Document



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material under §240.14a-12

CENTENNIAL RESOURCE DEVELOPMENT, INC.
(Name of Registrant as Specified In Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
þ    No fee required.
o    Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)
Title of each class of securities to which transaction applies:
 
 
 
 
 
(2)
Aggregate number of securities to which transaction applies:
 
 
 
 
 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
 
 
 
(4)
Proposed maximum aggregate value of transaction:
 
 
 
 
 
(5)
Total fee paid:
 
 
 
 
 
 
 
 
 
 
        
o    Fee paid previously with preliminary materials.
o    Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(1)
Amount Previously Paid:
 
 
 
 
 
(2)
Form, Schedule or Registration Statement No.:
 
 
 
 
 
(3)
Filing Party:
 
 
 
 
 
(4)
Date Filed:
 
 
 
 
 







http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12792395&doc=4
Centennial Resource Development, Inc.
1001 Seventeenth Street, Suite 1800
Denver, Colorado 80202
(720) 499-1400
March 21, 2019

Dear Stockholder:
You are cordially invited to attend the 2019 annual meeting of stockholders (the “Annual Meeting”) of Centennial Resource Development, Inc., a Delaware corporation (“Centennial,” “we,” “us” or “our”), which will be held at 10:00 a.m., Central Time, on Wednesday, May 1, 2019, at the Sugar Land Marriott Town Square, 16090 City Walk, Sugar Land, TX 77479. At the Annual Meeting, stockholders will be asked to (i) elect three nominees to serve on our board of directors as Class III directors, (ii) approve, by a non-binding advisory vote, our named executive officer compensation, (iii) approve the adoption of the Centennial Resource Development, Inc. 2019 Employee Stock Purchase Plan, (iv) approve and adopt amendments to Centennial’s Second Amended and Restated Certificate of Incorporation (the “Charter”) and Centennial’s Amended and Restated Bylaws to implement a majority voting standard in uncontested director elections, (v) approve and adopt amendments to the Charter to eliminate provisions relating to our prior capital structure and the initial business combination that are no longer applicable to us or our stockholders, (vi) ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019 and (vii) act upon such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof. These proposals are more fully described in our proxy statement.
On or about March 21, 2019, we will mail to our stockholders either a full set of paper proxy materials or a Notice Regarding the Internet Availability of Proxy Materials for the Annual Meeting (the “Notice”) containing instructions on how to access our proxy statement and our annual report for the fiscal year ended December 31, 2018 and authorize your proxy electronically via the Internet or by telephone. If you receive a Notice, it will also contain instructions on how to receive a paper copy of the proxy materials.
It is important that your shares be represented at the Annual Meeting and voted in accordance with your wishes. Whether or not you plan to attend the meeting, we urge you to authorize your proxy as promptly as possible, either electronically via the Internet, by telephone or, if you receive paper proxy materials, by completing and returning the enclosed proxy card, so that your shares will be voted at the Annual Meeting. This will not limit your right to vote in person or to attend the Annual Meeting.
Thank you for your ongoing support.


Sincerely,
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12792395&doc=7
Mark G. Papa
Chief Executive Officer and Chairman of the Board





Centennial Resource Development, Inc.
1001 Seventeenth Street, Suite 1800
Denver, Colorado 80202
(720) 499-1400

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 1, 2019

To our Stockholders:
The annual meeting of stockholders (the “Annual Meeting”) of Centennial Resource Development, Inc., a Delaware corporation (“Centennial,” “we,” us” or “our”), will be held at the Sugar Land Marriott Town Square, 16090 City Walk, Sugar Land, TX 77479 on Wednesday, May 1, 2019, at 10:00 a.m., Central Time, for the following purposes:
1.
To elect three directors to our board of directors, each to serve as a Class III director for a term of three years expiring at our annual meeting of stockholders to be held in 2022 and until his successor is duly elected and qualified. The following persons have been nominated as Class III directors:
Mark G. Papa;
David M. Leuschen; and
Pierre F. Lapeyre, Jr.;
2.
To approve, by a non-binding advisory vote, our named executive officer compensation;
3.
To approve the adoption of the Centennial Resource Development, Inc. 2019 Employee Stock Purchase Plan;
4.
To approve and adopt amendments to Centennial’s Second Amended and Restated Certificate of Incorporation (the “Charter”) and Centennial’s Amended and Restated Bylaws to implement a majority voting standard in uncontested director elections;
5.
To approve and adopt amendments to the Charter to eliminate provisions relating to our prior capital structure and the initial business combination that are no longer applicable to us or our stockholders;
6.
To ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019; and
7.
To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.
Only stockholders of record at the close of business on March 13, 2019, the record date for the Annual Meeting, will be entitled to notice of and to vote at the Annual Meeting.
Whether or not you expect to be present at the Annual Meeting, we urge you to authorize your proxy electronically via the Internet, by telephone or, if you received paper proxy materials, by completing and returning the enclosed proxy card. Voting instructions are provided in the Notice Regarding the Internet Availability of Proxy Materials for the Annual Meeting or, if you received paper proxy materials, printed on your proxy card and included in the accompanying proxy statement. Any person giving a proxy has the power to revoke it at any time prior to the Annual Meeting and stockholders who are present at the Annual Meeting may withdraw their proxies and vote in person.                

By Order of the Board of Directors,
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12792395&doc=8
Mark G. Papa
Chief Executive Officer and Chairman of the Board

Denver, Colorado
March 21, 2019





CENTENNIAL RESOURCE DEVELOPMENT, INC.
1001 Seventeenth Street, Suite 1800
Denver, Colorado 80202
 
PROXY STATEMENT
FOR
2019 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 1, 2019    
 
This proxy statement is being furnished by and on behalf of the board of directors of Centennial Resource Development, Inc., a Delaware corporation (the “Company,” “we,” “us” or “our”), in connection with the solicitation of proxies to be voted at the Company’s 2019 annual meeting of stockholders (the “Annual Meeting”). The date, time and place of the Annual Meeting are as follows:
Date:    May 1, 2019
Time:    10:00 a.m. (Central Time)
Place:     The Sugar Land Marriott Town Square
16090 City Walk
Sugar Land, TX 77479
At the Annual Meeting, the Company’s stockholders will be asked to:
Elect three directors to our board of directors, each to serve as a Class III director for a term of three years expiring at our annual meeting of stockholders to be held in 2022 and until his successor is duly elected and qualified. The following persons have been nominated as Class III directors:

Mark G. Papa;
David M. Leuschen; and
Pierre F. Lapeyre, Jr.;

Approve, by a non-binding advisory vote, the Company’s named executive officer compensation;

Approve the adoption of the Centennial Resource Development, Inc. 2019 Employee Stock Purchase Plan;

Approve amendments to the Company’s Second Amended and Restated Certificate of Incorporation (the “Charter”) and the Company’s Amended and Restated Bylaws (the “Bylaws”) to implement a majority voting standard in uncontested director elections;

Approve and adopt amendments to the Charter to eliminate provisions relating to our prior capital structure and the initial business combination that are no longer applicable to us or our stockholders;

Ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019; and

Transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

Our principal executive offices are located at 1001 Seventeenth Street, Suite 1800, Denver, Colorado 80202, and our telephone number is (720) 499-1400.
We are furnishing the proxy materials for the Annual Meeting by mailing to our stockholders either a full set of paper proxy materials or a Notice Regarding the Internet Availability of Proxy Materials for the Annual Meeting (the “Notice”). The paper proxy materials and the Notice will first be mailed to stockholders on or about March 21, 2019.





TABLE OF CONTENTS
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





GENERAL INFORMATION ABOUT THE MEETING
In this section of the proxy statement, we answer some common questions regarding the Annual Meeting and the voting of shares of our Class A Common Stock, par value $0.0001 per share (the “Class A Common Stock”) and Class C Common Stock, par value $0.0001 per share (the “Class C Common Stock” and, together with the Class A Common Stock, the “Common Stock”), at the Annual Meeting.
Where and when will the Annual Meeting be held?
The date, time and place of the Annual Meeting are as follows:
May 1, 2019
10:00 a.m. (Central Time)
The Sugar Land Marriott Town Square
16090 City Walk
Sugar Land, TX 77479
Why did I receive a Notice Regarding the Internet Availability of Proxy Materials for the Annual Meeting in the mail instead of a paper copy of the proxy materials?
The United States Securities and Exchange Commission (the “SEC”) has approved rules (the “e-proxy rules”) allowing companies to furnish proxy materials, including this proxy statement and our annual report for the fiscal year ended December 31, 2018, to our stockholders by providing access to such documents on the Internet instead of mailing paper copies. We believe these e-proxy rules provide a convenient and quick way in which our stockholders can access the proxy materials and vote their shares of Common Stock, while allowing us to conserve natural resources and reduce the costs of printing and distributing the proxy materials. Accordingly, certain of our stockholders will receive a Notice Regarding the Internet Availability of Proxy Materials for the Annual Meeting (the “Notice”) and will not receive paper copies of the proxy materials unless they request them. Instead, the Notice will provide such stockholders with notice of the Annual Meeting and will also provide instructions regarding how such stockholders can access and review all of the proxy materials on the Internet. The Notice also provides instructions as to how you may submit your proxy electronically via the Internet or by telephone. If you received the Notice and you would instead prefer to receive a paper or electronic copy of the proxy materials, you should follow the instructions for requesting such materials that are provided in the Notice. Any request to receive proxy materials by mail or email will remain in effect until you revoke it.
Why did you send me the proxy materials or the Notice?
We sent you the proxy materials or the Notice because we are holding our Annual Meeting and our board of directors (the “Board”) is asking for your proxy to vote your shares of Common Stock at the Annual Meeting. We have summarized information in this proxy statement that you should consider in deciding how to vote at the Annual Meeting.
Can I vote my shares of Common Stock by filling out and returning the Notice?
No. The Notice identifies the items to be voted on at the Annual Meeting, but you cannot vote by marking the Notice and returning it. The Notice provides instructions on how to authorize your proxy electronically via the Internet, by telephone or by requesting and returning a paper proxy card, or you may vote your shares of Common Stock by submitting a ballot in person at the meeting.
Who can vote?
You can vote your shares of Common Stock if our records show that you were the owner of the shares as of the close of business on March 13, 2019, the record date for determining the stockholders who are entitled to vote at the Annual Meeting. As of March 13, 2019, there were a total of 264,394,082 shares of Class A Common Stock and 12,003,183 shares of Class C Common Stock outstanding and entitled to vote at the Annual Meeting. You get one vote for each share of Common Stock that you own.
How is a quorum determined?
We will hold the Annual Meeting if stockholders representing the required quorum of shares of Common Stock entitled to vote authorize their proxy online or telephonically, sign and return their proxy cards or attend the Annual Meeting. The presence in person or by proxy of a majority of the shares of Common Stock entitled to vote at the Annual Meeting constitutes a quorum. If you authorize your proxy online or telephonically or sign and return your proxy card, your shares will be counted to determine whether we have a quorum even if you abstain or fail to indicate your vote on the proxy card.

1




What is the required vote for approval?
The election of each of our Class III director nominees requires the vote of a plurality of the votes cast by the stockholders present in person or represented by proxy at the Annual Meeting and entitled to vote on the proposal. If you withhold votes for purposes of the vote on the election of directors, your withheld votes will not be counted as votes cast and will have no effect on the result of such vote. Broker non-votes also have no effect on the outcome of the vote.
The approval by a non-binding advisory vote of our named executive officer compensation, the approval of the adoption of the Centennial Resource Development, Inc. 2019 Employee Stock Purchase Plan and the ratification of the appointment of KPMG LLP as our independent registered public accounting firm require the vote of a majority of the votes cast by the stockholders present in person or represented by proxy at the Annual Meeting and entitled to vote on the proposal. If you abstain for purposes of these proposals, your abstention will not be counted as a vote cast and, therefore, will not have an effect on the results of such vote. For the adoption of the Centennial Resource Development, Inc. 2019 Employee Stock Purchase Plan and the approval on an advisory basis of our named executive officer compensation, broker non-votes will have no effect on the outcome of the vote. However, the rules of the NASDAQ Capital Market (the “NASDAQ”) permit brokers to vote uninstructed shares at their discretion regarding the ratification of the appointment of KPMG LLP as our independent registered public accounting firm, so there will be no broker non-votes on the proposal.
The two proposals that contain proposed amendments to the Company’s Charter and Bylaws require a vote, whether present in person or represented by proxy at the Annual Meeting, of the majority of outstanding shares of Common Stock entitled to vote on the proposal. If you abstain for purposes of these proposals, your abstention will be counted as a vote against the proposal. Broker non-votes will have no effect on the outcome of the vote for these proposals.
How do I vote by proxy?
Follow the instructions on the Notice or the proxy card to authorize a proxy to vote your shares of Common Stock at the Annual Meeting electronically via the Internet or by telephone or, if you received paper proxy materials, by completing and returning the proxy card. The individuals named and designated as proxies will vote your shares of Common Stock as you instruct. You have the following choices in voting your shares of Common Stock:
You may vote on each proposal, in which case your shares will be voted in accordance with your choices.
In voting on the election of Class III directors, you may either vote “FOR” each director or withhold your vote on any or all of the directors.
You may abstain from voting on the proposal (i) to approve on an advisory basis our named executive officer compensation, (ii) to approve the adoption of the Centennial Resource Development, Inc. 2019 Employee Stock Purchase Plan and (iii) to ratify the appointment of KPMG LLP as our independent registered public accounting firm, in which case no vote will be recorded with respect to the proposal.
You may abstain from voting on the two proposals that contain proposed amendments to the Company’s Charter and Bylaws, in which case your vote will be counted as a vote against the proposal.
You may return a signed proxy card without indicating your vote on any matter, in which case the designated proxies will vote to (i) elect each Class III director nominee, (ii) approve on an advisory basis our named executive officer compensation, (iii) approve the adoption of the Centennial Resource Development, Inc. 2019 Employee Stock Purchase Plan, (iv) approve the two proposals that contain proposed amendments to the Company’s Charter and Bylaws and (v) ratify the appointment of KPMG LLP as our independent registered public accounting firm.
How can I authorize my proxy online or via telephone?
In order to authorize your proxy online or via telephone, go to www.cstproxyvote.com or call the toll-free number reflected on the Notice, and follow the instructions. If your shares of Common Stock are held in the name of your broker, a bank or other nominee in “street name,” that party will give you instructions for voting your shares. Please have your Notice in hand when accessing the site, as it contains a control number required for access. You can authorize your proxy electronically via the Internet or by telephone at any time prior to 11:59 p.m., Eastern Time, on April 30, 2019, the day before the Annual Meeting.
If you received paper proxy materials, you may also refer to the enclosed proxy card for instructions. If you choose not to authorize your proxy electronically, please complete and return the paper proxy card in the pre-addressed, postage-paid envelope provided.

2




What if other matters come up at the Annual Meeting?
As of the date of this proxy statement, the only matters we know of that will be voted on at the Annual Meeting are the proposals we have described herein: (i) the election of three Class III directors, (ii) the approval on an advisory basis of our named executive officer compensation, (iii) the approval of the adoption of the Centennial Resource Development, Inc. 2019 Employee Stock Purchase Plan, (iv) the approval and adoption of amendments to the Company’s Charter and Bylaws to implement a majority voting standard in uncontested director elections, (v) the approval and adoption of amendments to the Charter to eliminate provisions relating to our prior capital structure and the initial business combination that are no longer applicable to us or our stockholders; and (vi) the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019. If other matters are properly presented at the Annual Meeting, the designated proxies will vote your shares of Common Stock at their discretion.
Can I change my previously authorized vote?
Yes, you can change your vote at any time before the vote on a proposal either by executing or authorizing, dating and delivering to us a new proxy electronically via the Internet, by telephone or by mail at any time prior to 11:59 p.m., Eastern Time, on April 30, 2019, the day before the Annual Meeting, by giving us a written notice revoking your proxy card or by attending the Annual Meeting and voting your shares of Common Stock in person. Your attendance at the Annual Meeting will not, by itself, revoke a proxy previously given by you. We will honor the latest dated proxy.
Proxy revocation notices or new proxy cards should be sent to Centennial Resource Development, Inc., 1001 Seventeenth Street, Suite 1800, Denver, Colorado, 80202, Attention: General Counsel.
Can I vote in person at the Annual Meeting rather than by authorizing a proxy?
You can attend the Annual Meeting and vote your shares of Common Stock in person; however, we encourage you to authorize your proxy to ensure that your vote is counted. Authorizing your proxy electronically or telephonically, or submitting a proxy card, will not prevent you from later attending the Annual Meeting and voting your shares of Common Stock in person.
Will my shares of Common Stock be voted if I do not provide my proxy?
Depending on the proposal, your shares of Common Stock may be voted if they are held in the name of a brokerage firm, even if you do not provide the brokerage firm with voting instructions. Brokerage firms have the authority under the NASDAQ rules to cast votes on certain “routine” matters if they do not receive instructions from their customers. The proposal to ratify the appointment of KPMG LLP as our independent registered public accounting firm is considered a “routine” matter for which brokerage firms may vote shares without receiving voting instructions.
Brokerage firms do not have the authority under the NASDAQ rules to vote on non-routine matters, which include the election of directors, the approval on an advisory basis of our named executive officer compensation, the approval of the adoption of the Centennial Resource Development, Inc. 2019 Employee Stock Purchase Plan and the approval of the two proposals that contain proposed amendments to the Company’s Charter and Bylaws. If you do not provide the brokerage firm with voting instructions on these proposals, your shares will not be voted and will result in “broker non-votes.” Broker non-votes will be considered present for the purpose of determining whether we have a quorum; however, such broker non-votes will not have an effect on the election of directors, the approval on an advisory basis of our named executive officer compensation, the approval of the adoption of the Centennial Resource Development, Inc. 2019 Employee Stock Purchase Plan or the approval and adoption of the proposed amendments to the Company’s Charter and Bylaws described in Proposals 4 and 5.
What do I do if my shares are held in “street name”?
If your shares of Common Stock are held in the name of your broker, a bank or other nominee in “street name,” that party will give you instructions for voting your shares. If your shares of Common Stock are held in “street name” and you would like to vote your shares in person at the Annual Meeting, you must contact your broker, bank or other nominee to obtain a proxy form from the record holder of your shares.
Who will count the votes?
Representatives of Continental Stock Transfer & Trust Company will count the votes and will serve as the independent inspector of election.

3




Who pays for this proxy solicitation?
We do. The Company has engaged Morrow Sodali, to assist in the solicitation of proxies for the Annual Meeting. The Company has agreed to pay Morrow Sodali a fee of $6,500, plus disbursements. The Company will reimburse Morrow Sodali for reasonable out-of-pocket expenses and will indemnify Morrow Sodali and its affiliates against certain claims, liabilities, losses, damages and expenses. The Company will also reimburse banks, brokers and other custodians, nominees and fiduciaries representing beneficial owners of shares of Common Stock for their expenses in forwarding soliciting materials to beneficial owners of shares of Common Stock and in obtaining voting instructions from those owners. In addition to sending you these materials, some of our employees or agents may contact you by telephone, by mail or in person. None of our employees will receive any extra compensation for providing those services.
Who can help with my questions?
If you have additional questions about this proxy statement or the Annual Meeting or would like to receive additional copies, without charge, of this document or our annual report for the fiscal year ended December 31, 2018, please contact:

Centennial Resource Development, Inc.
1001 Seventeenth Street, Suite 1800
Denver, Colorado, 80202
Attention: General Counsel
If you have any questions or need assistance voting your shares you may also contact our proxy solicitor at:

Morrow Sodali LLC
470 West Avenue, 3rd Floor
Stamford, CT 06902

Banks and Brokerage Firms, please call (203) 658-9400

Stockholders, please call toll free (800) 662-5200

4




PROPOSAL 1
ELECTION OF DIRECTORS
Board Structure
There are currently nine directors on our Board, and eight of our directors are divided into three classes, with two directors in Class I and three directors in each of Class II and Class III. The terms of office of the three Class III directors will expire at the Annual Meeting. One additional director is elected each year by the holder of our Series A Preferred Stock, par value $0.0001 per share, to serve for a one-year term expiring at the next annual meeting of our stockholders.
Class III Election
The three nominees for election as Class III directors are listed below. If elected, the nominees for election as Class III directors will serve on our Board for a term of three years expiring at our annual meeting of stockholders in 2022 and until their respective successors are duly elected and qualified. Each of the nominees currently serves on our Board.
Class III Nominees
The Class III nominees are as follows:
Director
 
Age, Principal Occupation, Business Experience, Other Directorships Held and Director Qualifications
 
Director Since
Mark G. Papa
(Class III)
 
Mark G. Papa, age 72, has served as our Chief Executive Officer and Chairman of the Board since November 2015. Mr. Papa is also an advisor to Riverstone Holdings, LLC, a private equity firm specializing in energy investments (together with its affiliates, “Riverstone”). We currently anticipate that Mr. Papa will spend approximately 90% of his working time providing services to us as our Chairman and Chief Executive Officer and approximately 10% of his working time providing services to Riverstone on matters unrelated to the Company. Prior to joining Riverstone in February 2015, Mr. Papa was Chairman and CEO of EOG Resources, Inc. (NYSE: EOG), an independent U.S. oil and gas company (“EOG”), from August 1999 to December 2013. Mr. Papa served as a member of EOG’s board of directors from August 1999 until December 2014. Mr. Papa worked at EOG for 32 years in various management positions. Mr. Papa was retired from December 2013 through February 2015. Prior to joining EOG, Mr. Papa worked at Conoco Inc. for 13 years in various engineering and management positions. Mr. Papa has also served on the board of Schlumberger Limited (NYSE: SLB), an international oilfield services company, since October 2018 and Casa de Esperanza, a non-profit organization serving children in crisis situations, since November 2006. Mr. Papa previously served on the board of Oil States Industries (NYSE: OIS), an international oilfield services company, from February 2001 to August 2018. In February 2010 and 2013, the Harvard Business Review cited Mr. Papa as one of the 100 Best Performing CEOs in the World; both times Mr. Papa was the highest ranked Global Energy CEO. Additionally, Institutional Investor magazine repeatedly ranked him as the Top Independent E&P CEO. He received his B.S. in petroleum engineering from the University of Pittsburgh and an MBA from the University of Houston.

We believe Mr. Papa’s significant experience in the energy industry and his deep understanding of the Company and its assets make him well qualified to serve as the Chairman of our Board. Through his current role as our Chief Executive Officer and Chairman, and his prior experience with EOG and other exploration and production companies, Mr. Papa has established himself in the industry as a proven leader with a strong understanding of exploration and production techniques, macro conditions in the energy industry, as well as the operational, strategic, financial, risk and compliance issues facing a publicly traded company in the upstream oil and gas industry.
 
2015

5




David M. Leuschen
(Class III)
 
David M. Leuschen, age 67, has served as a director since October 2016. Mr. Leuschen is a Founder of Riverstone and has been a Senior Managing Director since 2000. Prior to founding Riverstone, Mr. Leuschen was a Partner and Managing Director at Goldman Sachs and founder and head of the Goldman Sachs Global Energy and Power Group. Mr. Leuschen joined Goldman Sachs in 1977, became head of the Global Energy and Power Group in 1985, became a Partner of that firm in 1986 and remained with Goldman Sachs until leaving to found Riverstone in 2000. Mr. Leuschen also served as Chairman of the Goldman Sachs Energy Investment Committee, where he was responsible for screening potential investments by Goldman Sachs in the energy and power industries. Mr. Leuschen has served as a non-executive board member of Riverstone Energy Limited (LSE: REL) (“REL”) since May 2013 and serves on the boards of directors or equivalent bodies of a number of private Riverstone portfolio companies and their affiliates. Mr. Leuschen is currently a director of Alta Mesa Resources, Inc. (NASDAQ: AMR), a position he has held since February 2018. In 2007, Mr. Leuschen, along with Riverstone and The Carlyle Group (“Carlyle”), became the subject of an industry-wide inquiry by the Office of the Attorney General of the State of New York (the “Attorney General”) relating to the use of placement agents in connection with investments by the New York State Common Retirement Fund (“NYCRF”) in certain funds, including funds that were jointly developed by Riverstone and Carlyle. In June 2009, Riverstone entered into an Assurance of Discontinuance with the Attorney General to resolve the matter and agreed to make a restitution payment of $30 million to the New York State Office of the Attorney General for the benefit of NYCRF. Mr. Leuschen also entered into an Assurance of Discontinuance with the Attorney General in December 2009 and agreed that Riverstone and/or Mr. Leuschen would make a restitution payment of $20 million to the New York State Office of the Attorney General for the benefit of NYCRF. Mr. Leuschen received an MBA from Dartmouth’s Amos Tuck School of Business and an A.B. degree from Dartmouth College.

As a founder of Riverstone, Mr. Leuschen has overseen investments in, and the operations of, various companies operating in the energy and power industries. In connection with that role and his prior experience at Goldman Sachs, Mr. Leuschen has a deep understanding of the energy and power industries and has extensive experience with capital markets and other financing transactions. Mr. Leuschen also serves as a director on the boards of various other energy and power companies, which we believe further enhances his understanding of the industry and perspective on best practices relating to corporate governance, corporate responsibility, management and capital markets transactions. For these reasons, among others, we believe Mr. Leuschen is qualified to serve as a director.
 
2016

6




Pierre F. Lapeyre, Jr.
(Class III)
 
Pierre F. Lapeyre, Jr., age 56, has served as a director since October 2016. Mr. Lapeyre is a Founder of Riverstone and has been a Partner/Senior Managing Director since 2000. Prior to founding Riverstone, Mr. Lapeyre was a Managing Director of Goldman Sachs in its Global Energy and Power Group. Mr. Lapeyre joined Goldman Sachs in 1986 and spent his 14-year investment banking career focused on energy and power, particularly the midstream, upstream and energy service sectors. Mr. Lapeyre has served as a non-executive board member of REL since May 2013 and serves on the boards of directors or equivalent bodies of a number of public and private Riverstone portfolio companies and their affiliates. Mr. Lapeyre is currently a director of Alta Mesa Resources, Inc. (NASDAQ: AMR), a position he has held since February 2018. He has an MBA from the University of North Carolina at Chapel Hill and a B.S. in Finance and Economics from the University of Kentucky.

We believe Mr. Lapeyre is qualified to serve on our Board due to his extensive financing, mergers and acquisitions and investing experience in the energy and power industries. Mr. Lapeyre has a deep understanding of the energy and power industries arising from his experience as a Founder and Managing Director at Riverstone and prior experience at Goldman Sachs. Furthermore, as a result of Mr. Lapeyre’s service on the boards of various energy and power companies, he is able to share best practices relating to transactions, risk oversight, shareholder engagement, corporate governance, corporate responsibility and management.
 
2016
Vote Required; Recommendation
The election of a director to the Board requires the affirmative vote of a plurality of the votes cast at the Annual Meeting.
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF EACH OF THE CLASS III DIRECTOR NOMINEES NAMED ABOVE.
Continuing Directors
The five Class I and Class II directors whose terms will continue after the Annual Meeting and will expire at our 2020 (Class I) or 2021 (Class II) annual meeting of stockholders, as well as the director nominated for election at the Annual Meeting by the holder of our Series A Preferred Stock, are listed below.
Director
 
Age, Principal Occupation, Business Experience, Other Directorships Held and Director Qualifications
 
Director Since
Maire A. Baldwin
(Class I)
 
Maire A. Baldwin, age 53, has served as a director since October 2016. Ms. Baldwin was employed as an Advisor to EOG, from March 2015 until April 2016. Prior to that, she was employed at EOG as Vice President Investor Relations from 1996 to 2014. Ms. Baldwin has served as a director of the Houston Parks Board since 2011, a non-profit dedicated to developing parks and green space to the greater Houston area where she serves on several committees. She is co-founder of Pursuit, a non-profit dedicated to raising funds and awareness of adults with intellectual and developmental disabilities. Ms. Baldwin has an MBA from the University of Texas at Austin and a B.A. in Economics from the University of Texas at Austin. We believe Ms. Baldwin is qualified to serve on our Board due to her extensive experience in the energy industry.
 
2016

7




Robert M. Tichio
(Class I)
 
Robert M. Tichio, age 41, has served as a director since October 2016. Mr. Tichio is a Partner of Riverstone and joined Riverstone in 2006. Prior to joining Riverstone, Mr. Tichio was in the Principal Investment Area of Goldman Sachs which manages the firm’s private corporate equity investments. Mr. Tichio began his career at J.P. Morgan in the Mergers & Acquisitions group where he concentrated on assignments that included public company combinations, asset sales, takeover defenses and leveraged buyouts. In addition to serving on the boards of a number of Riverstone portfolio companies and their affiliates, Mr. Tichio has been a director of EP Energy Corporation since September 2013, Talos Energy Inc. (NYSE: TALO) since April 2012 and Pipestone Energy Corp., a Canadian publicly traded company, since January 2019. Mr. Tichio previously served as a member of the board of directors of Gibson Energy (TSE:GEI) from 2008 to 2013; Midstates Petroleum Company, Inc. from 2012 to 2015; and, Northern Blizzard Inc. from 2010 to 2017. He holds an MBA from Harvard Business School and a bachelor’s degree from Dartmouth College. We believe Mr. Tichio is qualified to serve on our Board due to his extensive private equity and mergers and acquisitions experience.
 
2016
Karl E. Bandtel
(Class II)
 
Karl E. Bandtel, age 52, has served as a director since October 2016. Mr. Bandtel was a Partner at Wellington Management Company, where he managed energy portfolios, from 1997 until June 30, 2016, when he retired. He holds a master’s degree in business from the University of Wisconsin-Madison and a bachelor’s degree from the University of Wisconsin-Madison. We believe Mr. Bandtel is qualified to serve on our Board due to his extensive experience in evaluating and investing in energy companies, both public and private, and to his executive management skills developed as part of his career with Wellington Management Company.
 
2016
Matthew G. Hyde
(Class II)
 
Matthew G. Hyde, age 63, has served as a director since January 2018. Previously, Mr. Hyde was Senior Vice President of Exploration at Concho Resources Inc. (NYSE: CXO) from 2010 to 2016. After leaving Concho, Mr. Hyde was retired until joining our Board in January 2018. From 2008 to 2010, Mr. Hyde served as Concho’s Vice President of Exploration and Land. From 2001 to 2007, Mr. Hyde was an Asset Manager of Oxy Permian, a business unit of Occidental Petroleum Corporation (NYSE: OXY). Mr. Hyde served as President and General Manager of Occidental Petroleum Corporation’s international business unit in Oman from 1998 to 2001. Prior to that role, Mr. Hyde served in a variety of domestic and international exploration positions for Occidental Petroleum Corporation, including Regional Exploration Manager responsible for Latin American exploration activities. From 2008 to 2012, Mr. Hyde served in various leadership positions, including the Executive Committee and Chairman of the Board, for the New Mexico Oil & Gas Association (NMOGA), which promotes the safe and environmentally responsible development of oil and natural gas resources in New Mexico. Mr. Hyde has also served as a director of privately held Birch Permian Holdings, Inc. since April 2018. He is a graduate of the University of Vermont and the University of Massachusetts where he obtained Bachelor of Arts and Master of Science degrees, respectively, in Geology. Mr. Hyde also holds a Master of Business Administration degree from the University of California Los Angeles. We believe Mr. Hyde is qualified to serve on our Board due to his extensive management and operational experience in the upstream oil and gas industry, including in the Permian and Delaware Basins.
 
2018

8




Jeffrey H. Tepper
(Class II)
 
Jeffrey H. Tepper, age 53, has served as a director since February 2016. Mr. Tepper is Founder of JHT Advisors LLC, an M&A advisory and investment firm. From 1990 to 2013, Mr. Tepper served in a variety of senior management and operating roles at the investment bank Gleacher & Company, Inc. and its predecessors and affiliates (“Gleacher”). Mr. Tepper was Head of Investment Banking and a member of the Firm’s Management Committee. Mr. Tepper is also Gleacher’s former Chief Operating Officer overseeing operations, compliance, technology and financial reporting. In 2001, Mr. Tepper co-founded Gleacher’s asset management activities and served as President. Gleacher managed over $1 billion of institutional capital in the mezzanine capital and fund of hedge fund areas. Mr. Tepper served on the Investment Committees of Gleacher Mezzanine and Gleacher Fund Advisors. Between 1987 and 1990, Mr. Tepper was employed by Morgan Stanley & Co. as a financial analyst in the mergers & acquisitions and merchant banking departments. Mr. Tepper is currently a director of Alta Mesa Resources, Inc. (NASDAQ: AMR), a position he has held since March 2017 when the company was called Silver Run Acquisition Corporation II. Mr. Tepper received an MBA from Columbia Business School and a B.S. in Economics from The Wharton School of the University of Pennsylvania with concentrations in finance and accounting. Mr. Tepper is experienced in mergers and acquisitions, corporate finance, leveraged finance and asset management. We believe Mr. Tepper is qualified to serve on our Board due to his significant investment and financial experience.
 
2016
Tony R. Weber
(Series A Preferred)
 
Tony R. Weber, age 56, has served as a director since October 2016. Mr. Weber joined Natural Gas Partners in December 2003 and has served as a Managing Partner since November 2013. He previously served Natural Gas Partners in other capacities, including Managing Director from 2007 to November 2013. Prior to joining Natural Gas Partners, Mr. Weber was the Chief Financial Officer of Merit Energy Company from April 1998 to December 2003. Prior to that, he was Senior Vice President and Manager of Union Bank of California’s Energy Division in Dallas, Texas from 1987 to 1998. Mr. Weber served as the Chairman of the Board for Memorial Resource Development, Inc. from its formation in January 2014 until Memorial Resource Development, Inc. was acquired by Range Resources Corporation in September 2016. In addition, Mr. Weber served as a director of the general partner of Memorial Production Partners LP from December 2011 to March 2016 and a member of the Board of Directors of WildHorse Resource Development Corporation from September 2016 to February 2019, when WildHorse Resource Development Corporation was acquired by Chesapeake Energy Corporation. Further, in his role at Natural Gas Partners, Mr. Weber serves on numerous private company boards as well as industry groups, including the IPAA Capital Markets Committee and Dallas Wildcat Committee. He currently serves on the Dean’s Council of the Mays Business School at Texas A&M University and was a founding member of the Mays Business Fellows Program. Mr. Weber received a B.B.A. in Finance in 1984 from Texas A&M University. We believe Mr. Weber is qualified to serve on our Board due to his extensive corporate finance, banking and private equity experience.
 
2016


9




CORPORATE GOVERNANCE
Governance Highlights
We are committed to corporate governance practices that promote the long-term interests of our stockholders, strengthen our Board, foster management accountability, and help build public trust in our company. The table below sets forth some of our most important governance highlights, which are described in more detail in this proxy statement
Board Structure
Size of Board of Directors
 
9
 
Annual Board and Committee Self-Evaluations
 
Yes
Number of Independent Directors
 
5
 
Diverse Board Skills and Experience
 
Yes
 
 
 
 
Lead Independent Director
 
Yes

Board and Committee Governance; Board’s Role in Risk Oversight
Corporate Governance Guidelines
 
Yes
 
Review of Related Person Transactions
 
Yes
Code of Business Conduct and Ethics
 
Yes
 
Compensation Risk Assessment
 
Yes
Board and Audit Committee Risk Oversight
 
Yes
 
 
 
 

Compensation; Stock Ownership
Annual Equity Grants to Directors
 
Yes
 
Tax Gross-Ups
 
No
Non-Hedging and Non-Pledging Policies
 
Yes
 
Director and Senior Management Stock Ownership Guidelines
 
Yes
Clawback Policy
 
Yes
 
 
 
 
Our website (www.cdevinc.com) includes materials that are helpful in understanding our corporate governance practices, including our Corporate Governance Guidelines, Code of Business Conduct and Ethics, Policy for Related Person Transactions, Policy for Accounting-Related Complaints and charters for the committees of our Board.
Board Role in Risk Oversight
As an oil and gas exploration and production company, we encounter a variety of risks, including, among others, commodity price volatility and supply and demand risks, risks associated with rising costs of doing business, availability of capital and financing, risks associated with our development, acquisition and production activities, environmental and other regulatory risks, weather-related risks and political instability. While our senior management is responsible for the day-to-day management of the risks we face, the Board, directly and through its committees, oversees the Company’s management and, with their assistance, is actively involved in the oversight of risks that could affect the Company. Specifically, the Board is responsible for ensuring that the risk management processes designed and implemented by management are adequate to address the risks we face and function as intended. Accordingly, during the course of each year, the Board (i) reviews and approves management’s operating plans and considers any risks that could affect operating results, (ii) reviews the structure and operation of our various departments and functions and (iii) in connection with the review and approval of particular transactions and initiatives, reviews related risk analyses and mitigation plans.
The Board has delegated certain risk oversight responsibility to committees of the Board as follows: (i) the audit committee of the Board (the “Audit Committee”) oversees the Company’s risk assessment and risk management guidelines, policies and processes, as well as risks relating to the financial statements and financial reporting processes of the Company, meeting periodically with management to discuss the Company’s major financial risk exposures and the steps management is taking to monitor and control such exposures, including the Company’s risk assessment and risk management policies; (ii) the compensation committee of the Board (the “Compensation Committee”) oversees risks related to senior executive and other compensation; and (iii) the nominating and corporate governance committee of the Board (the “Nominating and Corporate Governance Committee”) oversees risks related to corporate governance. Our senior management regularly reports to the full Board and, as appropriate, the committees of the Board regarding enterprise risk that the Company must mitigate and/or manage.

10




Board Independence
NASDAQ listing rules require that a majority of the board of directors of a company listed on NASDAQ be composed of “independent directors,” which is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which, in the opinion of the company’s Board, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our Board has determined that Maire A. Baldwin, Karl E. Bandtel, Matthew G. Hyde, Jeffrey H. Tepper and Tony R. Weber are independent within the meaning of the NASDAQ listing rules. Further, our Board has determined that Maire A. Baldwin, Karl E. Bandtel and Jeffrey H. Tepper, the current members of the Audit Committee, are independent with the meaning of Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Lead Independent Director
Our Corporate Governance Guidelines provide that, if the Chairman of the Board is a member of management or does not otherwise qualify as independent, the independent directors may elect a lead independent director. In 2018, the independent directors elected Ms. Baldwin to serve as the Board’s lead independent director. The lead director’s responsibilities include, but are not limited to: (i) presiding over all meetings of our Board at which the Chairman of the Board is not present, including any executive sessions of the independent directors; (ii) approving Board meeting schedules and agendas; and (iii) acting as the liaison between the independent directors and the Chief Executive Officer and Chairman of the Board. Our Board may modify its leadership structure in the future as it deems appropriate.
Board Meetings
Our Board conducts its business through meetings of the Board, actions taken by written consent in lieu of meetings and by the actions of its committees. During the fiscal year ended December 31, 2018, the Board held four meetings and acted by unanimous written consent one time. During the fiscal year ended December 31, 2018, no incumbent director attended fewer than 75% of the total number of meetings of the Board (including consents to action in lieu of a meeting) held during the period for which he or she has been a director.
Committees of the Board
The Board currently has three standing committees: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Each of the committees reports to the Board as it deems appropriate and as the Board may request. The composition, duties and responsibilities of these committees are set forth below.
From time to time and as necessary to address specific issues, our Board may establish other committees.
Audit Committee
The principal functions of our Audit Committee are detailed in the Audit Committee charter, which is posted on the Investor Relations portion of our website at www.cdevinc.com, and include:
the appointment, compensation, retention, replacement and oversight of the work of the independent auditors and any other independent registered public accounting firm engaged by us;
pre-approving all audit and permitted non-audit services to be provided by the independent auditors or any other registered public accounting firm engaged by us, and establishing pre-approval policies and procedures;
reviewing and discussing with the independent auditors all relationships the auditors have with us in order to evaluate their continued independence;
setting clear hiring policies for employees or former employees of the independent auditors;
setting clear policies for audit partner rotation in compliance with applicable laws and regulations;
reviewing and approving any related party transaction required to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction;
reviewing our annual audited financial statements and quarterly financial statements with management and the Company’s independent auditors prior to their final completion and filing with the SEC;
reviewing the program, policies and systems we have in place to monitor compliance with the Code of Business Conduct and Ethics and any ethics complaints we may receive; and
reviewing with management, the independent auditors and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting policies

11




and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities.
Our Audit Committee consists of Jeffrey H. Tepper, Karl E. Bandtel and Maire A. Baldwin, with Mr. Tepper serving as the Chair. We believe that Messrs. Tepper and Bandtel and Ms. Baldwin qualify as independent directors according to the rules and regulations of the SEC with respect to audit committee membership. We also believe that Mr. Tepper qualifies as our “audit committee financial expert,” as such term is defined in Item 401(h) of Regulation S-K.
During the fiscal year ended December 31, 2018, the Audit Committee held six meetings and acted by unanimous written consent one time.
Compensation Committee
The principal functions of our Compensation Committee are detailed in the Compensation Committee charter, which is posted on the Investor Relations portion of our website at www.cdevinc.com, and include:
reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s compensation, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer based on such evaluation;
reviewing and approving on an annual basis the compensation of all of our other officers;
reviewing and approving on an annual basis the compensation of all of our non-employee directors;
reviewing on an annual basis our executive compensation policies and plans;
implementing and administering our incentive compensation stock-based remuneration plans;
assisting management in complying with our proxy statement and annual report disclosure requirements;
approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our officers and employees;
producing a report on executive compensation to be included in our annual proxy statement; and
reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors.
Our Compensation Committee consists of Maire A. Baldwin, Jeffrey H. Tepper and Tony R. Weber, with Ms. Baldwin serving as the Chair. Our Board has affirmatively determined that Ms. Baldwin and Messrs. Tepper and Weber meet the definition of “independent director” for purposes of serving on a compensation committee under the NASDAQ listing rules.
The Compensation Committee may delegate the approval of certain transactions to a subcommittee consisting solely of two or more members of the Compensation Committee. On October 27, 2016, the Compensation Committee created a subcommittee (the “Section 162(m) Plan Subcommittee”) consisting of Ms. Baldwin and Mr. Tepper to administer and make determinations from time to time with respect to awards granted or compensation to be provided under the Centennial Resource Development, Inc. 2016 Long Term Incentive Plan (as amended and/or restated, the “LTIP”) or any successor plan, including compensation that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code, and the regulations promulgated thereunder. The Compensation Committee dissolved the Section 162(m) Plan Subcommittee on February 13, 2018.
The Compensation Committee has the authority to retain or obtain the advice of compensation consultants, legal counsel and other advisors (independent or otherwise) to assist in carrying out its responsibilities. For information regarding the role of our Chief Executive Officer, other executive officers and compensation consultants in determining our executive and director compensation, please refer to the section entitled “Compensation Discussion and Analysis-Determination of Compensation.”
During the fiscal year ended December 31, 2018, the Compensation Committee held eight meetings and acted by unanimous written consent five times. In addition, prior to its dissolution, the Section 162(m) Plan Subcommittee acted by unanimous written consent one time in 2018.
Nominating and Corporate Governance Committee
The principal functions of our Nominating and Corporate Governance Committee are detailed in the Nominating and Corporate Governance Committee charter, which is posted on the Investor Relations portion of our website at www.cdevinc.com, and include:
assisting the Board in identifying individuals qualified to become members of the Board, consistent with criteria approved by the Board;

12




recommending director nominees for election or for appointment to fill vacancies;
monitoring the independence of board of director members; and
ensuring the availability of director education programs.
The Nominating and Corporate Governance Committee also develops and recommends to the Board corporate governance principles and practices and assists in implementing them, including conducting a regular review of our corporate governance principles and practices. The Board finds it appropriate that the Nominating and Corporate Governance Committee currently does not have a policy regarding consideration of director candidates recommended by stockholders. The Nominating and Corporate Governance Committee oversees the annual performance evaluation of the Board and the committees of the Board and makes a report to the Board on succession planning.
Our Nominating and Corporate Governance Committee consists of Karl E. Bandtel, Matthew G. Hyde and Tony R. Weber, with Mr. Bandtel serving as the Chair. Our Board has affirmatively determined that Messrs. Bandtel, Hyde and Weber meet the definition of “independent director” for purposes of serving on a nominations committee under the NASDAQ listing rules.
The Nominating and Corporate Governance Committee held one meeting during the fiscal year ended December 31, 2018 and acted by unanimous written consent one time.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 2018, no officer or employee of the Company served as a member of our Compensation Committee. None of our executive officers serve, or have served during the fiscal year ended December 31, 2018, as a member of the board of directors or compensation committee of any entity that has or had one or more executive officers serving on our Board or Compensation Committee.
Code of Business Conduct and Ethics
We have adopted a written code of ethics (the “Code of Business Conduct and Ethics”) that applies to our directors, officers and employees and that, among other purposes, is intended to assist directors, officers and employees in recognizing, avoiding and resolving ethical issues. The Code of Business Conduct and Ethics covers various topics, including the standards of honest, ethical and fair conduct, conflicts of interest, disclosure requirements, compliance, reporting and accountability, insider information and trading, confidentiality, anti-corruption laws and others. The Code of Business Conduct and Ethics is designed to comply with SEC regulations and NASDAQ listing standards related to codes of conduct and ethics and is posted on the Investor Relations portion of our website at www.cdevinc.com. A copy of our Code of Business Conduct and Ethics is also available free of charge, upon request directed to Centennial Resource Development, Inc., 1001 Seventeenth Street, Suite 1800, Denver, Colorado 80202, Attention: General Counsel. We intend to satisfy the disclosure requirements regarding any amendment to, or any waiver of, a provision of the Code of Business Conduct and Ethics by posting such information on our website within four business days following the date of any such amendment or waiver.
Annual Board and Committee Evaluation Process
 The Board and each of our committees conducted self-evaluations related to their performance in 2018, including an evaluation of each director. The Nominating and Corporate Governance Committee supervises the performance evaluations and uses various processes from year to year in order to solicit feedback, including Board and committee-level questionnaires prepared by each of the Board and committee members, the responses to which are used to evaluate the effectiveness of Board and committee performance and to identify areas for improvement and issues for further discussion. Following a discussion of the results of the evaluations, the Board and each committee review and discuss the evaluation results and take this information into account when assessing the qualifications of the Board and its directors, further enhancing the effectiveness of the Board and its committees over time.

13




Policies Relating to our Board
Stockholder Communications with the Board
All stockholders who wish to contact the Board may send written correspondence to Centennial Resource Development, Inc., 1001 Seventeenth Street, Suite 1800, Denver, Colorado 80202, Attention: General Counsel. Communications may be addressed to an individual director, to the non-management or independent directors as a group or to the Board as a whole, marked as confidential or otherwise. Communications not submitted confidentially, which are addressed to directors that discuss business or other matters relevant to the activities of our Board, will be preliminarily reviewed by the office of the General Counsel and then distributed either in summary form or by delivering a copy of the communication. Communications marked as confidential will be distributed, without review by the office of the General Counsel, to the director or group of directors to whom they are addressed, unless there are safety or security concerns that mitigate against further transmission.
Director Qualifications
As provided by the Nominating and Corporate Governance Committee charter, our Nominating and Corporate Governance Committee identifies, evaluates and recommends to our Board director candidates with the goal of identifying individuals with a high level of personal and professional integrity, strong ethics and values and the ability to make mature business judgments. In evaluating director candidates, the Nominating and Corporate Governance Committee may also consider certain other criteria as set forth in our Corporate Governance Guidelines, including, among other things, the candidate’s experience in corporate management and as a board member of another publicly held company, the candidate’s professional and academic experience relevant to the oil and natural gas industry, the strength of the candidate’s leadership skills and the overall diversity of the Board.  The Nominating and Corporate Governance Committee and the Board monitor the mix of specific experience, qualification and skills of our directors in order to ensure that the Board, as a whole, has the necessary tools to perform its oversight function effectively.  Generally, the Nominating and Corporate Governance Committee identifies candidates through the personal, business and organizational contacts of the directors and management.
Board Leadership Structure
Currently, Mark G. Papa serves as our Chief Executive Officer and Chairman of the Board, and we have no policy with respect to the separation of the offices of Chairman and Chief Executive Officer. The Board believes that it is important to retain its flexibility to allocate the responsibilities of the offices of the Chairman and Chief Executive Officer in any way that is in the best interests of the Company at a given point in time. The Board believes that the most effective leadership structure for the Company at this time is for Mr. Papa to serve both as Chief Executive Officer as well as Chairman of the Board.
Separate Sessions of Independent Directors
Our Corporate Governance Guidelines require the Board to hold executive sessions for the independent directors, without any non-independent directors or management present, on a regularly scheduled basis but not less than twice per year. Our independent directors met in executive session on four occasions in 2018. Each of our independent directors attended each of the executive sessions.
Director Attendance at Annual Meeting of Stockholders
Although we do not have a formal policy regarding director attendance at our annual meeting of stockholders, we encourage directors to attend. Eight board members attended the 2018 annual meeting of stockholders.
Stockholder Engagement 
Stockholder engagement is a very important part of our business practices. We value our stockholders’ views on a variety of important topics, including their perspective on our operations and performance, executive compensation and environmental, social and governance initiatives, among others. As a result of stockholder engagement, we enhanced our website disclosure in 2018 to better describe our corporate, environmental, health and safety, social and corporate governance commitments and practices. We are committed to corporate responsibility, environmental sustainability, operational safety and sound corporate governance, and we describe each of these commitments in detail in the “Responsibility” portion our website.
In addition, listed below are highlights of actions we have taken in 2018 or early 2019 as a result of stockholder engagement and in an effort to better align our corporate governance and compensation practices with best practices for public companies in our industry:
We updated our Corporate Governance Guidelines in 2018 to encourage the Nominating and Corporate Governance Committee and Board to consider diversity, among other factors, when evaluating director candidates.
We elected Ms. Baldwin to serve as our first lead independent director.

14




We adopted a clawback policy that provides for the recoupment of cash incentive compensation or performance-based equity compensation in certain instances if the Company restates its financial statements as a result of a material error in such financial statements.
We approved majority voting for uncontested director elections and recommended that our stockholders approve and adopt governance changes to implement that new voting standard, as described in greater detail in Proposal 4.
We enhanced the disclosure in this proxy statement to provide a more fulsome description and relative weightings of the performance goals and assessments considered by the Compensation Committee for performance-based awards granted during 2018.

15




AUDIT COMMITTEE REPORT

The Audit Committee has reviewed and discussed with management of the Company and KPMG LLP, the Company’s independent registered public accounting firm, the audited financial statements of the Company for the fiscal year ended December 31, 2018 (the “Audited Financial Statements”).
The Audit Committee has discussed with KPMG LLP the matters required to be discussed by the Public Company Accounting Oversight Board (the “PCAOB”) Auditing Standard No. 61, as in effect on the date of this proxy statement.
The Audit Committee has: (i) considered whether non-audit services provided by KPMG LLP are compatible with its independence; (ii) received the written disclosures and the letter from KPMG LLP required by the applicable requirements of the PCAOB regarding KPMG LLP’s communications with the Audit Committee concerning independence; and (iii) discussed with KPMG LLP its independence.
Based on the reviews and discussions described above, the Audit Committee recommended to the Board that the Audited Financial Statements be included in the annual report on Form 10-K for the fiscal year ended December 31, 2018 for filing with the SEC.

Respectfully submitted,

The Audit Committee

Jeffrey H. Tepper (Chair)
Maire A. Baldwin
Karl E. Bandtel


16




COMPENSATION DISCUSSION AND ANALYSIS
In this Compensation Discussion and Analysis, we address our philosophy, programs and processes related to the compensation paid or awarded to our “named executive officers,” or “NEOs,” for 2018, including the elements of our compensation program for named executive officers, material compensation decisions made under that program during 2018 and the material factors considered in making those decisions. Our named executive officers include our principal executive officer, principal financial officer and our three other most highly compensated executive officers. Our named executive officers for 2018 are:
Mark G. Papa, Chief Executive Officer and Chairman of the Board;
George S. Glyphis, Vice President and Chief Financial Officer;
Sean R. Smith, Vice President and Chief Operating Officer;
Davis O. O’Connor, Vice President and General Counsel; and
Brent P. Jensen, Vice President and Chief Accounting Officer.
Executive Summary
Compensation Philosophy, Objectives and Rewards
Our executive compensation program has been designed to attract, motivate, reward and retain high caliber management with the skills and competencies that we believe are essential to our success and to align executive compensation with our short-term and long-term business objectives, business strategy and financial performance. To achieve our compensation objectives, we generally provide executives with a compensation package consisting primarily of the following fixed and variable elements:
Compensation Element
 
Compensation Objective
Annual Base Salary
 
Provide competitive fixed compensation based on the NEO’s title, role, experience and performance in order to attract and retain individuals with superior talent
Annual Incentive Compensation
 
Provide incentives to attain the Company’s and NEO’s short-term strategic, financial and operational goals
Equity Incentive Awards
 
Promote the maximization of stockholder value by aligning the interests of NEOs and stockholders for long-term value creation

17




Mix of Compensation Elements for our Named Executive Officers
Our executive compensation program directly links a substantial portion of the executive compensation to the Company’s performance through annual and long-term incentives. The pie charts below show the mix of compensation elements for our Chief Executive Officer and the average mix of compensation elements for our other named executive officers for 2018 based on the information included in the 2018 Summary Compensation Table. As discussed below, at our Chief Executive Officer’s request, the Compensation Committee did not provide additional long-term equity grants to him for 2018; therefore, the “at risk” portion of his compensation decreased from 2016 and 2017 levels as did his total compensation as discussed below in the section entitled “Compensation for our Chief Executive Officer.” These charts highlight the substantial portion of named executive officer compensation that is “at risk” because its value is tied to the Company’s performance.
Chief Executive Officer 2018 Total Compensation Pay Mix
     http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12792395&doc=5
Other NEOs 2018 Total Compensation Pay Mix
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12792395&doc=9

18




Executive Compensation Highlights
We believe our executive compensation program is competitive with our compensation peer group and aligned with current compensation trends and best practices and contains features that are intended to optimize returns to our stockholders. The following chart highlights several features of our compensation practices.
 
What We Do
 
 
What We Don't Do
ü
Pay for performance - each of our NEO’s total compensation is substantially weighted toward compensation that is “at-risk” and tied to the performance of the Company and the NEO.
 
û
Allow hedging or pledging of any Company securities by any director, officer or employee.
 
 
 
 
 
ü
Maintain equity ownership guidelines for our officers and directors requiring substantial Company stock ownership.
 
û
Provide tax gross-ups for severance or change in control payments to our NEOs or other officers or employees.
 
 
 
 
 
ü
Review comparative compensation data and generally target total NEO compensation between the 50th and 75th percentile of our compensation peer group.
 
û
Provide defined benefit or supplemental executive retirement plans.
 
 
 
 
 
ü
Have an independent compensation consultant retained by our Compensation Committee.
 
û
Utilize performance measures that we believe would encourage excessive risk taking.
 
 
 
 
 
ü
Have a clawback policy that is applicable to our NEOs.
 
û
Provide significant perquisites to any of our NEOs or other officers.
 
 
 
 
 
ü
Have double-trigger change in control severance for both cash severance payments and equity vesting under our Severance Plan.
 
û
Have employment agreements with our NEOs or other officers.
 
 
 
 
 
ü
Conduct an annual risk assessment of compensation practices to ensure avoidance of excessive risk taking.
 
û
Guarantee bonuses for any of our NEOs or other officers.
 
 
 
 
 
ü
Have performance-based restricted stock units that are capped at target if our total stockholder return is less than or equal to zero for the applicable performance period.
 
û
Permit repricing of underwater stock options without stockholder approval.
2018 Company Performance Highlights
During 2018, we achieved the following operational and financial performance highlights, among others:
Exceeded our goal of a 17% unlevered before-tax rate of return on our 2018 capital investment program;
Increased average daily oil and oil equivalent production volumes by 81% and 92% from 2017 levels, respectively; in-line with the midpoint of our fiscal year 2018 production guidance;
Substantially outperformed production costs per barrel of oil equivalent targets for lease operating expense, cash general and administrative expense, gathering, processing and transportation expense, cash interest expense and depreciation, depletion and amortization;
Achieved the midpoint of 2018 drilling and completions capital expenditures guidance and did not raise the capital budget in 2018;
Secured flow assurance for a significant portion of our near-term oil and natural gas volumes through firm transportation and firm sales agreements, ensuring essentially no volume will be shut-in due to takeaway capacity constraints out of the Permian Basin;
Acquired approximately 9,000 net acres of quality core leasehold acreage in the Delaware Basin through strategic bolt-on acquisitions and organic leasing at attractive prices, which allowed us to add approximately 100 core, gross operated horizontal drilling locations;
Retained strong balance sheet and liquidity position, ending the year with 17% Net Debt to Total Capitalization with available borrowing capacity of $499.2 million under our revolving credit facility; and
Maintained a safety and environmental track record that significantly outperformed industry average.

19




Compensation for our Chief Executive Officer
For 2016 and 2017, the substantial majority of total compensation awarded to Mr. Papa, our Chief Executive Officer, was in the form of stock options and restricted stock, which vest in three substantially equal annual installments following the date of grant. At Mr. Papa’s request, his base salary was not increased in 2018 and has remained unchanged since it was initially set by the Compensation Committee in 2016. Furthermore, at his request, the Compensation Committee did not provide any additional long-term equity grants to Mr. Papa for 2018. As a result, Mr. Papa’s total compensation for 2018 was substantially lower than in prior years, as illustrated in the diagram below.
Our Chief Executive Officer’s Total Compensation (2016 - 2018)*
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12792395&doc=6
*Based on total compensation as reported in the Summary Compensation Table for the applicable fiscal year. 
Consideration of 2018 “Say-on-Pay” and “Say-on-Frequency” Advisory Votes
At the 2018 Annual Meeting of Stockholders, approximately 93% of the votes cast were in favor of the non-binding advisory vote to approve compensation for our named executive officers (commonly referred to as a “say-on-pay” vote). Also, 99% of votes cast were in favor of holding the say-on-pay vote on an annual basis, which was the frequency recommended by our Board. We believe that annual “say-on-pay” votes are the most appropriate for the Company because such votes allow our stockholders the opportunity to provide more frequent feedback on the compensation program for our named executive officers and provide the Compensation Committee with more current information regarding our stockholders’ response to our programs and policies.
The Board and the Compensation Committee took the results of the “say-on-pay” vote into account when evaluating the compensation program for our named executive officers for 2018. Based in part on the level of support from our stockholders, the Compensation Committee elected not to make any material changes to the compensation programs for our named executive officers during 2018, other than the Compensation Committee’s determination to not provide additional long-term equity grants to our Chief Executive Officer for 2018, as discussed above. We appreciate our stockholders’ continuing annual feedback regarding our executive pay practices, as we value our stockholders’ evaluation of our executive compensation program and policies. As discussed in more detail in Proposal 2 below, the Board has recommended that stockholders vote, on a non-binding, advisory basis, to approve the compensation of the named executive officers as described in this proxy statement. The Compensation Committee will continue to review stockholder votes on our executive compensation and determine whether to make changes to the program accordingly.

20




Determination of Compensation
Our executive compensation program has been designed to attract, motivate, reward and retain high caliber management with the skills and competencies we believe are essential to our success and to align executive compensation with our short-term and long-term business objectives, business strategy and financial performance. We link pay and performance to foster a culture of individual accountability and, in evaluating executive officer performance, place particular emphasis on the unlevered before-tax rate of return on our capital investment program, which is described in greater detail below in the section entitled “Annual Incentive Compensation.”
Role of the Compensation Committee
The Compensation Committee administers and determines the parameters of our executive officer compensation program, including appropriate target levels and performance measures and the allocation between short-term and long-term compensation and between cash and equity-based awards, in order to establish an overall compensation program it believes is appropriate for each named executive officer. The Compensation Committee has principal authority for determining and approving the compensation awards for our executive officers and is charged with reviewing our executive compensation policies and practices to ensure adherence to our compensation philosophies and objectives. In making decisions, the Compensation Committee takes into account, among other factors:
achievement of individual and Company performance goals and expectations relating to the named executive officer’s position at the Company;
alignment of named executive officer compensation with short-term and long-term Company performance;
competitiveness of compensation with compensation peer group companies, internal pay equity among individuals with similar expertise levels and experience and the unique skill sets of the individual;
market demand for individuals with the named executive officer’s specific expertise and experience;
advice, data and analysis provided by the Compensation Committee’s independent compensation consultant;
general industry compensation data;
the named executive officer’s background, experience and circumstances, including prior related work experience and training; and
the recommendations of the Company’s Chief Executive Officer.
The Compensation Committee generally targets total compensation for our executive officers between the 50th and 75th percentile of our compensation peer group on an aggregate basis. However, the Compensation Committee retains discretion to allow for individual adjustments based on factors and considerations specific to the individual.
Role of Compensation Consultant in Determining Executive Compensation
In determining 2018 executive compensation, the Compensation Committee received information and reports from Longnecker & Associates (“Longnecker”), an independent compensation consultant retained by the Compensation Committee. Longnecker provided data, analysis and advice to the Compensation Committee, including market information that the Compensation Committee used when determining whether our executive compensation is competitive, commensurate with the executive officers’ responsibilities and consistent with market trends in executive compensation practices for companies in our industry. Longnecker does not provide services to us other than consulting services related to the compensation and benefits of our directors, officers and employees. The Compensation Committee has considered the adviser independence factors required under SEC rules as they relate to Longnecker and does not believe Longnecker’s work in 2018 raised a conflict of interest.

21




Use of Competitive Market Data
A key objective of our executive compensation program is to ensure that the total compensation opportunities available to our executive officers are competitive with those of oil and gas exploration and production companies with whom we compete for executive talent, investment dollars and business opportunities. We maintain a peer group for executive compensation and performance reference purposes to, among other things, assist in evaluating our executive compensation program against this key objective. Our criteria for the selection of peer companies within our General Industry Classification Standard Industry Code (i.e., oil and gas exploration and production companies) include revenue, assets, market capitalization, enterprise value, location (significant footprint in the Permian Basin) and complexity of operations. The Compensation Committee, with input and advice from Longnecker and Company management, typically reviews the peer group on an annual basis.
In August 2018, with input and advice from Longnecker and Company management, the Compensation Committee updated the peer group used for 2018 compensation purposes. RSP Permian, Inc., which had been a member of the 2017 peer group, ceased to be a publicly-traded corporation after it was acquired by Concho Resources Inc. on July 19, 2018, and was therefore removed from the 2018 peer group. Longnecker also recommended adding two new companies, Matador Resources Company and SM Energy Company, which each have operations that are concentrated in the Permian Basin and financial metrics that are aligned with those of Centennial. The Compensation Committee approved these recommendations, resulting in the inclusion of the following companies in the 2018 peer group:
Callon Petroleum Company
Parsley Energy, Inc.
Cimarex Energy Co.
PDC Energy, Inc.
Diamondback Energy, Inc.
QEP Resources, Inc.
Energen Corporation (1)
SM Energy Company
Laredo Petroleum, Inc.
WPX Energy, Inc.
Matador Resources Company
 
 
 
(1) On November 29, 2018, Energen Corporation was acquired by Diamondback Energy, Inc. and ceased to be a publicly-traded company, and therefore ceased to be a member of our peer group on such date.
Role of Executive Officers in Determining Executive Compensation
Our Chief Executive Officer provides the Compensation Committee with a review of the performance of our executive officers, other than himself, and makes recommendations to the Compensation Committee to assist it in determining executive compensation levels, other than his own. During 2018, our Chief Executive Officer reviewed compensation assessments and data provided by Longnecker prior to and in connection with the recommendations he made to the Compensation Committee. While the Compensation Committee utilized this information and valued management’s observations with regard to compensation, the ultimate decisions regarding 2018 executive compensation were made by the Compensation Committee.
Elements of Our Executive Compensation Program
For 2018, the primary elements of our named executive officers’ compensation were base salaries, annual incentive compensation and long-term equity-based compensation.
Base Salaries
The base salaries of our named executive officers are an important part of their total compensation package, and are intended to reflect their respective positions, duties and responsibilities and to provide a fixed base of cash compensation. Base salary is a visible and stable fixed component of our compensation program. The Compensation Committee may adjust base salaries based on a number of factors, including experience, responsibilities, individual contributions, number of years in the position and competitive data. In addition, the Compensation Committee may evaluate our named executive officers’ base salaries, together with other components of their compensation, to ensure that the executive’s total compensation is consistent with our overall compensation philosophy and market practices of our compensation peer group.
With the exception of base salary increases in connection with promotions, the Compensation Committee generally evaluates whether to increase the base salaries of our named executive officers in August of each year. In determining whether to adjust base salaries in 2018, the Compensation Committee considered, among other things, the Company’s goals for 2017 and its performance as measured against those goals, compensation alignment with performance, the performance and individual contributions of each executive, the recommendations of our Chief Executive Officer, competitive market data provided by Longnecker and the level of fixed cash compensation that the Compensation Committee believed to be necessary to retain the services of our named executive officers in a competitive talent market. Based upon these considerations, the Compensation Committee increased base salaries, effective August 25, 2018, for all of our named executive officers except for

22




Mr. Papa. At Mr. Papa’s request, his base salary was not increased and has remained unchanged since it was initially set by the Company in 2016.
The table below sets forth the annual base salaries of our named executive officers for 2017 and 2018.
Named Executive Officer
 
2017 Base Salary ($)
(Effective August 25, 2017)
 
2018 Base Salary ($)
(Effective August 25, 2018)
Mark G. Papa
 
800,000
 
800,000
George S. Glyphis
 
412,000
 
428,480
Sean R. Smith
 
448,050
 
475,000
Davis O. O’Connor
 
370,800
 
385,632
Brent P. Jensen
 
325,000
 
338,000
Annual Incentive Compensation
The Compensation Committee believes that the payment of annual incentive compensation provides motivation necessary to retain the named executive officers and reward them for short-term company performance. The Company’s annual incentive compensation program is designed to encourage named executive officers to contribute to the profitability, growth and increased value of the Company. Each named executive officer has a target incentive compensation amount, expressed as a percentage of the named executive officer’s base salary. After the year is completed, the Compensation Committee reviews Company and individual performance and determines what it believes to be the appropriate level of annual incentive compensation, if any, for the named executive officers. The Company’s annual incentive compensation program does not provide for minimum (guaranteed) awards to any of the named executive officers, and the maximum award that any named executive officer can receive is 300% of the named executive officer’s base salary. Furthermore, the Company’s annual incentive compensation program provides the Compensation Committee with discretion to adjust payouts to the named executive officers and other officers and employees of the Company based on individual performance and relevant market adjustments. The table below sets forth the target annual incentive compensation percentage (expressed as a percentage of base salary) of our named executive officers for 2018.
Named Executive Officer
 
2018 Target Percentage
Mark G. Papa
 
170%
George S. Glyphis
 
100%
Sean R. Smith
 
100%
Davis O. O’Connor
 
85%
Brent P. Jensen
 
70%
In evaluating 2018 performance, the Compensation Committee focused on the Company’s performance goals for 2018 and the individual contributions of each named executive officer. As in prior years, the Compensation Committee considered our unlevered before-tax rate of return on our 2018 capital investment program (the “Rate of Return Metric”) as the most significant performance goal. The calculation of the Rate of Return Metric is based on the estimated recoverable reserves (“net” to our interest) for all operated and non-operated wells turned on production in 2018, the estimated net present value of the future net cash flows from such reserves (for which we utilize certain assumptions regarding future commodity prices and operating costs) and our direct net costs incurred in the drilling and completion of such wells (inclusive of well-level facilities expenditures). This calculation also includes certain indirect capital expenditures, such as infrastructure-related expenditures, capital expenditures related to the acquisition of undeveloped leasehold through organic oil and gas leasing and other related land expenditures, and expenditures for seismic, geological and geophysical services and data. The calculation also includes the impact of financial commodity derivative contracts, general and administrative expenses and other similar expenses. Such calculation excludes interest and income tax expenses. As such, the Rate of Return Metric cannot be calculated from our consolidated audited financial statements.

23




In determining annual incentive compensation for 2018, the Compensation Committee assigned a weighting of 65% to the Rate of Return Metric and a 15% weighting to our production and unit cost targets, considered together. The table below sets forth the specific Rate of Return Metric and production and unit cost goals for 2018.
Performance Category
 
Performance Goal
 
Assessment
 
Result
Rate of Return Metric
 
Achieve at least 17% unlevered before-tax rate of return on 2018 capital investment program
 
Exceeded a 17% unlevered before-tax rate of return on 2018 capital investment program
 
Exceeded goal

Production and Unit Cost
 
Net average daily production (Boe/d): 60,000
 
Achieved 61,082 Boe/d
 
Exceeded goal

Production and Unit Cost

 
Net average daily production (Bo/d): 35,500
 
Achieved 34,737 Bo/d
 
Slightly below goal

Production and Unit Cost
 
Lease operating expense ($/Boe): $3.80
 
Achieved $3.74/Boe
 
Exceeded goal
Production and Unit Cost
 
Cash general and administrative expense ($/Boe): $2.30
 
Achieved $1.99/Boe
 
Exceeded goal
Production and Unit Cost

 
Gathering, processing and transportation expense ($/Boe): $3.35
 
Achieved $2.58/Boe
 
Significantly exceeded goal
Production and Unit Cost
 
Cash interest expense ($/Boe): $1.25
 
Achieved $1.23/Boe
 
Exceeded goal
Production and Unit Cost

 
Depreciation, depletion and amortization ($/Boe): $15.00
 
Achieved $14.64/Boe

 
Exceeded goal

The Compensation Committee also considered our other 2018 performance goals, including our 2018 goals to: secure flow assurance for a significant portion of our near-term oil and natural gas volumes through firm transportation and firm sales agreements; secure disposal capacity for our anticipated 2019 water volumes; establish commercial productivity in certain zones; add additional net acres and drilling locations; and maintain our top-tier environmental, health and safety culture, among others. The Compensation Committee weighted these additional performance goals as the remaining 20% factor in determining the annual incentive compensation for the named executive officers for 2018.
In February 2019, the Compensation Committee met and evaluated the named executive officers’ performance individually and against the 2018 performance goals described above and determined that, overall, the management team exceeded expectations for the year. Therefore, the Compensation Committee determined to award annual incentive compensation equal to 110% of each named executive officer’s target amount. As in prior years, the Compensation Committee elected to pay 75% of the annual incentive compensation amount in cash. In lieu of paying cash with respect to the remaining 25%, and to encourage retention and further align the interests of the named executive officers with those of our stockholders, for every $1 of the annual incentive compensation amount not paid in cash, the Compensation Committee awarded $2 in value in restricted shares of our Class A Common Stock vesting in three annual installments, subject to continued service with us. The table below summarizes the annual incentive compensation paid to each named executive officer for 2018.
 
 
 
 
Cash Component
 
Equity Component
 
Total Annual Incentive Compensation
Named Executive Officer
 
 
Current Salary
 
Amount
 
% of Salary
 
# of Shares
 
Amount
 
% of Salary
 
Amount
 
% of Salary
Mark G. Papa
 
$
800,000

 
$
1,122,000

 
140%
 
59,554
 
$
748,000

 
94%
 
$
1,870,000

 
234%
George S. Glyphis
 
$
428,480

 
$
353,496

 
83%
 
18,763
 
$
235,664

 
55%
 
$
589,160

 
138%
Sean R. Smith
 
$
475,000

 
$
391,875

 
83%
 
20,800
 
$
261,250

 
55%
 
$
653,125

 
138%
Davis O. O’Connor
 
$
385,632

 
$
270,424

 
70%
 
14,353
 
$
180,283

 
47%
 
$
450,707

 
117%
Brent P. Jensen
 
$
338,000

 
$
195,195

 
58%
 
10,360
 
$
130,130

 
38%
 
$
325,325

 
96%
Equity-Based Compensation
The Compensation Committee believes that employees who are in a position to make a substantial contribution to our long-term success should have a significant and ongoing stake in our success. Equity-based compensation creates an ownership culture among our employees that provides an incentive to contribute to the continued growth and development of our business and aligns interest of executives with those of our stockholders.
During 2018, the Compensation Committee did not have any formal policy for determining the number or type of equity-based awards to grant to named executive officers. Rather, the Compensation Committee evaluated various factors when making its determinations, including the base salary and target annual cash incentive compensation of the named executive officers, the value of total compensation package deemed appropriate to attract and retain highly qualified named executive officers in light of the competitive environment, a named executive officer’s ability to influence and create long-term

24




stockholder value and the stock-based holdings of the named executive officer, the individual’s personal experience and performance in recent periods and the Compensation Committee’s overall evaluation of individual and company performance based on the performance goals described above.
Based upon the Compensation Committee’s review of competitive market data, and taking into account the advice and information received from Longnecker, the Compensation Committee determined that 50% of the 2018 total long-term equity-based incentive compensation awarded to Messrs. Glyphis, Smith, O’Connor and Jensen should be in the form of restricted stock awards that vest based on continuous employment and the passage of time, with the remaining 50% in the form of a target number of performance restricted stock units that vest based on performance measures tied to the relative total stockholder return (“TSR”) of our company as compared to our 2018 compensation peer group over a three year performance period. As in 2017, the Compensation Committee choose this allocation of equity for the long-term awards for these named executive officers because the restricted stock awards that vest based on continuous employment and the passage of time promote the retention of executives, while the performance restricted share units promote the long-term interests of our stockholders and align our executives’ interests with those of our stockholders by tying the ultimate payout of those units to the relative TSR of our company as compared to our 2018 compensation peer group.
At the request of Mr. Papa, the Compensation Committee did not provide any additional long-term equity grants to Mr. Papa for 2018. The Compensation Committee also did not award any stock options to any of the named executive officers in 2018.
In February 2018, the Compensation Committee elected to pay a portion of 2017 annual incentive bonuses for all named executive officers, other officers and certain employees in restricted shares of our Class A Common Stock that vest in three annual installments subject to continued service with us (collectively, the “2017 annual equity incentive awards”). The 2017 annual equity incentive awards were issued in February 2018 and consisted of 44,323 shares for Mr. Papa, 13,427 shares for Mr. Glyphis, 14,602 shares for Mr. Smith, 9,063 shares for Mr. O’Connor and 7,414 shares for Mr. Jensen, valued at of $816,005, $247,200, $268,830, $166,868 and $136,492, respectively, based on a five-day trailing average closing price of our Class A Common Stock ending on and including February 13, 2018 of $18.41 per share. The grant date fair value of these shares was $839,940 for Mr. Papa, $254,442 for Mr. Glyphis, $276,708 for Mr. Smith, $171,763 for Mr. O’Connor and $140,495 for Mr. Jensen, based on the $18.95 per share closing price of our Class A Common Stock on the grant date.
The following table sets forth the restricted shares of Class A Common Stock and target number of performance restricted stock units granted to our named executive officers in 2018 but excludes the 2017 annual equity incentive awards referenced in the prior paragraph. Refer to the 2018 Grants of Plan-Based Awards table below for additional information regarding the equity awards issued to our named executive officers in 2018.
Named Executive Officer
 
 
Shares of Restricted Stock Granted (#)
 
Target Performance Restricted Stock Units Granted (#)
Mark G. Papa
 
 
George S. Glyphis
 
54,961
 
54,961
Sean R. Smith
 
73,281
 
73,281
Davis O. O’Connor
 
38,050
 
38,050
Brent P. Jensen
 
26,776
 
26,776
The performance restricted stock units are performance-vested and provide a target number of shares of Class A Common Stock that will be earned at the end of the three-year performance period if our TSR for the period equals the 50th percentile of our compensation peer group. The number of performance restricted stock units actually earned for the performance period will range from 0% of the target number of shares to 200% of the target number of shares depending on the Company’s relative TSR percentile ranking. The following table illustrates shares that would be earned at various relative TSR percentiles, which assumes there are 12 performance ranks as there were 11 companies in our 2018 compensation peer group when we issued the performance restricted stock units. In the event that our Compensation Committee determines that, due to a reduction in the size of the peer group or other unusual, extraordinary or nonrecurring transactions or events materially affecting the award of performance restricted stock units, an adjustment in the peer group is necessary or appropriate to avoid the dilution or enlargement of benefits or potential benefits intended to be made available under such award, the Compensation Committee may adjust the peer group (including by removing, substituting or selecting new constituent companies).

25




Performance Rank
 
TSR Percentile Ranking
 
Payout as % of Target
1
 
100.0%
 
200%
2
 
90.9%
 
182%
3
 
81.8%
 
164%
4
 
72.7%
 
145%
5
 
63.6%
 
127%
6
 
54.6%
 
109%
7
 
45.5%
 
91%
8
 
36.4%
 
68%
9
 
27.3%
 
45%
10
 
18.2%
 
—%
11
 
9.1%
 
—%
12
 
—%
 
—%
As is described above, the Compensation Committee elected to pay a portion of 2018 annual incentive bonuses for all named executive officers, other officers and certain employees in restricted shares of our Class A Common Stock that vest in three annual installments subject to continued service with us. These awards were issued in February 2019 and consisted of 59,554 shares for Mr. Papa, 18,763 shares for Mr. Glyphis, 20,800 shares for Mr. Smith, 14,353 shares for Mr. O’Connor and 10,360 shares for Mr. Jensen. The grant date fair value of these shares was $756,931 for Mr. Papa, $238,478 for Mr. Glyphis, $264,368 for Mr. Smith, $182,427 for Mr. O’Connor and $131,676 for Mr. Jensen, based on the $12.71 closing price per share of our Class A Common Stock on the grant date.
Retirement Plans and Other Employee Benefits
Our named executive officers are eligible to participate in our employee benefit plans and programs, including medical and dental benefits and life insurance, to the same extent as our other full-time employees, subject to the terms and eligibility requirements of those plans. Our named executive officers may participate in a 401(k) defined contribution plan (the “401(k) Plan”), subject to limits imposed by the Code, to the same extent as our other full-time employees. In 2018, the 401(k) Plan provided for matching contributions equal to 100% of the first 6% of each employee’s eligible compensation contributed to the 401(k) Plan. Effective January 1, 2019, the employer matching contribution was increased to 100% of the first 8% of each employee’s eligible compensation contributed to the 401(k) Plan. Employees are immediately 100% vested in the matching contributions. We do not typically provide any perquisites or special personal benefits to our named executive officers.
Compensation of our Chief Executive Officer
Mr. Papa is an advisor to Riverstone. We currently anticipate Mr. Papa will spend approximately 90% of his working time providing services to us as our Chief Executive Officer and approximately 10% of his working time providing services to Riverstone on matters unrelated to the Company. During 2018, this was the approximate allocation of Mr. Papa’s working time. The Compensation Committee was aware of Mr. Papa’s continued service to Riverstone and considered it when determining an appropriate level of compensation for services as our Chief Executive Officer.
Employment, Severance or Change in Control Agreements
We have not entered into any employment agreements with our named executive officers. However, we consider a strong workforce to be essential to our success. To that end, we recognize that the uncertainty which may exist among employees with respect to their “at-will” employment with us could result in the departure or distraction of personnel to our detriment. Accordingly, to encourage the continued attention and dedication of our employees, and to allow our management team to focus on the value to stockholders of strategic alternatives without concern for the impact on their continued employment, on May 2, 2018, our Board adopted the Centennial Resource Development, Inc. Severance Plan (the “Severance Plan”) under which all of our regular, full-time U.S. employees are eligible to receive certain “double trigger” severance payments and benefits upon a qualifying termination of employment within a specified period following a change in control. For a more detailed description of the Severance Plan, see “Potential Payments Upon Termination or a Change of Control.”


26




Company Guidelines Regarding Stock Ownership
Effective November 2, 2017, our Board adopted stock ownership guidelines, to be administered by the Compensation Committee, for our named executive officers and certain other officers (collectively, “Covered Executives”) as well as for non-employee directors of the Company, which are intended to demonstrate to our stockholders, the investing public and other employees that such Covered Executives and non-employee directors are invested in and committed to the Company, and to further align their interests with the interests of our stockholders. Under the guidelines, each Covered Executive must own stock in the Company equal to a multiple of his or her base salary. The Chief Executive Officer must own an amount equal to six times his annual base salary, the Chief Operating Officer and Chief Financial Officer each must own an amount equal to three times his annual base salary, and the General Counsel and Chief Accounting Officer each must own an amount equal to two times his annual base salary. Other Covered Executives must own an amount equal to two times his or her annual base salary, and non-employee directors must each own an amount equal to five times his or her annual cash retainer.
Stock ownership for the purpose of these guidelines, whether (i) owned individually by the named executive officer, or jointly with, or separately by, a spouse, domestic partner and/or minor children, either directly or indirectly, or (ii) held in trust for the benefit of the named executive officer or a spouse, domestic partner and/or minor children, includes the following:
Shares of the Company’s Class A Common Stock, whether purchased on the open market or obtained through the exercise of stock options or vesting of stock-based compensation;
Unvested stock-based awards subject to time-based vesting conditions;
Vested deferred stock units; and
Shares of the Company’s Class A Common Stock held in the Covered Executive’s Company 401(k) or other retirement plan, if any, or in the Company’s employee stock ownership plan, if any.
Covered Executives and non-employee directors generally have five years from the later of the date of adoption of the guidelines or the date she or he became a Covered Executive or non-employee director to come into full compliance with the guidelines. A Covered Executive or non-employee director who is not in compliance with the guidelines on the applicable compliance date is prohibited from selling or transferring any Company stock, except as needed to pay income tax liabilities relating to the vesting or exercise price of a stock option, and may be subject to such other discipline as determined by the Compensation Committee. There is an exception to the holding requirement for severe hardship or compliance with court or domestic relations orders, subject to approval by the Compensation Committee.
Company Anti-Hedging Policy
Our Insider Trading and Regulation FD Policy prohibits all of our directors, officers and other employees, as well as those acting on behalf of the Company, such as auditors, agents and consultants, from engaging in certain speculative transactions in our securities, including short-term trading, short sales, transactions in puts, calls or other derivatives, margin accounts, pledging for collateral purposes and hedging. To our knowledge, all such covered individuals are in compliance with this policy.
Clawback Policy
Our Board, at the recommendation of our Compensation Committee, adopted a clawback policy effective August 1, 2018, which applies to each of our named executive officers. Under the policy, recoupment of cash incentive compensation or performance-based equity compensation would be generally required in the event the Company restates its financial statements as a result of a material error in such financial statements if the material error was caused by the fraud or intentional misconduct of one of the officers covered by the policy. In the event of such misconduct, we may recoup cash incentive compensation or performance-based equity compensation that was paid, granted, earned or vested based wholly or in part upon the attainment of any financial reporting measure during the three years prior to the restatement. The policy gives the Compensation Committee discretion to determine whether a clawback of compensation should be initiated in any given case, as well as the discretion to make other determinations, including whether a covered individual’s conduct meets the specified standard, the amount of compensation to be clawed back and the form of reimbursement to the Company. In order to comply with applicable law, the clawback policy will be updated or modified once the SEC adopts final clawback rules pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Tax Treatment of NEO Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”), generally limits the tax deductibility of compensation paid by a public company to its “covered employees” to $1 million per covered employee in the year the compensation becomes taxable to the executives. While the Compensation Committee considers the impact of Section 162(m) and other tax rules when developing, structuring and implementing our executive compensation programs, the Compensation Committee also believes that it is important to preserve flexibility in administering compensation programs in a

27




manner designed to promote varying corporate goals. Centennial Resource Production, LLC, our operating subsidiary and the employer of all of our employees, is a partnership and not subject to Section 162(m). However, a portion of the compensation for our executive officers could be non-deductible under Section 162(m) in future tax years.

28




COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis included in this proxy statement with members of management and based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

Respectfully submitted,

The Compensation Committee

Maire A. Baldwin (Chair)
Jeffrey H. Tepper
Tony R. Weber

29




Executive Compensation
The following table sets forth the compensation paid to or earned by our named executive officers in their capacities as named executive officers of the Company during 2018, 2017 and 2016:
2018 Summary Compensation Table
Name and Principal Position
 
Year
 
Salary ($)
 
Bonus ($)(1)
 
Stock Awards($)(2)
 
Option Awards ($)(3)
 
Non-Equity Incentive Plan Compensation ($)(4)
 
All Other
Compensation ($)(5)
 
Total ($)
Mark G. Papa,
Chief Executive Officer
 
2018
 
799,305
 
374,000
 
23,935
 
 
1,496,000
 
 
2,693,240
 
 
2017
 
800,000
 
2,040,000
 
15,041
 
7,150,000
 
 
 
10,005,041
 
 
2016
 
148,485
 
1,500,000
 
 
5,860,000
 
 
 
7,508,485
George S. Glyphis,
Vice President and Chief Financial Officer
 
2018
 
417,422
 
117,832
 
2,239,217
 
 
471,328
 
16,500
 
3,262,299
 
 
2017
 
398,880
 
618,000
 
2,131,767
 
 
 
13,625
 
3,162,272
 
 
2016
 
293,087
 
481,250
 
 
1,465,000
 
 
13,583
 
2,252,920
Sean R. Smith,
Vice President and Chief Operating Officer
 
2018
 
457,112
 
130,625
 
2,983,826
 
 
522,500
 
16,500
 
4,110,563
 
 
2017
 
434,249
 
672,075
 
2,803,914
 
 
 
16,200
 
3,926,438
 
 
2016
 
308,469
 
529,375
 
 
1,758,000
 
 
13,708
 
2,609,552
Davis O. OConnor,
Vice President and General Counsel
 
2018
 
375,680
 
90,142
 
1,550,105
 
 
360,566
 
16,500
 
2,392,993
Brent P. Jensen,
Vice President and Chief Accounting Officer
 
2018
 
329,277
 
65,065
 
1,091,377
 
 
260,260
 
16,500
 
1,762,479
 
(1) 
Amounts for 2018 represent the discretionary portion of annual incentive compensation awarded in recognition of 2018 performance under the Company’s annual incentive compensation program, which was paid in the form of restricted shares of our Class A Common Stock that will vest in three substantially equal annual installments on each of the first three anniversaries of February 12, 2019, subject to the executive’s continued service. For purposes of valuing these restricted stock awards, the Class A Common Stock was assumed to have a value of $12.56 per share. The grant date value of the restricted stock award received by each named executive officer, calculated using the $12.71 per share closing price of our Class A Common Stock on the date of the grant, was $378,466 for Mr. Papa, $119,239 for Mr. Glyphis, $132,184 for Mr. Smith, $91,213 for Mr. O’Connor and $65,838 for Mr. Jensen. See “Compensation Discussion and Analysis—Elements of Our Executive Compensation Program—Annual Incentive Compensation” for more information regarding compensation awarded in recognition of 2018 performance.
(2)  
Amounts in this column reflect the aggregate grant date fair value of restricted stock and performance restricted stock units granted during 2018 computed in accordance with FASB’s ASC Topic 718, Stock-based Compensation “ASC Topic 718”, excluding the effect of estimated forfeitures. Fair value of the performance restricted stock units was determined using a Monte Carlo simulation. The assumptions used by the Company in calculating these amounts for 2018 are included in Note 8 to Consolidated Financial Statements in the Company’s annual report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”). The maximum possible value of the 2018 performance restricted stock units, based on the closing price per share of our Class A Common Stock on the date they were granted ($18.26), was as follows: $2,007,176 for Mr. Glyphis, $2,676,222 for Mr. Smith, $1,389,586 for Mr. O’Connor and $977,860 for Mr. Jensen. For additional information regarding the stock-based awards granted to the named executive officers in 2018, refer to the 2018 Grants of Plan-Based Awards table.
(3) 
Amounts in this column reflect the aggregate grant date fair value of stock options granted computed in accordance with ASC Topic 718. The assumptions used by the Company in calculating these amounts for 2018 are included in Note 8 to the 2018 Form 10-K.
(4) 
Amounts for 2018 represent the annual incentive compensation awarded in recognition of 2018 performance under the Company’s annual incentive compensation program. 25% of the amount disclosed in this column for each named executive officer was paid in the form of restricted shares of our Class A Common Stock that will vest in three substantially equal annual installments on each of the first three anniversaries of February 12, 2019, subject to the executive’s continued service. For purposes of valuing these restricted stock awards, the Class A Common Stock was assumed to have a value of $12.56 per share. The grant date value of the restricted stock award received by each named executive officer, calculated using the $12.71 per share closing price of our Class A Common Stock on the date of the grant, was $378,466 for Mr. Papa, $119,239 for Mr. Glyphis, $132,184 for Mr. Smith, $91,213 for Mr. O’Connor and $65,838 for Mr. Jensen. See “Compensation Discussion and Analysis—Elements of Our Executive Compensation Program—Annual Incentive Compensation” for more information regarding compensation awarded in recognition of 2018 performance.
(5) 
Amounts in this column reflect matching contributions to the 401(k) Plan made by the Company on the named executive officer’s behalf. See “2018 Compensation-Retirement and Other Employee Benefits” for more information on matching contributions to the 401(k) Plan.

30




2018 Grants of Plan-Based Awards
Name
 
Grant Date
 
Estimated Future Payouts Under Non-Equity Incentive Plan Awards
 
Estimated Future Payouts Under Stock-based Incentive Plan Awards
 
All Other Stock Awards: Number of Shares of Stock or Units (#) (2)
 
Grant Date Fair value of Stock and Option Awards ($)(3)
 
Threshold
($)
 
Target
($)
 
Maximum
($)
 
Threshold
(#)
 
Target
(#)
 
Maximum
(#)
 
Mark G. Papa
 
2/23/2018(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
44,323

 
839,940

 
 
 
 
 
 
1,360,000

 
2,400,000

 
 
 
 
 
 
 
 
 
 
George S. Glyphis
 
2/23/2018(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
13,427

 
254,442

 
 
8/1/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
54,961

 
1,003,588

 
 
8/1/2018
 
 
 
 
 
 
 
27,480

 
54,961

 
109,922

 
 
 
1,228,378

 
 
 
 
 
 
428,480

 
1,285,440

 
 
 
 
 
 
 
 
 
 
Sean R. Smith
 
2/23/2018(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
14,602

 
276,708

 
 
8/1/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
73,281

 
1,338,111

 
 
8/1/2018
 
 
 
 
 
 
 
36,640

 
73,281

 
146,562

 
 
 
1,637,830

 
 
 
 
 
 
475,000

 
1,425,000

 
 
 
 
 
 
 
 
 
 
Davis O. OConnor
 
2/23/2018(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
9,063

 
171,763

 
 
8/1/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
38,050

 
694,793

 
 
8/1/2018
 
 
 
 
 
 
 
19,025

 
38,050

 
76,100

 
 
 
850,418

 
 
 
 
 
 
327,787

 
1,156,896

 
 
 
 
 
 
 
 
 
 
Brent P. Jensen
 
2/23/2018(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
7,414

 
140,495

 
 
8/1/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
26,776

 
488,930

 
 
8/1/2018
 
 
 
 
 
 
 
13,388

 
26,776

 
53,552

 
 
 
598,444

 
 
 
 
 
 
236,600

 
1,014,000

 
 
 
 
 
 
 
 
 
 
 

(1) 
A portion of each named executive officer’s 2017 annual bonus was paid in 2018 in the form of restricted stock. The value of these grants was previously reported in the “Bonus” column of the Company’s 2017 Summary Compensation Table with accompanying disclosure indicating a portion of the bonus had been paid in restricted stock. For purposes of valuing the restricted stock, the Company assumed a value of $18.41 per share; however, the actual grant date fair value of the restricted stock based on the closing price on the grant date was $18.95 per share. The shares of restricted stock shown are the shares issued to the named executive officer in excess of the number of shares the named executive officer would have received if the actual grant date fair value had been used to value the restricted stock and represents the portion of the award that was not previously reported in the 2017 Summary Compensation Table.

(2)  
The award will vest and, if applicable, become exercisable in three substantially equal annual installments following the date of grant, subject to the named executive officer’s continued service with us.

(3) 
All awards were made pursuant to the LTIP. Amounts in this column reflect the aggregate grant date fair value of awards granted during 2017 computed in accordance with ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions used by the Company in calculating these amounts are included in Note 8 to the 2018 Form 10-K.


31




Outstanding Equity Awards at 2018 Fiscal Year-End
Name
 
 
 
Option Awards
 
Stock Awards
 
 
 
Number of Securities Underlying Unexercised Options
 
 
Option Exercise Price
($)
 
Option Expiration Date
 
Number of Shares or Units of Stock That Have Not Vested
(#) (1)
 
Market Value of Shares or Units of Stock That Have Not Vested
($)
 
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)(2)
 
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
 
Grant Date
 

Exercisable
 
Unexercisable(1)
 
 
 
 
 
 
Mark G. Papa
 
10/27/2016
 
666,666

 
333,334

 
14.52

 
10/26/2026
 
 
 
 
 
 
 
 
 
 
2/8/2017
 
333,333

 
666,667

 
18.03

 
2/7/2027
 
 
 
 
 
 
 
 
 
 
2/28/2017
 
 
 
 
 
 
 
 
 
21,799

 
240,225

 
 
 
 
 
 
2/23/2018
 
 
 
 
 
 
 
 
 
44,323

 
488,439

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
George S. Glyphis
 
10/27/2016
 
166,666

 
83,334

 
14.52

 
10/26/2026
 
 
 
 
 
 
 
 
 
 
2/28/2017
 
 
 
 
 
 
 
 
 
6,994

 
77,074

 
 
 
 
 
 
8/2/2017
 
 
 
 
 
 
 
 
 
37,542

 
413,713

 
84,470

 
930,854

 
 
2/23/2018
 
 
 
 
 
 
 
 
 
13,427

 
147,966

 
 
 
 
 
 
8/1/2018
 
 
 
 
 
 
 
 
 
54,961

 
605,670

 
87,938

 
969,072

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sean R. Smith
 
10/27/2016
 
200,000

 
100,000

 
14.52

 
10/26/2026
 
 
 
 
 
 
 
 
 
 
2/28/2017
 
 
 
 
 
 
 
 
 
7,694

 
84,788

 
 
 
 
 
 
8/2/2017
 
 
 
 
 
 
 
 
 
49,398

 
544,366

 
111,144

 
1,224,807

 
 
2/23/2018
 
 
 
 
 
 
 
 
 
14,602

 
160,914

 
 
 
 
 
 
8/1/2018
 
 
 
 
 
 
 
 
 
73,281

 
807,557

 
117,250

 
1,292,091

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Davis O. O’Connor
 
10/27/2016
 
83,333

 
41,667

 
14.52

 
10/26/2026
 
 
 
 
 
 
 
 
 
 
2/28/2017
 
 
 
 
 
 
 
 
 
3,897

 
42,945

 
 
 
 
 
 
8/2/2017
 
 
 
 
 
 
 
 
 
25,687

 
283,071

 
57,795

 
639,901

 
 
2/23/2018
 
 
 
 
 
 
 
 
 
9,064

 
99,885

 
 
 
 
 
 
8/1/2018
 
 
 
 
 
 
 
 
 
38,050

 
419,311

 
60,880

 
670,898

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Brent P. Jensen
 
3/24/2017
 
41,666

 
83,334

 
17.17

 
3/24/2027
 
36,558

 
402,869

 
 
 
 
 
 
8/2/2017
 
 
 
 
 
 
 
 
 
16,302

 
179,648

 
36,678

 
404,192

 
 
2/23/2018
 
 
 
 
 
 
 
 
 
7,414

 
81,702

 
 
 
 
 
 
8/1/2018
 
 
 
 
 
 
 
 
 
26,776

 
295,072

 
42,842

 
472,114

 

(1)  
The award will vest and, if applicable, become exercisable in three substantially equal annual installments following the date of grant, subject to the named executive officer’s continued service with us.

(2)  
Represents performance restricted stock units, which vest based on the Company’s TSR as compared to the TSR of the compensation peer group over a three-year performance period. The number of units reported is based on the maximum level of performance, which is reflective of performance at 2018 fiscal year-end.

32




Option Exercises and Stock Vested in 2018
Name
 
Stock Awards
Number of shares acquired on vesting (#)
 
Value realized on vesting ($)
Mark G. Papa
 
10,899

 
207,408

George S. Glyphis
 
22,267

 
413,980

Sean R. Smith
 
28,544

 
530,349

Davis O. O’Connor
 
14,791

 
274,794

Brent P. Jensen
 
26,429

 
483,352


2018 Pension Benefits
None of our named executive officers participated in any defined benefit pension plans in 2018.
2018 Nonqualified Deferred Compensation
None of our named executive officers participated in any non-qualified deferred compensation plans in 2018.
Potential Payments upon Termination or a Change in Control
Change of control severance protection is provided to all of our regular, U.S. full-time employees, including our named executive officers, under the Severance Plan, which was adopted by our Board on May 2, 2018. The Severance Plan has a “double trigger” mechanism, which requires first that a qualifying change of control event has occurred, and second that, within a specified period thereafter, the employee has incurred a qualifying termination.
Under the Severance Plan, if, within 24 months following a change in control, we terminate the employment of one of our named executive officers without cause or if the named executive officer resigns for “good reason,” then such named executive officer will be entitled to receive the following severance benefits and payments, subject to the executive’s execution and non-revocation of a release of claims:
a cash payment equal to two times the named executive officer’s annual base salary;
a cash payment equal to two times the average of the actual annual performance bonuses paid to the named executive officer in the three full fiscal years prior to the year of termination (or, if fewer, the number of full fiscal years the employee has performed services for us and been eligible for an annual bonus), excluding any portion of an annual bonus that we reasonably determine is attributable to payment of a portion of the annual bonus in property and is over and above the amount of the annual bonus that the named executive officer would have been paid if his entire annual bonus had been paid in cash;
a cash payment equal to 125% of the aggregate COBRA premiums that the named executive officer would need to pay to continue coverage of his and his family’s benefit plans for two years following the termination date;
outplacement benefits for one year following the termination date;
vesting of all unvested equity or equity-based awards under any of the Company’s equity compensation plans that vest solely based upon the passage of time; and
vesting of all unvested equity or equity-based awards under any of the Company’s equity compensation plans that vest based on the attainment of performance vesting conditions at the level that would apply based on actual performance calculated as if the termination date were the final day of the applicable performance period.
As referenced above, if a named executive officer resigns for “good reason” following the change in control, he or she will be entitled to the severance benefits. “Good reason” is generally defined in the Severance Plan to mean the occurrence of any of the following without the named executive officer’s prior written consent, subject to certain notice and cure rights: (i) a material diminution in the executive’s responsibilities, authorities and duties, (ii) a material reduction in the executive’s base salary or target annual bonus opportunity, (iii) a requirement that the executive relocate his principal location of employment to a location that is more than fifty (50) miles from the current work location or (iv) our failure to cause a successor to our business or assets to assume liabilities under the Severance Plan.
The following table provides estimates of the payments and benefits that would be paid to each named executive officer under each element of our compensation program assuming that such named executive officer’s employment was terminated on December 31, 2018 and the “double trigger” requirements under the Severance Plan were satisfied. In all cases, the amounts were valued as of December 31, 2018, based upon, where applicable, $11.02 per share (the closing price of our Class A Common Stock on December 31, 2018). The amounts in the table below are calculated as of December 31, 2018 pursuant to

33




SEC rules and are not intended to reflect actual payments that may be made. Actual payments that may be made will be based on the dates and circumstances of the applicable event. Other than under the Severance Plan and except for rights to vested benefits under the terms of our employee benefit plans on the same terms as apply to all of our other full-time employees, our named executive officers are not entitled to any payments or other benefits in connection with a termination of employment or a change in control.
Name
 
Salary ($)
 
Cash Bonus ($)
 
COBRA Premiums and Outplacement Benefit ($)
 
Accelerated Equity Vesting ($)
 
Total ($)
Mark G. Papa
 
1,600,000

 
1,770,000

 
12,500

 
728,676

 
4,111,176

George S. Glyphis
 
856,960

 
549,625

 
68,007

 
3,144,349

 
4,618,941

Sean R. Smith
 
950,000

 
600,725

 
42,814

 
4,114,522

 
5,708,061

Davis O. O’Connor
 
771,264

 
349,700

 
65,647

 
2,153,010

 
3,339,621

Brent P. Jensen
 
676,000

 
341,250

 
65,647

 
1,835,597

 
2,918,494

CEO Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K (“Item 402(u)”), we are providing the following information regarding the ratio of the annual total compensation of our median employee (as described below) to that of our Chief Executive Officer.
The SEC’s rules for identifying the median employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. As a result, the pay ratio reported by other companies may not be comparable to the pay ratio reported below, as other companies have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
Pursuant to Item 402(u), we identified the median employee from our entire employee population (other than our Chief Executive Officer), whether employed on a full-time or part-time basis, as of December 31, 2018, which consisted of 178 employees (all of whom are located in the United States). Within this group of employees, the median employee was identified by using a total target cash compensation measure, which was calculated by annualizing on a straight-line basis the salary of each employee as of December 31, 2018 and adding each employee’s target bonus and the amount of employer-paid benefits received by such employee in 2018. The compensation measure was consistently applied to all employees.
Using this methodology, we identified a median employee. We then calculated that employee’s annual total compensation in the same manner as the named executive officers’ total compensation, as reported in the 2018 Summary Compensation Table.
For 2018, the annual total compensation of our median employee was $130,761, and the annual total compensation of our Chief Executive Officer was $2,693,240, as reported in the 2018 Summary Compensation Table. Based on this information, for 2018, the ratio of our Chief Executive Officer’s annual total compensation to the annual total compensation of our median employee was estimated to be approximately 21 to 1.
Compensation of Our Directors
Effective December 31, 2017, our Board approved a non-employee director compensation policy, or the “Director Compensation Policy,” providing our non-employee directors who are not affiliated with Riverstone or Natural Gas Partners with an annual cash retainer of $87,500 per year, payable quarterly in arrears and subject to proration for any partial year of service, and an annual equity grant on December 31 of each year for a number of restricted shares of our Class A Common Stock equal to the quotient obtained by dividing $162,500 by the average daily closing price of one share of our Class A Common Stock over the five consecutive trading days ending on the day before the applicable grant date. The restricted shares of Class A Common Stock vest in a single installment on the first anniversary of the grant date, subject to the director’s continued service as a non-employee director. Our Board updated the Director Compensation Policy effective August 1, 2018 to provide our lead independent director with an additional annual cash retainer of $50,000 per year to recognize the additional responsibilities associated with that role.
In January 2019, Longnecker, conducted a review of compensation practices for our non-employee directors. In February 2019, the Compensation Committee met to consider the non-employee director compensation analysis prepared by Longnecker. Longnecker’s analysis noted that the targeted total annual compensation paid to the Company’s non-employee directors aligns at approximately the 60th percentile of the Company’s compensation peer group on a per-director basis.

34




2018 Director Compensation
The following table contains information concerning the compensation of our non-employee directors for 2018.
Name
 
Fees Earned or Paid in Cash ($)
 
Stock Awards ($)(1)
 
Total ($)
Maire A. Baldwin
 
95,788
 
159,291
 
255,079
Karl Bandtel
 
87,500
 
159,291
 
246,791
Jeffrey H. Tepper
 
87,500
 
159,291
 
246,791
Matthew G. Hyde
 
64,410
 
162,469
 
226,879
Robert M. Tichio
 
 
 
David M. Leuschen
 
 
 
Pierre F. Lapeyre, Jr.
 
 
 
Tony R. Weber
 
 
 
 
(1) 
Amounts in this column reflect the aggregate grant date fair value of restricted shares computed in accordance with ASC Topic 718. Ms. Baldwin and Messrs. Bandtel, Tepper and Hyde each held 15,286 unvested shares of our restricted stock as of December 31, 2018. None of our non-employee directors held any of our stock options or other stock-based awards as of such date.
Compensation Risk Assessment
Management has conducted a risk assessment of our compensation plans and practices and concluded that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on the Company. The objective of the assessment was to identify any compensation plans or practices that may encourage employees to take unnecessary risk that could threaten the Company. No such plans or practices were identified by management. The Compensation Committee has also reviewed the risks and rewards associated with our compensation plans and practices and agrees with management’s conclusion.
* * * * *

35




EXECUTIVE OFFICERS
The following sets forth, as of March 21, 2019 the ages, positions and selected biographical information for our executive officers who are not directors:
George S. Glyphis - Vice President and Chief Financial Officer
George S. Glyphis, age 49, has been our Chief Financial Officer since October 2016. He has served as Vice President and Chief Financial Officer of Centennial Resource Production, LLC (“CRP”) since July 2014. Prior to joining CRP, Mr. Glyphis served as a Managing Director in the Oil & Gas Investment Banking practice at J.P. Morgan where his client base was comprised primarily of upstream and integrated oil and gas companies. In his 21 years at J.P. Morgan, Mr. Glyphis led the origination and execution of transactions including initial public offerings, equity follow-on offerings, high yield and investment grade bond offerings, corporate mergers and acquisitions, asset acquisition and divestitures, and reserve-based and corporate lending. Mr. Glyphis earned his B.A. in History from the University of Virginia.
Sean R. Smith - Vice President and Chief Operating Officer
Sean R. Smith, age 46, has been our Chief Operating Officer since October 2016. Mr. Smith has served as Vice President, Geosciences of CRP since May 2014. Prior to joining CRP, from February 2013 to May 2014, Mr. Smith worked at QEP Resources, where he served in several roles, including as a General Manager, leading the geoscience, regulatory and reservoir engineering departments for the Williston, Powder River, and Denver Julesburg Basins. Prior to QEP Resources, from 2005 to February 2013, Mr. Smith worked at Resolute Energy Corporation as a Manager and Geologist. He has also worked in various geotechnical roles at Kerr-McGee and Sanchez Oil & Gas. Mr. Smith earned his B.A. in Geology from Lawrence University. He is licensed with the Texas Board of Professional Geoscientists and is a member of the American Association of Petroleum Geologists.
Davis O. O’Connor - Vice President and General Counsel
Davis O. O’Connor, age 64, has served as our Vice President and General Counsel since October of 2016. Prior to that, Mr. O’Connor served as General Counsel of CRP on a contract basis since May 2014. Prior to joining CRP, Mr. O’Connor served as Vice President and General Counsel of Berry Petroleum Company (NYSE: BRY) until Berry merged with LinnCo, LLC and Linn Energy, LLC in December 2013. After earning his B.A. and J.D. degrees from Cornell University and Cornell Law School, Mr. O’Connor joined the Denver office of Holland & Hart LLP as an associate attorney. In 1985, he was promoted to partner and later served on the firm’s Management Committee and chaired its Minerals Practice Group. In 2010, Mr. O’Connor left Holland & Hart LLP and joined Berry. Mr. O’Connor is also a member of the Rocky Mountain Mineral Law Foundation and serves on the board of a privately held oil and gas company with operations in Colorado and New Mexico.
Brent P. Jensen - Vice President and Chief Accounting Officer
Brent P. Jensen, age 49, has served as our Vice President and Chief Accounting Officer since March 2017. Prior to that, Mr. Jensen served as Vice President, Finance and Treasurer of Whiting Petroleum Corporation (“Whiting”) from March 2015 to March 2017. Mr. Jensen joined Whiting in August 2005 as Controller and became Controller and Treasurer in January 2006, and he was the designated principal accounting officer at Whiting from 2006 until his departure in 2017. Mr. Jensen was previously with PricewaterhouseCoopers L.L.P. in Houston and Los Angeles, where he held various positions in their oil and gas audit practice since 1994, which included assignments of four years in Moscow, Russia and three years in Milan, Italy. He has over 25 years of oil and gas accounting experience and is a Certified Public Accountant inactive. Mr. Jensen holds a Bachelor of Arts degree from the University of California, Los Angeles.

36




CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Review and Approval of Related Party Transactions
Our Board has adopted a written policy regarding related party transactions, a copy of which is available on our website at www.cdevinc.com. Under the policy, our Audit Committee reviews and, where the Audit Committee determines them to be in our best interests, approves all transactions and arrangements in which we and our directors, director nominees and executive officers and their immediate family members, as well as holders of more than 5% of any class of our voting securities and their immediate family members, have a direct or indirect material interest. In determining whether a related party transaction or arrangement is in our best interests, the Audit Committee considers, among other factors, the position within or relationship of the related party with us, the materiality of the transaction or arrangement, the business purpose for and reasonableness of the transaction or arrangement, whether the transaction or arrangement is comparable to one that could be available on an arms-length basis to us or is on terms we offer generally to persons who are not related, whether the transaction is in the ordinary course of our business and was proposed and considered in the ordinary course, and the effect of the transaction or arrangement on our business and operations. The policy provides that the following do not create a material direct or indirect interest on behalf of the related party and are therefore not related party transactions:
use of Company assets for business purposes for amounts that do not exceed $10,000;
reimbursements or payments of business expenses;
executive officer or director compensation in accordance with the disclosure exceptions provided for in Instruction 5 to Item 404(a) of Regulation S-K (or any successor rule);
any charitable contribution, grant, endowment or pledge by us to a charitable organization, foundation or university where the related party’s only relationship with that organization is as a director and the aggregate amount involved does not exceed $120,000;
any other transaction or arrangement authorized on our behalf from which no related party obtains a benefit with a value to such related person in excess of $25,000, provided that all related transactions or arrangements involving such related party during a fiscal year will be aggregated for such purpose; and
any transaction or arrangement pre-approved by the Audit Committee as provided in the policy.
Annually, the Audit Committee reviews any previously approved related party transaction or arrangement that is continuing and determines based on then existing facts and circumstances whether it is in our best interest to continue, modify or terminate each such transaction or arrangement.
The related party transactions policy supplements the conflict of interest provisions in our Code of Business Conduct and Ethics.
Our Code of Business Conduct and Ethics requires us to avoid, wherever possible, all conflicts of interests, except under guidelines or resolutions approved by our Board (or the appropriate committee of our Board) or as disclosed in our public filings with the SEC. Under our Code of Business Conduct and Ethics, conflict of interest situations include, among others, any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) involving the company, and any circumstance, event, relationship or situation in which the personal interest of any of our directors, officers or employees interferes or appears to interfere with our interests as a whole. A copy of our Code of Business Conduct and Ethics is available on our website at www.cdevinc.com. We intend to satisfy the disclosure requirement regarding any amendment to, or any waiver of, a provision of the Code of Business Conduct and Ethics by posting such information on our website.
Although our management believes that the terms of the related party transactions described below are reasonable, it is possible that we could have negotiated more favorable terms for such transactions with unrelated third parties.
Riverstone Affiliated Companies
From time to time, the Company obtains services related to its drilling and completion activities from affiliates of Riverstone. In 2018, the Company paid approximately $0.16 million to Basic Energy Services, Inc., an oilfield service provider that is affiliated with Riverstone. In addition, from time to time, the Company sells its produced oil and gas and other hydrocarbons to affiliates of Riverstone. In 2018, the Company sold natural gas to Lucid Energy Delaware, LLC, a midstream company affiliated with Riverstone, and the Company received approximately $3.95 million in revenue in connection with those sales.

37




SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own, or are part of a group that owns, more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, directors and greater than 10% stockholders are required by regulation of the SEC to furnish us with copies of all Section 16(a) forms they file.
Based solely on our review of Forms 3, 4 and 5 and amendments thereto and other information obtained from our directors and officers and certain 10% stockholders or otherwise available to us, we believe that no director, officer or beneficial owners of more than 10% of our total outstanding shares of Common Stock failed to file the reports required by Section 16(a) of the Exchange Act on a timely basis during the fiscal year ended December 31, 2018.

38




SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to us regarding ownership of shares of our Common Stock as of March 15, 2019 by:
each person who is the beneficial owner of more than 5% of the outstanding shares of our Common Stock;
each of our named executive officers and directors for 2018; and
all of our current executive officers and directors, as a group.
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable within 60 days.
The beneficial ownership of our Common Stock is based on 264,394,082 shares of our Class A Common Stock and 12,003,183 shares of Class C Common Stock issued and outstanding as of March 15, 2019.
Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all shares of voting Common Stock beneficially owned by them.
Name of Beneficial Owner
 
Number of Shares Beneficially Owned
 
% of Shares Beneficially Owned
5% or Greater Stockholders
 
 
 
 
Funds affiliated with Riverstone Holdings(1)
 
84,958,270

 
30
%
Funds affiliated with FMR LLC(2)(3)
 
37,400,951

 
13.5
%
Funds and accounts advised by T. Rowe Price Associates, Inc.(4)
 
30,169,958

 
10.9
%
Funds advised by Capital Research and Management Company(5)
 
14,181,528

 
5.1
%
Funds affiliated with The Vanguard Group, Inc.(6)
 
16,236,777

 
5.9
%
Directors and Named Executive Officers
 
 
 
 
Mark G. Papa(7)
 
3,137,315

 
1.1
%
George S. Glyphis(8)(10)
 
338,215

 
*

Sean R. Smith(9)(10)
 
239,668

 
*

Davis O. O’Connor(11)
 
99,747

 
*

Brent P. Jensen(12)
 
125,129

 
*

Jeffrey H. Tepper(13)
 
74,548

 
*

Tony R. Weber
 
0

 
—%

Robert M. Tichio
 
0

 
—%

David M. Leuschen(1)
 
84,958,270

 
30
%
Pierre F. Lapeyre Jr.(1)
 
84,958,270

 
30
%
Maire A. Baldwin(14)
 
34,548

 
*

Karl E. Bandtel(15)
 
34,548

 
*

Matthew G. Hyde(16)
 
23,361

 
*

All directors and executive officers, as a group (13 individuals)
 
89,065,349

 
31.3
%
 
*Less than one percent.
(1) 
Includes 51,356,105 shares of Class A Common Stock held of record by Riverstone VI Centennial QB Holdings, L.P. (“Riverstone QB Holdings), 15,179,971 shares of Class A Common Stock held of record by REL US Centennial Holdings, LLC (“REL US”), 3,729,961 shares of Class A Common Stock held of record by Riverstone Non-ECI USRPI AIV, L.P. (“Riverstone Non-ECI”) and 7,865,731 shares of Class A Common Stock and warrants to purchase an additional 6,826,502 shares of Class A Common Stock held of record by Silver Run Sponsor, LLC (“Silver Run Sponsor”). David Leuschen and Pierre F. Lapeyre, Jr. are the managing directors of Riverstone Management Group, L.L.C. (“Riverstone Management”) and have or share voting and investment discretion with respect to the securities beneficially owned by Riverstone Management. Riverstone Management is the general partner of Riverstone/Gower Mgmt Co Holdings, L.P. (“Riverstone/Gower”), which is the sole member of Riverstone Holdings LLC (“Riverstone Holdings”) and the sole shareholder of Riverstone Holdings II (Cayman) Ltd. (“Riverstone Holdings II”). Riverstone Holdings is the managing member of Silver Run Sponsor Manager, LLC (“Silver Run Manager”), which is the managing member of Silver Run Sponsor. As such, each of Silver Run Manager, Riverstone Management, Riverstone/Gower, Riverstone Holdings, Mr. Leuschen and Mr. Lapeyre may be deemed to have or share beneficial ownership of the securities held directly by Silver Run Sponsor. Each such entity or person disclaims beneficial ownership of these securities. Riverstone Holdings is also the sole shareholder of Riverstone Energy GP VI Corp (“Riverstone Energy Corp”), which is the managing member of Riverstone Energy GP VI, LLC (“Riverstone

39




Energy GP”), which is the general partner of Riverstone Energy Partners VI, L.P. (“Riverstone Energy Partners”), which is the general partner of Riverstone QB Holdings. As such, each of Riverstone Energy Partners, Riverstone Energy GP, Riverstone Energy Corp, Riverstone Holdings, Riverstone/Gower, Riverstone Management, Mr. Leuschen and Mr. Lapeyre may be deemed to have or share beneficial ownership of the securities held directly by Riverstone QB Holdings. Each such entity or person disclaims beneficial ownership of these securities. Riverstone Holdings II is the general partner of Riverstone Energy Limited Investment Holdings, LP, which is the sole shareholder of REL IP General Partner Limited (“REL IP GP”), which is the general partner of REL IP General Partner LP (“REL IP”), which is the managing member of REL US. As such, each of REL IP, REL IP GP, Riverstone Holdings II, Riverstone/Gower, Riverstone Management, Mr. Leuschen and Mr. Lapeyre may be deemed to have or share beneficial ownership of the securities held directly by REL US. Each such entity or person disclaims beneficial ownership of these securities. Riverstone Non-ECI GP Ltd. (“Non-ECI GP Ltd.) is the sole member of Riverstone Non-ECI GP Cayman LLC (“Non-ECI Cayman GP”), which is the general partner of Riverstone Non-ECI Partners GP (Cayman), L.P. (“Non-ECI Cayman”), which is the sole member of Riverstone Non-ECI USRPI AIV GP, L.L.C. (“Riverstone Non-ECI GP”), which is the general partner of Riverstone Non-ECI. Non-ECI GP Ltd. is managed by Mr. Leuschen and Mr. Lapeyre, who have or share voting and investment discretion with respect to the securities held of record by Riverstone Non-ECI. As such, each of Riverstone Non-ECI GP, Non-ECI Cayman, Non-ECI Cayman GP, Non-ECI GP Ltd., Mr. Leuschen and Mr. Lapeyre may be deemed to have or share beneficial ownership of the securities held directly by Riverstone Non-ECI. Each such entity or person disclaims beneficial ownership of these securities. The business address for each person named in this footnote is c/o Riverstone Holdings, 712 Fifth Avenue, 36th Floor, New York, NY 10019. This information is based upon Amendment No. 6 to the Schedule 13D filed by affiliates of Riverstone on March 8, 2018
(2) 
These accounts are managed by direct or indirect subsidiaries of FMR LLC. Abigail P. Johnson is a Director, the Chairman, and the Chief Executive Officer of FMR LLC. Members of the Johnson family, including Abigail P. Johnson, are the predominant owners, directly or through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders’ voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders’ voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR LLC. The address is 245 Summer Street, Boston, MA 02210. This information, and the information in footnote (3) below, is based Amendment No. 3 to the Schedule 13G filed by FMR LLC on February 13, 2019.
(3) 
Neither FMR LLC nor Abigail P. Johnson has the sole power to vote or direct the voting of the shares owned directly by the various investment companies registered under the Investment Company Act (“Fidelity Funds”) advised by Fidelity Management & Research Company (“FMR Co”), a wholly owned subsidiary of FMR LLC, which power resides with the Fidelity Funds’ Boards of Trustees. FMR Co carries out the voting of the shares under written guidelines established by the Fidelity Funds’ Boards of Trustees.
(4) 
T. Rowe Price Associates, Inc., is a registered investment adviser (“Fund Manager” or “TRPA”). Fund Manager is affiliated with a registered broker-dealer, T. Rowe Price Investment Services, Inc. (“TRPIS”). TRPIS is a subsidiary of the Fund Manager and was formed primarily for the limited purpose of acting as the principal underwriter and distributor of shares of funds in the T. Rowe Price fund family. T. Rowe Price Associates, Inc. serves as investment adviser with power to direct investments and/or sole power to vote the securities owned by the funds and accounts that hold shares of the Company. For purposes of reporting requirements of the Securities Exchange Act of 1934, TRPA may be deemed to be the beneficial owner of all of the shares listed in this table; however, TRPA expressly disclaims that it is, in fact, the beneficial owner of such securities. TRPA is the wholly owned subsidiary of T. Rowe Price Group, Inc., which is a publicly traded financial services holding company. The business address for TRPA is 100 East Pratt Street, Baltimore, Maryland 21202. This information is based upon Amendment No. 3 to the Schedule 13G filed by TRPA on February 14, 2019.
(5) 
Capital Research and Management Company (“CRMC”) is the investment adviser to each of SMALLCAP World Fund, Inc. (“SCWF”), The Growth Fund of America (“GFA”) and Capital Group Global Equity Fund (Canada) (“CGGEF,” and, together with SCWF and GFA, the “CRMC Stockholders”) the CRMC Stockholders. CRMC and/or Capital World Investors (“CWI”) may be deemed to be the beneficial owner of all of the securities held by the CRMC Stockholders; however, each of CRMC and CWI expressly disclaim that it is the beneficial owner of such securities. Julian N. Abdey, Mark E. Denning, Peter Eliot, Brady L. Enright, J. Blair Frank, Bradford F. Freer, Leo Hee, Claudia P. Huntington, Jonathan Knowles, Lawrence Kymisis, Harold H. La, Aidan O’Connell, Andraz Razen and Gregory W. Wendt, as portfolio managers, have voting and investment power over the securities held by SCWF. Christopher D. Buchbinder, Barry S. Crosthwaite, J. Blair Frank, Joanna F. Jonsson, Carl M. Kawaja, Michael T. Kerr, Ronald B. Morrow, Donald D. O’Neal, Martin Romo, Lawrence R. Solomon, James Terrile and Alan J. Wilson, as portfolio managers, have voting and investment power over the securities held by GFA. Leo Hee, Carl M. Kawaja and Dina N. Perry, as portfolio managers, have voting and investment power over the securities held by CGGEF. The address for each of the CRMC Stockholders is c/o Capital Research and Management Company, 333 South Hope Street, 55th Floor, Los Angeles, CA 90071. The CRMC Stockholders may be affiliates of a broker-dealer. Each of the CRMC Stockholders acquired the shares being registered hereby in the ordinary course of its business. This information is based upon Amendment No. 2 to the Schedule 13G filed by CWI on February 14, 2019.
(6) 
According to the Schedule 13G filed by The Vanguard Group on February 11, 2019, as of December 31, 2018, funds affiliated with the Vanguard Group, Inc. have sole voting power over 87,986 of the shares, shared voting power over 19,000 of these shares, shared dispositive power over 90,331 of these shares and sole dispositive power over 16,146,446 of these shares. The address of The Vanguard Group is 100 Vanguard Blvd., Malvern, Pennsylvania 19355. This information is based upon the Schedule 13G filed by The Vanguard Group on February 11, 2019.

40




(7) 
Includes 1,863,814 shares of Class A Common Stock, 100,003 shares of restricted Class A Common Stock subject to continued time-based vesting requirements and warrants to purchase an additional 1,173,498 shares of Class A Common Stock.
(8) 
Includes 47,124 shares of Class A Common Stock, 123,715 shares of restricted Class A Common Stock subject to continued time-based vesting requirements and 167,376 shares of Class C Common Stock. The shares of Class C Common Stock owned by Mr. Glyphis represent approximately 1.4% of the outstanding shares of Class C Common Stock. Mr. Glyphis also owns 167,376 units representing common membership interests in CRP (“CRP Common Units”).
(9) 
Includes 35,924 shares of Class A Common Stock, 157,061 shares of restricted Class A Common Stock subject to continued time-based vesting requirements and 46,683 shares of Class C Common Stock. The shares of Class C Common Stock owned by Mr. Smith represent less than 1% of the outstanding shares of Class C Common Stock. Mr. Smith also owns 46,683 CRP Common Units.
(10) 
Pursuant to the terms of the limited liability company agreement of CRP, each holder of CRP Common Units (other than Centennial) has the right to cause CRP to redeem all or a portion of its CRP Common Units (together with a corresponding number of shares of Class C Common Stock) in exchange for shares of Class A Common Stock or, at CRP’s option, an equivalent amount of cash; provided that Centennial may, at its option, effect a direct exchange of such cash or Class A Common Stock for such CRP Common Units in lieu of such a redemption by CRP.
(11) 
Includes 13,666 shares of Class A Common Stock and 86,081 shares of restricted Class A Common Stock subject to continued time-based vesting requirements.
(12) 
Includes 30,190 shares of Class A Common Stock and 94,939 shares of restricted Class A Common Stock subject to continued time-based vesting requirements.
(13) 
Includes 59,262 shares of Class A Common Stock and 15,286 shares of restricted Class A Common Stock subject to continued time-based vesting requirements.
(14) 
Includes 19,262 shares of Class A Common Stock and 15,286 shares of restricted Class A Common Stock subject to continued time-based vesting requirements.
(15) 
Includes 19,262 shares of Class A Common Stock and 15,286 shares of restricted Class A Common Stock subject to continued time-based vesting requirements.
(16) 
Includes 8,075 shares of Class A Common Stock and 15,286 shares of restricted Class A Common Stock subject to continued time-based vesting requirements.

41




PROPOSAL 2
APPROVAL ON AN ADVISORY BASIS OF OUR NAMED EXECUTIVE OFFICER COMPENSATION
In accordance with the Dodd-Frank Act of 2010 (the “Dodd-Frank Act”) and Section 14A of the Exchange Act, we are asking our stockholders to vote to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed in this proxy statement.
As described in detail under the heading “Compensation Discussion and Analysis,” our executive compensation programs are designed to attract, motivate and retain our named executive officers, who are critical to our success. Please read “Compensation Discussion and Analysis” and the accompanying tables and narrative disclosure for details about our executive compensation programs. We are asking our stockholders to indicate their support for our named executive officer compensation as described in this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on our named executive officers’ compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement. Accordingly, we will ask our stockholders to vote “FOR” the following resolution at the annual meeting:
“RESOLVED, that the stockholders of Centennial Resource Development, Inc. (the “Company”) approve, by a non-binding advisory vote, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the 2019 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the 2018 Summary Compensation Table and the other related tables and disclosure.”
The say-on-pay vote is advisory, and therefore not binding on the Company, the Board or the Compensation Committee. However, the Board and the Compensation Committee value the opinions of our stockholders and intend to consider our stockholders’ views regarding our executive compensation programs, including in making future decisions relating to such programs. Our stockholders will have a “say-on-pay” vote each year, and the next “say-on-pay” vote will take place at our 2020 Annual Meeting.
Vote Required; Recommendation
The approval by a non-binding advisory vote of our named executive officer compensation requires the vote of a majority of the votes cast by the stockholders present in person or represented by proxy at the Annual Meeting and entitled to vote on this proposal. Abstentions will not be counted as a vote cast and, therefore, will not have an effect on the outcome of the vote. Broker non-votes have no effect on the outcome of the vote.
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO THE COMPENSATION DISCLOSURE RULES OF THE SECURITIES AND EXCHANGE COMMISSION.

42




PROPOSAL 3
ADOPTION OF THE CENTENNIAL RESOURCE DEVELOPMENT, INC.
2019 EMPLOYEE STOCK PURCHASE PLAN
In this Proposal 3, we are asking our stockholders to approve the Centennial Resource Development, Inc. 2019 Employee Stock Purchase Plan (the “ESPP”). At the recommendation of the Compensation Committee, our Board voted unanimously to approve and adopt the ESPP on February 12, 2019, subject to stockholder approval at the Annual Meeting. The ESPP is not intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder (the “Code”).
The purpose of the ESPP is to provide our eligible employees the opportunity to purchase shares of our Class A Common Stock through accumulated payroll deductions. We believe that the ESPP will be a key factor in retaining existing employees, recruiting and retaining new employees and aligning and increasing the interest of employees in the success of the Company. If the ESPP is not approved by our stockholders, the ESPP will not become effective and no shares or rights will be issued under it.
Summary of the ESPP
A summary of the principal features of the ESPP is set forth below. The summary is qualified in its entirety by reference to the full text of the ESPP, which is attached to this proxy statement as Annex A.
Administration. The ESPP will be administered by our Compensation Committee unless the Board assumes the authority for administration of the ESPP. The plan administrator has broad authority to construe the ESPP and to make determinations with respect to the terms and conditions of each offering period under the ESPP, including employee eligibility requirements, maximum payroll deductions and the discounted purchase price applicable to the issuance of shares pursuant to the ESPP, as well as other matters pertaining to plan administration.
Class A Common Stock Reserved for Issuance under the ESPP. A total of 2,000,000 shares of Class A Common Stock will be reserved for issuance under the ESPP, which may be adjusted for changes in our capitalization and certain corporate transactions, as described below under the heading “Adjustments.”
Eligible Employees. The plan administrator may designate certain of our subsidiaries as participating “designated subsidiaries” in the ESPP and may change these designations from time to time. Employees of the Company and our designated subsidiaries are eligible to participate in the ESPP if they meet the eligibility requirements under the ESPP established from time to time by the plan administrator. Unless otherwise determined by the plan administrator, our employees are eligible to participate in the ESPP if they are customarily employed by us or a designated subsidiary for more than five months in any calendar year. However, an employee may not be granted rights to purchase stock under the ESPP if such employee, immediately after the grant, would own (directly or through attribution) stock possessing 5% or more of the total combined voting power or value of all classes of our common stock or other class of stock. Eligible employees become participants in the ESPP by enrolling and authorizing payroll deductions by the deadline established by the plan administrator prior to the relevant offering date. Directors who are not employees, as well as consultants, are not eligible to participate in the ESPP. Employees who choose not to participate, or are not eligible to participate at the start of an offering period but who become eligible thereafter, may enroll in any subsequent offering period.
Subject to limited exceptions, all of our employees and the employees of our operating subsidiary, Centennial Resource Production, LLC, are expected to be eligible to participate in the ESPP. As of December 31, 2018, we had approximately 178 employees, of whom all would have been eligible to participate in the ESPP if it had been in effect on such date.
Participation. Under the terms of the ESPP, eligible employees may generally elect to contribute and apply to the purchase of shares of Class A Common Stock between 1% and 15% of their gross base compensation during an offering period, which includes overtime payments, but excludes sales commissions, incentive compensation, bonuses, expense reimbursements, fringe benefits, moving expenses, equity compensation and other special payments. In addition, no employee will be permitted to accrue the right to purchase stock under the ESPP at a rate in excess of $25,000 worth of shares during any calendar year during which such a purchase right is outstanding (based on the fair market value per share of our Class A Common Stock as of the first day of the offering period during which such right is granted), which limitation will be applied as if the ESPP was intended to qualify as an “employee stock purchase plan” under Section 423 of the Code. Rights granted under the ESPP are exercisable on specified exercise dates only through funds accumulated by an employee through payroll deductions made during the applicable offering period, and any such funds that are not used to purchase shares will be credited to a participant’s account and carried forward and applied toward the purchase of whole shares for the following offering period. Participation in the ESPP is voluntary.
Offering Periods. Under the ESPP, employees are offered the right to purchase shares of Class A Common Stock at a discount to fair market value during offering periods designated by the plan administrator. The initial offering period is expected to commence on July 1, 2019 and end on December 31, 2019, and the subsequent offering periods are expected to be

43




successive six-month periods commencing on each January 1 and each July 1 to occur following the commencement of the initial offering period. The plan administrator may, in its discretion, modify the terms of future offering periods.
Share Purchases. On the first trading day of each offering period, each participant will automatically be granted a right to purchase shares of our Class A Common Stock. Shares are purchased on each exercise date occurring during an offering period, to the extent of the payroll deductions accumulated during the applicable offering period, subject to the participant remaining an eligible employee through such exercise date. The exercise dates for each offering period will be the last trading day of the offering period. Unless the plan administrator designates a higher exercise price for a particular offering period, the exercise price will be 85% of the fair market value of our Class A Common Stock on either the first trading day of each offering period or the exercise date, whichever is lower. The fair market value per share of our Class A Common Stock under the ESPP will generally be the closing sales price of our common stock on NASDAQ on the date for which fair market value is being determined, or if there is no closing sales price for a share of our Class A Common Stock on the date in question, the closing sales price for a share of Class A Common Stock on the last preceding date for which such quotation exists. On March 19, 2019, the last practicable date prior to the filing of this Proxy Statement, the closing sales price of our Class A Common Stock on NASDAQ was $9.03 per share.
Unless a participant has elected to withdraw all of the funds then credited to his or her ESPP account or the participant’s employment terminates prior to the exercise date, an amount equal to the amount credited to his or her ESPP account will be used to purchase the maximum number of whole shares of Class A Common Stock that can be purchased based on the amount credited to such participant’s account on the exercise date. No fractional shares will be issued.
A participant may withdraw from the ESPP by delivering written notice of such election to the Company no later than one week prior to the end of the applicable offering period (or another date designated by the plan administrator). Upon a participant’s withdrawal, all of the payroll deductions credited to such participant’s account shall be paid to such participant as soon as reasonably practicable and no further payroll deductions shall be made for such offering period.
Termination of Eligibility. If a participant ceases to be an eligible employee for any reason during an offering period, he or she will be deemed to have elected to withdraw from the ESPP and any amounts credited to the participant’s ESPP account will be returned to the participant or the participant’s beneficiary in the event of his or her death. Participation ends automatically upon a participant’s termination of employment.
Transferability; Holding Period. A participant may not transfer rights granted under the ESPP. A participant will not be entitled to sell or otherwise transfer the shares of Class A Common Stock purchased by the participant pursuant to the ESPP to anyone until six months after the exercise date.
Adjustments. In the event that the plan administrator determines that any stock dividend or other distribution, change in control, reorganization, merger, amalgamation, consolidation, combination, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event affects the Class A Common Stock such that an adjustment would be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the ESPP or with respect to any outstanding purchase rights under the ESPP, the plan administrator shall make equitable adjustments to the ESPP and outstanding rights. In addition, in the event of the foregoing transactions or events or certain significant transactions, including a change in control, the plan administrator may provide for either (1) the replacement of outstanding rights with other rights or property or termination of outstanding rights in exchange for cash, (2) the assumption or substitution of outstanding rights by the successor or survivor corporation or parent or subsidiary thereof, if any, (3) the adjustment in the number and type of shares of stock subject to outstanding rights and/or in the terms and conditions of outstanding rights, (4) the use of participants’ accumulated payroll deductions to purchase stock on a new purchase date prior to the next scheduled purchase date and termination of any rights under ongoing offering periods or (5) the termination of all outstanding rights.
Insufficient Shares. If the total number of shares of Class A Common Stock that are to be purchased under outstanding rights on any particular date exceed the number of shares then available for issuance under the ESPP, the plan administrator will make a pro rata allocation of the available shares on a uniform and equitable basis. If the plan administrator thereafter suspends or terminates the ESPP, the excess payroll deductions will be refunded to participants.
Amendment or Termination of the ESPP. The plan administrator has the right to amend, suspend or terminate the ESPP at any time and from time to time to the extent that it deems advisable, subject to the requirement to obtain stockholder approval of amendments to the extent required by law and NASDAQ rules.

44




U.S. Federal Income Tax Consequences
The ESPP is not intended to qualify as an “employee stock purchase plan” under Section 423 of the Code. Accordingly, certain tax benefits available to participants in a Section 423 plan are not available under the ESPP.
For federal income tax purposes, a participant generally will not recognize taxable income on the grant of a right under the ESPP. Upon the exercise of a right under the ESPP, a participant will recognize ordinary income, and unless limited by Section 280G or 162(m) of the Code, the Company or its subsidiary will generally be entitled to a corresponding deduction, in an amount equal to the difference between the fair market value of the shares of Class A Common Stock on the exercise date and the purchase price paid for the shares. A participant’s basis in shares of Class A Common Stock received on exercise, for purposes of determining the participant’s gain or loss on subsequent disposition of such shares of Class A Common Stock, generally, will be the fair market value of the shares of Class A Common Stock on the date the participant exercises his or her right.
Upon the subsequent sale of the shares acquired upon the exercise of a right under the ESPP, the participant will recognize capital gain or loss (long-term or short-term, depending on how long the shares were held following the date they were purchased by the participant prior to disposing of them).
The above is a general summary under current law of the material federal income tax consequences to an employee who participates in the ESPP. This summary deals with the general federal income tax principles that apply and is provided only for general information. Some kinds of taxes, such as state, local and foreign income taxes and federal employment taxes, are not discussed. Tax laws are complex and subject to change and may vary depending on individual circumstances and from locality to locality. The summary above does not discuss all aspects of federal income taxation that may be relevant in light of a participant’s personal circumstances. Further, this summarized tax information is not tax advice, and a participant in the ESPP should rely on the advice of his or her legal and tax advisors.
New Plan Benefits
Because the number of shares that may be purchased under the ESPP will depend on each employee’s voluntary election to participate and contribution elections, and on the fair market value of our Class A Common Stock at various future dates, neither the actual number of shares that may be purchased by any individual nor the benefits that will be received in the future by participants in the ESPP can be determined in advance.
Vote Required; Recommendation
The adoption of the Centennial Resource Development, Inc. 2019 Employee Stock Purchase Plan requires the affirmative vote of the holders of a majority of the shares of Common Stock present in person or represented by proxy that are entitled to vote and actually cast thereon at the Annual Meeting, voting as a single class. Abstentions and broker non-votes will have no effect on the outcome of the vote for this proposal.
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE CENTENNIAL RESOURCE DEVELOPMENT, INC. 2019 EMPLOYEE STOCK PURCHASE PLAN.



45




PROPOSAL 4
APPROVAL AND ADOPTION OF AMENDMENTS TO THE COMPANY’S CHARTER AND BYLAWS TO
IMPLEMENT A MAJORITY VOTING STANDARD IN UNCONTESTED DIRECTOR ELECTIONS
At the recommendation of the Nominating and Corporate Governance Committee, our Board voted unanimously to approve, and our stockholders are being asked to approve and adopt, amendments to our Second Amended and Restated Certificate of Incorporation (the “Charter”) and Amended and Restated Bylaws (the “Bylaws”) to implement a majority voting standard in uncontested director elections (the “Majority Voting Proposal”).
Section 5.2(b) of our Charter and Section 2.5(d) of our Bylaws currently provide that directors to be elected at any meeting of stockholders at which directors are to be elected are elected by a plurality of the votes cast in such election, subject to the rights of the holders of one or more series of preferred stock of the Company. Under this plurality voting standard, the director nominees receiving the highest number of FOR votes cast are elected as directors regardless of the number of WITHHOLD votes received.
The proposed amendment to Section 5.2 of our Charter and Section 2.5(d) of our Bylaws provide that, in an uncontested election of directors, a candidate would be elected as a director only if the number of votes cast for the candidate exceed the number of votes cast against the candidate. Abstentions and broker non-votes would not be counted as votes cast and would have no effect on the outcome of the vote. If, however, the Secretary of the Company were to determine that an election of directors was contested (i.e., the number of candidates exceeds the number of directors to be elected), a plurality voting standard would apply, and the candidates receiving the greatest number of FOR votes would be elected. If approved, this proposal would establish a majority voting standard for uncontested director elections beginning with the 2020 annual meeting of stockholders.
We believe that the adoption of a majority voting standard in uncontested director elections will give our stockholders a greater voice in determining the composition of our Board. Under this standard, a director nominee will not be elected to the Board when the number of votes cast against the director nominee exceed the number of votes cast for the director nominee. We also believe, however, that a plurality voting standard should continue to apply in contested elections, where the number of director nominees exceeds the number of directors to be elected. If a majority voting standard were used in contested elections, it would be possible for no single director nominee to receive a majority of votes cast, leaving the incumbent director to serve as a holdover director until the earlier of the election and qualification of such director’s successor or such director’s death, resignation or removal.
A form of the Third Amended and Restated Certificate of Incorporation (the “Third A&R Charter”) and the Second Amended and Restated Bylaws (the “Second A&R Bylaws”), which each reflect the proposed amendments contemplated by this Majority Voting Proposal, are attached to this proxy statement as Annex B and Annex C, respectively. The description of the proposed amendments to the Charter and Bylaws included above are only a summary of the proposed amendments and are qualified in their entirety by reference to the actual text of the proposed amendments reflected in Annex B and Annex C. If adopted, the proposed amendments to our Charter and Bylaws to implement a majority voting standard in uncontested director elections will become effective immediately following our filing of the Third A&R Charter with the Secretary of State of the State of Delaware after the conclusion of this Annual Meeting.
If the stockholders approve the Majority Voting Proposal, we will also revise our Corporate Governance Guidelines to include a director resignation policy to address the issue of “holdover” directors who are not re-elected but remain directors because their successor has not been elected or appointed. This policy would require each incumbent director that is nominated by the Board for re-election to tender an irrevocable resignation letter to the Board prior to the mailing of the proxy statement for the meeting at which such nominee is to be re-elected as director. If such incumbent director is not re-elected by a majority vote in an uncontested election, the Corporate Governance Guidelines will provide for the Nominating and Corporate Governance Committee to consider the tendered resignation and make a recommendation to the Board as to whether to accept or reject the resignation. The Board would then, after taking into account the recommendation of the Nominating and Corporate Governance Committee, accept or reject such tendered resignation generally within 90 days following certification of the election results. Thereafter, the Company would publicly disclose the decision of the Board and, if applicable, the Board’s reasons for rejecting a tendered resignation. Pursuant to the provisions of our Third A&R Charter, if a director’s tendered resignation is rejected, such director would continue to serve until a successor is elected, or until such director’s earlier removal or death. If a director’s tendered resignation is accepted, then the Board would have the sole discretion to fill any resulting vacancy or to decrease the number of directors, in each case pursuant to the provisions of and to the extent permitted by our Third A&R Charter and Second A&R Bylaws. Any director who tenders a resignation pursuant to this policy would be required to abstain from participating in the Nominating and Corporate Governance Committee’s deliberations and in the decision of the Board as to whether to accept or reject the tendered resignation.
In determining whether to recommend to our stockholders the adoption of a majority voting standard for uncontested director elections, our Board analyzed current corporate governance trends and evaluated the arguments in favor of and against

46




maintaining the existing plurality voting standard in uncontested director elections. Our Board recognizes that many other public companies have amended their governing documents to provide for a majority voting standard rather than a plurality standard in uncontested director elections. Our Board believes that generally requiring directors to be elected by a majority of votes cast both ensures that only director nominees with broad acceptability among our stockholders will be elected and enhances the accountability of each elected director to our stockholders. Accordingly, after careful consideration, our Board has determined to recommend that our stockholders amend our Charter and Bylaws to adopt a majority voting standard for uncontested director elections. Our Board believes, however, that the plurality vote should continue to apply in contested director elections.
Vote Required; Recommendation
The approval of the Majority Voting Proposal requires the affirmative vote, whether present in person or represented by proxy at the Annual Meeting, of a majority of outstanding shares of Common Stock entitled to vote on this proposal, voting together as a single class. Abstentions will have the same effect as a vote against this proposal. Broker non-votes will have no effect on the outcome of the vote for this proposal.
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE MAJORITY VOTING PROPOSAL.

47




PROPOSAL 5
APPROVAL AND ADOPTION OF ADDITIONAL CHARTER AMENDMENTS
At the recommendation of the Nominating and Corporate Governance Committee, our Board voted unanimously to approve, and our stockholders are being asked to approve and adopt, amendments to the Company’s Charter to eliminate certain provisions relating to the Company’s business combination and its capital structure preceding the business combination. These provisions include references to shares of the Company’s Class B Common Stock, all of which converted into shares of Class A Common Stock on a one-for-one basis in connection with the closing of the Company’s business combination on October 11, 2016. Since the closing of the business combination, these provisions are no longer relevant or applicable to us or our stockholders. Therefore, assuming the Majority Voting Proposal is approved, which would require amendments to the Charter, we are seeking to concurrently revise the Charter to remove these unnecessary provisions (the “Additional Charter Proposal”).
A form of the Third A&R Charter, which reflects the proposed amendments contemplated by this Additional Charter Proposal, is attached to this proxy statement as Annex B. The description of the proposed amendments to the Charter included above is only an overview of the proposed amendments and is qualified in its entirety by reference to the actual text of the proposed amendments reflected in Annex B. If adopted, the proposed amendments to our Charter under this proposal will become effective immediately following our filing of the Third A&R Charter with the Secretary of State of the State of Delaware after the conclusion of this Annual Meeting.
Vote Required; Recommendation
The Additional Charter Proposal is conditioned on the approval of the Majority Voting Proposal.
The approval of the Additional Charter Proposal requires the affirmative vote, whether present in person or represented by proxy at the Annual Meeting, of a majority of outstanding shares of Common Stock entitled to vote on this proposal, voting together as a single class. Abstentions will have the same effect as a vote against this proposal. Broker non-votes will have no effect on the outcome of the vote for this proposal.
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE ADDITIONAL CHARTER PROPOSAL.

48




PROPOSAL 6
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP, which has been our independent audit firm since November 18, 2016, has been appointed by our Audit Committee as our independent auditors for the fiscal year ending December 31, 2019, and our Audit Committee has further directed that the appointment of KPMG LLP be submitted for ratification by our stockholders at the Annual Meeting. We have been advised by KPMG LLP that neither that firm nor any of its associates has any relationship with us or our subsidiaries other than the usual relationship that exists between independent auditors and their clients. Representatives of KPMG LLP are expected to be present at the Annual Meeting and will be provided an opportunity to make a statement and to respond to appropriate inquiries from stockholders.
Stockholder ratification of the appointment of KPMG LLP as our independent registered public accounting firm is not required by our Bylaws, Corporate Governance Guidelines, committee charters or otherwise. However, our Board is submitting the appointment of KPMG LLP to our stockholders for ratification as a matter of what it considers to be good corporate practice. Even if the appointment is ratified, our Audit Committee, in its discretion, may appoint a different independent accounting firm at any time during the year if our Audit Committee determines that such a change would be in our and our stockholders’ best interests.
Principal Accounting Firm Fees
The table below sets forth the aggregate fees billed by KPMG, the Company’s independent registered public accounting firm, for the last two fiscal years. The table also sets forth the 2017 fees billed WithumSmith+Brown, PC (“Withum”), which was the Company’s principal accountant during the period from January 1, 2016 to November 18, 2016 and performed some limited accounting services for the Company in 2017.
 
 
Withum
 
KPMG
 
 
2017
 
2017
 
2018
Audit fees (1)
 
$
12,500

 
$
815,000

 
$
1,000,000

Audit-related fees(2)
 
6,500

 
325,000

 
105,000

All other fees
 

 

 

Total
 
$
19,000

 
$
1,140,000

 
$
1,105,000

 
(1) 
Audit fees are for the audit of the Company’s consolidated financial statements included in the applicable Form 10-K, including the audit of the effectiveness of the Company’s internal controls over financial reporting, the reviews of the Company’s financial statements included in the applicable Form 10-Q, and new accounting standard implementation.
(2)  
For 2017 and 2018, audit-related fees were for work performed in connection with registration statements, capital market transactions, oil and gas property acquisitions, and other audit-related services.
Audit Committee Approval
On an annual basis, the Audit Committee reviews and pre-approves the Company engaging the independent registered public accounting firm for the following year. As part of this process, the Audit Committee pre-approves all audit and permitted audit-related services to be performed by the independent registered public accounting firm, including the fees relating thereto. The Audit Committee may delegate pre-approval authority to one or more of its members. In the event of any such delegation, any pre-approved decisions will be reported to the Audit Committee at its next scheduled meeting. All fees described in the table above were pre-approved by the Audit Committee.
Vote Required; Recommendation
The ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019 requires the affirmative vote of a majority of shares of Common Stock present in person or represented by proxy at the meeting and entitled to vote on this proposal. Abstentions will have the same effect as a vote against this proposal. NASDAQ rules permit brokers to vote uninstructed shares at their discretion on this proposal, so broker non-votes are not expected.
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

49




ANNUAL REPORT
Our annual report for the fiscal year ended December 31, 2018 accompanies this proxy statement.
OTHER BUSINESS
Our management does not know of any other matters to come before the Annual Meeting, and our Board does not intend to present any other items of business other than those stated in the Notice of Annual Meeting of Stockholders. If, however, any other matters do come before the Annual Meeting, it is the intention of the persons designated as proxies to vote in accordance with their discretion on such matters.
STOCKHOLDER PROPOSALS
If you wish to submit a stockholder proposal pursuant to Rule 14a-8 under the Exchange Act for inclusion in our proxy statement and proxy card for our 2019 annual meeting of stockholders, you must submit the proposal to our Secretary no later than November 21, 2019.
In addition, if you desire to bring business or nominate an individual for election or re-election as a director outside of Rule 14a-8 under the Exchange Act before our 2019 annual meeting, you must comply with our Bylaws, which currently require that you provide written notice of such business to our Secretary no earlier than January 2, 2020, and no later than the close of business on February 1, 2020, and otherwise comply with the advance notice and other provisions set forth in our Bylaws, which currently includes, among other things, the submission of specified information. For additional requirements, stockholders should refer to Article II, Section 2.7 and Article III, Section 3.3 of our Bylaws, a current copy of which may be obtained from our General Counsel.

50




AVAILABILITY OF CERTAIN DOCUMENTS
A copy of our 2018 Annual Report on Form 10-K has been posted on the Internet along with this Proxy Statement and proxy materials to all stockholders entitled to notice of and to vote at the Annual Meeting. The Annual Report is not incorporated into this Proxy Statement and is not considered proxy-soliciting material. We will mail without charge, upon written request, a copy of our 2018 Annual Report on Form 10-K including exhibits. Please send a written request to our General Counsel at:
Centennial Resource Development, Inc.
1001 Seventeenth Street, Suite 1800
Denver, Colorado, 80202
Attention: General Counsel
The charters for our Audit, Compensation and Nominating and Corporate Governance Committees, as well as our Corporate Governance Guidelines, our Policy for Accounting-Related Complaints, our Policy for Related Person Transactions, and our Code of Business Conduct and Ethics are posted in the Investor Relations portion of our website at www.cdevinc.com, and are also available in print without charge upon written request to our General Counsel at the address above.
Stockholders residing in the same household who hold their stock through a bank or broker may receive only one set of proxy materials in accordance with a notice sent earlier by their bank or broker. This practice will continue unless instructions to the contrary are received by your bank or broker from one or more of the stockholders within the household. We will promptly deliver a separate copy of the proxy materials to such stockholders upon receipt of a written or oral request to our General Counsel at the address above, or by calling (720) 499-1400.
If you hold your shares in street name and reside in a household that received only one copy of the proxy materials, you can request to receive a separate copy in the future by following the instructions sent by your bank or broker. If your household is receiving multiple copies of the proxy materials, you may request that only a single set of materials be sent by following the instructions sent by your bank or broker.

51


Annex A

CENTENNIAL RESOURCE DEVELOPMENT, INC.
2019 EMPLOYEE STOCK PURCHASE PLAN

ARTICLE I.
PURPOSE
The purposes of this Centennial Resource Development, Inc. 2019 Employee Stock Purchase Plan (as it may be amended or restated from time to time, the “Plan”) are to assist Eligible Employees of Centennial Resource Development, Inc., a Delaware corporation (the “Company”), and its Designated Subsidiaries in acquiring a stock ownership interest in the Company, and to help Eligible Employees provide for their future security and to encourage them to remain in the employment of the Company and its Designated Subsidiaries. The Plan is not intended to qualify as an “employee stock purchase plan” within the meaning of Section 423(b) of the Code but is intended to constitute a “stock purchase plan” within the meaning of Rule 16b-3(b)(5) under the Exchange Act.
ARTICLE II.
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates. Masculine, feminine and neuter pronouns are used interchangeably and each comprehends the others.
2.1 “Administrator” shall mean the entity that conducts the general administration of the Plan as provided in Article XI. The term “Administrator” shall refer to the Committee unless the Board has assumed the authority for administration of the Plan as provided in Article XI.
2.2 “Agent” shall mean any brokerage firm, bank or other financial institution, entity or person(s), if any, engaged, retained, appointed or authorized to act as the agent of the Company or an Employee with regard to the Plan.
2.3 “Applicable Law” shall mean the requirements relating to the administration of equity incentive plans under U.S. federal and state securities, tax and other applicable laws, rules and regulations, the applicable rules of any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws and rules of any foreign country or other jurisdiction where rights under this Plan are granted.
2.4 “Board” shall mean the Board of Directors of the Company.
2.5 “Change in Control” shall mean and include each of the following:
(a) A transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission or a transaction or series of transactions that meets the requirements of clauses (i) and (ii) of subsection (c) below) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its Subsidiaries, an employee benefit plan maintained by the Company or any of its Subsidiaries or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or
(b) During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in subsections (a) or (c)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or
(c) The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case other than a transaction:
(i) which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly,

A-1




all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and
(ii) after which no person or group beneficially owns voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this clause (ii) as beneficially owning 50% or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction.
The Administrator shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto. Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any compensation that is subject to Section 409A of the Code, to the extent required to avoid the imposition of additional taxes under Section 409A of the Code, the transaction or event described in subsection (a), (b) or (c) with respect to such compensation shall only constitute a Change in Control for purposes of the payment timing of such compensation if such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).
2.6 “Code” shall mean the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.
2.7 “Common Stock” shall mean the Class A common stock of the Company.
2.8 “Company” shall mean Centennial Resource Development, Inc., a Delaware corporation, or any successor.
2.9 “Compensation” of an Eligible Employee shall mean the gross base cash compensation received by such Eligible Employee as compensation for services to the Company or any Designated Subsidiary, including overtime payments and excluding sales commissions, incentive compensation, bonuses, expense reimbursements, fringe benefits, moving expenses, equity compensation and other special payments.
2.10 “Designated Subsidiary” shall mean any Subsidiary designated by the Administrator in accordance with Section 11.3(b).
2.11 “Effective Date” shall mean the date the Plan is approved by the Company’s stockholders.
2.12 “Eligible Employee” shall mean any Employee of the Company or any Designated Subsidiary, provided that “Eligible Employee” shall not include (a) any director of the Company or a Designated Subsidiary who does not render services to the Company or a Designated Subsidiary as an employee within the meaning of Section 3401(c) of the Code, (b) unless determined otherwise by the Administrator, any Employee whose customary employment is for not more than five months in any calendar year or (c) any Employee who immediately after any rights under this Plan are granted, owns (directly or through attribution) stock or non-corporate equity interests possessing 5% or more of the total combined voting power or value of Common Stock and other stock or non-corporate equity interests of the Company or a Designated Subsidiary (as determined under Section 423(b)(3) of the Code with respect to stock of a corporation and under the principles of Section 423(b)(3) with respect to non-corporate equity interests). For purposes of the foregoing, (i) the rules of Section 424(d) of the Code with regard to the attribution of stock ownership shall apply in determining the stock ownership of an individual and the principles of such rules shall apply in determining the non-corporate equity ownership of an individual and (ii) stock that an Employee may purchase under outstanding options shall be treated as stock owned by the Employee. In addition, the Administrator may provide in an Offering Document that an Employee will not be an Eligible Employee for a particular Offering Period if: (A) the Employee is a highly compensated employee within the meaning of Section 423(b)(4)(D) of the Code, (B) the Employee has not met a service requirement designated by the Administrator, which service requirement may not exceed two years, (C) the Employee’s customary employment is for twenty hours per week or less, (D) the Employee’s customary employment is for less than five months in any calendar year or (E) the Employee is a citizen or resident of a foreign jurisdiction and the grant of a right to purchase Common Stock under the Plan to such Employee would be prohibited under the laws of such foreign jurisdiction or the grant of a right to purchase Common Stock under the Plan to the Employee in compliance with the laws of such foreign jurisdiction would cause the Plan to violate the requirements of Section 423(b)(3), (4) or (5) of the Code, as determined by the Administrator in its sole discretion; provided that any exclusion in clauses (A), (B), (C), (D) or (E) shall be applied in an identical manner under each Offering Period to all Employees, in accordance with Treasury Regulation Section 1.423-2(e) (or the principles thereof with respect to Employees of a Designated Subsidiary that is not a corporation for U.S. federal income tax purposes).
2.13 “Employee” shall mean any person who renders services to the Company or any Designated Subsidiary in the capacity of an employee within the meaning Section 3401(c) of the Code. Solely for purposes of the Plan, (i) an Employee’s employment relationship will be treated as continuing intact for up to two (2) months while the individual is on sick leave or other leave of absence meeting the requirements of Treasury Regulation Section 1.421-1(h)(2), (ii) the Employee’s employment relationship will be treated as terminated on the first day immediately following expiration of such two (2)-month period and

A-2




(iii) if the Employee returns to active service following a period of leave exceeding two (2) months, the Employee’s employment relationship will be treated as commencing again on first date of the next Offering Period that begins following the Employee’s return to active service (provided that the requirements for being an Employee are otherwise satisfied).
2.14 “Enrollment Date” shall mean the first Trading Day of each Offering Period.
2.15 “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
2.16 “Fair Market Value” means, as of any date, the value of Common Stock determined as follows: (i) if the Common Stock is listed on any established stock exchange, its Fair Market Value will be the closing sales price for such Common Stock as quoted on such exchange for such date, or if no sale occurred on such date, the last day preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; (ii) if the Common Stock is not traded on a stock exchange but is quoted on a national market or other quotation system, the closing sales price on such date, or if no sales occurred on such date, then on the last date preceding such date during which a sale occurred, as reported in The Wall Street Journal or another source the Administrator deems reliable; or (iii) without an established market for the Common Stock, the Administrator will determine the Fair Market Value in its discretion.
2.17 “Offering Document” shall have the meaning given to such term in Section 4.1.
2.18 “Offering Period” shall have the meaning given to such term in Section 4.1.
2.19 “Participant” shall mean any Eligible Employee who has executed a Subscription Agreement and been granted rights to purchase Common Stock pursuant to the Plan.
2.20 “Partnership” shall mean Centennial Resource Production, LLC, a Delaware limited liability company.
2.21 “Plan” shall mean this 2019 Employee Stock Purchase Plan.
2.22 “Purchase Date” shall mean the last Trading Day of each Offering Period.
2.23 “Purchase Price” shall mean the purchase price designated by the Administrator in the applicable Offering Document (which purchase price shall not be less than 85% of the Fair Market Value of a Share on the Enrollment Date or on the Purchase Date, whichever is lower); provided, however, that, in the event no purchase price is designated by the Administrator in the applicable Offering Document, the purchase price for the Offering Periods covered by such Offering Document shall be 85% of the Fair Market Value of a Share on the Enrollment Date or on the Purchase Date, whichever is lower; provided, further, that the Purchase Price may be adjusted by the Administrator pursuant to Article VIII and shall not be less than the par value of a Share.
2.24 “Securities Act” shall mean the Securities Act of 1933, as amended.
2.25 “Share” shall mean a share of Common Stock.
2.26 “Subscription Agreement” shall mean a subscription agreement, enrollment form or electronic enrollment process, each as may be approved and implemented by the Company from time to time to enable Eligible Employees to enroll in the Plan pursuant to the terms hereof.
2.27 “Subsidiary” shall mean shall mean (a) any corporation, other than the Company, in an unbroken chain of corporations beginning with the Company if, at the time of the determination, each of the corporations other than the last corporation in an unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain, (b) any partnership or limited liability company of which fifty percent (50%) or more of the equity interests are owned, directly or indirectly, by the Company, the Partnership and/or by one or more Subsidiaries, and (c) any other entity not described in clauses (a) or (b) above of which fifty percent (50%) or more of the ownership and the power (whether voting interests or otherwise), pursuant to a written contract or agreement, to direct the policies and management or the financial and the other affairs thereof, are owned or controlled by the Company, the Partnership and/or by one or more Subsidiaries.
2.28 “Trading Day” shall mean a day on which national stock exchanges in the United States are open for trading.

ARTICLE III.
SHARES SUBJECT TO THE PLAN
3.1 Number of Shares. Subject to Article VIII, the aggregate number of Shares that may be issued pursuant to rights granted under the Plan shall be 2,000,000 Shares. If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for issuance under the Plan.

A-3




3.2 Stock Distributed. Any Common Stock distributed pursuant to the Plan may consist, in whole or in part, of authorized and unissued Common Stock, treasury stock or Common Stock purchased on the open market.


ARTICLE IV.
OFFERING PERIODS; OFFERING DOCUMENTS; PURCHASE DATES
4.1 Offering Periods. The Administrator may from time to time grant rights to purchase Common Stock under the Plan to Eligible Employees during one or more periods (each, an “Offering Period”) selected by the Administrator. The terms and conditions applicable to each Offering Period shall be set forth in an “Offering Document” adopted by the Administrator, which Offering Document shall be in such form and shall contain such terms and conditions as the Administrator shall deem appropriate and shall be incorporated by reference into and made part of the Plan and shall be attached hereto as part of the Plan. The provisions of separate Offering Periods under the Plan need not be identical.
4.2 Offering Documents. Each Offering Document with respect to an Offering Period shall specify (through incorporation of the provisions of this Plan by reference or otherwise):
(a)the length of the Offering Period; and
(b)such other provisions as the Administrator determines are appropriate, subject to the Plan.

ARTICLE V.
ELIGIBILITY AND PARTICIPATION
5.1 Eligibility. Any Eligible Employee who shall be employed by the Company or a Designated Subsidiary on a given Enrollment Date for an Offering Period shall be eligible to participate in the Plan during such Offering Period, subject to the requirements of this Article V.
5.2 Enrollment in Plan.
(a) Except as otherwise set forth in an Offering Document or determined by the Administrator, an Eligible Employee may become a Participant in the Plan for an Offering Period by delivering a Subscription Agreement to the Company by such time prior to the Enrollment Date for such Offering Period (or such other date specified in the Offering Document) designated by the Administrator and in such form as the Company provides.
(b) Each Subscription Agreement shall designate a whole percentage of such Eligible Employee’s Compensation to be withheld by the Company or the Designated Subsidiary employing such Eligible Employee on each payday during the Offering Period as payroll deductions under the Plan. The percentage of Compensation designated by an Eligible Employee may not be less than 1% and may not be more than the maximum percentage specified by the Administrator in the applicable Offering Document (which percentage shall be 15% in the absence of any such designation) as payroll deductions. The payroll deductions made for each Participant shall be on an after-tax basis and shall be credited to an account for such Participant under the Plan and shall be deposited with the general funds of the Company.
(c) Unless otherwise determined by the Administrator, a Participant may not increase or decrease the percentage of Compensation designated in his or her Subscription Agreement or suspend the Participant’s payroll deductions during an Offering Period (but for the avoidance of doubt, may withdraw from participation under the Plan as provided in Article VII).
(d) Except as otherwise set forth in an Offering Document or determined by the Administrator, a Participant may participate in the Plan only by means of payroll deduction and may not make contributions by lump sum payment for any Offering Period.
5.3 Payroll Deductions. Except as otherwise provided in the applicable Offering Document, payroll deductions for a Participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which the Participant’s authorization is applicable, unless sooner terminated by the Participant as provided in Article VII.
5.4 Effect of Enrollment. A Participant’s completion of a Subscription Agreement will enroll such Participant in the Plan for each subsequent Offering Period on the terms contained therein until the Participant either submits a new Subscription Agreement, withdraws from participation under the Plan as provided in Article VII or otherwise becomes ineligible to participate in the Plan.

A-4




5.5 Limitation on Purchase of Common Stock. An Eligible Employee may be granted rights under the Plan only if such rights do not permit such Employee’s rights to purchase stock of the Company or any Designated Subsidiary to accrue at a rate that exceeds $25,000 of the fair market value of such stock (determined as of the first day of the Offering Period during which such rights are granted) for each calendar year in which such rights are outstanding at any time. This limitation shall be applied in accordance with the principles of Section 423(b)(8) of the Code.
5.6 Foreign Employees. In order to facilitate participation in the Plan, the Administrator may provide for such special terms applicable to Participants who are citizens or residents of a foreign jurisdiction, or who are employed by a Designated Subsidiary outside of the United States, as the Administrator may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Administrator may approve such supplements to, or amendments, restatements, sub-plans to or alternative versions of this Plan as it may consider necessary or appropriate for such purposes without thereby affecting the terms of this Plan as in effect for any other purpose. No such special terms, supplements, amendments or restatements shall include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have been amended to eliminate such inconsistency without further approval by the stockholders of the Company.
ARTICLE VI.
GRANT AND EXERCISE OF RIGHTS
6.1 Grant of Rights. On the Enrollment Date of each Offering Period, each Eligible Employee participating in such Offering Period shall, subject to the limits in Section 5.5, have the right to buy, on the applicable Purchase Date during such Offering Period (at the applicable Purchase Price), such number of whole Shares as is determined by dividing (a) such Participant’s payroll deductions accumulated prior to such Purchase Date and retained in the Participant’s account as of the Purchase Date, by (b) the applicable Purchase Price (rounded down to the nearest Share). The right shall expire on the last Purchase Date of the Offering Period or, if earlier, upon a Participant ceasing to be an Eligible Employee.
6.2 Exercise of Rights. On each Purchase Date, subject to the Participant remaining an Eligible Employee through such Purchase Date, each Participant’s accumulated payroll deductions and any other additional payments specifically provided for in the applicable Offering Document will be applied to the purchase of whole Shares pursuant to the terms of the Plan and the applicable Offering Document at the Purchase Price. No fractional Shares shall be issued upon the exercise of rights granted under the Plan, unless the Offering Document specifically provides otherwise. Any cash in lieu of fractional Shares remaining after the purchase of whole Shares upon exercise of a purchase right will be credited to a Participant’s account and carried forward and applied toward the purchase of whole Shares for the next following Offering Period. Shares issued pursuant to the Plan may be evidenced in such manner as the Administrator may determine and may be issued in certificated form or issued pursuant to book-entry procedures.
6.3 Pro Rata Allocation of Shares. If the Administrator determines that, on a given Purchase Date, the number of Shares with respect to which rights are to be exercised may exceed (a) the number of Shares that were available for issuance under the Plan on the Enrollment Date of the applicable Offering Period, or (b) the number of Shares available for issuance under the Plan on such Purchase Date, the Administrator may in its sole discretion provide that the Company shall make a pro rata allocation of the Shares available for purchase on such Enrollment Date or Purchase Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all Participants for whom rights to purchase Common Stock are to be exercised pursuant to this Article VI on such Purchase Date, and shall either (i) continue all Offering Periods then in effect, or (ii) terminate any or all Offering Periods then in effect pursuant to Article IX. The Company may make pro rata allocation of the Shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional Shares for issuance under the Plan by the Company’s stockholders subsequent to such Enrollment Date. The balance of the amount credited to the account of each Participant that has not been applied to the purchase of Shares shall be paid to such Participant in one lump sum in cash as soon as reasonably practicable after the Purchase Date.
6.4 Withholding. Each Participant must pay the Company or a Designated Subsidiary, or make provision satisfactory to the Administrator for payment in accordance with the Plan of, any taxes required by law to be withheld with respect to any purchase of Shares under the Plan or any sale of such Shares by the date of the event creating the tax liability. Subject to any Company insider trading policy (including blackout periods) and Section 12.6, except as otherwise determined by the Administrator, Participants may satisfy such tax obligations (i) in cash, by wire transfer of immediately available funds, or by check made payable to the order of the Company or a Designated Subsidiary, provided that (A) the Company may limit the use of the foregoing payment forms if one or more of the payment forms below is permitted and (B) the Company may, or may cause a Designated Subsidiary to, deduct an amount sufficient to satisfy such tax obligations based on the applicable statutory withholding rates (or such other rate as may be determined by the Company after considering any accounting consequences or costs) from any payment of any kind otherwise due to a Participant, (ii) in whole or in part by delivery of Shares valued at their Fair Market Value on the Purchase Date, (iii) if there is a public market for Shares at the time the tax obligations are satisfied, (A) delivery (including telephonically to the extent permitted by the Company) of an irrevocable

A-5




and unconditional undertaking by a broker acceptable to the Company to deliver promptly to the Company or a Designated Subsidiary sufficient funds to satisfy the tax obligations, or (B) delivery by the Participant to the Company or a Designated Subsidiary of a copy of irrevocable and unconditional instructions to a broker acceptable to the Company to deliver promptly to the Company or a Designated Subsidiary cash or a check sufficient to satisfy the tax withholding; provided that such amount is paid to the Company or a Designated Subsidiary at such time as may be required by the Company, or (iv) any combination of the foregoing payment forms. Subject to Section 12.6, if any tax withholding obligation will be satisfied under clause (ii) of the immediately preceding sentence by the retention of Shares purchased upon exercise of a Participant’s rights under the Plan creating the tax obligation and there is a public market for Shares at the time the tax obligation is satisfied, the Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on the applicable Participant’s behalf some or all of the Shares retained and to remit the proceeds of the sale to the Company, a Designated Subsidiary or their respective designees, and each Participant’s exercise of a Participant’s rights under the Plan will constitute the Participant’s authorization to the Company or a Designated Subsidiary and instruction and authorization to such brokerage firm to complete the transactions described in this sentence. Participant acknowledges that Participant is ultimately liable and responsible for all taxes owed in connection with the purchase of Shares under the Plan and any subsequent sale of such Shares, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the Shares. Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax withholding in connection with the purchase or the subsequent sale of Shares under the Plan.
6.5 Conditions to Issuance of Common Stock. The Company shall not be required to issue or deliver any certificate or certificates for, or make any book entries evidencing, Shares purchased upon the exercise of rights under the Plan prior to fulfillment of all of the following conditions:
(a) The admission of such Shares to listing on all stock exchanges, if any, on which the Common Stock is then listed;
(b) The completion of any registration or other qualification of such Shares under any state or federal law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, that the Administrator shall, in its absolute discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any state or federal governmental agency that the Administrator shall, in its absolute discretion, determine to be necessary or advisable;
(d) The payment in accordance with Section 6.4 to the Company of all amounts that it is required to withhold under federal, state or local law upon exercise of the rights, if any; and
(e) The lapse of such reasonable period of time following the exercise of the rights as the Administrator may from time to time establish for reasons of administrative convenience.
6.6 Mandatory Holding Period. Notwithstanding anything in the Plan to the contrary and other than to satisfy withholding tax obligations in accordance with Section 6.4, unless the Administrator otherwise determines, a Participant may not lend, offer, pledge, sell, contract to sell, sell or grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Shares acquired under the Plan or any securities convertible into or exchangeable for such Shares (in any case, a “Transfer”) prior to the expiration of the period beginning on and including the Purchase Date on which such Shares were acquired under the Plan and ending on the date that is six (6) months following such Purchase Date. Any attempted Transfer of Shares in violation of this Section 6.6 will be null and void. The Company will not be required to (a) recognize on its books any Transfers in violation of this Section 6.6 or (b) treat as owner of a Share any purchaser or other transferee to whom a Share has been Transferred in violation of this Section 6.6. To ensure compliance with the requirements of this Section 6.6, the Company may issue “stop transfer” instructions to its transfer agent, if any, or make notations to the same effect in its records, in each case, as the Company determines to be necessary or appropriate.
ARTICLE VII
WITHDRAWAL; CESSATION OF ELIGIBILITY
7.1 Withdrawal. A Participant may withdraw all but not less than all of the payroll deductions credited to his or her account and not yet used to exercise his or her rights under the Plan at any time by giving written notice to the Company in a form acceptable to the Company no later than one week prior to the end of the Offering Period (or another date designated by the Administrator in the Offering Document). All of the Participant’s payroll deductions credited to his or her account during an Offering Period shall be paid to such Participant as soon as reasonably practicable after receipt of notice of withdrawal and such Participant’s rights for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of Shares shall be made for such Offering Period. If a Participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the next Offering Period unless the Participant timely delivers to the Company a new Subscription Agreement.

A-6




7.2 Future Participation. A Participant’s withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan that may hereafter be adopted by the Company or a Designated Subsidiary or in subsequent Offering Periods that commence after the termination of the Offering Period from which the Participant withdraws.
7.3 Cessation of Eligibility. Upon a Participant’s ceasing to be an Eligible Employee for any reason, he or she shall be deemed to have elected to withdraw from the Plan pursuant to this Article VII and the payroll deductions credited to such Participant’s account during the Offering Period shall be paid to such Participant or, in the case of his or her death, to the person or persons entitled thereto under Section 12.4, as soon as reasonably practicable, and such Participant’s purchase rights under the Plan shall be automatically terminated.



ARTCILE VIII.
ADJUSTMENTS UPON CHANGES IN STOCK
8.1 Changes in Capitalization. Subject to Section 8.3, in the event that the Administrator determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), Change in Control, reorganization, merger, amalgamation, consolidation, combination, repurchase, recapitalization, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or sale or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, as determined by the Administrator, affects the Common Stock such that an adjustment is determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended by the Company to be made available under the Plan or with respect to any outstanding purchase rights under the Plan, the Administrator shall make equitable adjustments, if any, to reflect such change with respect to (a) the aggregate number and type of Shares (or other securities or property) that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1); (b) the class(es) and number of Shares and price per Share subject to outstanding rights; and (c) the Purchase Price with respect to any outstanding rights.
8.2 Other Adjustments. Subject to Section 8.3, in the event of any transaction or event described in Section 8.1 or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate (including without limitation any Change in Control), or of changes in Applicable Law or accounting principles, the Administrator, in its discretion, and on such terms and conditions as it deems appropriate, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent the dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any right under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:
(a) To provide for either (i) termination of any outstanding right in exchange for an amount of cash, if any, equal to the amount that would have been obtained upon the exercise of such right had such right been currently exercisable or (ii) the replacement of such outstanding right with other rights or property selected by the Administrator in its sole discretion;
(b) To provide that the outstanding rights under the Plan shall be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar rights covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;
(c) To make adjustments in the number and type of Shares (or other securities or property) subject to outstanding rights under the Plan and/or in the terms and conditions of outstanding rights and rights that may be granted in the future;
(d) To provide that Participants’ accumulated payroll deductions may be used to purchase Common Stock prior to the next occurring Purchase Date on such date as the Administrator determines in its sole discretion and the Participants’ rights under the ongoing Offering Period(s) shall be terminated; and
(e) To provide that all outstanding rights shall terminate without being exercised.
8.3 No Adjustment Under Certain Circumstances. No adjustment or action described in this Article VIII or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to fail to satisfy the requirements of Section 423(b)(3), (4) or (5) of the Code.
8.4 No Other Rights. Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger, or consolidation of the Company or any other

A-7




corporation. Except as expressly provided in the Plan or pursuant to action of the Administrator under the Plan, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to outstanding rights under the Plan or the Purchase Price with respect to any outstanding rights.

ARTICLE IX.
AMENDMENT, MODIFICATION AND TERMINATION
9.1 Amendment, Modification and Termination. The Administrator may amend, suspend or terminate the Plan at any time and from time to time. The Board will obtain stockholder approval of any Plan amendment to the extent necessary to comply with Applicable Laws.
9.2 Certain Changes to Plan. Without stockholder consent and without regard to whether any Participant rights may be considered to have been adversely affected, subject to Section 12.6, the Administrator shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld from Compensation during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company’s processing of withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participant’s Compensation, and establish such other limitations or procedures as the Administrator determines in its sole discretion to be advisable that are consistent with the Plan.
9.3 Actions In the Event of Unfavorable Financial Accounting Consequences. In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to:
(a) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price;
(b) shortening any Offering Period so that the Offering Period ends on a new Purchase Date, including an Offering Period underway at the time of the Administrator action; and
(c) allocating Shares.
Such modifications or amendments shall not require stockholder approval or the consent of any Participant.
9.4 Payments Upon Termination of Plan. Upon termination of the Plan, the balance in each Participant’s Plan account shall be refunded as soon as practicable after such termination, without any interest thereon.
ARTICLE X.
TERM OF PLAN
The Plan shall be effective upon the Effective Date. No rights may be granted under the Plan during any period of suspension of the Plan or after termination of the Plan.
ARTICLE XI.
ADMINISTRATION
11.1 Administrator. Unless otherwise determined by the Board, the Administrator of the Plan shall be the Compensation Committee of the Board (or another committee or a subcommittee of the Board to which the Board delegates administration of the Plan) (such committee, the “Committee”), which, unless otherwise determined by the Board, at the time the Committee takes any action with respect to any rights under the Plan that are subject to Rule 16b-3, shall consist solely of two or more members of the Board, each of whom is intended to qualify as a “non-employee director” as defined by Rule 16b-3 of the Exchange Act. The Committee may delegate administrative tasks under the Plan to the services of an Agent or Employee to assist in the administration of the Plan, including establishing and maintaining individual accounts under the Plan for each Participant. The Board may at any time vest in the Board any authority or duties for administration of the Plan.
11.2 Action by the Administrator. Unless otherwise established by the Board or in any charter of the Administrator, a majority of the Administrator shall constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present and, subject to Applicable Law and the bylaws of the Company, acts approved in writing by a majority of the Administrator in lieu of a meeting, shall be deemed the acts of the Administrator. Each member of the Administrator is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other

A-8




employee of the Company or any Designated Subsidiary, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.
11.3 Authority of Administrator. The Administrator shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(a) To determine when and how rights to purchase Common Stock shall be granted and the provisions of each offering of such rights (which need not be identical).
(b) To designate from time to time which Subsidiaries of the Company shall be Designated Subsidiaries, which designation may be made without the approval of the stockholders of the Company.
(c) To construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Administrator, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.
(d) To amend, suspend or terminate the Plan as provided in Article IX.
(e) Generally, to exercise such powers and to perform such acts as the Administrator deems necessary or expedient to promote the best interests of the Company and its Subsidiaries.