee or board member must have. Our Corporate Governance Guidelines provide that we shall seek nominees for directors that have personal integrity, leadership experience and the ability and willingness to apply sound and independent judgment.
The process used by the Board for identifying and evaluating nominees for the Board consists of reviewing qualifications of candidates suggested by management, other board members, or shareholders. The Board will consider recommendations from shareholders for nomination as a Board member by any shareholder of the Company who is a shareholder of record at the time of giving notice to the Company as provided in the Company’s Bylaws and who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in our Bylaws. Such nominations shall be made pursuant to timely notice in writing to Continental Resources, Inc., Attn: Corporate Secretary, 302 N. Independence, Enid, Oklahoma 73701.
To be timely, a shareholder’s notice shall be delivered to or mailed and received at our principal executive offices (i) with respect to an election of directors to be held at the annual meeting of the shareholders of the Company, not later than ninety (90) days or more than one hundred twenty (120) days prior to the anniversary date of the proxy statement for the immediately preceding annual meeting of shareholders of the Company, provided, however, that if the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year’s annual meeting, to be timely, a shareholder’s notice must be so delivered not later than the close of business on the later of the ninetieth day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made, and (ii) with respect to a special meeting of shareholders called for the purpose of electing one or more directors to the Board, not earlier than the ninetieth day prior to such special meeting and not later than the close of business on the later of the seventieth day prior to such special meeting or the tenth day following the day on which public announcement of the date of the special meeting is first made. Such shareholder’s notice to the Secretary shall set forth (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director, all information relating to the person that is required to be disclosed in solicitations for proxies for election of directors, or is otherwise required, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including the written consent of such person to be named in the proxy statement as a nominee and to serve as a director if elected), and (b) as to the shareholder giving the notice (i) the name and address, as they appear on the Company’s books, of such shareholder, and (ii) the class and number of shares of capital stock of the Company that are beneficially owned by the shareholder.
There are no specific minimum qualifications for shareholder nominees. The Company has not previously received nominees from common shareholders and, accordingly, is unable to determine whether the process for evaluation of shareholder nominees differs from the process for evaluation of other nominees.
Compensation Committee Interlocks and Insider Participation
As stated above, Messrs. Hamm, McCain, and Sanders were the members of our Compensation Committee in 2007 and 2008. Mr. Hamm is a director and serves as our CEO and Chairman of the Board. Neither Mr. McCain nor Mr. Sanders has ever been an officer or employee of ours or any of our subsidiaries. Additionally, none of our executive officers serves or has served on the compensation committee of any entity that has one or more of such entity’s executive officers serving on our Board.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our Audit Committee’s charter provides that the Audit Committee shall review all related party transactions (as defined below) and recommend approval or disapproval to the Board of any such transaction.
For these purposes, a “related party transaction” is a transaction, proposed transaction, or series of similar transactions, in which (a) we are a participant, (b) the amount involved exceeds $120,000 and (c) a related person (as defined below) has or will have a direct or indirect material interest. A “related person” is (a) any person who is, or at any time since the beginning of our last fiscal year was, a director, executive officer, or nominee to become a director, (b) a person known to beneficially own 5% or more of any class of our voting securities, (c) an immediate family member of any of the foregoing persons (which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of such director, executive officer, nominee for director or greater than 5% beneficial owner, and (d) any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee for director or greater than 5% beneficial owner). The Audit Committee considers the adequacy of disclosure and fairness to us of the matters considered.
The Audit Committee adopted a written policy which includes factors for committee members to consider in exercising their judgment including (a) terms of the transaction with the related party, (b) availability of comparable products or services from unrelated third parties, (c) terms available from unrelated third parties and (d) the benefits to us. The Audit Committee recommends for approval only those related party transactions that are, in its judgment, in our best interests and on terms no less favorable to us than we could have achieved with an unaffiliated party.
Since January 1, 2008, we entered into the related party transactions described below. Based on recommendations from our Audit Committee, we believe that all such transactions are on terms no less favorable to us than we could have achieved with an unaffiliated party.
Crude Oil Sales
We operated crude oil gathering lines in North Dakota and Wyoming on behalf of Independent Trading & Transportation Company I, L.L.C. or a subsidiary thereof (“ITT”) for which they paid us approximately $332,000 during the year ended December 31, 2008. Our principal shareholder and his family own 100% of the common stock of both ITT and Banner Transportation, L.L.C. In addition, we paid ITT and Banner Transportation, LLC approximately $4.7 million for crude oil gathering and storage services in North Dakota, Montana, and Wyoming during the year ended December 31, 2008.
Natural Gas Sales
During the year ended December 31, 2008, we sold approximately 9,875 MMcf of natural gas for $64.7 million to affiliated entities. Included in this was the sale of approximately 9,835 MMcf of natural gas for $64.4 million to Hiland Partners, LP (“Hiland”), a publicly traded midstream master limited partnership. Our principal shareholder and his family trusts own the majority of the total outstanding units of Hiland and control its general partner. Our principal shareholder also serves as the Chairman of the Board of Hiland’s general partner. These sales also include 40 MMcf of natural gas sold for $0.3 million to Orbit Gas Transmission, Inc, (“Orbit”). A majority of Orbit is owned by our principal shareholder and his family trusts while a minority position is owned by another executive officer, Richard Straeter. Additionally, we paid approximately $17.5 million for reclaimed oil and residue fuel gas from such companies during the year ended December 31, 2008. We are generally
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prohibited, under the terms of an agreement with Hiland, from engaging in the gathering, treating, processing and transportation of natural gas in North America and buying or selling any assets related to the forgoing businesses until February 15, 2010.
On November 8, 2005, we entered into a contract with Hiland for the processing and treatment of gas produced from the Cedar Hills North Unit (“CHNU”) and Cedar Hills West Unit (“CHWU”). The terms of the contract provide that we will deliver low pressure gas to Hiland for compression, treatment and processing at a facility constructed by Hiland. Nitrogen and carbon dioxide must be removed from the gas production associated with the oil production from CHNU and CHWU. Under the terms of the contract, we pay $0.60 per Mcf in gathering and treating fees, and 50% of the electrical costs attributable to compression and plant operation and receive 50% of the proceeds from residue gas and plant product sales. After we deliver 36 Bcf of gas, the $0.60 per Mcf gathering and treating fee is eliminated. If the average composite volume of carbon dioxide is less than 10%, we pay a $0.093 per Mcf treating fee, otherwise the treating fee is $0.193 per Mcf. The plant became operational in August 2007.
Oilfield Services
During the year ended December 31, 2008, we paid approximately $72.5 million to Complete Production Services, Inc. (“Complete”), a service company providing oilfield services such as saltwater hauling and workover rigs. A portion of such amount was billed to other interest owners. Our principal shareholder serves on the board of directors of Complete and trusts formed by him currently own approximately 7.2% of the stock of Complete.
We entered into a strategic relationship agreement with Complete on October 14, 2004 in connection with the merger of our principal shareholder’s oil and gas service industry businesses with the predecessor in interest to Complete, Complete Energy Services, Inc. Pursuant to the strategic customer relationship agreement with Complete, we have agreed to use commercially reasonable efforts to provide Complete a first right to provide services or supplies required in our operations if such services or supplies can be provided on a timely basis and at competitive market prices. Complete has agreed to use commercially reasonable efforts to provide us with requested supplies and services ahead of and before any such supplies and services would otherwise be provided to any other customer who is not then being provided supplies and services pursuant to a binding agreement. The strategic customer relationship agreement can be terminated by either party on or after October 2009.
During the year ended December 31, 2008, we paid approximately $3.7 million for daywork drilling rig services provided by United Drilling Co. (“United”). A portion of such amounts was billed to other interest owners. United provided daywork drilling rig services for 12 wells in 2008. Our principal shareholder owns 100% of the common stock of United.
We signed a compression services agreement effective as of January 28, 2005 with Hiland covering the CHNU and South Medicine Pole Hills Unit whereby Hiland has agreed to provide to us on a monthly basis the quantities of compressed air and pressurized water that we request. We have agreed to provide, at no cost to Hiland, all fuel, whether gas or electric, and water, in the quantities necessary for Hiland to provide such services. The term of the contract is for four years from the effective date at a cost of approximately $402,000 per month. This contract expired in January 2009 and continues on a month-to-month basis. In 2008, we paid Hiland $4.8 million for rental, operation, and maintenance of the compression equipment. Under the agreement, Hiland is responsible for operating and maintaining the compression equipment. These services are currently being received and paid on a month to month basis.
During the first quarter of 2008, we paid approximately $349,000 for roustabout services to a company owned by a family member of the principal shareholder which he sold effective April 1, 2008. During the year ended December 31, 2008, we paid approximately $601,000 to Water Tech LLC, a company in which our principal shareholder owns a majority of the membership interest, for saltwater disposal, reclaimed oil and contract labor.
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Commercial Property Transactions
We lease approximately 81,000 square feet of office space from a company owned by our principal shareholder. The leases covering this space will expire at the end of February 2010. During the year ended December 31, 2008, rental amounts paid by us under the terms of the leases totaled approximately $804,000.
Royalty and Common Ownership
In 2008, we received $942,000 from the Harold G. Hamm Revocable Inter Vivos Trust (“Trust”) dated April 23, 1984 for billings on interests owned in various oil and gas wells which we operate. We also disbursed to the Trust $1.8 million in 2008 for the Trust’s share of oil and gas sales attributed to these interests which were received from the purchasers of production.
We received $383,000 from Richard Straeter, one of our executive officers, in 2008 for billings on various interests owned in oil and gas wells which we operate. Revenues from these interests were paid directly from the oil and gas purchaser.
Wheatland Oil Co. (“Wheatland”) is owned 75% by our principal shareholder and 25% by another executive officer, Mr. Jeffrey B. Hume. Wheatland participates in several of our oil and gas properties with interests generally ranging between 5% and 10% of our interest. During the year ended December 31, 2008, we disbursed oil and gas and other revenues of approximately $14.8 million and billed costs of approximately $12.9 million to Wheatland.
Registration Rights Agreement
In connection with the closing of our initial public offering in May 2007, we entered into a registration rights agreement with our principal shareholder and the two irrevocable trusts established for the benefit of Mr. Hamm’s children pursuant to which we granted to our principal shareholder and the trusts certain demand and “piggyback” registration rights.
Under the registration rights agreement, our principal shareholder and the trusts each has the right to require us to file a registration statement for the public sale of all of the shares of common stock owned by him or it, as applicable, at any time so long as at least six (6) months have passed since the last registration statement. In connection with a demand by one of the aforementioned parties, the non-demanding parties have the right to participate in such registration process. However, in the event that securities are to be sold in an underwritten offering pursuant to such demand registration statement and the managing underwriter thereof advises the participants that the amount of securities to be offered thereby should be limited, such limitation shall be satisfied first from the securities allocated to participants other than the demanding party.
In addition, if we sell any shares of our common stock in a registered underwritten offering, each of our principal shareholder and the trusts has the right to include his or its shares in that offering. The underwriters of any such offering have the right to limit the number of shares to be included in such sale.
We will pay all expenses relating to any demand or piggyback registration, except for underwriters’ or brokers’ commissions or discounts. The securities covered by the registration rights agreement will no longer be registerable under the registration rights agreement if they have been sold to the public either pursuant to a registration statement or under Rule 144 promulgated under the Securities Act.
NON-EMPLOYEE DIRECTOR COMPENSATION
The Compensation Committee reviews the total compensation paid to our non-employee directors annually. The purpose of the review is to ensure that the level of compensation is appropriate to attract and retain a diverse group of directors with the breadth of experience necessary to perform our Board’s duties, and to fairly
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compensate our directors for their service. This review includes the consideration of qualitative and quantitative factors. To ensure directors are compensated relative to the scope of their responsibilities, the Compensation Committee considers: (a) the time and effort involved in preparing for Board, committee and management meetings and the additional duties assumed by committee chairs; (b) the risks associated with fulfilling fiduciary duties; and (c) the compensation paid to directors at a peer group of companies as determined by the Compensation Committee’s compensation consultant.
The following table summarizes the compensation of non-employee directors in the year ended December 31, 2008.
| Name |
Fees Earned or Paid in Cash ($) |
Stock Awards ($) (1) |
All Other Compensation ($) (2) |
Total ($) | ||||
| Mark E. Monroe (3) |
8,917 | 25,818 | — | 34,735 | ||||
| Robert J. Grant |
64,250 | 168,912 | 690 | 233,852 | ||||
| George S. Littell (4) |
48,250 | 168,912 | 690 | 217,852 | ||||
| Lon McCain |
58,750 | 168,912 | 690 | 228,352 | ||||
| H.R. Sanders, Jr. |
62,750 | 168,912 | 690 | 232,352 |
| (1) | The amounts in this column represent the dollar amount recognized for financial statement reporting purposes for fiscal year 2008 in accordance with SFAS 123R “Shared Based Payment” for restricted stock awards. The amount recognized for financial statement reporting purposes is based on the grant date fair value of the awards, as modified for the price at which the initial public offering was declared effective, and the period upon which the awards vest. On January 9, 2007, 3,300 (after the 11-to-1 stock split which occurred May 14, 2007) shares of restricted stock were granted to each of Messrs. Grant, Littell, Sanders and McCain, which vested on January 1, 2008. On February 28, 2008, 10,000 shares of restricted stock were granted to each of Messrs. Grant, Littell, McCain and Sanders, which vest ratably over three years. On February 25, 2009, 3,333 shares of restricted stock were granted to each of Messrs. Grant, Littell, Sanders, and McCain, which vest January 2, 2012. On November 5, 2008, Mr. Monroe received 10,000 shares of restricted stock to vest equally over three years for his service as a non-employee director of the Company. |
| (2) | Amount represents dividends paid on restricted stock. |
| (3) | Mr. Monroe resigned from his position of President and COO effective October 31, 2008 and continues to serve as a director on the Board. For a discussion of Mr. Monroe’s compensation for the year ended December 31, 2008 for services as President and COO, please see “Executive Compensation and Other Information–Summary Compensation Table” below. |
| (4) | Mr. Littell resigned as a director on March 11, 2009 and forfeited his non-vested shares of restricted stock pursuant to the 2005 Plan (as defined below). |
Directors who are also full-time employees receive no compensation for serving as directors. We reimburse all directors for reasonable out-of-pocket expenses that they incur in connection with their services as directors in accordance with our general expense reimbursement policies.
Our 2008 cash compensation for non-employee directors consisted of an annual retainer in the amount of $40,000 in addition to the payment of $1,500 for each regular Board meeting and $750 for each special Board meeting attended. The chair of the Audit Committee is paid an annual retainer of $10,000; the chair of the Compensation Committee is paid an annual retainer of $5,000. Committee members other than the chairs of the committees are paid an additional retainer of $1,000. Members of the Audit and Compensation committees receive a $500 payment for each committee meeting attended.
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In addition to cash compensation, we have awarded and intend to award each of our non-employee directors restricted stock. In February 2008, we granted to each of our then non-employee directors 10,000 shares of restricted stock. Such restricted stock awards vest ratably over the course of three (3) years in January of such year. In November 2008, following his resignation as our President and Chief Operating Officer, we granted Mr. Monroe 10,000 shares of restricted stock as well. Such shares vest ratably over the course of three (3) years in November of each year. In April 2009, we granted Mr. Boren 10,000 shares of restricted stock which vest ratably over the course of three (3) years in April of each year. In February 2009, we granted 3,333 shares of restricted stock to each of our non-employee directors other than Messrs. Monroe and Boren, such shares to vest in January 2012. We anticipate that we will continue to grant to each of our non-employee directors shares of restricted stock annually, such shares to vest three years after the date of grant. The actual amount of any future award may be impacted by the value of our stock at that time and other relevant factors. Through the grant of such equity-based compensation, we are able to tie a portion of our non-employee directors’ compensation to the performance of our Common Stock.
In February 2008, the Board approved a common stock ownership requirement for non-employee directors. Each non-employee director is expected to own shares of our common stock with a market value equal to at least three times the base annual retainer.
Until the stock ownership guideline is achieved, each non-employee director is expected to retain 100% of the “net shares” received as a result of restricted shares granted under our 2005 Long-Term Incentive Plan (the “2005 Plan”). “Net shares” are the number of shares that remain after shares are sold or withheld to pay withholding taxes. The stock ownership calculation is determined as of each December 31 based upon the average closing price of the common stock for the year compared to the non-employee director’s base annual retainer as of such date. Shares owned directly by, or held in trust for, the non-employee director or his or her immediate family members residing in the same household and unvested restricted shares are included in the calculation. The Compensation Committee reviewed the non-employee directors’ stock ownership and determined that as of December 31, 2008, other than Mr. Boren (who was not a director at the time) each non-employee director was in compliance with the stock ownership guidelines.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Our current executive officers are named below:
| Name |
Age | Position | ||
| Harold G. Hamm |
63 | Chairman of the Board, Chief Executive Officer and President | ||
| Jeffrey B. Hume |
57 | Chief Operating Officer (“COO”) | ||
| John D. Hart |
41 | Vice President, Chief Financial Officer, and Treasurer | ||
| Jack H. Stark |
54 | Senior Vice President—Exploration | ||
| Gene R. Carlson |
55 | Senior Vice President—Resource Development | ||
| Tom E. Luttrell |
51 | Senior Vice President—Land | ||
| Richard H. Straeter |
50 | President—Eastern Division |
For a description of the business background and other information concerning Mr. Hamm see “Proposal 1: Election of Directors-General” above.
Jeffrey B. Hume became our Chief Operating Officer in November 2008 after serving as our Senior Vice President of Operations since November 2006. He was previously appointed as Senior Vice President of Resource and Business Development in October 2005, Senior Vice President of Resource Development in July
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2002, and served as Vice President of Drilling Operations from 1996 to 2002. Prior to joining us in May 1983 as Vice President of Engineering and Operations, Mr. Hume held various engineering positions with Sun Oil Company, Monsanto Company, and FCD Oil Corporation. Mr. Hume is a Registered Professional Engineer and member of the Society of Petroleum Engineers, Oklahoma Independent Petroleum Association, and the Oklahoma and National Professional Engineering Societies. Mr. Hume graduated from Oklahoma State University with a Bachelor of Science degree in Petroleum Engineering Technology in 1975.
John D. Hart became Vice President, Chief Financial Officer, and Treasurer in November 2005. Prior to joining us, he was a Senior Audit Manager with Ernst & Young LLP. Mr. Hart was employed by Ernst & Young LLP from April 1998 to November 2005 and by Arthur Andersen LLP from December 1991 to April 1998. He is a member of the American Institute of Certified Public Accountants, Oklahoma Society of Certified Public Accountants, and the Oklahoma Independent Petroleum Association. Mr. Hart graduated from Oklahoma State University with a Bachelor of Science in Accounting and Finance, and a Masters of Science in Accounting in 1991.
Jack H. Stark joined us as Vice President of Exploration in June 1992. Prior to joining us he was the exploration manager for the Western Mid-Continent Region for Pacific Enterprises. From 1978 to 1988, he held various staff and middle management positions with Cities Service Co. and TXO Production Corp. He is a member of the American Association of Petroleum Geologists, Oklahoma Independent Petroleum Association, Rocky Mountain Association of Geologists, Houston Geological Society, and Oklahoma Geological Society. Mr. Stark holds a Masters degree in Geology from Colorado State University. Mr. Stark served as a director from 1998 until his term expired in May, 2008. Mr. Stark is currently our Senior Vice President—Exploration, a position he has held since May 1998.
Gene R. Carlson became Senior Vice President—Resource Development in February 2009 after serving as Vice President – Resource Development since October 2005. He was an oil and gas consultant from March 2003 to October 2005 and a founder and Chief Operating Officer for Encore Acquisition Company from its inception in April 1998 to March 2003. Mr. Carlson graduated from Texas A&M University with a Bachelor of Science degree in Mechanical Engineering.
Tom E. Luttrell joined us as Senior Landman in April 1991 and was promoted to Senior Vice President—Land in February 1997. Prior to joining us, Mr. Luttrell was a Senior Landman for Alexander Energy Corp. and Pacific Enterprises Oil Corp. Mr. Luttrell is currently a member of the Oklahoma Independent Petroleum Association legislative affairs committee. He is also a member of the Oklahoma Energy Explorers, American Association of Petroleum Landmen, and several regional landman associations. Mr. Luttrell graduated from East Central Oklahoma State University in 1980 with a Bachelor of Business Administration. Mr. Luttrell is a past Chairman of the Northern Alliance of Independent Producers.
Richard H. Straeter became President—Eastern Division in October 2006. He was previously appointed as President of Continental Resources of Illinois, Inc. (“CRII”) in April 2002. For approximately one year between 2005 and 2006 he served as the interim President of Orbit Gas Transmission. Prior to joining CRII, Mr. Straeter was employed by Barger Engineering, Inc. for 18 years as an engineering consultant and Vice President. He is a Registered Professional Engineer in Indiana, Illinois, Kentucky, and Tennessee. Mr. Straeter is a past Chairman of the Illinois Basin Society of Petroleum Engineers and serves as a member of the National Petroleum Council, the Illinois Oil & Gas Association Board, and the Ohio, Indiana, Kentucky, and Michigan Oil and Gas Associations. Mr. Straeter earned his Bachelor of Science degree in Petroleum Engineering in 1983 and a Professional Engineering Degree (Honorary Masters) in 2004 from the University of Missouri-Rolla.
Compensation Discussion and Analysis
Overview
Prior to the completion of our initial public offering in May 2007, we operated as a private company controlled by Harold G. Hamm, our founder, principal shareholder, Chairman of the Board, and CEO. From our
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inception until the formation of the Compensation Committee in February 2006, Mr. Hamm had been solely responsible for reviewing and approving all compensation decisions relating to our executive officers. Mr. Hamm currently serves as a member of our Compensation Committee.
Compensation Committee
The Compensation Committee is currently responsible for implementing and administering all aspects of our benefit, compensation plans, and programs for our executive officers. The Compensation Committee annually reviews and determines the individual elements of total compensation of the named executive officers (“NEOs”)1 who appear in the compensation tables of this Proxy Statement. The Compensation Committee’s charter can be found in the Corporate Governance section of our website at www.contres.com. A printed copy of the charter will be made available to any shareholder who requests it from our Secretary.
In 2007 and 2008, the Compensation Committee retained the services of an independent compensation consulting firm, Longnecker. Longnecker reports directly to the Compensation Committee. During 2007 and 2008, the consulting firm provided an analysis of market compensation based upon its review of compensation paid by exploration and production companies similar in revenues, total assets, and market capitalization to us. Longnecker has provided no other services for us other than the compensation study.
Since Mr. Hamm beneficially owns a substantial majority of our outstanding shares of Common Stock and is our CEO, he has a substantial amount of input and decision-making authority regarding the compensation of our executive officers. Initially, the Compensation Committee as well as our COO review the Longnecker report regarding the analysis of market compensation. Mr. Hamm and our COO are then responsible for making recommendations of compensation for individual executive officers of the Company, other than themselves. With respect to each of Mr. Hamm and our COO, our COO and Mr. Hamm, respectively and individually, make recommendations for the other’s compensation amounts. In making recommendations for executive officer compensation, Mr. Hamm and our COO primarily rely on the Longnecker report, but also take into account factors including, but not limited to, the following:
| • | the overall performance of the Company; |
| • | such executive’s contribution to the overall performance of the Company; |
| • | such executive’s business responsibilities; |
| • | such executive’s current compensation arrangements; and |
| • | such executive’s ability to enhance the ability of the Company to generate long-term shareholder value. |
Please read “-Implementing Our Objectives” below. Once Mr. Hamm and our COO have made their compensation recommendations, the Compensation Committee reviews their recommendations and makes such changes as they feel appropriate, if any, to adequately meet our compensation objectives on an individual basis, as discussed below under “-Compensation Objectives.” With respect to the recommendation of our COO as to Mr. Hamm’s compensation, such recommendation is reviewed by all of the members of the Compensation Committee other than Mr. Hamm. Once this review has occurred, the entire Compensation Committee reviews and approves Mr. Hamm’s compensation; no further adjustments are made to Mr. Hamm’s compensation once his compensation is set by the members of the Compensation Committee other than himself.
| 1 | For years 2006 and 2007 our NEOs were Messrs. Hamm, Monroe, Hart, Hume and Stark and our NEO information presents the compensation information of these individuals. Due to the resignation of Mr. Monroe, NEO information for 2008 presents the compensation information of not only these individuals but also Mr. Carlson. |
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Compensation Objectives
We are engaged in oil and natural gas exploration and exploitation activities in the Rocky Mountain, Mid-Continent, and Gulf Coast regions of the United States. Our primary business goal is to increase shareholder value by finding and developing crude oil and natural gas reserves at costs that provide an attractive rate of return on our investment. We operate in a highly competitive environment for acquiring properties, marketing crude oil and natural gas, and securing trained personnel. We believe that the loss of the services of our senior management or technical personnel could have a material adverse effect on our operations. Accordingly, we have designed our executive compensation program to attract, retain, and motivate experienced, talented individuals to achieve our primary business goal, using the business strategies discussed in greater detail in our Annual Report on Form 10-K.
Implementing Our Objectives
Determining Compensation. We rely upon our judgment in making compensation decisions, after considering the recommendations of our independent compensation consultant, Longnecker, reviewing the performance of the Company, and evaluating an NEO’s contribution to that performance, including his business responsibilities, current compensation arrangements, and long-term potential to enhance shareholder value. Specific operational and financial factors affecting compensation decisions for our NEOs include stock price performance, reserve additions, finding and development costs, production volume and costs, earnings, cash flow, operating income, and return on equity. We have not assigned specific individual goals to our NEOs that are used by the Compensation Committee in the determination of compensation for such officers.
We do not apply rigid formulas in determining the amount and mix of compensation elements. Because our compensation arrangements are relatively simple, and we do not have complex equity plans, or significant change of control or severance obligations, the Compensation Committee does not use tally sheets in analyzing the compensation of our NEOs, but does review each element of compensation as described in this Proxy Statement in evaluating and approving the total compensation of each of our NEOs. As described below, we rely on the formulaic achievement of financial goals only when establishing the aggregate bonus pool from which bonuses may be paid to the NEOs, and even in this circumstance the Compensation Committee may allocate more or less than the formulaic amounts at its discretion. We consider competitive market compensation paid by other companies similar in size and operations to us, but we do not attempt to maintain a certain target percentile within that survey group or otherwise exclusively rely on those data to determine compensation for the NEOs. We incorporate flexibility into our compensation programs and in the assessment process to respond to and adjust for the evolving business environment.
The total compensation of the CEO, which is significantly higher than our other NEOs (except as otherwise described below relating to the compensation of Mr. Monroe), reflects his critical role in the founding and development of the Company as well as the future success of the Company. Likewise, the compensation of Mr. Monroe was at higher levels than our other NEOs is described in more detail below in “Elements of Compensation—Long-Term Incentive Bonus.”
Compensation Survey Group. The companies used in our 2006 compensation survey group (“2006 Survey Group”) were Bill Barrett Corporation, Denbury Resources Inc., Encore Acquisition Company, Quicksilver Resources Inc., Range Resources Corp., Southwestern Energy Company, and St. Mary Land and Exploration Company. The compensation consulting firm suggested that the survey group be expanded in 2007. After consultation with the firm, we added Cabot Oil & Gas Corporation, Comstock Resources Inc., EXCO Resources Inc., Forest Oil Corp., Petrohawk Energy Corporation, and Plains Exploration & Production Co. to the 2006 Survey Group to comprise the 2007 and 2008 compensation survey group (the “2007 Survey Group” and the “2008 Survey Group,” respectively). We selected these companies because they are publicly traded exploration and production companies similar in size and operations to us.
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The principal elements of our compensation program are a base salary, an annual cash bonus, and a long-term incentive award. All base salary adjustments, annual cash bonuses, and long-term incentive awards for NEOs have been determined on a discretionary basis and have not been linked to the achievement of specific corporate goals or objectives.
Base Salary. The objective of the base salary component is to attract and retain officers by paying a competitive wage commensurate with such officer’s experience, skills, and responsibilities. From January 1, 1999 until September 15, 2004, Mr. Hamm elected not to receive a salary or annual bonus. In September 2004, he began to draw an annual salary of $350,000. On January 1, 2006, Mr. Hamm’s annual salary was increased to $700,000. Mr. Hamm’s base salary was not increased in 2007 but was increased to $735,000 for 2008. Our compensation consulting firm reported that the 50th and 75th percentile amounts for base salaries for the comparable position in the 2008 Survey Group were $542,558 and $582,604, respectively.
Mr. Monroe’s initial base salary of $450,000 per year was established through negotiations with him in connection with his hiring in October 2005. Mr. Monroe’s base salary was increased 5% to $472,500 per year in November 2007. Mr. Monroe’s base salary did not increase in 2008. Our compensation consulting firm reported that the 50th and 75th percentile amounts for base salaries for the comparable position in the 2008 Survey Group were $348,788 and $389,171, respectively.
With respect to our other NEOs, Mr. Hamm recommends to the Compensation Committee for approval the base salaries of the other officers. In establishing the base salaries for the other officers, Mr. Hamm and the Compensation Committee consider the compensation paid to named executive officers by the survey groups. However, we do not attempt to maintain a certain target percentile within the survey groups.
During 2006, the aggregate base salaries for our NEOs, excluding Messrs. Hamm and Monroe, increased 7.81% in order to satisfy our objective of paying salaries at competitive levels. As reported in the proxy statements of the 2006 Survey Group, the average base salary paid in 2005 ranged from $247,000 to $204,000 for the third highest-paid named executive officer through the fifth highest-paid named executive officer. This compares to a base salary range of $232,500 to $225,577 paid to our third through fifth-highest paid NEO.
During 2007, the aggregate base salaries for our NEOs, excluding Messrs. Hamm and Monroe, increased 5.6% in order to satisfy our objective of paying salaries at competitive levels. Our compensation consulting firm reported that the 50th percentile amounts for base salaries for the third highest paid named executive officer through the fifth-highest paid named executive officer in the 2007 Survey Group ranged from $260,942 to $234,813. This compares to a base salary range of $241,731 to $241,154 paid to our third through fifth-highest paid NEO.
During 2008, the aggregate base salaries for our NEOs, excluding Messrs. Hamm, Monroe and Carlson, increased 7.04% in order to satisfy our objective of paying salaries at competitive levels. Our compensation consulting firm reported that the 50th percentile amounts for base salaries for the third highest paid named executive officer through the fifth highest paid named executive officer in the 2008 Survey Group ranged from $305,727 to $253,757. This compares to a base salary range of $270,000 to $245,000 paid to our third through fifth highest paid NEO. The base salaries paid to our NEOs for the fiscal year ended December 31, 2008 are set forth below in the summary compensation table, see “–Summary Compensation Table.”
In the future, we expect that the base salaries of the NEOs will be reviewed on an annual basis and adjusted as necessary to remain competitive. We expect that future base salary adjustments for such officers will be comparable to future adjustments made to executive officer base salaries by the 2008 Survey Group.
Annual Cash Bonus. Our NEOs may earn annual cash bonuses as a reward for our subjective evaluation of their individual contribution to the achievement of annual financial and operating results. The individual cash
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bonuses paid to the NEOs for 2008 and prior years have been determined on a discretionary basis. Annual cash bonus differences are based on Mr. Hamm, our COO and the Compensation Committee’s subjective evaluation of the relative individual contribution to the achievement of our annual financial and operating results as well as the performance of that individual’s segment of the Company (i.e. drilling, exploration, financial, resource development).
Annual cash bonuses to all of our executive officers, including the NEOs, are paid from a bonus pool that is equal to 0.375% of net income. Prior to our conversion from an S-corporation to a C-corporation, net income was reduced by 35% percent as an adjustment for income taxes not charged against book income. If the conditions described below are met, the annual aggregate bonus pool for executive officers will be equal to 0.375% of earnings before interest expense, depreciation, depletion, amortization and accretion, property impairments, unrealized derivative gains or losses, and non-cash compensation expense (“EBIDA”), which results in a larger cash pool from which bonuses may be paid. We consider EBIDA to be a strong indicator of operating performance. The conditions that must be satisfied for the bonus pool to be established based on EBIDA rather than adjusted net income are:
| • | an increase in equivalent production for the current year compared to the prior year, and |
| • | proved reserve additions from drilling activities of at least 120 percent of production. |
During 2006, the first condition was satisfied as production increased 25% over the 2005 level. However, the second condition was not fully achieved as reserve additions from drilling activities were only 111% of production. In January 2007, we elected, with the approval of the Compensation Committee, to fund the bonus pool at 119% of the EBIDA level. In approving the larger bonus pool, our Compensation Committee considered several operational and financial criteria, including reserve additions, finding and development costs, production volume and costs, earnings, cash flow, operating income, and return on equity. The criteria considered are not weighted, but are viewed collectively. The decision to waive the proved reserve condition was consistent with our compensation philosophy of examining several operational and financial criteria in determining annual cash bonuses.
During 2007, both conditions were satisfied as production increased 18% over the 2006 level and reserve additions from drilling activities were 223% of production. In 2008, aggregate bonuses were awarded to the executive officers equal to 100% of the EBIDA pool.
During 2008, both conditions were satisfied as production increased 13% over the 2007 level and reserve additions from drilling activities were 397% of production. In 2009, aggregate bonuses were awarded to the executive officers equal to 85% of the EBIDA pool.
We expect that our annual cash bonus pool in the future will be funded on the basis of EBIDA as warranted by our overall operational, financial, and stock performance even though one or both of the current bonus plan conditions are not satisfied. As a result, satisfaction of the criteria required for funding the bonus pool on the basis of EBIDA may be waived frequently in the future.
The bonus amount for each NEO is determined at the discretion of the Compensation Committee. In addition, the Compensation Committee may elect to award annual cash bonuses to NEOs in an aggregate amount that exceeds the amount calculated from net income or EBIDA. Based upon a market analysis of annual cash bonuses paid by the 2008 Survey Group, our compensation consulting firm recommended annual bonus targets, as a percent of base salary, of 100% for the CEO, 85% for the COO, and 75% for the other NEOs. The annual bonuses for 2008 awarded, as a percent of base salary, were 74% for the CEO, 74% for the COO and 74%, 69% and 69% for the three remaining NEOs.
Annual cash bonuses for the NEOs are determined after completion of the year-end audited financial statements and reserve report. We have not adopted a policy regarding the adjustment or recovery of previously
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paid annual cash bonuses in the event our net income or EBIDA, as applicable, are restated or otherwise adjusted in a manner that would have the effect of reducing the size of the aggregate annual cash bonus pool.
Long-Term Incentive Bonus. Mr. Monroe is the only NEO that has been granted a long-term incentive bonus. Mr. Monroe’s long-term incentive bonus was established through negotiations with him in connection with his hiring in October 2005. The accrual for the long-term incentive bonus to be paid to Mr. Monroe in October 2008 pursuant to his employment agreement, which is described in detail below in “—Employment Agreement,” was $1,227,085 in 2006. This amount is reported in the non-equity incentive plan compensation column of the Summary Compensation Table. As provided by the employment agreement, the long-term incentive bonus works in conjunction with his restricted stock awards to provide an aggregate long-term equity and cash amount over the three-year term. As a result of our stock price increasing to $26.13 per share as of December 31, 2007, the amount previously accrued was reduced by $1,650,599 in 2007. In accordance with SEC staff interpretive guidance, only the previously expensed portion of the long-term incentive bonus award that was previously reported in the Summary Compensation Table for 2006 is reversed in the Summary Compensation Table for 2007. A long-term incentive bonus of $92,884 was paid to Mr. Monroe in connection with the completion of his three-year employment term in October 2008 as provided for by his employment agreement. The formula for calculating the long-term incentive bonus was determined through employment agreement negotiations with Mr. Monroe and is reflected in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table below in “—Summary Compensation Table.”
Mr. Monroe’s total compensation in 2006, as set forth below under “Summary Compensation Table”, was materially more than the other NEO’s total compensation due principally to the accrual for a long-term incentive bonus potentially payable to him if he remained employed by us through October 20082. Mr. Monroe was recruited by us in anticipation of our initial public offering. His background includes experience as a chief executive officer of a public NYSE-traded exploration and production company with operations and proved reserves larger than our current size. None of our other NEOs has similar experience.
Long-Term Incentive Awards. The objective of our long-term incentive awards is to retain and motivate our executives over the long-term. Each of our NEOs was initially granted restricted stock vesting over a three-year period during 2005. The number of restricted shares, vesting period, and other terms of the 2005 grants to individual executive officers was determined based upon the judgment of Mr. Hamm taking into account the factors described above under “—Implementing Our Objectives—Determining Compensation.” We did not grant any long-term incentive awards to our executive officers during 2006. In November 2007, we granted 250,000 shares of restricted stock to the NEOs, which vest 50% in 2009 and 50% in 2010. In November 2008, we granted 129,200 shares of restricted stock to the NEOs, which vest in 2011. The grants made in 2007 and 2008 are more fully described below under “—Grant of Plan Based Awards.”
The long-term incentive award for each NEO is determined at the discretion of the Compensation Committee. Differences in long-term incentive awards are based on the Compensation Committee’s subjective evaluation of the expected relative individual contribution to the achievement of our long-term financial and operating results. The value of unvested equity awards held by an individual was considered in the determination of the 2008 restricted stock awards and we expect that the value of unvested equity awards will be a factor in future awards.
Based upon a market analysis of annual long-term incentive awards granted by the 2008 Survey Group, our compensation consulting firm recommended annual long-term incentive award targets, as a percent of base salary, of 275% for the CEO, 250% for the COO and 150% for the other NEOs. The long-term incentive amounts for 2008, as a percent of base salary, were 235% for the CEO, 150% for the COO and 125%, 116% and 103% for the three remaining NEOs.
| 2 | In October 2008 Mr. Monroe, having fulfilled the terms of the employment agreement, was paid a long-term bonus pursuant to the terms of his employment agreement. |
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The awards granted to NEOs have been in the form of stock options and restricted stock designed to motivate the officers to increase the value of our common stock. The vesting provisions of the awards encourage our officers to remain in our employ in order to realize these forms of compensation. A description of our 2005 Plan and the types of awards that may be granted are described below under “- Employee Benefit Plans.”
Although our 2005 Plan allows for various equity instruments, we currently intend to make future grants in the form of restricted stock. We intend to grant restricted stock because we believe restricted stock is a stronger motivational tool for employees. Restricted shares provide some value to an employee during periods of stock market volatility, while stock options may have limited perceived value and may do little to retain and motivate employees when the current value of our stock is less than the option price. We have not established a policy with respect to the timing of long-term incentive awards to NEOs. We have also not adopted any policies regarding hedging the economic risk of common stock ownership.
In February 2008, the Compensation Committee adopted a common stock ownership requirement for the CEO, President, Chief Financial Officer, and the Senior Vice Presidents. Each such officer is expected to own shares of our common stock at least equal to a specified multiple of such officer’s base salary. This policy was subsequently amended to impose these ownership requirements on the COO as well. The base salary multiples are five times for the CEO, COO, and President and three times for the other officers.
Until the stock ownership guideline is achieved, each such officer is expected to retain 100% of the “net shares” received as a result of restricted shares granted under our 2005 Plan. “Net shares” are the number of shares that remain after shares are sold or withheld to pay withholding taxes. The calculation is determined as of each December 31 based upon the average closing price of the common stock for the year compared to the officer’s base salary as of such date. Shares owned directly by, or held in trust for, the officer or his or her immediate family members residing in the same household and unvested restricted shares are included in the calculation.
The Compensation Committee will review the compliance of each NEO with the stock ownership guidelines each year and reduce or eliminate future restricted stock grants under the 2005 Plan for any NEO not in compliance with the stock ownership guidelines. The Compensation Committee reviewed the NEOs’ stock ownership for 2008 and determined each NEO was in compliance with the guidelines.
The stock option awards provide for immediate vesting in the event of a change in control of the Company, as defined by the 2000 Plan, or the death of Mr. Hamm, so long as he holds 35% or more of our stock. The restricted stock awards provide for immediate vesting upon a change in control, as defined by the 2005 Plan. Employees who remain in our employment after a change in control will immediately vest in their stock option and restricted stock awards. We would likely need the assistance of several key employees to successfully conclude a transaction that would result in a change of control. We believe that immediately vesting the awards may serve to reduce concerns, other than continued employment, that such employees may have with respect to any potential change in control transaction and may motivate them to complete the transaction.
Our 2005 Plan allows for the award of performance units and bonuses that vest upon achievement of performance targets. The performance targets are based upon operational, financial, and stock performance criteria, such as reserve additions, finding and development costs, production volume and costs, earnings, cash flow, operating income, return on equity, stock price appreciation, and relative stock price performance. We have not awarded performance units or bonuses under the 2005 Plan and have not determined if we will do so in the future.
Other. Our other compensation is designed to attract and retain employees by enhancing our overall compensation package. We provide automobiles to the NEOs, other than Mr. Carlson, and certain other employees for business and personal use. The personal use is valued according to IRS guidelines and reported as taxable income to the individuals. We value vehicle usage for disclosure in our public filings based upon the aggregate incremental cost to us adjusted to reflect each individual’s personal use of the vehicle.
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We allow Mr. Hamm to use the corporate aircraft for personal trips. The value of such trips is calculated according to IRS guidelines and reported as taxable income to him. Aircraft usage is valued for disclosure in our public filings based on the aggregate incremental cost to us.
We have a defined contribution retirement plan (“401K”) covering all our full-time employees, including the NEOs. Our contributions to the plan are discretionary and based on a percentage of eligible compensation, excluding bonuses. Our contribution to the plan for each eligible employee during 2008 was 5% of such employee’s covered compensation up to a maximum of $11,500. We currently plan to maintain the contribution level at 5% for 2009 and future years.
All full-time employees, including the NEOs and non-employee directors, may participate in our health and welfare benefit programs, including medical, dental, and vision care insurance and disability insurance. We provide all full-time employees, including the NEOs, with insurance coverage of the lesser of 1.5 times base salary or $50,000 and allow them to purchase incremental amounts above this. We do not sponsor any qualified or non-qualified defined benefit plans.
Our insider trading policy states that executive officers, including the NEOs and directors, may not purchase or sell puts or calls to sell or buy our stock, engage in short sales with respect to our stock or buy our securities on margin or pledge our securities as collateral for a loan. The purchase or sale of stock by our officers and directors may only be made during a window of time described in our policy and approved by our general counsel.
Impact of Accounting and Tax Treatment
We believe it is important to have flexibility in designing the compensation program in a manner to achieve the objectives described above under “—Compensation Objectives.” Therefore, while we consider the accounting and tax treatment of certain forms of compensation in the design of our compensation program, the accounting and tax treatment is not a determinative factor.
Under section 162(m) of the Internal Revenue Code, a publicly-held company can deduct for federal tax purposes no more than $1 million of annual compensation paid to its principal executive officer and each of its three other most highly-paid officers other than the principal financial officer. The section 162(m) restriction applies to salary, bonuses, and other compensation not directly tied to performance. Our compensation program does not meet the requirements for tax deductibility of annual compensation in excess of $1 million because (i) compensation is not payable solely on account of the attainment of one or more performance goals and (ii) our Compensation Committee is not solely comprised of directors who are not current employees.
Compensation attributable to awards under our 2005 Plan and the employment agreement with Mr. Monroe should be excluded from the deduction limit calculation due to a provision that maintains deductibility of compensation paid under a plan or agreement that existed while a company was private. This exclusion lasts until the earlier of (i) the expiration or material modification of the plan or agreement or (ii) the annual shareholder meeting in 2011.
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The following table sets forth the compensation of our Principal Executive Officer, Principal Financial Officer, the other three most highly compensated executive officers and our recently resigned President and COO. We refer to these six individuals collectively as the “NEOs” for 2008.
| Name |
Year | Salary ($) |
Bonus ($) |
Stock Awards ($) (1) |
Non-Equity Incentive Plan Compensation ($) |
All Other Compensation ($) (6) |
Total ($) | ||||||||||
| Harold G. Hamm Chairman of the Board, Chief Executive Officer and President |
2008 2007 2006 |
732,308 700,000 686,539 |
|
540,509 235,000 200,000 |
2,078,176 1,285,113 1,353,485 |
|
— — — |
|
189,125 139,220 95,597 |
3,540,118 2,359,333 2,335,621 | |||||||
| Mark E. Monroe Former President and Chief Operating Officer (2) |
2008 2007 2006 |
441,833 452,596 |
(3) |
— 205,000 175,000 |
242,344 1,101,073 |
(4) |
92,884 (1,227,085 1,227,085 |
(5) ) (5) (5) |
69,123 69,509 49,537 |
846,184 601,093 3,094,418 | |||||||
| John D. Hart Vice President, Chief Financial Officer, and Treasurer |
2008 2007 2006 |
261,154 241,154 225,577 |
|
180,000 150,000 125,000 |
404,661 259,678 259,415 |
|
— — — |
|
28,122 29,662 22,764 |
873,937 680,494 632,756 | |||||||
| Jeffrey B. Hume Chief Operating Officer |
2008 2007 2006 |
270,192 241,731 228,154 |
|
199,426 180,000 160,000 |
384,051 203,022 203,029 |
|
— — — |
|
28,941 28,398 18,858 |
882,610 653,151 610,041 | |||||||
| Jack H. Stark Senior Vice President—Exploration |
2008 2007 2006 |
267,115 241,731 232,500 |
|
197,155 175,000 155,000 |
379,995 203,022 160,009 |
|
— — — |
|
28,359 31,971 27,094 |
872,624 651,724 574,603 | |||||||
| Gene R. Carlson Senior Vice President—Resource Development |
2008 | 245,577 | 170,000 | 331,760 | — | 22,232 | 769,569 | ||||||||||
| (1) | Stock award amounts represent the dollar amount of compensation recognized by the Company for financial statement reporting purposes with respect to the fiscal year in accordance with SFAS 123(R). Initial grants of restricted stock awards were made in 2005 and vest ratably over three (3) years. See “—Grant of Plan Based Awards” for additional grants made in 2008. |
| (2) | Mr. Monroe resigned from his position as President and COO effective October 31, 2008. |
| (3) | Excludes fees earned or paid in cash to Mr. Monroe for service as a non-employee director following his resignation as President and COO of the Company. See “Non-Employee Director Compensation.” |
| (4) | Excludes the value of shares granted to Mr. Monroe as non-employee director compensation following his resignation as President and COO of the Company. See “Non-Employee Director Compensation.” |
| (5) | Under the terms of his employment agreement, as described below under “—Employment Agreement,” Mr. Monroe was entitled to receive a long-term incentive bonus on October 2, 2008. The bonus was determined by multiplying 193,875 by the excess of $30.91 over the closing price for a share of our common stock on the NYSE on October 2, 2008. We valued this obligation over the vesting period by the excess of $30.91 over the closing price for a share of our common stock on the NYSE at each period end. Subject to certain conditions as described herein under Employment Agreement, Mr. Monroe was required to be employed on October 2, 2008, otherwise the bonus was forfeited. During 2007, our stock price rose to $26.13 as of December 31, 2007 resulting in a decrease in the liability and corresponding compensation expense associated with Mr. Monroe’s long-term incentive bonus of $1,650,599. For purposes of this table |
| the decrease in 2007 is limited to the 2006 compensation expense in accordance with applicable SEC staff |
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| guidance. In October 2008 Mr. Monroe, having fulfilled the terms of the employment agreement, was paid a long-term bonus in the amount of $92,884. |
| (6) | All Other Compensation includes the following elements: |
| Name |
Year | Personal Use of Company Aircraft ($) (1) |
Personal Use of Company Vehicle ($) (2) |
Contributions to 401(K) Plan ($) |
Cash Dividends Paid on Restricted Stock ($) |
Total ($) | ||||||
| Harold G. Hamm |
2008 | 112,583 | 640 | 11,500 | 64,401 | 189,124 | ||||||
| 2007 | 55,035 | 8,534 | 11,250 | 64,401 | 139,220 | |||||||
| 2006 | 36,527 | 7,670 | 11,000 | 40,400 | 95,597 | |||||||
| Mark E. Monroe |
2008 | — | 871 | 11,500 | 56,753 | 69,124 | ||||||
| 2007 | — | 1,507 | 11,250 | 56,752 | 69,509 | |||||||
| 2006 | — | 2,934 | 11,000 | 35,603 | 49,537 | |||||||
| John D. Hart |
2008 | — | 3,742 | 11,500 | 12,881 | 28,123 | ||||||
| 2007 | — | 5,531 | 11,250 | 12,881 | 29,662 | |||||||
| 2006 | — | 8,165 | 6,519 | 8,080 | 22,764 | |||||||
| Jeffrey B. Hume |
2008 | — | 7,781 | 11,500 | 9,660 | 28,941 | ||||||
| 2007 | — | 7,488 | 11,250 | 9,660 | 28,398 | |||||||
| 2006 | — | 1,798 | 11,000 | 6,060 | 18,858 | |||||||
| Jack H. Stark |
2008 | — | 7,199 | 11,500 | 9,660 | 28,359 | ||||||
| 2007 | — | 11,061 | 11,250 | 9,660 | 31,971 | |||||||
| 2006 | — | 10,034 | 11,000 | 6,060 | 27,094 | |||||||
| Gene R. Carlson |
2008 | — | — | 11,500 | 10,732 | 22,232 | ||||||
| (1) | We calculate the incremental cost to the Company of any personal use of the corporate aircraft based on the cost of fuel, trip-related maintenance, crew travel expenses, on-board catering, landing fees, trip-related hangar and parking costs, and smaller variable costs. Since the Company-owned aircraft are used primarily for business travel, we do not include the fixed costs that do not change based on usage, such as pilots’ salaries and the purchase costs of the Company-owned aircraft. |
| (2) | We calculate the incremental cost to the Company of any personal use of the Company vehicles, including fuel, maintenance, insurance, lease payments and depreciation, as the vehicles are used primarily for personal use. |
The following table reflects information concerning awards of restricted stock granted to our NEOs during the fiscal year ending December 31, 2008 under the Company’s 2005 Plan.
| Name |
Grant Date | Stock Awards: Number of Shares |
Grant Date Fair Value of Stock Awards ($) (1) | |||
| Harold G. Hamm |
11/5/2008 | 68,000 | 1,723,800 | |||
| Mark E. Monroe (2) |
— | — | — | |||
| John D. Hart |
11/5/2008 | 12,000 | 304,200 | |||
| Jeffrey B. Hume |
11/5/2008 | 16,000 | 405,600 | |||
| Jack H. Stark |
11/5/2008 | 13,200 | 334,620 | |||
| Gene R. Carlson |
11/5/2008 | 10,000 | 253,500 |
| (1) | The grant date fair value of each equity award is computed in accordance with FAS 123R. |
| (2) | Excludes shares granted to Mr. Monroe as non-employee director compensation after the termination of his employment with the Company. See “Non-Employee Director Compensation.” |
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Outstanding Equity Awards as of December 31, 2008
The following table reflects outstanding stock options and unvested restricted stock held by our NEOs as of December 31, 2008:
| Name |
Option Awards | Stock Awards | ||||||||||
| Number of Securities Underlying Unexercised Option (1) |
Option Exercise Price ($) |
Option Expiration Date |
Number of Shares of Stock that Have Not Vested (2) |
Market Value of Shares of Stock That Have Not Vested ($) (3) | ||||||||
| Exercisable | Unexercisable | |||||||||||
| Harold G. Hamm |
— | — | — | — | 228,000 | 4,721,880 | ||||||
| Mark E. Monroe (4) |
— | — | — | — | — | |||||||
| John D. Hart |
— | — | — | — | 42,000 | 869,820 | ||||||
| Jeffrey B. Hume |
149,000 | — | 1.2727 | 10/1/2010 | 46,000 | 952,660 | ||||||
| Jack H. Stark |
123,250 88,000 |
— — |
1.2727 0.7064 |
10/1/2010 4/1/2012 |
43,200 — |
894,672 — | ||||||
| Gene R. Carlson |
— | — | — | — | 35,000 | 724,850 | ||||||
| (1) | There have been no grants of stock options under our 2000 Plan to any of the NEOs since December 22, 2004. |
| (2) | Shares represent restricted stock awards. Unvested shares will vest as follows (i) 80,000 shares each on October 5, 2009 and October 5, 2010 and 68,000 shares on October 5, 2011 for Mr. Hamm; (ii) 3,333 shares each on November 1, 2009 and November 1, 2010, and 3,334 shares on November 1, 2011 for Mr. Monroe; (iii) 15,000 shares on October 5, 2009 and October 5, 2010, and 16,000 shares on October 5, 2011 for Mr. Hume; (iv) 15,000 shares on October 5, 2009 and October 5, 2010, and 13,200 on October 5, 2011 for Mr. Stark; (v) 15,000 shares on October 5, 2009 and October 5, 2010, and 12,000 shares on October 5, 2011 for Mr. Hart; and (vi) 12,500 shares on October 5, 2009 and October 5, 2010, and 10,000 shares on October 5, 2011 for Mr. Carlson. |
| (3) | Market value is based on market value of shares of common stock as of December 31, 2008. |
| (4) | Excludes shares granted to Mr. Monroe as non-employee director compensation after the termination of his employment with the Company. See “Non-Employee Director Compensation.” |
None of the NEOs are subject to an equity incentive plan other than the 2000 Plan and 2005 Plan described herein.
Options Exercised and Restricted Stock Vested During 2008
The following table reflects information concerning options exercised by NEOs and shares of restricted stock held by NEOs that vested during 2008:
| Name |
Option Awards | Stock Awards | ||||||
| Number of Shares Acquired on Exercise |
Value Realized on Exercise ($) |
Number of Shares Acquired on Vesting |
Value Realized on Vesting ($) (1) | |||||
| Harold G. Hamm |
— | — | 73,337 | 2,135,757 | ||||
| Mark E. Monroe |
— | — | 64,625 | 2,017,916 | ||||
| John D. Hart |
— | — | 14,674 | 271,146 | ||||
| Jeffrey B. Hume |
31,000 | 561,170 | 11,000 | 320,348 | ||||
| Jack H. Stark |
77,750 | 3,017,371 | 11,000 | 320,348 | ||||
| Gene R. Carlson |
— | — | 12,221 | 375,887 | ||||
| (1) | Value realized on exercise of stock options is equal to the difference between the market price of the common stock acquired on the date of exercise and the exercise price. Value realized on vesting is calculated by multiplying the number of shares by the mean average of the high and low stock price upon day of vesting pursuant to IRS regulation §20.2131-2. |
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Amended and Restated 2005 Plan
General. In October 2005 and as amended in April 2006, our Board and shareholders adopted and approved the 2005 Plan. The purpose of the 2005 Plan is to provide our directors and our employees, advisors and consultants additional incentives that are designed to motivate them to put forth maximum effort toward the success and growth of the Company and to enable the Company and our affiliates to attract and retain experienced individuals. The 2005 Plan provides for the granting of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code, options that do not constitute incentive stock options, restricted stock awards, stock appreciation rights, performance units, and performance bonuses. Restricted stock awards issued under the 2005 Plan are accounted for in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123R.
Administration. Our Board has appointed the Compensation Committee to administer the 2005 Plan. In general, the Compensation Committee is authorized to select the recipients of awards, establish the terms and conditions of those awards, accelerate the vesting, exercise or payment of an award or the performance period of an award, and determine to what extent a performance bonus may be deferred. In connection with the adoption of the 2005 Plan, our Board terminated our 2000 Plan, except with respect to unexercised options outstanding thereunder.
Shares Subject to the 2005 Plan and Award Limits. The number of shares of our common stock that may be issued under the 2005 Plan may not exceed 5,500,000, subject to adjustment as described below. Shares of common stock that are attributable to awards that have expired, terminated or been canceled or forfeited, or have otherwise terminated without the issuance of an award, are available for issuance or use in connection with future awards. The maximum number of shares of common stock that may be subject to options and stock appreciation rights granted under the 2005 Plan to any one individual during any calendar year may not exceed 220,000 shares. The maximum number of shares of common stock that may be subject to restricted stock awards and performance unit awards granted under the 2005 Plan to any one individual during any calendar year may not exceed 220,000 shares. The maximum amount of compensation that may be paid under all performance bonuses under the 2005 Plan granted to any one individual during any calendar year may not exceed $1,000,000.
Options. The price at which a share of common stock may be purchased upon exercise of an option granted under the 2005 Plan, whether the option is an incentive stock option or an option that does not constitute an incentive stock option, will be determined by our Board or, with respect to awards granted to employees and consultants, the Compensation Committee, but the purchase price will not be less than the fair market value of a share of common stock on the date the option is granted. Options may be granted independently or in tandem with stock appreciation rights.
Stock Appreciation Rights. Our Board may grant stock appreciation rights independent of or in tandem with options to purchase common stock. A stock appreciation right allows the holder to receive, upon exercise of the right, an amount equal to the difference between the fair market value of the shares of our common stock on the exercise date and the exercise price stated in the award. The exercise price of a stock appreciation right can never be less than the fair market value of our common stock on the day of the award. The amount to be received upon exercise of a stock appreciation right will be paid in shares of our common stock.
Restricted Stock. Shares of common stock that are the subject of a restricted stock award under the 2005 Plan will be subject to restrictions on disposition by the holder of such award and an obligation of such holder to forfeit and surrender the shares to us under certain circumstances (the “forfeiture restrictions”). The forfeiture restrictions will be determined by our Board or the Compensation Committee, as applicable, and may provide that the forfeiture restrictions will lapse upon (a) continuous employment with, or in the case of an award granted to a director or consultant, service to, us or our affiliates, for a specified period of time, (b) the attainment of one or more operational, financial and/or stock performance criteria (the “performance criteria”) established by the Board or the Compensation Committee, as applicable, that are based on (1) reserve additions or replacements,
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(2) finding and development costs, (3) production volume, (4) production costs, (5) earnings (including net income or earnings before interest, taxes, depreciation and amortization (“EBITDA”)), (6) earnings per share, (7) cash flow, (8) operating income, (9) general and administrative expenses, (10) debt to equity ratio, (11) debt to cash flow ratio, (12) debt to EBITDA ratio, (13) EBITDA to interest ratio, (14) return on assets, (15) return on equity, (16) return on invested capital, (17) profit returns/margins, (18) stock price appreciation, (19) total shareholder return, and (20) relative stock price performance, or (c) a combination of any of the foregoing. In addition to acceleration of restricted stock awards upon a change of control of the Company, our Board or Compensation Committee, as applicable, may provide that an award accelerates upon an eligible employee’s retirement on or after his attainment of age 62, death, or disability. Our Board may provide that a restricted stock award granted to a director or consultant will accelerate upon his resignation.
Performance Units. A performance unit award under the 2005 Plan is an award of a monetary unit that may be earned based on performance during a performance period of one year or more. At the time of the grant of a performance unit award, our Board or the Compensation Committee, as applicable, will establish the target, maximum and minimum value of each performance unit, the applicable performance criteria, and time period over which the performance will be measured. Payment of a performance unit award may be in cash or shares of common stock, as determined in the sole discretion of our Board or the Compensation Committee as applicable.
Performance Bonuses. A performance bonus under the 2005 Plan is an award that provides for a payment that may be earned based on a performance during a period of one year or more. At the time of the grant of a performance bonus under the 2005 Plan, our Board or the Compensation Committee, as applicable, will establish the amount that may be earned as a performance bonus under the award and the applicable performance criteria. Payment of a performance bonus award may be in cash or shares of common stock, as determined in the sole discretion of our Board or Compensation Committee, as applicable.
Change of Control. All awards under the 2005 Plan become fully vested, fully earned and exercisable upon the occurrence of a change of control of the Company, as defined in the 2005 Plan. The value of the affected awards for our NEOs as of December 31, 2008 is set forth under “Outstanding Equity Awards at December 31, 2008.”
Amendment and Termination of the 2005 Plan and Awards. The maximum term of any award under the 2005 Plan is 10 years. No awards under the 2005 Plan may be granted after 10 years from its effective date (October 3, 2005). The 2005 Plan will remain in effect until all awards granted under the 2005 Plan have been settled. Our Board, in its discretion, may terminate the 2005 Plan at any time with respect to any shares of our common stock for which awards have not been granted. Our Board may amend the 2005 Plan in any manner, but any amendment to increase the maximum aggregate number of shares that may be issued under the 2005 Plan (except by operation of the 2005 Plan’s adjustment provision), materially modify the class of individuals eligible to receive awards under the 2005 Plan, or materially increase the benefits to participants under the 2005 Plan requires the approval of our shareholders. No change in any award previously granted under the 2005 Plan may be made which would impair the rights of the holder of such award without the consent of the holder. Our Board is prohibited from canceling, reissuing or modifying an award under the 2005 Plan if such action will have the effect of repricing the award.
Adjustment. The maximum number of shares of common stock that may be issued under the 2005 Plan, and the number of shares subject to any award that has been granted under the 2005 Plan, are subject to adjustment to reflect stock dividends, stock splits, recapitalizations and similar changes in our capital structure. Under the 2005 Plan, we will not make such adjustments unless they would cause at least a 1% increase or decrease in the number of shares subject to any award available under the 2005 Plan.
2000 Stock Option Plan
General. In October 2000, our Board and shareholders adopted and approved the Continental Resources, Inc. 2000 Stock Option Plan (the “2000 Plan”). In connection with the adoption of the 2005 Plan, our Board terminated the 2000 Plan, except with respect to unexercised options outstanding under the 2000 Plan. The
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purpose of the 2000 Plan was to provide our directors and employees and employees of our affiliates additional incentives that are designed to motivate them to put forth maximum effort toward the success and growth of the Company and to enable us and our affiliates to attract and retain experienced individuals. The 2000 Plan provided for the granting of incentive stock options intended to qualify under Section 422 of the Internal Revenue Code and options that do not constitute incentive stock options.
Administration. In February 2006, our Board authorized the Compensation Committee to administer the 2000 Plan for the purposes of awards previously granted to our employees and employees of our affiliates and consultants. In general, our Compensation Committee is authorized to select the recipients of options, establish the options’ terms and conditions, and accelerate such options when to do so would be in the best interest of the Company.
Options Granted Under the 2000 Plan. Up to 11,220,000 shares of common stock were originally made available for issuance under the 2000 plan, subject to adjustment as described below. Prior to the termination of the 2000 Plan, options to purchase a total of 2,387,000 shares of common stock were issued. Our Board determined the price at which a share of common stock may be purchased upon exercise of an option granted under the 2000 Plan at the time of the grant. In the case of an option that does not constitute an incentive stock option, the exercise price could not be less than 50% of the fair market value of the common stock on the date the option was granted. In the case of an incentive stock option, the exercise price could not be less than 100% of the fair market value of the common stock on the date the option was granted. At the time of the grant of any option or at any time thereafter up until the time of any dividend payment by us, our Board could choose to include as part of such award the right to receive dividends or dividend equivalents with respect to such award. The Compensation Committee has discretion to accelerate the vesting of an option upon the death, disability or termination of the grantee’s service to the Company under special circumstances (as determined by the Compensation Committee).
Merger, Dissolution, Change of Control, Death of Harold G. Hamm. If we merge, sell substantially all of our assets or dissolve or liquidate and provision is not made in such transaction for the surviving, resulting or acquiring corporation to assume or substitute our outstanding options, such options will automatically vest and become fully exercisable prior to such transaction. If we undergo a change of control (as defined under the 2000 Plan) or Mr. Hamm dies at a time when 35% or more of the total voting power of our voting stock is beneficially owned by Mr. Hamm (individually and as trustee of his revocable inter vivos trust established in April 1984), then all outstanding options will automatically fully vest.
Amendment and Termination of the 2000 Plan and Awards. The maximum term of any award under the 2000 Plan is 10 years. No change in any option previously granted under the 2000 Plan may be made that would be adverse to the holder of such option without the consent of the holder.
Adjustment. The number of shares subject to any award that has been granted under the 2000 Plan is subject to adjustment to reflect stock dividends, stock splits, recapitalizations and similar changes in our capital structure. Under the 2000 Plan, we will not make such adjustments unless they would cause at least a 1% increase or decrease in the number of shares subject to any option granted under the 2000 Plan.
Equity Compensation Plan Information
The following table sets forth information as of December 31, 2008 relating to equity compensation plans:
| Number of Shares to be Issued Upon Exercise of Outstanding Options |
Weighted- Average Exercise Price of Outstanding Options ($) |
Remaining Shares Available for Future Issuance Under Equity Compensation Plans (1) | ||||
| Equity Compensation Plans Approved by Shareholders |
450,200 | 1.28 | 3,593,442 | |||
| Equity Compensation Plans Not Approved by Shareholders |
— | — | — |
| (1) | All Remaining Shares (3,593,442) are available for issuance under the 2005 Plan. |
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We offer a tax qualified defined contribution “401K” plan to all of our employees, including our executive officers, to provide a benefit payable to an employee or his heirs upon retirement, total disability, or death. Under the terms of the plan and subject to limitations of federal law, our employees can elect to defer a portion of their compensation and direct such deferrals to the investments offered under the plan, generally consisting of mutual funds in various asset classes. Subject to the terms of the plan, we make discretionary cash contributions to the plan on behalf of the participant employees. Our contribution to the plan for each eligible employee during 2008 was 5% of such employee’s covered compensation up to a maximum of $11,500. Participants are immediately vested in their deferred contributions, but our contributions are subject to certain vesting requirements. Executive officers participate in the plan on the same basis as all other employees. Our 2008 contributions to the plan for the account of the NEOs are included in the Summary Compensation Table set forth above.
Health and Welfare Benefit Programs
All full-time employees and directors, including our executive officers, may participate in our health and welfare benefit programs, including medical, dental and vision care insurance and disability insurance. We provide all full-time employees, including our executive officers, with life insurance coverage of the lesser of 1.5 times base salary or $50,000 and allow them to purchase incremental amounts above this base amount.
We entered into an employment agreement with Mark E. Monroe, our former President and Chief Operating Officer. The agreement provided for a minimum annual salary of $450,000 during each of the years ended October 2, 2006, 2007 and 2008.
The agreement provided for a long-term incentive bonus payable if Mr. Monroe remained continuously employed by the Company through the term of the agreement. The long-term incentive bonus was determined by multiplying 193,875 by the excess of $30.91 over the fair market value of our common stock as of October 2, 2008 ($30.43/share). Pursuant to this agreement we paid a long-term bonus to Mr. Monroe of $92,884 in October 2008.
On October 3, 2005, we granted Mr. Monroe 193,875 shares of restricted stock, which vested ratably over a three-year period. On November 5, 2008 we granted Mr. Monroe 10,000 shares of restricted stock which vest ratably over a three-year period as the equity component of his compensation for his services as a director.
Payments in the Event of a Change in Control
In the event of a change in control of the Company (as defined below), the unvested shares of restricted stock held by our employees and directors will fully vest.
A “change in control” means:
| • | any transaction in which shares of voting securities of the Company representing more than 50% of the total combined voting power of all outstanding voting securities of the Company are issued by the Company, or sold or transferred by the shareholders of the Company as a result of which those persons and entities who beneficially owned voting securities of the Company representing more than 50% of the total combined voting power of all outstanding voting securities of the Company immediately prior to such transaction cease to beneficially own voting securities of the Company representing more than 50% of the total combined voting power of all outstanding voting securities of the Company immediately after such transaction; |
| • | the merger or consolidation of the Company with or into another entity as a result of which those persons and entities who beneficially owned voting securities of the Company representing more than 50% of the total combined voting power of all outstanding voting securities of the Company |
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| immediately prior to such merger or consolidation cease to beneficially own voting securities of the Company representing more than 50% of the total combined voting power of all outstanding voting securities of the surviving corporation or resulting entity immediately after such merger of consolidation; or |
| • | the sale of all or substantially all of the Company’s assets to an entity of which those persons and entities who beneficially owned voting securities of the Company representing more than 50% of the total combined voting power of all outstanding voting securities of the Company immediately prior to such asset sale do not beneficially own voting securities of the purchasing entity representing more than 50% of the total combined voting power of all outstanding voting securities of the purchasing entity immediately after such asset sale. |
Listed in the following table is the value of unvested shares of restricted stock held by our NEOs as of December 31, 2008, which would fully vest and be immediately available in the event of a change of control. The per-share value is the fair value as of December 31, 2008.
| Name |
Early Vesting of Restricted Stock ($) |
Termination Payment ($) |
Total ($) | ||||
| Harold G. Hamm |
4,721,880 | — | 4,721,880 | ||||
| Mark E. Monroe |
207,100 | (1) | — | 207,100 | |||
| John D. Hart |
869,820 | — | 869,820 | ||||
| Jeffrey B. Hume |
952,660 | — | 952,660 | ||||
| Jack H. Stark |
894,672 | — | 894,672 | ||||
| Gene R. Carlson |
724,850 | — | 724,850 |
| (1) | Includes the value of shares that were granted to Mr. Monroe for his service as a non-employee director following the termination of his employment with the Company. On November 5, 2008, Mr. Monroe received 10,000 shares of restricted stock to vest equally over three years for his service as a non-employee director of the Company. See “Non-Employee Director Compensation.” |
All of our officers, including the NEOs and directors have entered into customary indemnification agreements with us, pursuant to which we have agreed to indemnify our officers, and directors to the fullest extent permitted by law.
In accordance with its written charter adopted by the Board, the Compensation Committee of the Board is responsible for determining awards to employees of stock or other equity compensation, establishing performance criteria for and evaluating the performance of the CEO and approving compensation of the NEOs and other senior executive officers. The Compensation Committee is also obligated to communicate to shareholders information regarding the factors and criteria on which the CEO’s compensation was based, including the relationship of the Company’s performance to the CEO’s compensation, and the specific relationship of corporate performance to executive compensation overall.
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis (“CD&A”) above with management. Based on this review and discussion, the Compensation Committee recommended to the Board that this CD&A be included in this proxy statement.
The preceding report is presented by the members of the Compensation Committee.
| /s/ H.R. Sanders, Jr. |
/s/ Lon McCain |
/s/ Harold G. Hamm | ||
| H.R. Sanders, Jr. | Lon McCain | Harold G. Hamm | ||
| Committee Chairman | Committee Member | Committee Member |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the beneficial ownership of our shares of Common Stock by each person (other than our directors and executive officers) known by us to be the beneficial owner of more than five percent of the issued and outstanding Common Stock. Unless otherwise noted, the information is based on Schedules 13D or 13G filed by the applicable beneficial owner with the SEC or other information provided to us by the beneficial owner as of February 17, 2009, which is the date such beneficial owners were required to report their ownership to the SEC.
Security Ownership of Certain Beneficial Owners
| Beneficial Ownership | ||||||
| Name and Address of Beneficial Owner |
Number of Shares |
Percent of Class |
||||
| Bert H. Mackie |
14,732,501 | (1) | 8.7 | % | ||
| (1) | Of the total number of shares beneficially owned by Mr. Mackie, 14,727,501 shares are held by him as trustee of irrevocable trusts established for the benefit of the children of Harold Hamm, our Chairman and CEO. Mr. Mackie’s business address is Security National Bank, 201 West Broadway, Enid, Oklahoma 73702. |
The following table sets forth certain information concerning the beneficial ownership of our shares of Common Stock as of April 10, 2009 by (a) each of our directors and director nominees, (b) each of the executive officers and (c) all of our directors and executive officers as a group.
Security Ownership of Directors and Executive Officers
| Beneficial Ownership | ||||||
| Name of Director or Executive Officer |
Number of Shares (1) |
Percent of Class (2) |
||||
| Harold G. Hamm (3) . |
123,458,708 | 72.8 | % | |||
| Mark E. Monroe |
177,024 | * | ||||
| John D. Hart |
63,365 | * | ||||
| Jeffrey B. Hume |
345,543 | (4) | * | |||
| Jack H. Stark |
321,379 | (5) | * | |||
| Tom E. Luttrell |
156,159 | (6) | * | |||
| Gene R. Carlson |
71,522 | (7) | * | |||
| Richard H. Straeter (8) |
78,897 | * | ||||
| Robert J. Grant |
17,833 | * | ||||
| George S. Littell (9) |
14,733 | * | ||||
| Lon McCain |
24,933 | * | ||||
| H.R. Sanders, Jr. |
19,333 | * | ||||
| David L. Boren (10) |
10,000 | * | ||||
| All directors and executive officers as a group (13 persons) |
124,759,429 | (11) | 73.56 | % | ||
| • | Less than 1% |
| (1) | Beneficial ownership is determined in accordance with the SEC’s rules and regulations and generally includes voting or investment power with respect to securities. The following persons have sole voting power but no investment power with respect to the restricted stock following their name: Mr. Hamm – 228,000 shares; Mr. Hart – 42,000 shares; Mr. Hume – 46,000 shares; Mr. Stark – 43,200 shares; Mr. Carlson – 35,000 shares; Mr. Luttrell – 26,000 shares; Mr. Straeter – 19,000 shares; and Messrs. Boren, Grant, McCain, Monroe and Sanders – 10,000 shares each; all directors and executive officers as a group – 489,200 shares. |
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| (2) | Based on total shares outstanding of 169,604,384 on April 10, 2009. |
| (3) | Mr. Hamm holds all but 448,000 of his shares through the Trust, for which Mr. Hamm is both the trustee and sole beneficiary. The address of the Trust is 302 N. Independence, Enid, Oklahoma 73701. The remaining 448,000 shares of common stock are held by Mr. Hamm personally. |
| (4) | Includes vested options to purchase 149,000 shares of common stock. |
| (5) | Includes vested options to purchase 211,250 shares of common stock. |
| (6) | Includes vested options to purchase 17,510 shares of common stock. |
| (7) | Includes shares owned by a limited partnership controlled by Mr. Carlson. |
| (8) | Includes 37,448 shares owned by Mr. Straeter’s wife. |
| (9) | Mr. Littell resigned from our Board effective March 11, 2009. |
| (10) | Mr. Boren was appointed to our Board effective March 13, 2009. |
| (11) | Includes vested options to purchase 377,760 shares of common stock held by Messrs. Hume, Stark and Luttrell. |
SECTION 16 (A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than 10% of our Common Stock to file reports of ownership and changes in ownership of our Common Stock with the SEC. We are required to disclose delinquent filings of reports by such persons during the year ended December 31, 2008.
Based on a review of the copies of such reports and amendments thereto received by us, or written representations that no filings were required, we believe that during the year ended December 31, 2008, all Section 16(a) filing requirements applicable to its executive officers, directors and 10% shareholders were met except as follows: A Form 4 reporting a single transaction for Mr. Mark E. Monroe, one of our directors, was inadvertently filed one (1) day late.
PROPOSAL 2: RATIFICATION OF SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has directed us to submit the selection of our independent registered public accounting firm for ratification by the shareholders at the Annual Meeting. Neither our Bylaws nor other governing documents or law require shareholder ratification of the selection of Grant Thornton as our independent registered public accounting firm. However, the Audit Committee is submitting the selection of Grant Thornton to the shareholders for ratification as a matter of good corporate practice. If the shareholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee may in its discretion direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our best interest and that of our shareholders.
The Board recommends that the shareholders vote “FOR” the ratification of Grant Thornton as our independent registered public accounting firm for the year ending December 31, 2009.
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In accordance with its written charter adopted by the Board, the Audit Committee of the Board assists the Board in fulfilling its responsibility for oversight of the quality and integrity of our accounting, auditing, and financial reporting practices. The Audit Committee’s charter can be found in the Corporate Governance section of our website at www.contres.com. A printed copy of the charter will be made available to any shareholder who requests it from our Secretary.
The Audit Committee reviewed and discussed our audited financial statements as of and for the fiscal year ended December 31, 2008, with the independent auditors, with and without management present. Management has the primary responsibility for our financial statements and the overall reporting process, including assuring that we develop and maintain adequate financial controls and procedures and monitoring and assessing compliance with those controls and procedures, including internal control over financial reporting. Our independent auditors are responsible for auditing the annual financial statements prepared by management, expressing an opinion as to whether those financial statements fairly present our financial position, results of operations and cash flows in conformity with generally accepted accounting principles, and discussing with the Audit Committee any issues they believe should be raised.
In discharging its oversight responsibility as to the audit process, the Audit Committee obtained from the independent auditors a formal written statement describing all relationships between the auditors and us that might bear on the auditors’ independence consistent with Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” discussed with the auditors any relationships that may impact their objectivity and independence, and satisfied itself as to the auditors’ independence. The Audit Committee also discussed with management and the independent auditors the quality and adequacy of our internal controls. The Audit Committee reviewed with the independent auditors their audit plans, audit scope, and identification of audit risks.
The Audit Committee discussed and reviewed with the independent auditors all communications required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees.”
Based on the above-mentioned review and discussions with management and the independent auditors, the Committee recommended to the Board that the audited financial statements of the Company be included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2008, for filing with the Securities and Exchange Commission. The Audit Committee has approved reappointment of the independent auditors for 2009.
The preceding report is presented by the members of the Audit Committee.
| /s/ Robert J. Grant |
/s/ Lon McCain |
/s/ H.R. Sanders, Jr. | ||
| Robert J. Grant Committee Chairman |
Lon McCain Committee Member |
H.R. Sanders, Jr. Committee Member |
Grant Thornton served as our independent registered public accounting firm during 2008 and 2007. The aggregate fees billed by Grant Thornton for the years ended December 31, 2008 and 2007 for various services are set forth below:
| 2008 ($) | 2007 ($) | |||
| Audit Fees |
592,633 | 534,378 | ||
| Audit-Related Fees |
— | — | ||
| Tax Fees |
— | — | ||
| All Other Fees |
— | — | ||
| Total Fees |
592,633 | 534,378 |
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Fees for audit services include fees associated with our annual consolidated audits, the review of our quarterly reports on Form 10-Q, Sarbanes Oxley Act compliance review and services that are normally provided by the accountant in connection with statutory or regulatory filings. Audit fees also include amounts paid in connection with our initial public offering, as declared effective during May 2007, for services associated with the preparation of the comfort letters, and consents and assistance with and review of documents filed with the SEC during 2007.
As necessary, the Audit Committee considers whether the provision of non-audit services by Grant Thornton is compatible with maintaining auditor independence and has adopted a policy that requires pre-approval of all audit and non-audit services. Such policy requires the Audit Committee to approve services and fees in advance and requires documentation regarding the specific services to be performed. All 2008 audit fees were approved in advance in accordance with the Audit Committee’s policies.
Representatives of Grant Thornton are expected to be present at the Annual Meeting, with the opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions.
Our Annual Report to Shareholders for the year ended December 31, 2008, including audited financial statements, accompanies this Proxy Statement. The Annual Report is not incorporated by reference into this Proxy Statement or deemed to be a part of the materials for the solicitation of proxies.
Copies of the exhibits omitted from the enclosed Annual Report on Form 10-K are available to shareholders without charge upon written request to our Secretary at 302 N. Independence, Enid, Oklahoma 73701.
SHAREHOLDERS SHARING THE SAME ADDRESS
The Company is sending only one copy of its proxy statement to stockholders who share the same address, unless they have notified the Company that they want to continue receiving multiple copies. This practice, known as “householding,” is designed to reduce duplicate mailings and save significant printing and postage costs as well as natural resources.
If you received householder mailing this year and you would like to have additional copies of the Company’s proxy statement mailed to you, or you would like to opt out of this practice for future mailings, please submit your request to our Secretary at 302 N. Independence, Enid, Oklahoma 73701 or by phone at 580-233-8955. You may also contact the Company if you received multiple copies of the Annual Meeting materials and would prefer to receive a single copy in the future.
The Board will consider properly presented proposals of shareholders intended to be presented for action at the Annual Meeting. Such proposals must comply with the applicable requirements of the SEC and our bylaws. Under our bylaws a matter can properly be brought before an annual meeting by a shareholder of the Company who is a shareholder of record at the time notice of the proposal is given and who is entitled to vote at such annual meeting. The proposing shareholder must give timely notice of his proposal in writing to the Secretary of the Company. To be timely, a shareholder’s notice shall be delivered to or mailed and received at the principal executive offices of the Company at 302 N. Independence, Enid, Oklahoma 73701 not later than ninety (90) days
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or more than one hundred twenty (120) days prior to the anniversary date of the proxy statement for the immediately preceding annual meeting of shareholders of the Company, provided, however, that if the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year’s annual meeting, to be timely, a shareholder’s notice must be so delivered not later than the close of business on the later of the ninetieth day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. A shareholder’s notice to the Secretary shall set forth as to each matter (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Company’s books, of the shareholder proposing such business, (iii) the acquisition date, the class and the number of shares of voting stock of the Company which are owned beneficially by the shareholder, (iv) any material interest of the shareholder in such business, and (v) a representation that the shareholder intends to appear in person or by proxy at the annual meeting to bring the proposed business before the meeting.
A shareholder proposal submitted pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 and intended to be included in our proxy statement relating to the 2010 Annual Meeting must be received no later than December 23, 2009. To be considered for presentation at the 2010 Annual Meeting, although not included in the Proxy Statement for such meeting, a proposal must be received within the time period set forth in our bylaws as described above. In addition, the proxy solicited by the Board for the 2010 Annual Meeting will confer discretionary authority to vote on any such shareholder proposal presented at the 2010 Annual Meeting unless we are provided with notice of such proposal no later than ninety days prior to the date of the 2010 Annual Meeting.
Our Board does not know of any other matters to be presented for action at the Annual Meeting other than those listed in the Notice of Meeting and referred to herein. If any other matters properly come before the Annual Meeting or any adjournment thereof, it is intended that the proxy solicited hereby be voted as to any such matter in accordance with the recommendations of our Board.
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The following is information required to be provided to the Securities and Exchange Commission in connection with our Definitive Proxy Materials in connection with our 2009 Annual Meeting of Shareholders. This information is not deemed to be a part of the Proxy Statement and will not be provided to shareholders in connection with the Proxy Statement.
1. We plan to mail the definitive Proxy Materials to our shareholders on or about April 17, 2009.
A-1
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CONTINENTAL RESOURCES, INC.
302 N. INDEPENDENCE
ENID, OKLAHOMA 73701
(580) 233-8955
The undersigned hereby appoints Don Fischbach and John Hart, and each of them, as proxies (the “Proxies”), each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated below, all of the shares of stock of Continental Resources, Inc. held of record by the undersigned on the record date at the Annual Meeting of Shareholders to be held on May 28, 2009, or any reconvention thereof.
You may withhold the authority of the Proxies to vote for any nominee to be elected as a director of the Company by marking the WITHHOLD AUTHORITY box set forth next to such nominee’s name. Please mark your votes as indicated in this example: x
| WITHHOLD | ||||||||||
| Item 1. |
Election of Director | FOR | AUTHORITY | |||||||
| Robert J. Grant | ¨ | ¨ | ||||||||
| Mark E. Monroe | ¨ | ¨ | ||||||||
| Ellis L. “Lon” McCain | ¨ | ¨ | ||||||||
| FOR | AGAINST | ABSTAIN | ||||||||
| Item 2. |
Ratification of Grant Thornton LLP as Independent Registered Public Accounting Firm |
¨ | ¨ | ¨ | ||||||
In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. If any other business is presented at the Annual Meeting, this Proxy shall be voted in accordance with the recommendations of the Board. The shares represented by this Proxy when properly executed will be voted in the manner directed herein by the undersigned Shareholder(s). If no direction is made, this Proxy will be voted FOR items 1 and 2.
| Signature(s) |
|
|
Date |
|
NOTE: Please sign as name appears hereon. Only one joint owner is required to sign. When signing as attorney, administrator, trustee or guardian, please give full title as such.