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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 (Amendment
No. )
Filed by the
Registrant ☑ |
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Filed by a
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Check the
appropriate box: |
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Preliminary Proxy Statement |
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Confidential, for use of the Commission only
(as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to Section
240.14a-12 |
Legacy Reserves LP |
(Name of
Registrant as Specified in Its Charter) |
(Name of
Person(s) Filing Proxy Statement if other than the
Registrant) |
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Table of Contents
303 W. Wall, Suite
1800
Midland, Texas 79701
, 2016
To Our Limited Partners:
You are cordially invited to
attend the 2016 Annual Meeting of Unitholders of Legacy Reserves LP to be held
on May 10, 2016 commencing at 10:30 a.m. local time at the Midland Petroleum
Club located at 501 W. Wall, Midland, Texas 79701. Proxy materials, which
include a Notice of the Meeting, proxy statement and proxy card, are enclosed
with this letter. The attached proxy statement is first being mailed to
unitholders of Legacy Reserves LP on or about , 2016. We have also enclosed our
2015 Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
The board of directors of our
general partner has called this Annual Meeting for you to consider and act
upon:
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(1) |
The election of eight
directors nominated to our general partners board of directors to serve
until the next Annual Meeting of Unitholders; |
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(2) |
The amendment a
certain provision of our partnership agreement to clarify the treatment of
abstentions and broker non-votes in establishing a quorum and counting
votes and to amend certain voting standards for votes of the holders of
the Partnerships securities to provide for a majority of votes cast
standard; |
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(3) |
The amendment of the
provision of our partnership agreement relating to the approval by our
unitholders of amendments to the partnership agreement to provide for a
majority of votes cast standard; |
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(4) |
The amendment of the
provision of our partnership agreement relating to the approval by our
unitholders of merger agreements to provide for a majority of votes cast
standard; and |
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(5) |
The ratification of
the appointment of our selection of BDO USA, LLP as independent registered
public accounting firm of the Partnership for the fiscal year ending
December 31, 2016. |
The current board of
directors of our general partner recommends that you approve all five (5) of
the above-listed matters.
Your vote is important to
us and our business. Even if you
plan to attend the meeting, you are requested to sign, date and return the proxy
card in the enclosed envelope or vote on the internet or by telephone as
instructed. If you attend the meeting after having returned the enclosed proxy
card (or voted by internet or telephone), you may revoke your proxy, if you
wish, and vote in person. A proxy may also be revoked at any time before it is
exercised by giving written notice to, or filing a duly exercised proxy bearing
a later date with, our Secretary. If you would like to attend and your units are
not registered in your own name, please ask the broker, trust, bank or other
nominee that holds the units to provide you with evidence of your unit
ownership.
We look forward to seeing you
at the meeting.
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Sincerely, |
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Cary D.
Brown |
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Chairman of
the Board |
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Legacy
Reserves GP, LLC, general partner of |
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Legacy
Reserves LP |
Table of Contents
303 W. Wall, Suite
1800
Midland, Texas 79701
__________________
NOTICE OF THE
2016
ANNUAL MEETING OF
UNITHOLDERS
__________________
The Annual Meeting of the
Unitholders of Legacy Reserves LP, or the Partnership, will be held on Tuesday,
May 10, 2016, at 10:30 a.m. local time at the Midland Petroleum Club located at
501 W. Wall, Midland, Texas 79701 for the following purposes:
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1. |
To elect eight (8)
directors to the board of directors of our general partner, each to serve
until the next Annual Meeting of Unitholders; |
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To amend a provision
of our partnership agreement to clarify the treatment of abstentions and
broker non-votes in establishing a quorum and counting votes and to amend
certain voting standards for votes of the holders of the Partnerships
securities to provide for a majority of votes cast standard; |
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To amend the
provision of our partnership agreement relating to the approval by our
unitholders of amendments to the partnership agreement to provide for a
majority of votes cast standard; |
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4. |
To amend the
provision of our partnership agreement relating to the approval by our
unitholders of merger agreements to provide for a majority of votes cast
standard; |
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To ratify the
appointment of BDO USA, LLP as independent registered public accountants
of the Partnership for the fiscal year ending December 31, 2016;
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6. |
To transact any other
business as may properly come before the Annual Meeting or any adjournment
thereof, including, without limitation, the adjournment of the annual
meeting in order to solicit additional votes from unitholders in favor of
adopting the foregoing proposals. |
Only unitholders of record at
the close of business on March 14, 2016, are entitled to vote at the Annual
Meeting and at any adjournment or postponement thereof. A list of such
unitholders will be open to examination, during regular business hours, by any
unitholder for at least ten days prior to the Annual Meeting, at our offices at
303 W. Wall, Suite 1800, Midland, Texas 79701. Unitholders holding a majority of
the outstanding units representing limited partner interests are required to be
present or represented by proxy at the meeting to constitute a quorum.
YOUR VOTE IS IMPORTANT
Your broker cannot vote your
units on your behalf until it receives your voting instructions. For your
convenience, internet and telephone voting are available. The instructions for
voting by internet or telephone are set forth on your proxy card. If you prefer,
you may vote by mail by completing your proxy card and returning it in the
enclosed postage-paid envelope. If you do attend the meeting and prefer to vote
in person, you may do so.
Please note that space
limitations make it necessary to limit attendance at the meeting to unitholders,
though each unitholder may be accompanied by one guest. Admission to the meeting
will be on a first-come, first-served basis. Registration will begin at 9:30
a.m. Each unitholder may be asked to present valid picture identification such
as a drivers license or passport. Unitholders holding units in brokerage
accounts must bring a copy of a brokerage statement reflecting unit ownership as
of the record date. Cameras, recording devices and other electronic devices will
not be permitted at the meeting.
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By
Order of the Board of Directors, |
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Cary
D. Brown |
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Chairman of the Board |
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Legacy Reserves GP, LLC, general partner of |
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Legacy Reserves LP |
Midland,
Texas
, 2016
Table of Contents
Proxy Statement for
the
Annual Meeting of Unitholders of
LEGACY RESERVES
LP
To Be Held on Tuesday,
May 10, 2016
TABLE OF CONTENTS
i
Table of Contents
ii
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Legacy Reserves LP
303
W. Wall, Suite 1800
Midland, Texas 79701
__________________
PROXY
STATEMENT
FOR THE 2016
ANNUAL MEETING OF UNITHOLDERS
TO BE HELD ON MAY 10, 2016
__________________
QUESTIONS AND ANSWERS
ABOUT THE ANNUAL MEETING AND VOTING
The Annual Meeting
Definitions:
Unless otherwise indicated,
the terms Partnership,
Legacy, we, our, and us are used in this proxy statement to refer to
Legacy Reserves LP together with our subsidiaries. The terms Board and Board
of Directors refer to our general partners board of directors. The term
compensation
committee refers to the
compensation committee of the Board of Directors. The term audit committee refers to the audit committee of the Board of
Directors. The term nominating,
governance and conflicts committee refers to the nominating, governance and conflicts committee of the
Board of Directors.
What is a proxy statement
and why is it important?
We hold a meeting of
unitholders annually. This years meeting will be held on May 10, 2016. Our
Board of Directors is seeking your proxy to vote at the 2016 Annual Meeting of
Unitholders (Annual
Meeting). This proxy
statement contains important information about the Partnership and each of the
matters to be voted on at the meeting. We are mailing this proxy statement to
unitholders on or about , 2016. Please read these materials carefully so that
you have the information you need to make informed decisions.
You do not need to attend the
Annual Meeting to vote. Instead, you may simply complete, sign and return the
enclosed proxy card or vote on the internet or by telephone as provided on your
proxy card.
When and where is the
Annual Meeting?
The 2016 Annual Meeting of
Unitholders of Legacy Reserves LP will be held on Tuesday, May 10, 2016, at
10:30 a.m., local time, at the Midland Petroleum Club located at 501 W. Wall,
Midland, Texas 79701.
The Petroleum Club of Midland
is located on the southwest corner of Wall Street and Marienfeld in downtown
Midland. From the Midland International Airport, exit the airport on the south
side and cross over and merge onto Business 20 East, which turns into Wall
Street. The Petroleum Club is 10 miles east of the airport and is a white, two
story building. There is parking behind the building. For your convenience, the
Petroleum Club phone number is (432) 682-2557.
What am I being asked to
vote upon?
You are being asked to (1)
approve the election of the directors nominated to our Board of Directors to
serve until the next Annual Meeting of Unitholders; (2) approve the amendment of
a provision of our partnership agreement to clarify the treatment of abstentions
and broker non-votes in establishing a quorum and counting votes and to amend
certain voting standards for votes of the holders of the Partnerships
securities to provide for a majority of votes cast standard; (3) approve the
amendment of our partnership agreement to provide for a majority of votes cast
standard for the approval of an amendment to our partnership agreement by our
unitholders; (4) approve the amendment of our partnership agreement to provide
for a majority of votes cast standard for the approval of merger agreements by
our unitholders; (5) ratify the appointment of the firm of BDO USA, LLP as
independent registered public accountants of the Partnership for the fiscal year
ending December 31, 2016; and (6) consider and vote upon such other business as
may properly come before the Annual Meeting or any adjournments or postponements
thereof.
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Voting and Proxy Procedures
Who may vote at the Annual
Meeting?
Only unitholders of record at
the close of business on March 14, 2016, the record date for the Annual Meeting,
are entitled to participate in the Annual Meeting. If you were a unitholder of
record on that date, you will be entitled to vote all of the units representing
limited partner interests of Legacy Reserves LP, each referred to as a unit,
that you held on that date at the Annual Meeting, or any postponements or
adjournments of the Annual Meeting.
It is critical that you
instruct your broker how you wish to vote your units on Proposals 1, 2, 3 and 4.
Absent instructions from you, the bank or broker may not vote your units on
these proposals and your units will be considered broker non-votes, which will
have no effect on the outcome of Proposal 1 and will have the effect as a vote
against Proposals 2, 3 and 4, which would be contrary to the recommendation of
our Board of Directors.
What are the voting rights
of the holders of units?
Each unit is entitled to one
vote on all matters. Your proxy card indicates the number of units that you
owned as of the record date.
Who is soliciting my proxy?
Our Board of Directors on
behalf of the Partnership is soliciting proxies to be voted at the Annual
Meeting.
Additionally, we have retained
Morrow & Co., LLC, (Morrow) to act as a
proxy solicitor in conjunction with the Annual Meeting. We have agreed to pay
Morrow $8,500, plus reasonable additional expenses, for proxy solicitation
services.
What different methods can
I use to vote?
By Written
Proxy. Regardless of whether you
plan to attend the Annual Meeting, we urge you to complete, sign and date the
enclosed proxy card and return it promptly in the envelope provided. Returning
the proxy card will not affect your right to attend the Annual Meeting and vote
in person.
By Internet. Go to the website set forth on the proxy card
and follow the on-screen instructions. You will need the control number
contained on your proxy card. Voting by internet is the fastest and lowest cost
medium of voting your proxy.
By
Telephone. Please dial the
toll-free telephone number set forth on the proxy card and follow the audio
instructions. You will need the control number contained on your proxy card.
If you properly follow the
instructions above in time to vote, your proxy (Micah C. Foster or James
Daniel Westcott are the individuals named as proxies on your proxy card) will
vote your units as you have directed. Unless otherwise directed by you, your
proxy will vote your units:
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For the election of the eight (8) director
nominees proposed by our Board of Directors; |
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For the approval of an amendment to our
partnership agreement to clarify the treatment of abstentions and broker
non-votes in establishing a quorum and counting votes and to amend certain
voting standards for votes of the holders of the Partnerships securities
to provide for a majority of votes cast
standard; |
● |
For the approval of an amendment to the
provision of our partnership agreement relating to the approval by our
unitholders of amendments to the partnership agreement to provide for a
majority of votes cast standard; |
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For the approval of an amendment to the
provision of our partnership agreement relating to the approval by our
unitholders of merger agreements to provide for a majority of votes cast
standard; and |
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For the ratification of the appointment of BDO
USA, LLP as our independent registered accounting
firm. |
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If any other matter is
presented, it is the intention of the persons named in the enclosed proxy card
to vote proxies held by them in accordance with their best judgment. At the time
this proxy statement was first mailed to unitholders, we knew of no matters that
needed to be acted on at the Annual Meeting other than those discussed in this
proxy statement.
In Person. All unitholders of record at the close of
business on March 14, 2016 may vote in person at the Annual Meeting. If you plan
to attend the Annual Meeting and vote in person, we will give you a ballot when
you arrive. However, if your units are held in the name of your broker, bank or
other nominee, you must bring an account statement or letter from the nominee
indicating that you were the beneficial owner of the units on the record date.
How may I revoke my signed
proxy card?
You may revoke your proxy card
or change your vote at any time before your proxy is voted at the Annual
Meeting. You can do this in one of three ways:
● |
you can send a written
notice in advance of the meeting to our Secretary at 303 W. Wall, Suite
1800, Midland, Texas 79701, stating that you would like to revoke your
proxy; |
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you can complete and
submit a later-dated proxy card; or |
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you can attend the
Annual Meeting and vote in person. Your attendance at the Annual Meeting
will not alone revoke your proxy unless you vote at the meeting as
described below. |
If you have instructed a
broker to vote your units, you must follow directions received from your broker
to change those instructions.
You may change your internet
vote as often as you wish by following the procedures for internet voting. The
last known vote in the internet voting system as of 11:59 p.m., Eastern Time, on
May 10, 2016 will be counted.
You may change your telephone
vote as often as you wish by following the procedures for telephone voting. The
last known vote in the telephone voting system as of 11:59 p.m., Eastern Time,
on May 10, 2016 will be counted.
What does it mean if I get
more than one proxy card?
It indicates that your units
are held in more than one account, such as two brokerage accounts registered in
different names. You should complete each of the proxy cards to ensure that all
of your units are voted. We encourage you to register all of your brokerage
accounts in the same name and address for better service. You should contact
your broker, bank or nominee for more information. Additionally, our transfer
agent, Computershare Trust Company, N.A., can assist you if you want to
consolidate multiple accounts registered in your name by contacting our transfer
agent at P.O. Box 30170, College Station, TX 77842-3170, Telephone: (781)
575-4238.
Quorum and Required Votes
How many votes are needed
to hold the meeting?
A majority of the outstanding
units as of the record date must be represented at the meeting in order to hold
the meeting and conduct business. This is called a quorum. As of March 14, 2016, the record date, there were 69,512,781 units outstanding held by approximately
144 holders of record. Unitholders are entitled to one vote, exercisable in
person or by proxy, for each unit held by such Unitholder on the record date.
Our partnership agreement does not provide for cumulative voting.
Units are counted as present
at the Annual Meeting if:
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the unitholder is
present and votes in person at the meeting; |
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the unitholder has
properly submitted a proxy card; or |
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under certain
circumstances, the unitholders broker votes the units.
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Who will count the vote?
Representatives of
Computershare Trust Company, N.A., our transfer agent, will tabulate the votes.
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How many votes are required
to approve the proposals?
The affirmative vote of
holders of a plurality of the votes cast with respect to the election of a
director is required to elect that director. Abstentions and broker non-votes
will not be taken into account in determining the outcome of the election of
directors (Proposal 1).
The affirmative vote of
holders of a majority of the units entitled to vote and be present in person or
by proxy at the meeting is required for the approval of:
● |
the amendment of a
provision of our partnership agreement to clarify the treatment of
abstentions and broker non-votes in establishing a quorum and counting
votes and to amend certain voting standards for votes of the holders of
the Partnerships securities to provide for a majority of votes cast
standard (Proposal 2); |
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the amendment of our
partnership agreement to provide for a majority of votes cast standard for
the approval of an amendment to our partnership agreement by our
Unitholders (Proposal 3); |
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the amendment of our
partnership agreement to provide for a majority of votes cast standard for
the approval of merger agreements by our Unitholders (Proposal 4);
and |
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the ratification of our
appointment of the independent registered public accounting firm for the
fiscal year ending December 31, 2016 (Proposal 5) and any other matters
that properly come before the meeting. |
How are abstentions and
broker non-votes counted?
Abstentions and broker
non-votes are included in determining whether a quorum is present.
Abstentions and broker
non-votes will not be taken into account in determining the outcome of the
election of directors (Proposal 1).
For the purpose of determining
whether a proposal other than the election of directors has received a majority
vote, abstentions are included in the vote totals with the result that an
abstention will have the same effect as a vote against such proposal. Brokers do
not have discretionary authority to vote on:
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the amendment of a
provision of our partnership agreement to clarify the treatment of
abstentions and broker non-votes in establishing a quorum and counting
votes and to amend certain voting standards for votes of the holders of
the Partnerships securities to provide for a majority of votes cast
standard (Proposal 2); |
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the amendment of our
partnership agreement to provide for a majority of votes cast standard for
the approval of an amendment to our partnership agreement by our
unitholders (Proposal 3); or |
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the amendment of our
partnership agreement to provide for a majority of votes cast standard for
the approval of merger agreements by our unitholders (Proposal 4).
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Consequently, broker non-votes
will have the same effect as a vote against Proposals 2, 3 and 4.
With respect to the
ratification of the appointment of our auditors, brokers have the discretionary
authority to vote on this proposal.
How are proxies solicited?
Proxies may be solicited by
mail, telephone or other means by our general partners officers and directors
and our employees. No additional compensation will be paid to these individuals
in connection with proxy solicitations. We will pay for distributing and
soliciting proxies and will reimburse banks, brokers and other custodians their
reasonable fees and expenses for forwarding proxy materials to unitholders. In
addition, we have retained Morrow to act as a proxy solicitor in conjunction
with the Annual Meeting. We have agreed to pay Morrow $8,500, plus reasonable
additional expenses, for proxy solicitation services.
Additional Questions and
Information
If you would like additional
copies of this proxy statement (which copies will be provided to you without
charge) or if you have questions, including with respect to the procedures for
voting your units, you should contact:
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Legacy Reserves LP
303 W.
Wall, Suite 1800
Midland, Texas 79701
Attention: Dan G. LeRoy
Vice President, General Counsel
and Secretary
IMPORTANT NOTICE
REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE ANNUAL MEETING OF
UNITHOLDERS TO BE HELD ON MAY 10, 2016.
The Notice of the 2016 Annual
Meeting of Unitholders and proxy statement are available at http://ir.legacylp.com/proxy.cfm and our Annual Report on Form 10-K for the year
ended December 31, 2015 is available at http://ir.legacylp.com/annuals.cfm.
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PROPOSAL 1
ELECTION OF DIRECTORS
Board of Directors
The Amended and Restated
Limited Liability Company Agreement of our general partner provides that our
Board of Directors will consist of a number of directors as determined from time
to time by resolution adopted by a majority of directors then in office, but
shall not be less than seven or more than nine. Currently, our Board of
Directors has eight directors. Each of the nominees for election to the Board of
Directors is currently a director of Legacy Reserves GP, LLC. If elected at the
Annual Meeting, each of the nominees will be elected to hold office for a
one-year term and thereafter until his successor has been elected and qualified,
or until his earlier death, resignation or removal.
Voting
Directors are elected by a
plurality of the votes present in person or represented by proxy and entitled to
vote at the Annual Meeting. Units represented by executed proxies will be voted,
if authority to do so is not withheld, for the election of the nominees named
below. In the event that any nominee should be unavailable for election as a
result of an unexpected occurrence, such units will be voted in favor of the
remainder of those nominated and may be voted for substitute nominees, unless
the Board of Directors chooses to reduce the number of directors serving on the
Board of Directors. Each person nominated for election has agreed to serve if
elected, and we have no reason to believe that any nominee will be unable to
serve.
Recommendation and Proxies
The Board of Directors
recommends a vote FOR each of the nominees named below.
The persons named as proxies
in the enclosed proxy card will vote all units over which they have
discretionary authority FOR the election of the nominees named below. Although
our Board of Directors does not anticipate that any of the nominees will be
unable to serve, if such a situation should arise prior to the meeting, the
appointed persons will use their discretionary authority pursuant to the proxy
and vote in favor of the remainder of those nominated and may be voted for
substitute nominees, unless the Board of Directors chooses to reduce the number
of directors serving on the Board of Directors.
Set forth below is
biographical information regarding each director nominee and information
regarding the specific experience, qualifications, attributes and skills that
qualify the nominees to serve on the Board of Directors. Each of the director
nominees is an existing director standing for re-election for a one-year term
expiring at the 2016 Annual Meeting.
Nominees for Election
Name |
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Principal
Occupation |
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Age |
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Director
Since |
Cary D.
Brown |
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Mr. C. Brown is Chairman
of our Board of Directors and previously served as Chief Executive Officer
of our general partner from our founding in October 2005 to March 1, 2015.
Since 2015, Mr. C. Brown has served as Chairman of the Board of Directors
of Moriah Powder River LLC, an oil and natural gas exploration and
production company in the Powder River Basin, and its associated operating
company, Carbon Creek Energy LLC. Mr. C. Brown also served as President of
our general partner from March 16, 2012 until March 1, 2015. Prior to
October 2005, Mr. C. Brown co-founded two businesses, Moriah Resources,
Inc. and Petroleum Strategies, Inc. Moriah Resources, Inc. was formed in
1992 to acquire oil and natural gas reserves. Petroleum Strategies, Inc.
was formed in 1991 to serve as a qualified intermediary in connection with
the execution of Section 1031 transactions for major oil companies, public independents and
private oil and natural gas companies. Mr. C. Brown has served as
Executive Vice President of Petroleum Strategies, Inc. since its inception
in 1991. Mr. C. Brown served as an auditor for Grant Thornton in Midland,
Texas from January 1991 to June 1991 and for Touche Ross in Houston, Texas
from June 1989 to December 1990. Mr. C. Brown has a Bachelor of Business
Administration degree, with honors, from Abilene Christian
University. |
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October
2005 |
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Name |
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Principal Occupation |
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Age |
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Director Since |
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The Board of Directors
determined that Mr. C. Brown should be nominated to our Board of Directors
due to his pertinent experience, qualifications, attributes and skills,
which include: the knowledge and experience attained through 26 years of
experience in the oil and natural gas industry and 24 years of experience
in the Permian Basin. |
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Paul T. Horne
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Mr. Horne was appointed
to the Board of Directors in December 2014. Mr. Horne has also served as
President and Chief Executive Officer of our general partner since March
1, 2015. Mr. Horne previously served as Executive Vice President and Chief
Operating Officer of our general partner from March 16, 2012 to March 1,
2015 and as Executive Vice President of Operations of our general partner
from our founding in October 2005 to March 2012. From January 2000 to
October 2005, Mr. Horne served as Operations Manager of Moriah Resources,
Inc. From January 1985 to January 2000, Mr. Horne worked for Mobil E&P
U.S. Inc. in a variety of petroleum engineering and operations management
roles primarily in the Permian Basin. Mr. Horne has a Bachelor of Science
degree in Petroleum Engineering from Texas A&M University.
The Board of Directors
determined that Mr. Horne should be nominated to our Board of Directors
due to his serving as Chief Executive Officer and pertinent experience,
qualifications, attributes and skills, which include: the knowledge and
experience attained through 32 years of service in the oil and gas
industry and 30 years of experience in the Permian Basin. |
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54 |
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December 2014
|
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Kyle A. McGraw
|
|
Mr. McGraw is a member
of the Board of Directors and also serves as the Executive Vice President
and Chief Development Officer of our general partner. Mr. McGraw was
appointed as Executive Vice President and Chief Development Officer
effective March 16, 2012, and has served as a director since our founding
in October 2005. Previously, Mr. McGraw served as Executive Vice President
of Business Development and Land of our general partner from our founding
in October 2005 to March 2012. Mr. McGraw joined Brothers Production
Company in 1983, and has served as its General Manager since 1991 and
became President in 2003. During his 23-year tenure at Brothers Production
Company, Mr. McGraw served in numerous capacities including reservoir and
production engineering, acquisition evaluation and land management. Mr.
McGraw has a Bachelor of Science degree in Petroleum Engineering from
Texas Tech University. Mr. McGraw has 33 years of experience in the oil
and natural gas industry in the Permian Basin. |
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56 |
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October 2005
|
7
Table of Contents
Name |
|
Principal Occupation |
|
Age |
|
Director Since |
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|
The Board of Directors
determined that Mr. McGraw should be nominated to our Board of Directors
due to his pertinent experience, qualifications, attributes and skills,
which include: the knowledge and experience attained through 33 years of
experience in the oil and natural gas industry in the Permian Basin,
experience as a petroleum engineer and managerial and executive experience
attained through his service with Brothers Production Company where he has
served in numerous capacities, including reservoir and production
engineering, acquisition evaluation and land management. |
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Dale A.
Brown |
|
Mr. D. Brown is a member
of our Board of Directors and has served in such capacity since our
founding in October 2005. Mr. D. Brown has been President of Moriah
Resources, Inc. since its inception in 1992 and President of Petroleum
Strategies, Inc. since he co-founded it in 1991 with his son, Cary D.
Brown. Since 2005, Mr. D. Brown has been a principal in the Moriah Group,
including Managing General Partner of Moriah Investment Partners. The
Moriah Group invests in real estate and other business ventures. Mr. D.
Brown is a retired certified public accountant. Mr. D. Brown has a
Bachelor of Science degree in Accounting from Pepperdine University.
The Board of Directors
determined that Mr. D. Brown should be nominated to our Board of Directors
due to his pertinent experience, qualifications, attributes and skills,
which include: financial literacy and experience as a Certified Public
Accountant (retired at age 65) since 1967; the knowledge and experience
attained through his service in the petroleum industry since 1972 and
managerial experience attained through his service with Moriah Resources,
Inc. prior to the contribution of its assets as part of the formation
transactions of Legacy. |
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73 |
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October 2005
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G.
Larry Lawrence |
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Mr. Lawrence has been a
member of our Board of Directors since May 1, 2006. Mr. Lawrence is Chief
Financial Officer and Vice President - Finance of Natural Gas Services
Group (NGSG), a public company that provides small to medium horsepower
compression equipment to the natural gas industry, and has served in this
position since July 2011. Previously, Mr. Lawrence served as Controller of
NGSG from September 2010 to January 2011 before being promoted to
Treasurer, Manager of Accounting and Principal Accounting Officer of NGSG
in January 2011. From June 2006 to September 2010, Mr. Lawrence was
self-employed as a management consultant doing business as Crescent
Consulting. From September 2006 to August 2009, Mr. Lawrence served as
Chief Financial Officer on a contract basis for Lynx Operating Company, a
private company engaged in oil and gas operations with a primary business
focus on gas processing. From May 2004 through April 2006, Mr. Lawrence
served as Controller of Pure Resources, an exploration and production
company and a wholly owned subsidiary of Unocal Corporation which was
acquired by Chevron Corporation. From June 2000 through May 2004, Mr.
Lawrence was a practice manager of the Parson Group, LLC, a financial
management consulting firm whose services included Sarbanes Oxley engagements with oil and natural gas
industry clients. From 1973 through May 2000, Mr. Lawrence was employed by
Atlantic Richfield Company, a public oil and gas company (ARCO) where he
most recently (from 1993 through 2000) served as Controller of ARCO
Permian. Mr. Lawrence has a Bachelor of Arts degree in Accounting, with
honors, from Dillard University. |
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64 |
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May 2006
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8
Table of Contents
Name |
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Principal
Occupation |
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Age |
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Director
Since |
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The Board of Directors
determined that Mr. Lawrence should be nominated to our Board of Directors
due to his pertinent experience, qualifications, attributes and skills,
which include: financial expertise and experience as a chief financial
officer and controller, Sarbanes Oxley consulting expertise, and financial
reporting expertise and the knowledge and experience attained through his
years of service in the preparation of publicly audited financial
statements. |
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William
D. (Bill) Sullivan |
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Mr. Sullivan was
appointed to our Board of Directors upon completion of our private equity
offering on March 15, 2006. Since May 2004, Mr. Sullivan has served as a
director and since May 2009 as a non-executive Chairman of the board of
directors of SM Energy Company, a publicly traded exploration and
production company (formerly known as St. Mary Land & Exploration
Company). Mr. Sullivan has served as a director of TETRA Technologies,
Inc. since August 2007 and a non-executive Chairman of the board of TETRA
since May 2015. TETRA is principally in the oilfield services business. Mr. Sullivan has served
as a director of CSI Compressco GP, LLC (f/k/a Compressco Partners GP,
LLC), the general partner of CSI Compressco , L.P., since Compressco
Partners completed its initial public offering in June 2011. CSI
Compressco is a provider of wellhead compression-based production
enhancement services and is a partially owned, controlled subsidiary of
TETRA. Mr. Sullivan served as director of Targa Resources GP, LLC (the
general partner of Targa Resource Partners LP) from February 14, 2007
until May 2015. Targa is principally in the gas and gas liquids gathering,
processing and logistics services business. From 1981 through August 2003,
Mr. Sullivan was employed in various capacities by Anadarko Petroleum
Corporation, most recently as Executive Vice President, Exploration and
Production. Mr. Sullivan has been retired for the past eleven years. Mr. Sullivan has a
Bachelor of Science degree in Mechanical Engineering, with high honors,
from Texas A&M University.
The Board of Directors
determined that Mr. Sullivan should be nominated to our Board of Directors
due to his significant management experience in midstream oil and natural
gas operations and in the exploration and production of oil and natural
gas. Mr. Sullivan also has substantial experience in executive
compensation matters and in serving on the boards of publicly held
corporations and publicly traded limited partnerships operating in the oil
and natural gas industry. |
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59 |
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March 2006
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9
Table of Contents
Name |
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Principal
Occupation |
|
Age |
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Director
Since |
William
R. Granberry |
|
Mr. Granberry was
appointed to our Board of Directors on January 23, 2008. Mr. Granberry was
a member of the board of directors of
The Williams Companies, Inc. (an integrated gas company with exploration
and production, midstream, and gas pipeline operations) from November 2005
to December 2011. In January 2012, Mr. Granberry began serving an initial
three-year term as a member of the board of directors of WPX Energy, Inc.,
an exploration and production company that was spun off from The Williams
Companies Inc. On May 21, 2015 he was elected to a one year term as a
member of the board of directors of WPX Energy, Inc. Mr. Granberry was a
member of Compass Operating Company, LLC, a small, private oil and gas
exploration, development and producing company with properties in West
Texas and Southeast New Mexico from October 2004 through December 2013.
From 1999 through September 2004, Mr. Granberry managed investments and
consulted with oil and gas companies. In 1999, Mr. Granberry invested in
and became a board member of Just4Biz.com, a start-up internet company
engaged in online office supply, and served as Interim CEO for brief
periods in 2000 and 2001. Just4Biz.com filed for bankruptcy in May 2001.
From January 1996 to May 1999, Mr. Granberry was President and Chief
Operating Officer of Tom Brown, Inc., a public oil and gas company with
exploration, development, acquisition and production activities throughout
the central United States. Mr. Granberry earned Bachelor of Science and
Master of Science degrees in Petroleum Engineering from the University of
Texas and upon graduation, worked for Amoco Production Company for 16
years.
The Board of Directors
determined that Mr. Granberry should be nominated to our Board of
Directors due to his pertinent experience, qualifications, attributes and
skills, which include: expertise in the oil and gas industry that was
attained through his 50 years of service in engineering and service in
executive positions with companies ranging from a large global energy
company to small independents. |
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73 |
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January 2008
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10
Table of Contents
Name |
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Principal Occupation |
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Age |
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Director Since |
Kyle D.
Vann |
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Mr. Vann was appointed
to the Board of Directors upon completion of our private equity offering
on March 15, 2006. From 1970 through 1979, Mr. Vann was employed in the
refining division of Exxon Company USA, and from 1979 through January
2001, Mr. Vann was employed by Koch Industries. From February 2001 through
December 2004, Mr. Vann served as Chief Executive Officer of Entergy
Koch, LP, an energy trading and transportation company. Mr. Vann continues
to serve Entergy as a consultant and serves on the board and consults with
Texon, LP, a private energy marketing company. On May 8, 2006, Mr. Vann
was appointed to the board of directors of Crosstex Energy, L.P. (now
EnLink Midstream Partners, LP), a publicly traded midstream master limited
partnership. From January 2009 through June 2010, Mr. Vann served as an
advisory board member for Enexus, LLC, which is a subsidiary of Entergy
Corporation. In October 2012, Mr. Vann joined CCMP Capital Advisors, LLC,
a private equity firm, as an Executive Advisor and serves on the board of
Eco Services. Mr. Vann has a Bachelor of Science degree in Chemical
Engineering, with honors, from the University of Kansas. Mr. Vann serves
on the Board of Advisors for the
School of Engineering at the University of Kansas, which selected him to
receive its Distinguished Engineering Service Award in 2012.
The Board of Directors
determined that Mr. Vann should be nominated to our Board of Directors due
to his pertinent experience, qualifications, attributes and skills, which
include: the knowledge and experience attained through 45 years of service
in the commodity trading business and his background and expertise in risk
assessment and leadership in the energy
sector. |
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68 |
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March 2006
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THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR ALL OF THE DIRECTOR
NOMINEES RECOMMENDED BY
THE BOARD OF DIRECTORS.
11
Table of Contents
PROPOSAL 2
APPROVAL OF AN AMENDMENT
TO OUR PARTNERSHIP AGREEMENT RELATING TO VOTING
STANDARDS FOR VOTES OF THE
PARTNERSHIPS SECURITIES
The
Proposal
We are proposing to amend a
certain provision of our partnership agreement in the manner specifically set
forth in an amendment (attached hereto as Annex A) to the Fourth Amended and
Restated Limited Partnership Agreement (the Agreement) to:
● |
clarify that abstentions
and broker non-votes in respect of outstanding Partnership securities
entitled to vote at a meeting are counted for purposes of establishing a
quorum, but are not deemed to have been cast as votes; |
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|
● |
change the required vote
from the vote of the holders of a majority of Partnership securities
outstanding to the vote of the majority of the votes cast by holders of
Partnership securities present in person or by proxy at such meeting to
take any action at any meeting of limited partners for which no minimum or
other vote is required under any other provision of the Agreement;
and |
|
|
● |
provide that if the
Agreement, the rules or regulations of any national securities exchange on
which Partnership securities are admitted to trading, or any law or
regulation applicable to the Partnership requires the vote of a percentage
of limited partners greater or different than a majority of votes cast in
order to take action at a meeting of limited partners, then such greater
or different percentage vote shall be required with the effect of
abstentions and broker non-votes to be specified by such applicable rules,
regulations or laws provided that if there is no interpretation of the
effect of abstentions and broker non-votes by such applicable rules,
regulations or laws, then abstentions and broker non-votes shall be
treated as provided in the first bullet above.
|
We refer to the three bullets
above as the Voting Standard
Amendment Proposal. Should the
Voting Standard Amendment Proposal be approved at the Annual Meeting, it may be
combined into one amendment to the Agreement with one or both of the amendments
proposed by Proposal 3 and Proposal 4 of this proxy statement, to the extent
either or both of those proposals are also approved at the Annual Meeting.
Our Board of Directors is
recommending a vote in favor of the Voting Standard Amendment Proposal as being
in the best interests of both our limited partners and the Partnership. Given
the Partnerships disparate investor base and the fact that many investors in
master limited partnerships often do not exercise their voting rights and
dismiss the unitholder voting process altogether, we feel that the changes
contained in the Voting Standard Amendment Proposal will benefit our investors
by (i) providing clearer voting rules and (ii) lowering the threshold of
required votes by counting only the votes that have been actually cast in favor
or against, rather than also including abstentions and broker non-votes where
unitholders, most likely, have dismissed the unitholder voting process entirely,
and in doing so, have inadvertently cast a vote against the Boards
recommendation. In our experience, a lack of voting participation has not
equated to a disagreement with a proposal. For example, in last years proxy
statement, we sought an amendment of our long-term incentive plan
(LTIP) in order to increase the amount of units
available to attract and retain our directors, officers and employees. Of the
votes cast for or against the proposal, over 95% of the votes cast were in favor
of the proposal. However, only approximately 53% of units outstanding were voted
for or against the proposal at last years annual meeting. Due to many
unitholders not providing their brokers instructions on how to vote their units
(which had the effect of counting as votes against the proposal), the vote was
very close despite greater than 95% of votes cast for or against such proposal
being in favor of the proposal. Importantly, last years LTIP voter turnout and
approval rating examples are not anomalous events. In fact, these percentages
are in-line with previous years that did not include an amendment to the LTIP or
other amendment that is not regularly voted on at the annual meeting. The
approval of the Voting Standard Amendment Proposal is intended to facilitate the
voting process to more efficiently effectuate the expressed desires of the
Unitholders participating in our votes and to save the Partnership the
additional time, effort, and money in order to meet the current voting standard
of the Partnership because a substantial percentage of our investors do not
participate in the voting process.
THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR THE VOTING STANDARD
AMENDMENT PROPOSAL.
12
Table of Contents
PROPOSAL 3
APPROVAL OF AN AMENDMENT
TO OUR PARTNERSHIP AGREEMENT RELATING TO VOTING
STANDARDS FOR APPROVAL OF AN
AMENDMENT OF THE AGREEMENT
The Proposal
Text of the Proposal
We are proposing to amend
Section 13.2 of the Agreement in the manner specifically set forth in an
amendment (attached hereto as Annex B) to the Agreement to change the voting
standard with respect to amendments to the Agreement that are required to be
approved by the Unitholders as set forth below, which we refer to as the
Partnership Agreement Amendment
Voting Proposal. Should the
Partnership Agreement Amendment Voting Proposal be approved at the Annual
Meeting, it may be combined into one amendment to the Agreement with one or both
of the amendments proposed by Proposal 2 and Proposal 4 of this proxy statement,
to the extent either or both of those proposals are also approved at the Annual
Meeting.
Current Provision |
|
Proposed
Amendment |
Subject to Section
6.7(h), Section 16.5 and Section 17.5, to the extent applicable, a
proposed amendment shall be effective upon its approval by the General
Partner and the holders of a Unit Majority, unless a greater or different
percentage is required under this Agreement or by Delaware law. Each
proposed amendment that requires the approval of the holders of a
specified percentage of Outstanding Units shall be set forth in a writing
that contains the text of the proposed amendment. If such an amendment is
proposed, the General Partner shall seek the written approval of the
requisite percentage of Outstanding Units or call a meeting of the
Unitholders to consider and vote on such proposed amendment.
|
|
Subject to Section
6.7(h), Section 16.5 and Section 17.5, to the extent applicable, a
proposed amendment shall be effective upon its approval by (a) the General
Partner, and (b) a majority of the votes cast by the holders of Units
entitled to vote on the proposed amendment at a meeting at which a quorum
is present in accordance with this provision (with abstentions and broker
non-votes being deemed to not have been cast with respect to such matter).
Notwithstanding Section 13.9, the presence, in person or by proxy, of
holders of a majority in voting power of the Outstanding Units, entitled
to vote on the proposed amendment shall constitute a quorum at a meeting
of Limited Partners called for purposes of considering an amendment
proposal pursuant to this Section 13.2. Abstentions and broker non-votes
in respect of such Outstanding Units shall be deemed to be Outstanding
Units present at such meeting for purposes of establishing a quorum. Each
proposed amendment that requires the approval of the holders of a
specified percentage of Outstanding Units shall be set forth in a writing
that contains the text of the proposed amendment. If such an amendment is
proposed, the General Partner shall seek the written approval of the
requisite percentage of Outstanding Units in accordance with Section 13.11
or call a meeting of the Unitholders to consider and vote on such proposed
amendment. |
|
Reasons for the
Proposal |
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|
|
We are proposing the
Partnership Agreement Amendment Voting Proposal for three main reasons:
|
|
|
● |
given the Partnerships
disparate investor base and the fact that many investors in master limited
partnerships often do not exercise their voting rights and dismiss the
unitholder voting process altogether, coupled with our recent experience
that lack of participation in a vote does not equate to disapproval of a
proposal, we believe that the modified voting standard provided by the
Partnership Agreement Amendment Voting Proposal will benefit our investors
by lowering the threshold of required votes by counting only the votes
that have been actually cast in favor or against, rather than also
including abstentions and broker non-votes where unitholders, most likely,
have dismissed the unitholder voting process entirely, and in doing so,
have inadvertently cast a vote against the Boards recommendation;
|
13
Table of Contents
● |
we believe that the modified voting standard provided by the
Partnership Agreement Amendment Voting Proposal will allow the Board of
Directors to consider changes to the Agreement that may be beneficial to
the Partnership and its limited partners on a more timely and more
frequent basis due to the lower costs and burden of receiving a Unitholder
vote; and |
● |
we believe that the
modified voting standard will result in greater attention to and higher
attendance at (in person or by proxy) meetings for the consideration of
amendments to the Agreement. |
Special Questions and
Answers Relating to the Partnership Agreement Amendment Voting Proposal
How will
the Partnership Agreement Amendment Voting Proposal affect my right to vote my
Units?
The
Partnership Agreement Amendment Voting Proposal does not affect any Unitholders
right to vote with respect to any proposed amendment to the Agreement. The only
effect of the Partnership Agreement Amendment Voting Proposal will be to lower
the voting threshold for the approval of any amendment of the Agreement that
requires the approval of the Unitholders. However, each Unitholder that was
entitled to vote on such an amendment to the Agreement prior to the Partnership
Agreement Amendment Voting Proposal will continue to have the right to vote its
Units after the amendment is effective (assuming such Unitholder does not
acquire additional Units that would increase his ownership to greater than 20%
of the outstanding Units).
Will the Partnership
Agreement Amendment Voting Proposal affect the types of amendments to the
Agreement that Unitholders may vote on?
No.
The Partnership Agreement Amendment Voting Proposal relates to amendments that
the Unitholders are entitled to vote on, but does not alter the types of
amendments that require the vote of Unitholders. Our general partner will still
have broad discretion to adopt amendments to the Agreement without the approval
of Unitholders to effect certain matters set forth in the Agreement.
How does the Partnership
Agreement Amendment Voting Proposal change the number of votes needed to approve
an amendment to the Agreement?
The
Partnership Agreement Amendment Voting Proposal lowers the total number of Units
required to approve an amendment to the Agreement at any meeting at which fewer
than all of the Unitholders are present in person or by proxy and cast a vote
for or against the proposal. Prior to the amendment proposed by the Partnership
Agreement Amendment Voting Proposal, the vote required to approve an amendment
to the Agreement that requires the vote of Unitholders is a majority of the
outstanding Units (other than, in some instances, holders of greater than 20% of
the Outstanding Units), regardless of the number of Units present in person or
by proxy or cast votes at the meeting called to consider the proposed amendment
(or just over 50% of the Outstanding Units). Following the amendment proposed by
the Partnership Agreement Amendment Voting Proposal, only a majority of the
votes cast for or against the proposal by Unitholders (with abstentions and
broker non-votes being deemed to not have been cast) at a meeting at which there
is a quorum will be required for the approval of any amendment that requires the
vote of Unitholders. For a meeting of the Unitholders, a quorum is defined as
the holders of a majority of the outstanding Units that are represented in
person or by proxy. Abstentions and broker non-votes in respect of outstanding
Partnership securities entitled to vote at a meeting are counted for purposes of
establishing a quorum. Accordingly, the number of Units with respect to which
votes may be cast in favor of an amendment to the Agreement that would result in
the approval of the amendment following the adoption of the Partnership
Agreement Amendment Voting Proposal could be substantially less than a majority
of units outstanding. However, to the extent that more Unitholders are present in person or by proxy at
any meeting of the Unitholders and cast a vote for or against the adoption of an
amendment to the Agreement following the adoption of the Partnership Agreement
Amendment Voting Proposal, a greater number of Unitholder votes would be
required for the approval of the amendment but in no event would a vote of more
than a majority of the Outstanding Units be required. Therefore if each of the
Unitholders is present in person or by proxy at the meeting and casts a vote for
or against the approval of the amendment to the Agreement, the voting standard
for approval of the Amendment is unchanged.
Does the Partnership
Agreement Amendment Voting Proposal affect the vote required with respect to the
amendments to the Agreement being proposed at the 2016 Annual Meeting of
Unitholders?
No.
The amendment proposed by the Partnership Agreement Amendment Voting Proposal
will take effect following the 2016 Annual Meeting of Unitholders. Accordingly,
the required vote for the approval of the amendments to the Agreement being
proposed at the 2016 Annual Meeting of Unitholders will remain the holders of a
majority of the outstanding Units (other than holders of greater than 20% of the
Outstanding Units).
14
Table of Contents
Recommendation of our Board
of Directors
Our Board of Directors is
recommending a vote in favor of the Partnership Agreement Amendment Voting
Proposal as being in the best interests of both our limited partners and the
Partnership. Our Board of Directors believes that the amendment proposed by the
Partnership Agreement Amendment Voting Proposal will lower the costs and other
burdens that our Board of Directors, management and Unitholders must consider
when determining whether to propose and adopt amendments to the Agreement. Our
Board of Directors also believes that the modified voting standard will promote
greater attention to and higher attendance at (in person or by proxy) meetings
for the consideration of amendments to the Agreement. The approval of the
Partnership Agreement Amendment Voting Proposal is intended to facilitate the
voting process to more efficiently effectuate the expressed desires of the
unitholders participating in our votes and to save the Partnership the
additional time, effort, and money in order to meet the current voting standard
of the Partnership because a substantial percentage of our investors do not
participate in the voting process.
THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR THE PARTNERSHIP
AGREEMENT AMENDMENT VOTING
PROPOSAL.
15
Table of Contents
PROPOSAL 4
APPROVAL OF AN AMENDMENT
TO OUR PARTNERSHIP AGREEMENT RELATING TO VOTING
STANDARDS FOR APPROVAL OF
MERGER AGREEMENTS UNDER CONSIDERATION BY THE
PARTNERSHIP
The Proposal
Text of the Proposal
We
are proposing to amend Section 14.3(b) of the Agreement in the manner
specifically set forth in Amendment No. 3 to the Agreement (attached hereto as
Annex C) to change the voting standard with respect to the approval of merger
agreements by the Unitholders, which we refer to as the Merger Voting Proposal. Should the Merger Voting Proposal be approved
at the Annual Meeting, it may be combined into one amendment to the Agreement
with one or both of the amendments proposed by Proposal 2 and Proposal 3 of this
proxy statement, to the extent either or both of those proposals are also
approved at the Annual Meeting.
Current
Provision |
|
Proposed
Amendment |
Except as provided in
Section 14.3(d) or Section 14.3(e), the Merger Agreement shall be approved
upon receiving the affirmative vote or consent of the holders of a Unit
Majority. |
|
Except as provided in
Section 14.3(d) or Section 14.3(e), the Merger Agreement shall be approved
upon receiving the affirmative vote of a majority of the votes cast by the
holders of Units entitled to vote on the Merger Agreement at a meeting at
which a quorum is present in accordance with this provision (with
abstentions and broker non-votes being deemed to not have been cast with
respect to such matter). Notwithstanding Section 13.9, the presence, in
person or by proxy, of holders of a majority in voting power of the
Outstanding Units, entitled to vote on the approval of the Merger
Agreement, shall constitute a quorum at a meeting of Limited Partners
called for purposes of considering a Merger Agreement pursuant to this
Section 14.3(b). Abstentions and broker non-votes in respect of such
Outstanding Units shall be deemed to be Outstanding Units present at such
meeting for purposes of establishing a quorum.
|
Reasons for the
Proposal
We
are proposing the Merger Voting Proposal for three main reasons:
● |
given the Partnerships disparate investor base and the fact that
many investors in master limited partnerships often do not exercise their
voting rights and dismiss the Unitholder voting process altogether,
coupled with our recent experience that lack of participation in a vote
does not equate to disapproval of a proposal, we believe that the modified
voting standard provided by the Merger Voting Proposal will benefit our
investors by lowering the threshold of required votes by counting only the
votes that have been actually cast in favor or against, rather than also
including abstentions and broker non-votes where Unitholders, most likely,
have dismissed the Unitholder voting process entirely, and in doing so,
have inadvertently cast a vote against the Boards
recommendation; |
● |
we believe that the
modified voting standard provided by the Merger Voting Proposal will allow
the Partnership to more quickly react to market circumstances and pursue
merger opportunities due to the lower costs and burden of receiving a
Unitholder vote; and |
● |
we believe that the
modified voting standard will result in greater attention to and higher
attendance at (in person or by proxy) meetings for the consideration of
merger agreements. |
16
Table of Contents
Special Questions and
Answers Relating to the Merger Voting Proposal
How will the Merger Voting
Proposal affect my right to vote my Units?
The
Merger Voting Proposal does not affect any Unitholders right to vote with
respect to any proposed merger agreement. The only effect of the Merger Voting
Proposal will be to lower the voting threshold for the approval of any merger
agreement that requires the approval of the Unitholders. However, each
Unitholder that was entitled to vote on a merger agreement prior to the Merger
Voting Proposal will continue to have the right to vote its Units after the
amendment is effective (assuming they do not acquire greater than 20% of the
Outstanding Units).
Will the Merger Voting
Proposal affect the types of merger agreements that Unitholders may vote on?
No.
The Merger Voting Proposal relates to merger agreements that the Unitholders are
entitled to vote on, but does not alter the types of mergers that require the
vote of Unitholders. Our general partner will still have broad discretion to
approve, without the vote of any Unitholder, conversions into entities or
mergers with other entities in certain circumstances in a manner that does not
affect the limited liability or tax status of any limited partner.
How does the Merger Voting
Proposal change the number of votes needed to approve an amendment to the
Agreement?
The
Merger Voting Proposal lowers the total number of Units required to approve a
merger agreement at any meeting at which fewer than all of the Unitholders are
present in person or by proxy and cast a vote for or against the proposal. Prior
to the amendment proposed by the Merger Voting Proposal, the vote required to
approve a merger agreement that requires the vote of Unitholders is a majority
of the Outstanding Units (other than holders of greater than 20% of the
Outstanding Units), regardless of the number of Units present in person or by
proxy or cast votes at the meeting called to consider the proposed amendment (or
just over 50% of the Outstanding Units). Following the amendment proposed by the
Merger Voting Proposal, only a majority of the votes cast for or against the
proposal by Unitholders (with abstentions and broker non-votes being deemed to
not have been cast) at a meeting at which there is a quorum will be required for
the approval of any merger agreement that requires the vote of Unitholders. For
a meeting of the Unitholders, a quorum is defined as the holders of a majority
of the Outstanding Units that are
represented in person or by proxy. Abstentions and broker non-votes in respect
of Outstanding Partnership securities entitled to vote at a meeting are counted
for purposes of establishing a quorum. Accordingly, the number of Units with
respect to which votes may be cast in favor of a merger agreement that would
result in the approval of the merger agreement following the adoption of the
Merger Voting Proposal could be substantially less than a majority of units
outstanding. However, to the extent that more Unitholders are present in person
or by proxy at any meeting of the Unitholders and cast a vote for or against the
approval of a merger agreement following the adoption of the Merger Voting
Proposal, a greater number of the Unitholder votes would be required for the
approval of the merger agreement, but in no event would a vote of more than a
majority of the Outstanding Units be required. Therefore if each of the
Unitholders is present in person or by proxy at the meeting and casts a vote for
or against the approval of the merger agreement, the voting standard for the
approval of the merger agreement is unchanged.
Recommendation of our Board
of Directors
Our
Board of Directors is recommending a vote in favor of the Merger Voting Proposal
as being in the best interests of both our Limited Partners and the Partnership.
Our Board of Directors believes that the amendment proposed by the Merger Voting
Proposal will allow the Partnership to more quickly react to market
circumstances and pursue merger opportunities, lower the costs and other burdens
that our Board of Directors, management and Unitholders must consider when
determining whether to pursue mergers and other strategic structural changes to
the Partnership. Our Board of Directors also believes that the modified voting
standard will promote greater attention to and higher attendance at (in person
or by proxy) meetings for the consideration of merger agreements. The approval
of the Merger Voting Proposal is intended to facilitate the voting process to
more efficiently effectuate the expressed desires of the unitholders
participating in our votes and to save the Partnership the additional time,
effort, and money in order to meet the current voting standard of the
Partnership because a substantial percentage of our investors do not participate
in voting process.
THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR THE MERGER VOTING
PROPOSAL.
17
Table of Contents
CORPORATE GOVERNANCE
Management of Legacy
Reserves LP
The directors and officers of
Legacy Reserves GP, LLC, as our general partner, manage our operations and
activities. Our general partner is not elected by our unitholders and will not
be subject to re-election on a regular basis in the future. Other than through
their ability to elect directors of our general partner as described below,
unitholders will not be entitled to directly or indirectly participate in our
management or operation.
Our general partner owes a
fiduciary duty to the Partnership. Our general partner will be liable, as
general partner, for all of our debts (to the extent not paid from our assets),
except for indebtedness or other obligations that are made specifically
nonrecourse to it. Our general partner therefore may cause us to incur
indebtedness or other obligations that are nonrecourse to it.
The limited liability company
agreement of our general partner provides for a board of directors of not less
than seven and not more than nine members.
Our unitholders, including
affiliates of our general partner, are entitled to elect all of the directors of
our general partner annually. Directors of our general partner hold office for a
one-year term and thereafter until the earlier of their death, resignation,
removal or disqualification or until their successors have been elected and
qualified.
Board of Directors
During the fiscal year ended
December 31, 2015, our Board of Directors held 12 meetings. It is the policy of
our Board of Directors to encourage directors to attend each meeting of
unitholders. All of our directors attended the Annual Meeting held in 2015.
Director Independence
The Board of Directors
includes four individuals who meet the independence and experience standards
established by the NASDAQ Global Select Market, or NASDAQ, and the Exchange Act:
Messrs. Granberry, Lawrence, Sullivan and Vann.
The Board annually reviews all
relevant business relationships any director may have with Legacy and the
independence standards established by the NASDAQ.
During 2015, the audit
committee met 5 times, the compensation committee met 3 times, and the
nominating, governance and conflicts committee met 5 times.
Leadership Structure of the
Board
As prescribed by the Amended
and Restated Limited Liability Company Agreement of our general partner, the
Chairman of the Board of Directors has the power to preside at all meetings of
the Board. Mr. C. Brown serves as Chairman of our Board and also previously
served as our President and Chief Executive Officer until March 1, 2015.
The nominating, governance and
conflicts committee believes that Mr. C. Browns history as one of the
Partnerships founders and his strategic experience make him the appropriate
leader of the Board. The committee has discussed and considered the appointment
of an independent lead director and determined not to appoint one. It is the
nominating, governance and conflicts committees view that Mr. C. Browns
previous experience working with management will serve as an effective
communication link between the Board and management and there is no need for an
independent lead director at this time. The nominating, governance and conflicts
committee will reevaluate its view on the Boards leadership structure
periodically.
18
Table of Contents
Risk Oversight
While it is the job of management to assess and manage our risk, the
Board and its audit committee (each where applicable) discuss the guidelines and
policies that govern the process by which risk assessment and management is
undertaken and evaluate reports from various functions with the management team
on risk assessment and management. The Board interfaces regularly with
management and receives periodic reports that include updates on operational,
financial, legal and risk management matters. The audit committee assists the
Board in oversight of the integrity of our financial statements and our
compliance with legal and regulatory requirements, including those related to
the health, safety and environmental performance of Legacy. The audit committee
also reviews and assesses the performance of our internal audit function and our
independent auditors. The Board receives regular reports from the audit
committee. We do not believe that the Boards role in risk oversight has an
effect on the Boards leadership structure.
Evaluation of Compensation Risk
Our
compensation committee has reviewed our employee compensation programs and
overall compensation structure and internal controls. There are several design
features of our compensation policy that reduce the likelihood of excessive
risk-taking:
● |
annual cash incentive
opportunities are contingent upon several carefully designed objective
operational and financial measures (50% at target levels), as well as the
compensation committees discretion as to whether and in what amount to
award additional cash incentive compensation (also 50% at target
levels); |
● |
our compensation policy
is designed to provide a balanced mix of cash and equity and short- and
long-term incentives; |
● |
the potential payouts
pursuant to our annual cash incentives are subject to reasonable maximum
limits; and |
● |
internal controls are in
place to assure that payments and awards are consistent with actions
approved by the compensation committee. Taking into consideration the
factors above, the compensation committee does not believe that there is a
reasonable likelihood that Legacys compensation policy could have a
material adverse effect on Legacy. |
Audit Committee
Membership
The
audit committee has been established in accordance with Rule 10A-3 promulgated
under the Exchange Act. The Board of Directors has appointed Messrs. Lawrence,
Sullivan, and Granberry as members of the audit committee. Mr. Lawrence serves
as the chairman of the committee. Each of the members of the audit committee has
been determined by the Board of Directors to be independent under NASDAQs
standards for audit committee members to serve on its audit committee. In
addition, the Board of Directors has determined that at least one member of the
audit committee (Mr. Lawrence) has such accounting or related financial
management expertise sufficient to qualify such person as the audit committee
financial expert in accordance with Item 407 of Regulation S-K and NASDAQ
requirements.
Responsibilities
The
audit committee assists the Board of Directors in overseeing:
● |
our accounting and
financial reporting processes; |
● |
the integrity of our financial
statements; |
● |
our compliance with
legal and regulatory requirements; |
● |
the qualifications and
independence of our independent auditors; and |
● |
the performance of our
internal audit function and our independent auditors.
|
The
audit committee is also charged with making regular reports to the Board of
Directors and preparing any reports that may be required under NASDAQ-listing
standards or SEC rules.
19
Table of Contents
Charter
The
Board of Directors has adopted a charter for the audit committee, a copy of
which is available on our website at www.legacylp.com. Please
note that the preceding Internet address is for information purposes only and is
not intended to be a hyperlink. Accordingly, no information found or provided at
that Internet address or at our website in general is intended or deemed to be
incorporated by reference herein.
Compensation Committee
Membership
The
compensation committee consists of three members of the Board of Directors,
Messrs. Vann, Granberry and Sullivan, all of whom have been determined by the
Board of Directors to be independent under NASDAQ-listing standards. In
addition, each member of the compensation committee qualifies as a non
employee director within the meaning of Rule 16b-3 promulgated under the
Exchange Act, and as an outside director within the meaning of Section 162(m)
of the Internal Revenue Code. Mr. Vann is the chairman of the compensation
committee.
Responsibilities
The
committees responsibilities under its charter are to:
● |
evaluate and/or develop the compensation policies applicable to the
executive officers of our general partner, which are required to include
guidance regarding the specific relationship of performance to executive
compensation; |
● |
review and approve, on an annual basis, the corporate goals and
objectives with respect to compensation for the Chief Executive
Officer; |
● |
evaluate at least once a
year the Chief Executive Officers performance in light of established
goals and objectives; |
● |
determine and approve,
either as a committee or together with the other independent directors (as
directed by the Board of Directors), the Chief Executive Officers
compensation, including salary, bonus, incentive and equity compensation
based on this evaluation; |
● |
make recommendations to
the Board of Directors with respect to the compensation to be paid to the
general partners other executive officers; |
● |
periodically review the
compensation paid to non-employee directors (including Board of Directors
and committee chairpersons) in the form of annual retainers and meeting
fees, if any, and make recommendations to the Board of Directors regarding
any adjustments; |
● |
review and make
recommendations to the Board of Directors with respect to our incentive
compensation and other unit-based plans; |
● |
assist the full Board of
Directors with respect to the administration of our incentive compensation
and other unit-based plans; |
● |
maintain regular contact
with our management team; |
● |
prepare and publish an
annual executive compensation report in our proxy statement or annual
report on Form 10-K; and |
● |
evaluate its own
performance, and review the adequacy of the charter, at least annually,
delivering a report setting forth the results of such evaluation and
review, and any recommended changes, to the Board of Directors for its
approval. |
Charter
The
Board of Directors has adopted a charter for the compensation committee, a copy
of which is available on our website at www.legacylp.com. Please note
that the preceding Internet address is for information purposes only and is not
intended to be a hyperlink. Accordingly, no information found or provided at
that Internet address or at our website in general is intended or deemed to be
incorporated by reference herein.
20
Table of Contents
Nominating, Governance and Conflicts Committee
Membership
The
nominating, governance and conflicts committee consists of Messrs. Granberry,
Lawrence, Sullivan and Vann. Mr. Granberry serves as the chairman of the
committee. The Board of Directors has determined that all members of the
nominating and governance committee are independent under NASDAQ-listing
standards.
Responsibilities
The
duties of the nominating, governance and conflicts committee are to:
● |
identify, recruit and evaluate candidates for membership on the
Board of Directors and its committees; |
● |
develop a process to be
used by the committee in identifying and evaluating candidates for
membership on the Board of Directors and its
committees; |
● |
annually present to the
Board a list of nominees recommended for election to the Board at the
annual meeting of unitholders; |
● |
evaluate any director
candidates recommended by unitholders of the Partnership pursuant to the
procedures set forth in the fourth amended and restated agreement of
limited partnership of the Partnership to be followed by unitholders in
making such recommendations; |
● |
adopt a process for
unitholders of the Partnership to send communications to the Board of
Directors; |
● |
oversee the evaluation
of the Board of Directors and the other committees of the Board of
Directors; |
● |
evaluate its own
performance, and review the adequacy of the charter, at least annually,
delivering a report setting forth the results of such evaluation and
review, and any recommended changes, to the Board for its
approval; |
● |
recommend general
matters for consideration by the Board of Directors, which may include:
(i) the structure of Board meetings, including recommendations for the
improvement of such meetings, and the timeliness and adequacy of the
information provided to the Board of Directors prior to such meetings;
(ii) director retirement policies; (iii) director and officer insurance
policy requirements; (iv) policies regarding the number of boards on which
a director may serve; (v) director orientation and training; and (vi) the
roles of the general partners executive officers and the outside
directorships of such executive officers; |
● |
consult with the Chief
Executive Officer, as appropriate, and the other Board members to ensure
that its decisions are consistent with the sound relationship between and
among the Board of Directors, Board committees, individual directors, and
the general partners executive officers; |
● |
oversee the general
partners policies and procedures regarding compliance with applicable
laws and regulations relating to the honest and ethical conduct of the
general partners directors, officers and
employees; |
● |
have the sole
responsibility for granting any waivers under the general partners Code
of Ethics and Code of Ethics for Chief Executive Officer and Senior
Financial Officers (or any successor codes, guidelines or policies) to the
general partners directors, officers and
employees; |
● |
review and approve
certain related party transactions as described in the committees
charter; and |
● |
perform any other
activities consistent with the charter, the limited liability company
agreement and certificate of formation of the general partner (as each may
be amended and/or restated and in effect from time to time), the limited
partnership agreement and certificate of limited partnership of the
Partnership (as each may be amended and/or restated and in effect from
time to time) and applicable law as the committee or the Board of
Directors deems necessary or appropriate. |
Further, the nominating, governance and conflicts committee, at the
request of the Board of Directors, will review specific matters that the Board
of Directors believes may involve a conflict of interest. The committee will
determine if the resolution of the conflict of interest is fair and reasonable
to the unitholders. Any matters approved by the committee will be conclusively
deemed to be fair and reasonable to us, approved by all of our partners and not
a breach by our general partner of any duties it may owe us or our unitholders.
21
Table of Contents
Director Nominations
Under our fourth amended and restated agreement of limited partnership,
unitholders desiring to suggest a Board nominee must give prior written notice
to our Secretary regarding the persons to be nominated. The notice must be
received at our principal executive offices at the address shown on the cover
page within the specified period and must be accompanied by the information and
documents specified in the fourth amended and restated agreement of limited
partnership. A copy of the fourth amended and restated agreement of limited
partnership may be obtained by writing to our Secretary at the address shown on
the cover page of this proxy statement.
Recommendations by unitholders for directors to be nominated at the 2016
annual meeting of unitholders must be in writing and include sufficient
biographical and other relevant information such that an informed judgment as to
the proposed nominees qualifications can be made and the name, address and the
class and number of units owned by such unitholder. Recommendations must be
accompanied by a notarized statement executed by the proposed nominee consenting
to be named in the proxy statement, if nominated, and to serve as a director, if
elected. Notice and the accompanying information must be received by our
Secretary at our principal executive office at the address shown on the cover
page of this proxy statement no later than January 15, 2017 and no earlier than
December 31, 2016.
The fourth amended and
restated agreement of limited partnership does not affect any unitholders right to request inclusion of proposals in our
proxy statement pursuant to Rule 14a-8 promulgated under the Exchange Act. For more information with respect to Rule 14a-8, please
see Other Matters–Unitholder Proposals.
Nomination Criteria
The
nominating, governance and conflicts committee is responsible for assessing the
skills and characteristics that candidates for election to our Board of
Directors should possess, as well as the composition of our Board of Directors
as a whole. The assessments include qualifications under applicable independence
standards and other standards applicable to our Board of Directors and its
committees as well as consideration of skills and experience in the context of
the needs of our Board of Directors. Each candidate must meet certain minimum
qualifications including:
● |
the ability to dedicate
sufficient time, energy and attention to the performance of her or his
duties, taking into consideration the nominees service on other public
company boards; and |
● |
skills and expertise complementary to the skills and expertise of
the existing members of our Board of Directors (in this regard, the Board
of Directors will consider its need for individuals with skills and
expertise in operational, managerial, financial or governmental affairs or
other relevant expertise). |
The
nominating, governance and conflicts committee may also consider the ability of
a prospective candidate to work with the then-existing interpersonal dynamics of
our Board of Directors and the candidates ability to contribute to the
collaborative culture among the members of the Board of Directors.
The
nominating, governance and conflicts committee will also evaluate each nominee
based upon a consideration of diversity, age, skills and experience in the
context of the needs of the Board of Directors. The committee does not have a
policy with regard to the consideration of diversity in identifying director
nominees. Diversity, including diversity of experience, professional expertise,
gender, race and age, is one factor considered in evaluating a nominee.
Based on this initial evaluation, the nominating, governance and
conflicts committee will determine whether to interview the candidate and, if
warranted, will recommend that one or more of its members, other members of our
Board of Directors or senior management, as appropriate, interview the candidate
in person or by telephone. After completing this evaluation and interview
process, the committee ultimately determines its list of nominees and submits it
to the full Board of Directors for consideration and approval.
Charter
Our
Board of Directors has adopted a charter for the nominating, governance and
conflicts committee, a copy of which is available on our website at www.legacylp.com. Please note that the preceding Internet address is for information
purposes only and is not intended to be a hyperlink. Accordingly, no information
found or provided at that Internet address or at our website in general is
intended or deemed to be incorporated by reference herein.
22
Table of Contents
Code of Ethics
The
Board of Directors has adopted a Code of Ethics and Business Conduct applicable
to officers and directors of our general partner and our employees, including
the principal executive officer, principal financial officer, principal
accounting officer and controller, or those persons performing similar
functions, of our general partner. The Code of Ethics and Business Conduct is
available on our website at www.legacylp.com
and in print to any unitholder
who requests it. Amendments to or waivers from the Code of Ethics and Business
Conduct will also be available on our website and reported as may be required
under SEC rules; however, any technical, administrative or other non-substantive
amendments to the Code of Ethics and Business Conduct may not be posted. Please
note that the preceding Internet address is for information purposes only and is
not intended to be a hyperlink. Accordingly, no information found or provided at
that Internet address or at our website in general is intended or deemed to be
incorporated by reference herein.
23
Table of Contents
COMPENSATION DISCUSSION
AND ANALYSIS
The following discussion
and analysis of compensation arrangements of the named executive officers of our
general partner, Legacy Reserves GP, LLC, should be read together with the
compensation tables and related disclosures set forth below.
Introduction
Our general partner manages
our operations and activities through its Board of Directors. Under our fourth
amended and restated agreement of limited partnership, we reimburse our general
partner for direct and indirect general and administrative expenses incurred on
our behalf, including the compensation of our general partners executive
officers. Our general partner has not incurred any reimbursable expenses related
to the compensation of our general partners executive officers for their
management of us. Currently, our general partners executive officers are
employed by our wholly owned subsidiary, Legacy Reserves Services, Inc., and are
directly compensated for their management of us pursuant to their employment
agreements. The compensation amounts disclosed in this section and under Executive Compensation reflect the total compensation paid to the executive
officers of our general partner. Please read Executive Compensation -
Employment Agreements.
Executive Summary
We are a master limited
partnership headquartered in Midland, Texas, focused on the acquisition and
development of oil and natural gas properties primarily located in the Permian
Basin, East Texas, Rocky Mountain and Mid-Continent regions of the United
States. Our compensation policy, as adopted by the compensation committee and
approved by the Board of Directors in March 2013 and subsequently amended (the
Compensation Policy), is designed to make our executive officers
total compensation comparable to that of similarly-sized publicly traded limited
partnerships and exploration and production companies. The goals of our
Compensation Policy are to:
● |
align the compensation
of the executive officers with unitholder
return; |
● |
provide financial
incentives to our executive officers for performance, achievement of goals
and enhancement of unitholder value; |
● |
drive and support the
long-term goal of sustainable growth in unit distributions and total
unitholder return by paying for performance;
and |
● |
enable us to attract and
retain highly qualified executive officers.
|
In meeting the goal of
sustainable growth, we intend to invest in our long-term opportunities while
meeting our short-term commitments.
To achieve these goals, our
total compensation to our executive officers is comprised of base salary, cash
incentive compensation (cash bonus) and equity-based incentive
compensation.
Our Compensation Policy
replaced and superseded our prior compensation policy that was adopted and
approved in September 2009 and amended in February 2010 and March 2012 (the
2010 Compensation
Policy). The total compensation
provided to our executive officers in fiscal year 2013 as shown in Executive
Compensation Summary Compensation Table (the Summary Compensation Table) is comprised of compensation elements
attributable to both compensation policies. The equity-based incentive
compensation provided for fiscal year 2013 in the Summary Compensation Table is
attributable to our 2010 Compensation Policy, which reflects grant date fair
values of equity grants made in 2013 attributable to performance in 2012. In
contrast, the cash incentive compensation (cash bonus) for fiscal year 2013 in
the Summary Compensation Table is attributable to our Compensation Policy, as
cash incentive compensation in this table reflects the performance period during
which the compensation is earned, not when it is paid.
When compared to the 2010
Compensation Policy, our Compensation Policy revised the vesting and performance
measurement periods for the objective and subjective components of the
equity-based incentive compensation portion of the policy from the vesting of ⅓
tranches every year over the course of three years in the 2010 Compensation
Policy to a three-year cliff vesting and measurement period. In addition, the
target equity awards are now weighted 60%
according to subjective criteria determined by the compensation committee and
40% according to objective criteria. Under the 2010 Compensation Policy, the
subjective criteria were weighted at 40% and the objective criteria were
weighted at 60%. Finally, our Compensation Policy allows the compensation
committee and Board of Directors discretion to award up to 150% (cash portion)
and up to 200% (equity-based portion) of subjective target incentive
compensation, and allows NEOs to earn from 0% up to 150% (cash portion) and from
0% up to 200% (equity-based portion) of objective target incentive compensation.
In contrast, the 2010 Compensation Policy had maximum limits of 100% of maximum
(rather than target) on subjective and objective cash and equity-based incentive
compensation.
24
Table of Contents
The total compensation
provided to our executive officers in fiscal years 2014 and 2015 is comprised of
compensation elements attributable solely to our Compensation Policy.
Cash Incentive
Compensation. With respect to
cash incentive compensation earned in fiscal year 2015 under the Compensation
Policy, the target total annual cash bonus (subjective plus objective component)
expressed as a percentage of annual salary for each named executive officer was
as follows: Mr. Horne: 110%; Mr. McGraw: 80%; Mr. Westcott: 90%; Mr. Hammond 80%
and Mr. LeRoy: 60%.
Subjective Component of
Cash Incentive Compensation. In
determining cash incentive awards earned in fiscal year 2015, our compensation
committee conducted a subjective evaluation of individual officer and
Partnership performance attributable to fiscal year 2015 for 50% of target
annual cash incentive compensation. Under the Compensation Policy, the
compensation committee and Board of Directors have the discretion to award up to
150% of the subjective component of target annual cash incentive
compensation.
Objective Component of Cash
Incentive Compensation. The
remaining 50% of target annual cash incentive compensation earned in fiscal year
2015 was objectively determined in accordance with the objective criteria set
forth in our Compensation Policy, which are based on our results and the
achievement of operational and financial goals and objectives during fiscal year
2015 and are designed to align the incentive compensation of each executive
officer with unitholder return by rewarding performance that maintains or grows
distributions and exceeds the specified target levels for EBITDA (which is
defined to mean Adjusted EBITDA, a non-GAAP financial measure, as described in
the Partnerships annual report on Form 10-K). The respective criteria target
levels, for purposes of the determination of annual objective cash incentive
compensation only, will be set by the compensation committee at the beginning of
each year after considering managements recommendation.
Set forth below are the target
levels for EBITDA and cash distribution growth targets used to determine the
objective component of each executive officers cash bonus that may be earned
with respect to fiscal year 2015. Achievement of less than 85% of Target EBITDA
or failure to maintain the prior cash distribution level, respectively, will
result in no cash bonus awarded with respect to that particular performance
measure.
Performance
Measure |
|
Weight |
|
|
|
Performance
Level/Percent Earned |
|
|
EBITDA |
|
50% |
|
< 85% of Target |
|
85% of Target |
|
100% of Target |
|
115% of Target |
|
|
|
|
0% |
|
50% |
|
100% |
|
150% |
Growth in Cash |
|
50% |
|
< 0% Growth 0% |
|
0% Growth 50% |
|
7.5% Growth |
|
15% Growth |
Distributions Per Unit |
|
|
|
|
|
|
|
100% |
|
150% |
Set forth in the table below
is a summary of the target cash incentive award amounts attributable to
performance during 2015 of each named executive officer pursuant to the
Compensation Policy, expressed as a percentage of each of such executive
officers applicable base salary.
|
|
Target Cash Bonus as |
|
|
a Percentage of 2015
Annual Salary(1) |
Named Executive
Officer |
|
|
Subjective |
|
Objective |
|
Total |
Paul T. Horne |
|
55% |
|
55% |
|
110% |
Director,
President |
|
|
|
|
|
|
and Chief Executive
Officer (2) |
|
|
|
|
|
|
James Daniel Westcott |
|
45% |
|
45% |
|
90% |
Executive Vice President
and Chief |
|
|
|
|
|
|
Financial
Officer |
|
|
|
|
|
|
Kyle A. McGraw |
|
40% |
|
40% |
|
80% |
Director, Executive
Vice |
|
|
|
|
|
|
President and Chief
Development |
|
|
|
|
|
|
Officer |
|
|
|
|
|
|
25
Table of Contents
|
|
Target Cash Bonus as |
|
|
a Percentage of 2015
Annual Salary(1) |
Named Executive
Officer |
|
|
Subjective |
|
Objective |
|
Total |
Kyle M. Hammond |
|
40% |
|
40% |
|
80% |
Executive
Vice |
|
|
|
|
|
|
President and Chief
Operating |
|
|
|
|
|
|
Officer (3) |
|
|
|
|
|
|
Dan G. LeRoy |
|
30% |
|
30% |
|
60% |
Vice President, General
Counsel |
|
|
|
|
|
|
and
Secretary |
|
|
|
|
|
|
____________________
(1) |
Salaries effective
March 1, 2015. |
|
(2) |
Effective March 1,
2015, Mr. Horne was appointed President and Chief Executive Officer of our
general partner. |
|
(3) |
Effective March 1,
2015, Mr. Hammond was appointed Executive Vice President and Chief
Operating Officer of our general partner. |
Equity-Based Incentive
Compensation. We believe
meaningful equity participation by each named executive officer to be a strong
motivating factor that will result in significant increases in value and in
growth. Grants of equity-based compensation to our executive officers during
fiscal year 2015 were made in accordance with the Compensation Policy based on
performance during fiscal year 2014. In accordance with the Compensation Policy,
grants of equity-based incentive compensation during fiscal year 2016 based on
performance during fiscal year 2015 are still under consideration and have not
yet been determined. For more information, please see 2016 Phantom Unit Grants under the Compensation
Policy.
The subjective or
service-based component of equity-based incentive compensation awarded as
phantom units and associated distribution equivalent rights (DERs) is determined by a subjective evaluation of prior fiscal year
performance by the compensation committee. The objective or performance-based
component of equity-based incentive compensation, awarded as phantom units and
associated DERs, is designed to reward our executive officers for their
long-term performance and to align their interests with those of our
unitholders.
With respect to grants that
can be made during fiscal year 2016 attributable to performance during 2015,
under the Compensation Policy the target total annual equity-based incentive
compensation expressed as a percentage of annual salary for each named executive
officer was as follows: Mr. Horne: 325%; Mr. McGraw: 175%; Mr. Westcott 250%;
Mr. Hammond: 200%; and Mr. LeRoy: 80%.
With respect to grants made
during fiscal year 2015 attributable to performance during 2014, under the
Compensation Policy the target total annual equity-based incentive compensation
expressed as a percentage of annual salary for each named executive officer was
as follows: Mr. C. Brown: 325%; Mr. Horne: 200%; Mr. McGraw: 175%; Mr. Westcott
200%; and Mr. LeRoy: 75%.
Subjective Component of
EquityBased Incentive Compensation under the
Compensation Policy (60% of target). Under the Compensation Policy, equity-based incentive compensation
awarded under this component and associated DERs cliff vest after a three-year
period and are not subject to any performance criteria. The DERs entitle the
recipient of the award to a payment equivalent to the amount of the per unit
distribution payable to unitholders over the vesting period. The compensation
committee and Board of Directors have the discretion to award up to 200% of the
subjective component of target equity-based incentive compensation.
Objective Component of
EquityBased Incentive Compensation under the
Compensation Policy (40% of target). Under the Compensation Policy, the objective component is granted at
200% of the target amount each year but is subject to cliff vesting after a
three-year period in accordance with an objective performance-related formula
(as set forth under Calculation
of Vesting of Objective Component of EquityBased Compensation under the Compensation Policy below) based on our objective average annual
total unitholder return and the following: 1) our total unitholder return
compared to the total unitholder returns of a group of our peers, and 2) our
total unitholder return compared to the total unitholder returns of a broader
group of MLPs. All total unitholder returns are measured during the cumulative
three-year measurement period prior to the vesting date. If none or only a portion of phantom units vest
as a result of target levels not being met, the unvested portion of phantom
units and associated DERs will be forfeited.
26
Table of Contents
Set forth in the table below
is a summary of the target equity-based incentive award amounts attributable to
performance during 2015 (and that can be granted during fiscal year 2016) of
each named executive officer pursuant to the Compensation Policy, expressed as a
percentage of each of such executive officers applicable base
salary.
|
|
Target Value of Phantom Units
as |
|
|
a Percentage of 2015
Annual Salary(1) |
Named Executive
Officer |
|
|
Subjective |
|
Objective |
|
Total |
Paul T. Horne |
|
195% |
|
130% |
|
325% |
Director,
President |
|
|
|
|
|
|
and Chief Executive
Officer (2) |
|
|
|
|
|
|
James Daniel Westcott |
|
150% |
|
100% |
|
250% |
Executive Vice President
and Chief |
|
|
|
|
|
|
Financial
Officer |
|
|
|
|
|
|
Kyle A. McGraw |
|
105% |
|
70% |
|
175% |
Director, Executive
Vice |
|
|
|
|
|
|
President and Chief
Development |
|
|
|
|
|
|
Officer |
|
|
|
|
|
|
Kyle M. Hammond |
|
120% |
|
80% |
|
200% |
Executive
Vice |
|
|
|
|
|
|
President and Chief
Operating |
|
|
|
|
|
|
Officer (3) |
|
|
|
|
|
|
Dan G. LeRoy |
|
48% |
|
32% |
|
80% |
Vice President, General
Counsel |
|
|
|
|
|
|
and
Secretary |
|
|
|
|
|
|
____________________
(1) |
Salaries effective
March 1, 2015. |
|
(2) |
Effective March 1,
2015, Mr. Horne was appointed President and Chief Executive Officer of our
general partner. |
|
(3) |
Effective March 1,
2015, Mr. Hammond was appointed Executive Vice President and Chief
Operating Officer of our general partner. |
Set forth in the table below
is a summary of the target equity-based incentive award amounts attributable to
performance during 2014 (and granted during fiscal year 2015) of each named
executive officer pursuant to the Compensation Policy, expressed as a percentage
of each of such executive officers applicable base salary.
|
|
Target Value of Phantom Units
as |
|
|
a Percentage of 2014
Annual Salary(1) |
Named Executive
Officer |
|
|
Subjective |
|
Objective |
|
Total |
Cary D. Brown |
|
195% |
|
130% |
|
325% |
Chairman of the Board,
President |
|
|
|
|
|
|
and Chief Executive
Officer (2) |
|
|
|
|
|
|
James Daniel Westcott |
|
120% |
|
80% |
|
200% |
Executive Vice President
and Chief |
|
|
|
|
|
|
Financial
Officer |
|
|
|
|
|
|
Paul T. Horne |
|
120% |
|
80% |
|
200% |
Director, Executive Vice
President and |
|
|
|
|
|
|
Chief Operating Officer
(3) |
|
|
|
|
|
|
Kyle A. McGraw |
|
105% |
|
70% |
|
175% |
Director, Executive
Vice |
|
|
|
|
|
|
President and Chief
Development Officer |
|
|
|
|
|
|
Dan G. LeRoy |
|
45% |
|
30% |
|
75% |
Vice President, General
Counsel |
|
|
|
|
|
|
and
Secretary |
|
|
|
|
|
|
27
Table of Contents
____________________
(1) |
Salaries effective
March 1, 2014. |
|
(2) |
Effective March 1,
2015, Mr. C. Brown resigned from his positions as President and Chief
Executive Officer of our general partner. |
|
(3) |
On December 3, 2014,
the Board of Directors appointed Mr. Horne as a Director. Effective March
1, 2015, Mr. Horne was appointed President and Chief Executive Officer of
our general partner. |
Corporate Governance
Compensation Committee
Authority
Executive officer compensation
is administered by the compensation committee of the Board of Directors, which
is currently composed of three members, Messrs. Vann, Granberry and Sullivan.
The Board of Directors appoints the compensation committee members and delegates
to the compensation committee the direct responsibility for, among other things,
determining and approving the Chief Executive Officers compensation,
recommending compensation for the general partners other named executive
officers, establishing equity and non-equity incentive plans, and administering
our LTIP.
The Board of Directors has
determined that each committee member is independent under NASDAQ-listing
standards, SEC rules and the relevant securities laws, and that each member
qualifies as a non-employee director within the meaning of Rule 16-3
promulgated under the Exchange Act, and as an outside director as defined in
Section 162(m) of the Internal Revenue Code.
Role of Compensation
Experts in Determining Executive Officer Compensation
The compensation committee is
authorized to obtain, at the Partnerships expense, compensation surveys,
reports on the design and implementation of compensation programs for directors,
officers and employees and other data and documentation as the compensation
committee considers appropriate. In addition, the compensation committee has the
sole authority to retain and terminate any outside counsel or other experts or
consultants engaged to assist it in the evaluation of compensation of our
directors and executive officers, including the sole authority to approve such
consultants fees and other retention terms.
The compensation committee
retained BDO USA, LLP (BDO) as a
compensation consultant for performance years 2015 and 2014. BDO was engaged to
provide a study of compensation programs related to named executive officers and
outside directors offered by a broad peer group of exploration and production
companies and publicly traded limited partnerships. The compensation committee
charged BDO with undertaking this study to ascertain how the members of this
peer group structure their compensation as a basis for establishing and
maintaining an appropriate compensation program to better enable the Partnership
to attract and retain highly qualified executive officers and to further align
the interests of our executive officers with those of our unitholders.
BDO served as the
Partnerships independent registered public accountants during 2015. In
appointing BDOs compensation consulting group, the compensation committee
considered whether such appointment would represent a conflict of interest. In
particular, the compensation committee reviewed the structure of the consulting
engagement which complies with SEC and Public Company Accounting Oversight Board
independence rules and the relatively small amount of fees paid by the
Partnership to BDO for compensation consulting services. The committee also
evaluated its prior experience with BDO as its consultant and concluded that the
advice received was, in its opinion, independent, that the relationship
represented no conflict of interest, and that the compensation committee
benefitted from the BDO consultants unique experience in consulting for
publicly-traded partnerships.
Selection of
Compensation Comparative Data
As discussed in greater detail
below, central to our compensation philosophy is the alignment of the interests
of our named executive officers with the interests of our unitholders. It is the
goal of our compensation philosophy to provide financial incentives to our
executive officers to focus on business strategies designed to maximize total
return to our unitholders. In addition to comparing compensation packages of our
named executive officers and outside directors with the compensation of their
counterparts within a comparable group of exploration and production companies
and publicly traded limited partnerships, other specific performance levels or
benchmarks, as described in the Compensation Policy, were used in 2015 to
establish the compensation packages of our named executive officers and outside
directors.
28
Table of Contents
The 2015 comparable group
included Atlas Resource Partners, L.P.; Breitburn Energy Partners L.P.; Carrizo
Oil & Gas, Inc.; Clayton Williams Energy, Inc.; Crestwood Equity Partners
LP; Diamondback Energy, Inc.; Eagle Rock Energy Partners, L.P.; EnLink Midstream
Partners, LP; EV Energy Partners, L.P.; Gulfport Energy Corporation; Halcón
Resources Corporation; Linn Energy, LLC; LRR Energy, L.P.; Memorial Production
Partners LP; Mid-Con Energy Partners, LP; Parsley Energy, Inc.; Resolute Energy
Corporation; Rosetta Resources Inc.; RSP Permian, Inc.; SandRidge Energy, Inc.;
Summit Midstream Partners, LP; Southcross Energy Partners, L.P.; Swift Energy
Company and Vanguard Natural Resources, LLC.
The 2014 comparable group
included Atlas Energy, L.P.; Atlas Pipeline Partners, L.P.; Breitburn Energy
Partners L.P.; Carrizo Oil & Gas, Inc.; Clayton Williams Energy, Inc.;
Crestwood Equity Partners LP; Eagle Rock Energy Partners, L.P.; EnLink Midstream
Partners, LP; EV Energy Partners, L.P.; Forest Oil Corporation; Gulfport Energy
Corporation; Halcón Resources Corporation; LRR Energy, L.P.; Memorial Production
Partners LP; Mid-Con Energy Partners, LP; Niska Gas Storage Partners LLC; QR
Energy, LP; Resolute Energy Corporation; Rosetta Resources Inc.; Swift Energy
Company; and Vanguard Natural Resources, LLC.
Our comparable group is
determined by the compensation committee from time to time to ensure that the
peer groups size and composition produces relevant information for the
compensation committees consideration.
Decision-Making Process
and Role of Executive Officers
Compensation decisions for
executive officers involve both objective and subjective criteria. For
performance years 2015 and 2014, the compensation committee consultant first
provided information to the compensation committee regarding competitive market
data. The second component of the decision-making process was our Chief
Executive Officer providing a written overview of performance by the
Partnership, including an overview of the performance by each named executive
officer other than himself, in light of established operational and financial
goals and objectives. After reviewing this written overview, the compensation
committee met with the Chief Executive Officer in order to ask questions
regarding the information set forth in the written overview and to gather any
additional information needed in order to make recommendations to the Board of
Directors regarding the compensation of the named executive officers other than
the Chief Executive Officer.
In determining the
compensation of the Chief Executive Officer, the compensation committee took
into account the information provided by the compensation committee consultant.
The compensation committee then evaluated the Chief Executive Officers
performance in light of established operational and financial goals and
objectives and determined as a committee, together with any other independent
directors participating in the process, the Chief Executive Officers
compensation.
Executive Officer
Compensation Strategy and Philosophy
Our Compensation Policy is
designed to make our executive officers total compensation comparable to that of
similarly sized publicly traded limited partnerships and exploration and
production companies.
Our executive officer
compensation strategy is designed to:
● |
align the compensation
of the executive officers with unitholder
return; |
● |
provide financial
incentives to our executive officers for performance, achievement of goals
and enhancement of unitholder value; |
● |
drive and support the
long-term goal of sustainable growth in unit distributions and total
unitholder return by paying for performance;
and |
● |
enable us to attract and
retain highly qualified executive officers.
|
In meeting the goal of
sustainable growth, we intend to invest in our long-term opportunities while
meeting our short-term commitments. As all our executive officers hold units in
the Partnership, we have attempted to maintain competitive levels of
compensation while focusing on the growth of our business and distributions.
Through this approach, our executives receive cash and equity compensation for
the market value of their services and their performance is further rewarded
through the distributions they receive on their holdings of our units, which
creates alignment of interests with our unitholders.
29
Table of Contents
At our named executive
officers 2015 compensation levels and due to our organizational structure, we
did not believe that Internal Revenue Code Section 162(m) would be applicable
and accordingly, did not consider it in setting compensation levels.
Components of Compensation
Named Executive Officer
Compensation
Total compensation to our
executive officers is comprised of base salary, cash incentive compensation
(cash bonus) and equity-based incentive compensation.
2015 Performance Goals
and Objectives
For the 2015 performance year,
the operational and financial goals and objectives were as follows:
● |
Generate $1.43 per unit
of Distributable Cash Flow; |
● |
Acquire $500 million of
producing properties at targeted cash flow
metrics; |
● |
Generate EBITDA of $263
million with $30 million of total development capital
expenditures; |
● |
Provide the capital
needed to execute the business plan while maintaining certain leverage
senior debt metrics; and |
● |
Experience zero
lost-time accidents. |
These goals and objectives, as
supplemented by more detailed supporting goals and objectives put forth by our
named executive officers, provided a framework for the compensation committee to
assess our 2015 performance and to determine named executive officers
compensation. Relative weight is not assigned to any or all of these goals and
objectives. Additionally, the various financial goals were based on various
assumptions, with the understanding that our actual financial performance would
be assessed based on factors considered relevant by the compensation committee
at the time compensation for the named executive officers was reviewed and
determined.
2015 Performance
Assessment for Determination of Incentive Compensation under the Compensation
Policy
The compensation committee
assessed the 2015 performance of executive officers for purposes of the
determination of the subjective components of cash incentive compensation and
its consideration of equity-based incentive compensation earned with respect to
fiscal year 2015 based on the attainment of the foregoing goals and objectives
and the performance-related factors that it considered to be relevant.
Among other relevant
considerations, the compensation committee considered the following achievements
by the Partnership and the executive officers during 2015:
● |
Generated Distributable
Cash Flow of $1.49 per unit; |
● |
Acquired properties for
a net $489 million in 4 transactions including the post-close sell-down of
one transaction; |
● |
Completed a large-scale,
Permian-focused development agreement with an affiliate of TPG Special
Situations Partners; |
● |
Remained in compliance
with all financial covenants; |
● |
Generated EBITDA of $232
million; and |
● |
Experienced zero
lost-time accidents. |
Primarily based on these
achievements, the compensation committee awarded to Mr. Horne 110% of the target
subjective component of the cash bonus and recommended to the Board that the
executive officers other than Mr. Horne be awarded as follows: 110% for Mr.
Westcott, 95% for Mr. McGraw, 105% for Mr. Hammond and 100% for Mr. LeRoy of the
subjective component of the cash bonus. The Board approved such awards. The
subjective and objective components of our equity-based incentive compensation
are still under consideration by the compensation committee, and therefore have
not yet been determined.
30
Table of Contents
2014 Performance Goals
and Objectives
For the 2014 performance year,
the operational and financial goals and objectives were as follows:
● |
Grow cash distributions
to $0.61 per unit attributable to the fourth quarter of 2014 with a
coverage ratio of 1.05 times for the year; |
● |
Acquire $300 million of
producing properties at targeted cash flow
metrics; |
● |
Generate $285 million of
EBITDA with $100 million of total development capital
expenditures; |
● |
Provide the capital
needed to execute the business plan and maintain a total debt to EBITDA
ratio around 3 times; and |
● |
Experience zero
lost-time accidents. |
These goals and objectives, as
supplemented by more detailed supporting goals and objectives put forth by our
named executive officers, provided a framework for the compensation committee to
assess our 2014 performance and to determine named executive officers
compensation. Relative weight is not assigned to any or all of these goals and
objectives. Additionally, the various financial goals were based on various
assumptions, with the understanding that our actual financial performance would
be assessed based on factors considered relevant by the compensation committee
at the time compensation for the named executive officers was reviewed and
determined.
2014 Performance
Assessment for Determination of Incentive Compensation under the Compensation
Policy
The compensation committee
assessed the 2014 performance of executive officers for purposes of the
determination (as set forth in the Compensation Policy) of the subjective
components of cash incentive compensation earned with respect to fiscal year
2014 and equity-based incentive compensation granted during fiscal year 2015
based on the attainment of the foregoing goals and objectives and the
performance-related factors that it considered to be relevant.
Among other relevant
considerations, the compensation committee considered the following achievements
by the Partnership and the executive officers during 2014:
● |
Paid distributions per
unit of $0.595, $0.61, $0.61, and $0.61 attributable to the first, second,
third and fourth quarters of 2014, respectively, with a coverage ratio of
0.84 times for the year; |
● |
Acquired $535 million of
properties in 7 transactions; |
● |
Generated EBITDA of
$278.2 million; |
● |
Obtained first-time
access to the preferred equity market with two offerings, one in April and
one in June, for combined gross proceeds of $237.5 million, issued $300
million in a reopener of our 6.625% Senior Notes due 2021, increased our
borrowing base to a record $950 million and closed our largest equity
offering in our history in October for gross proceeds of $315 million
ending the year with 3.4 times total debt to EBITDA;
and |
● |
Experienced zero
lost-time accidents. |
Primarily based on these
achievements, the compensation committee awarded to Mr. C. Brown 115% of the
target subjective component of the cash bonus and 175% of the target subjective
component of equity-based incentive compensation and recommended to the Board
that the executive officers other than Mr. C. Brown be awarded as follows: 115%
for Mr. Westcott, 110% for Mr. McGraw and 105% for Messrs. Horne and LeRoy of
the subjective component of the cash bonus; and 175% for Messrs. Westcott,
Horne, McGraw and LeRoy of the subjective component of equity-based incentive
compensation of the target individual levels set forth in subsequent sections.
The Board approved such awards.
Base Salaries
Overview
We pay base salary to attract
talented executives and provide a fixed base of cash compensation. The
compensation committee determines and approves the Chief Executive Officers
compensation including salary based on a review of the Chief Executive Officers
performance in light of established corporate goals and objectives. The compensation committee, with
information provided by the compensation committee consultant and input of the
Chief Executive Officer, also makes recommendations to the Board of Directors as
a whole with respect to the compensation, including base salary, to be paid to
the other executive officers of our general partner.
31
Table of Contents
It is the intent of the
compensation committee to have the base salaries of our named executive officers
reviewed on an annual basis as well as at the time of a promotion or other
material change in responsibilities.
2015 Base Salary
Determinations
Effective March 1, 2015, base
salaries were set at the following: Mr. Horne: $550,000; Mr. Westcott: $380,000;
Mr. Hammond: $380,000; Mr. McGraw: $360,000; and Mr. LeRoy:
$260,000.
2016 Base Salary
Determinations
Effective March 1, 2016, base
salaries were maintained at the same levels as set in 2015, which consist of the
following: Mr. Horne: $550,000; Mr. Westcott: $380,000; Mr. Hammond: $380,000;
Mr. McGraw: $360,000; and Mr. LeRoy: $260,000.
Cash Incentive
Compensation (Cash Bonus) under the Compensation Policy
Overview
As a component of total
compensation, the compensation committee chooses to pay annual incentives to
drive the achievement of key results and to recognize individuals based on their
contributions to those results. The compensation committee recognizes that
short-term results contribute to achieving long-term goals. The amount of annual
incentives is based upon our results and the achievement of operational and
financial goals and objectives. The range and target amounts are recommended to
the compensation committee by our Chief Executive Officer.
In determining cash incentive
awards earned during a fiscal year, a subjective evaluation of the individual
officer and Partnership performance (subjective criteria) for the fiscal year
such awards are to be earned and our results and the achievement of operational
and financial goals and objectives during such fiscal year (objective criteria)
are considered.
The objective and subjective
components of the cash incentive compensation each comprise 50% of the target
bonus available expressed as a percentage of annual salary for each executive
officer, as set forth in the following table for fiscal year 2015.
|
|
|
|
Target Cash Bonus as |
|
|
|
|
a Percentage of 2015
Annual Salary |
Named Executive
Officer |
|
Title |
|
Subjective |
|
Objective |
|
Total |
Paul T. Horne |
|
Director, President and |
|
55% |
|
55% |
|
110% |
|
|
Chief Executive Officer (1) |
|
|
|
|
|
|
James
Daniel Westcott |
|
Executive Vice President and Chief |
|
45% |
|
45% |
|
90% |
|
|
Financial Officer |
|
|
|
|
|
|
Kyle M. Hammond |
|
Executive Vice President and Chief
Operating |
|
40% |
|
40% |
|
80% |
|
|
Officer (2) |
|
|
|
|
|
|
Kyle
A. McGraw |
|
Director, Executive Vice President |
|
40% |
|
40% |
|
80% |
|
|
and
Chief Development Officer |
|
|
|
|
|
|
Dan G. LeRoy |
|
Vice President, General Counsel
and |
|
30% |
|
30% |
|
60% |
|
|
Secretary |
|
|
|
|
|
|
____________________
(1) |
Effective March 1,
2015, Mr. Horne was appointed President and Chief Executive Officer of our
general partner. |
|
(2) |
Effective March 1,
2015, Mr. Hammond was appointed Executive Vice President and Chief
Operating Officer of our general partner. |
32
Table of Contents
Objective Component of Cash
Bonus
The objective component (up to
50% of the annual target cash incentive compensation) is based on two measures
of equal weight:
● |
EBITDA (which is defined to mean Adjusted
EBITDA as defined in our 2015 Form 10-K); and |
● |
Growth in cash
distributions per unit. |
The percentage levels that may
be earned each year are based on the ranges of performance levels with respect
to each target as set forth in the following table, as determined by
straight-line interpolation. Our executive officers will not receive a cash
bonus under this objective component unless the Partnership maintains its cash
distribution per unit or achieves EBITDA that is at least 85% of the target
EBITDA for the year.
Performance
Measure |
|
Weight |
|
|
|
Performance Level/Percent
Earned |
|
|
EBITDA |
|
50% |
|
< 85% of Target |
|
85% of Target |
|
100% of Target |
|
115% of Target |
|
|
|
|
0% |
|
50% |
|
100% |
|
150% |
Growth in Cash |
|
50% |
|
< 0% Growth 0% |
|
0% Growth 50% |
|
7.5% Growth |
|
15% Growth |
Distributions Per Unit |
|
|
|
|
|
|
|
100% |
|
150% |
These objective measures are
intended to align the cash incentive compensation of each executive officer with
unitholder return by rewarding performance that maintains or grows distributions
and achieves the EBITDA target. The respective target levels of EBITDA and
growth in cash distributions per unit, respectively, for purposes of the annual
cash bonus determination only, will be set by the compensation committee at the
beginning of each year after considering managements recommendation.
During 2015, the Partnership
achieved EBITDA of $232.4 million, or 88.5% of the $262.6 million target EBITDA,
resulting in a Percentage Earned (pursuant to the table above) of 61.6%
(weighted at 50% or 30.8%) and distribution growth in 2015 was less than 0%
resulting in a Percentage Earned of 0% (weighted at 50% or 0%), resulting in
bonus amounts at 30.8% of the Objective Factor (as set forth in the table
below).
Subjective Cash Award
Each executive officer was
awarded the cash bonuses in the amounts determined by the percentage of target
levels available, as set forth under % of Subjective Factor Earned in the table below, and the potential target level of the subjective
component of cash incentive compensation for 2015 (the Subjective Factor as set forth below). Under the Compensation
Policy, the compensation committee and Board of Directors have the discretion to
award up to 150% of the subjective target cash bonus.
Based on Legacys and the
individual executive officers accomplishments and performances as set forth
above, under the caption 2015 Performance Assessment, the Board, based on the compensation
committees recommendation, set the subjective portion of the cash bonus as
shown in the following table.
The chart below illustrates
the cash incentive award earned during 2015 for each named executive officer in
accordance with the performance level/percentage earned calculation set forth in
the Compensation Policy:
|
|
|
|
|
|
Subjective |
|
|
|
|
|
Objective |
|
|
|
|
Named Executive Officer |
|
2015 Salary |
|
Subjective Factor |
|
%
of Subjective Factor Earned |
|
Bonus Amount |
|
Objective Factor |
|
%
of Objective Factor Earned |
|
Cash Incentive Amount(a) |
|
Total
Cash Incentive |
Paul T. Horne |
|
$550,000 |
|
55% |
|
110% |
|
$332,750 |
|
55% |
|
30.8% |
|
$93,231 |
|
$425,981 |
James Daniel |
|
$380,000 |
|
45% |
|
110% |
|
$188,100 |
|
45% |
|
30.8% |
|
$52,702 |
|
$240,802 |
Westcott |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kyle M. |
|
$380,000 |
|
40% |
|
105% |
|
$159,600 |
|
40% |
|
30.8% |
|
$46,846 |
|
$206,446 |
Hammond |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kyle
A. |
|
$360,000 |
|
40% |
|
95% |
|
$136,800 |
|
40% |
|
30.8% |
|
$44,381 |
|
$181,181 |
McGraw |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dan G. LeRoy |
|
$260,000 |
|
30% |
|
100% |
|
$78,000 |
|
30% |
|
30.8% |
|
$24,040 |
|
$102,040 |
____________________
(a) |
The amounts are
determined by using a weighted earned percentage of 30.8% of the Objective
Factor as determined in accordance with the formula set forth in the
Compensation Policy. See
Cash Incentive Compensation (Cash Bonus)
Objective Component of Cash Bonus above. |
33
Table of Contents
Equity-Based Incentive
Compensation Overview
We provide performance-based
equity-based incentive compensation opportunities to our executive officers as
part of the compensation program because we believe that this element of
compensation ties the interests of our executive officers directly to the
interests of our unitholders. We also believe that equity-based incentive
compensation serves as an important attraction and retention tool.
More specifically, the
equity-based incentive compensation program adopted by the Board of Directors
and compensation committee of our general partner is designed to reward our
named executive officers for their long-term performance by aligning grants of
phantom units with associated DERs with the growth of distributions to
unitholders.
We consider equity-based
incentive compensation to be an important element of our compensation program
for named executive officers. We believe meaningful equity participation by each
named executive officer to be a strong motivating factor that will result in
significant increases in value and in growth. This belief is reflected in the
aggregate awards of phantom units that have been made to named executive
officers that did not already have a significant interest in our units. Our
award structure for long-term equity-based incentives employs a mix of
subjective and objective measures as set forth below.
Equity-Based Incentive
Compensation under the Compensation Policy
Subjective or Service-Based
Component. The subjective or
service-based component is determined by a subjective evaluation of prior fiscal
year performance and, with respect to each executive officer, may be awarded up
to 200% of the specified percentage of annual salary as set forth in the tables
below. Once granted, the only condition to vesting will be that the executive
officer remain in the service of the Partnership until the end of the respective
3-year cliff vesting period. The vesting of service-based equity-based awards
including associated DERs, once granted, is not subject to the attainment of any
performance criteria.
Objective or
Performance-Based Component under the Compensation Policy. The objective component is granted each year at
200% of the targeted percentage listed in the table below, but the amount vested
at the end of the three-year period is determined on the vesting date in
accordance with an objective performance-related formula (as set forth under
Calculation of Vesting of
Objective Component of Equity-Based Compensation under the Compensation
Policy below) based on the
objective average annual total unitholder return and our total unitholder return
compared to the total unitholder returns of a group of our peers as well as the
total unitholder returns of a broader group of MLPs achieved during the
cumulative three-year measurement period prior to the vesting date. If none or
only a portion of phantom units vest as a result of target levels not being met,
the unvested portion of phantom units will be forfeited.
All equity-based incentive
compensation awards are phantom units, with associated DERs, up to 200% of the
specified percentage of annual salary as set forth in the following
table.
|
|
|
|
Target Value of Phantom Units as a Percentage of 2015 Annual
Salary |
Named Executive
Officer |
|
Title |
|
Subjective |
|
Objective |
|
Total |
Paul T. Horne |
|
Director, |
|
195% |
|
130% |
|
325% |
|
|
President and Chief Executive |
|
|
|
|
|
|
|
|
Officer (1) |
|
|
|
|
|
|
James
Daniel Westcott |
|
Executive Vice President and |
|
150% |
|
100% |
|
250% |
|
|
Chief Financial Officer |
|
|
|
|
|
|
Kyle M. Hammond |
|
Executive Vice President and |
|
120% |
|
80% |
|
200% |
|
|
Chief Operating Officer (2) |
|
|
|
|
|
|
Kyle
A. McGraw |
|
Director, Executive Vice |
|
105% |
|
70% |
|
175% |
|
|
President and Chief |
|
|
|
|
|
|
Dan G.
LeRoy |
|
Development
Officer |
|
48% |
|
32% |
|
80% |
|
|
Vice
President, General |
|
|
|
|
|
|
|
|
Counsel and
Secretary |
|
|
|
|
|
|
____________________
(1) |
Effective March 1,
2015, Mr. Horne was appointed President and Chief Executive Officer of our
general partner. |
|
(2) |
Effective March 1,
2015, Mr. Hammond was appointed Executive Vice President and Chief
Operating Officer of our general partner. |
34
Table of Contents
A phantom unit is a notional
unit that entitles the holder upon vesting to receive the same number of
Partnership units. Under the Compensation Policy, the number of phantom units
granted was determined by dividing the dollar amount of the intended grant value
by the average closing price of Partnership units over the 20 trading days ended
the last trading day prior to January 1st in the year of the grant. All phantom
unit grants cliff vest on the third anniversary of the initial grant date or
such date as determined by the compensation committee.
Calculation of Vesting
of Objective Component of Equity-Based Compensation under the Compensation
Policy
The objective-based phantom
units granted at 200% of the target level each year are subject to a three-year
measurement and vesting period. At the three-year vesting date of the objective
or performance-based component of equity-based compensation, the number of
phantom units to vest is determined based on the following three-step process,
with the total vested amount to be determined by adding the values arrived at in
Step 1 and Step 2.
Step 1: 50% of the performance-based award will be a
function of the average annual Total Unitholder Return for the Partnership
(Legacy
TUR) and the percentile rank
of the Legacy TUR among the Total Unitholder Return (TUR) for such upstream master limited partnership (MLP) peer companies as determined by the compensation committee (such peer
companies, the Peer
Group). The average annual
Legacy TUR or the average annual TUR for any entity in the Peer Group for any
performance period means the percentage increase in the value of a $100
investment in a unit or common unit purchased at the average closing price of
such a unit or common unit over the 20 trading days prior to January 1 of the
year with respect to which the grant is made, assuming such investment is
liquidated on the January 1 immediately prior to the vesting date, at a price
that is the average price of the unit or common unit over the 20 trading days
prior to such liquidation, plus any cash distributions paid in the three-year
period from the grant date to the vesting date. The following matrix will be
used to determine the Legacy TUR
vs. Peer Group TUR portion of the
award. The total value to vest is the sum of the results derived from each of
the two grids shown below.
|
> =
90th
%ile |
0% |
125% |
150% |
175% |
200% |
75th
%ile |
0% |
100% |
125% |
150% |
175% |
50th
%ile |
0% |
75% |
100% |
125% |
150% |
25th
%ile |
0% |
50% |
75% |
100% |
125% |
< =
10th %ile
|
0% |
25% |
50% |
75% |
100% |
|
<
=0% |
8% |
12% |
20% |
> = 25%
|
|
Average Annual Legacy
TUR |
____________________
* |
For the 2015
performance period, the Peer Group consisted of Atlas Resource Partners,
L.P.; Breitburn Energy Partners L.P.; EV Energy Partners, L.P.; Linn
Energy, LLC; Memorial Production Partners LP; Mid-Con Energy Partners, LP;
and Vanguard Natural Resources, LLC. If any company in the Peer Group
ceases to be publicly traded during any performance period, the
compensation committee will adjust the composition of the Peer Group as it
deems appropriate. |
|
To determine the
performance-based awards earned for this Legacy TUR vs. Peer Group
component, the percentage determined in accordance with the performance grid
(using straight-line interpolation between the percentages given above) is
multiplied by 50% and multiplied by the target number of phantom units available
for vesting.
35
Table of Contents
Step 2: 50% of the performance-based award will be a
function of the Legacy TUR and the percentile rank of the Partnership among a
group of MLPs included in the Alerian MLP Index (such group of MLPs as
determined by the compensation committee, excluding publicly traded general
partners of MLPs and shipping companies) (the Adjusted Alerian Index) based on such entities average annual TUR. The
following matrix will be used to determine the Legacy TUR vs. Adjusted Alerian
Index portion of the
award.
|
> =
90th
%ile |
0% |
125% |
150% |
175% |
200% |
75th
%ile |
0% |
100% |
125% |
150% |
175% |
50th
%ile |
0% |
75% |
100% |
125% |
150% |
25th
%ile |
0% |
50% |
75% |
100% |
125% |
< =
10th %ile
|
0% |
25% |
50% |
75% |
100% |
|
<
=0% |
8% |
12% |
20% |
> = 25%
|
|
Average Annual Legacy
TUR
|
____________________
** |
Adjusted Alerian Index means a subset of companies included in
the Alerian MLP Index as determined by the compensation committee and
excludes publicly traded general partners of MLPs and shipping companies,
as of the beginning of each fiscal year. The calculation of the Adjusted
Alerian Index along with calculation of percentile results and the Legacy
TUR percentile ranking is subject to third-party
review. |
To determine the
performance-based awards earned on this Legacy TUR vs. Adjusted Alerian Index component, the percentage earned in accordance
with the above matrix (using straight-line interpolation between the percentages
set forth in the matrix) is multiplied by 50% and multiplied by the target
number of phantom units available for vesting.
Step 3: The respective award values arrived at by
performing the calculations set forth in Step 1 and Step 2 above will be added
to determine the total vested portion of the performance-based equity award with
respect to a particular three-year performance period.
2016 Phantom Unit Grants
under the Compensation Policy
As discussed above under
2015 Performance Assessment for
Determination of Incentive Compensation under the Compensation
Policy, the subjective and
objective components of our equity-based incentive compensation are still under
consideration by the compensation committee, and therefore have not yet been
determined.
2015 Phantom Unit Grants
under the Compensation Policy
On February 10, 2015, in
accordance with the Compensation Policy, the compensation committee approved the
following phantom unit awards and associated DERs for Mr. C. Brown, and, with
respect to the remaining named executive officers, recommended the following
phantom unit awards and associated DERs to the Board and the Board, on February
24, 2015, approved such awards:
|
|
2015 Phantom Unit Grants
(and associated DERs) |
|
|
|
|
Subjective
Grant (Based on 2014 Performance) |
|
Objective
Performance- Based Grant |
Named
Executive Officer |
|
2014
Salary |
|
Subjective Factor(a) |
|
Subjective Award |
|
Phantom Units(b) |
|
Objective Factor(a) |
|
Maximum Phantom Units(c) |
Cary D. Brown |
|
$550,000 |
|
195 |
% |
|
175 |
% |
|
143,822 |
|
130 |
% |
|
109,578 |
James Daniel Westcott |
|
$350,000 |
|
120 |
% |
|
175 |
% |
|
56,322 |
|
80 |
% |
|
42,912 |
Paul T. Horne |
|
$380,000 |
|
120 |
% |
|
175 |
% |
|
61,149 |
|
80 |
% |
|
46,590 |
Kyle
A. McGraw |
|
$360,000 |
|
105 |
% |
|
175 |
% |
|
50,690 |
|
70 |
% |
|
38,620 |
Dan G. LeRoy |
|
$260,000 |
|
45 |
% |
|
175 |
% |
|
15,690 |
|
30 |
% |
|
11,954 |
____________________
(a) Represents percentage of
2014 salary effective March 1, 2014.
(b) |
Based on the 20-day
average closing price of Partnership units prior to January 1, 2015, or
$13.05. Subjective grant phantom units vest on February 18, 2018. These
phantom units are service-based and are not subject to any performance
criteria. |
|
(c) |
Based on the 20-day
average closing price of Partnership units prior to January 1, 2015, or
$13.05. Represents maximum number of phantom units available to vest on
February 18, 2018, pending attainment of specified performance criteria.
Unvested phantom units and associated DERs will be
forfeited. |
36
Table of Contents
2016 Adjustments to the
Compensation Policy
No changes have been made to
the Compensation Policy for 2016. However, the Compensation Policy remains
subject to change by the compensation committee, and may later change to account
for the fact that the Partnership has suspended distributions to its
unitholders.
2016 Objective Phantom
Unit Vesting
In accordance with the
calculation of the objective component of equity compensation as set forth in
the 2010 Compensation Policy and calculated as described below in
Objective Equity-Based Incentive
Compensation under the 2010 Compensation Policy and Calculation of Vesting of Objective Component of Equity-Based
Compensation under the 2010 Compensation Policy, the third tranche of phantom units granted to
each executive officer on March 7, 2013 vested on February 18, 2016 in the
amounts set forth below. No phantom units granted under the equity-based
incentive compensation portion of the Compensation Policy will vest in 2016 as
such grants are subject to a three-year cliff vesting and measurement period.
The Performance Factor is
determined based on the Partnerships performance during 2015 as measured by the
Partnerships TUR, the Partnerships TUR compared to the TUR of an index of
other MLPs, and the Partnerships TUR ranking among its peer group.
|
|
Objective
Grant |
|
|
Maximum |
|
|
|
|
|
|
|
Phantom Units |
|
|
|
|
|
|
|
Subject to |
|
Performance |
|
|
Executive Officer |
|
|
Vesting(1) |
|
Factor(2) |
|
Phantom Units Vested |
Cary D.
Brown |
|
10,523 |
|
7.50 |
% |
|
789 |
James Daniel Westcott |
|
3,508 |
|
7.50 |
% |
|
263 |
Paul T.
Horne |
|
4,464 |
|
7.50 |
% |
|
335 |
Kyle A. McGraw |
|
4,464 |
|
7.50 |
% |
|
335 |
Dan G.
LeRoy |
|
1,467 |
|
7.50 |
% |
|
110 |
____________________
(1) |
Represents one-third
of the total phantom units granted to each executive officer on March 7,
2013 pursuant to the objective component of the 2010 Compensation Policy.
No phantom units granted pursuant to the Compensation Policy were eligible
for vesting in 2015. |
|
(2) |
Based on the
Partnerships TUR for 2015 of (77%), Legacy ranks fourth among its Peer
Group (as defined in the 2010 Compensation Policy) in TUR and in the 0
percentile rank among the Adjusted Alerian MLP Index (as defined in the
2010 Compensation Policy) in TUR. |
Objective Equity-Based
Incentive Compensation under the 2010 Compensation Policy
Objective or
Performance-Based Component under the 2010 Compensation Policy. The objective component was granted each year at
the maximum percentage amount listed in the table below, but is subject to 1/3
vesting each year in accordance with an objective performance-related formula
(as set forth under Calculation
of Vesting of Objective Component of Equity-Based Compensation under the 2010
Compensation Policy below) based
on our absolute total unitholder return each year and our total unitholder
return each year compared to the total unitholder returns of a group of our
peers as well as the total unitholder returns of a broader group of MLPs. If
none or only a portion of phantom units vest as a result of target levels not
being met, the unvested portion of phantom units will be forfeited.
All equity-based incentive
compensation awards are phantom units, with associated DERs, up to the specified
percentage of annual salary as set forth in the following table.
37
Table of Contents
|
|
|
|
Maximum Value of Phantom Units
as |
|
|
|
|
a Percentage of 2012
Annual Salary |
Named Executive
Officer |
|
Title |
|
Subjective |
|
Objective |
|
Total |
Cary D. Brown |
|
Chairman of the Board, |
|
110% |
|
165% |
|
275% |
|
|
President and Chief Executive |
|
|
|
|
|
|
|
|
Officer |
|
|
|
|
|
|
James
Daniel Westcott |
|
Executive Vice President and |
|
60% |
|
90% |
|
150% |
|
|
Chief Financial Officer |
|
|
|
|
|
|
Paul T. Horne |
|
Executive Vice President and |
|
70% |
|
105% |
|
175% |
|
|
Chief Operating Officer |
|
|
|
|
|
|
Kyle
A. McGraw |
|
Director, Executive Vice |
|
70% |
|
105% |
|
175% |
|
|
President and Chief |
|
|
|
|
|
|
|
|
Development Officer |
|
|
|
|
|
|
Dan G. LeRoy |
|
Vice President, General |
|
30% |
|
45% |
|
75% |
|
|
Counsel and Secretary |
|
|
|
|
|
|
Under the 2010 Compensation
Policy, the number of phantom units granted was determined by dividing the
dollar amount of the intended grant value by the average closing price of
Partnership units over the 20 trading days preceding the date of grant in the
case of the subjective unit grant. In the case of the objective unit grant, the
average closing price of Partnership units was calculated for the 20 trading day
period ended the last trading day prior to January 1st in the year of the grant.
All phantom unit grants vest in three equal tranches over a three-year period,
with each tranche to vest on or about the first, second and third anniversary of
the initial grant date or such date as determined by the compensation
committee.
Under the 2010 Compensation
Policy, with respect to the objective component only, the actual number vested
will be determined based on the three-step formula set forth below.
With respect to all phantom
unit grants, DERs accumulate and accrue based on the assumed 100% vesting. With
respect to the objective component only, the actual amounts payable are based
solely on the number of vested underlying phantom units.
Calculation of Vesting
of Objective Component of Equity-Based Compensation under the 2010 Compensation
Policy
At the vesting date of each
one-third tranche of the objective or performance-based component of
equity-based compensation, the number of phantom units to vest each year is
determined based on the following three-step process, with the total vested
amount for each year to be determined by adding the values arrived at in Step 1
and Step 2.
Step 1: 50% of the performance-based award will be a
function of the Total Unitholder Return for the Partnership (Legacy TUR) and the ordinal rank of the Legacy TUR among
such upstream master limited partnership (MLP) peer companies as determined by the compensation committee at the
beginning of each fiscal year (Peer Group). The
Legacy TUR or the Total Unitholder Return for any entity in the Peer Group for
any performance period means the percentage increase in the value of a $100
investment in a unit or common unit purchased at the average closing price of
such a unit or common unit over the 20 trading days prior to January 1 of the
fiscal year prior to the applicable vesting date, assuming distributions are
reinvested in additional fractional units or common units on the date they are
declared based on the closing price of units or common units on the date of such
reinvestment, and assuming such investment is liquidated on January 1 of the
fiscal year of the applicable vesting date, at a price that is the average price
of the unit or common unit over the 20 trading days prior to the liquidation.
The following matrix will be used to determine the Legacy TUR vs. Peer Group
portion of the award. The total grant value to vest each year is the sum of the
results derived from each of the two grids shown below.
|
1st or
2nd |
25% |
40% |
60% |
75% |
85% |
100% |
3rd or
4th |
15% |
35% |
50% |
60% |
75% |
85% |
5th or
6th |
0% |
15% |
35% |
50% |
60% |
75% |
7th or
8th
|
0% |
0% |
15% |
25% |
40% |
50% |
|
|
|
|
|
|
|
|
|
|
<
8.0% |
8.0% |
12.0% |
15.0% |
17.5% |
20%+
|
|
|
Legacy TUR |
____________________
* |
For the 2015
performance period, the Peer Group consisted of Atlas Resource Partners,
L.P.; Breitburn Energy Partners L.P.; EV Energy Partners, L.P.; Linn
Energy, LLC; Memorial Production Partners LP; Mid-Con Energy Partners, LP
and Vanguard Natural Resources, LLC. If any company in the Peer Group
ceases to be publicly traded during any performance period, the
compensation committee will adjust the composition of the Peer Group as it
deems appropriate. |
38
Table of Contents
To determine the
performance-based awards earned for this Legacy TUR vs. Peer Group component,
the percentage determined in accordance with the performance grid (using
straight-line interpolation between the percentages given above) is multiplied
by 50% and multiplied by the maximum number of phantom units available for
vesting that particular year.
Step 2: 50% of the performance-based award will be a
function of the Legacy TUR and the percentile rank of the Partnership among a
group of MLPs included in Adjusted Alerian Index. The following matrix will be
used to determine the Legacy TUR vs. Adjusted Alerian Index portion of the
award.
|
90th
%ile |
30% |
50% |
60% |
75% |
85% |
100% |
75th
%ile |
15% |
40% |
50% |
60% |
75% |
85% |
50th
%ile |
0% |
25% |
40% |
50% |
60% |
75% |
25th
%ile |
0% |
15% |
25% |
40% |
50% |
60% |
<25th
%ile |
0% |
0% |
0% |
15% |
30% |
50% |
|
|
|
|
|
|
|
|
|
|
<
8.0% |
8.0% |
12.0% |
15.0% |
17.5% |
20%+
|
|
|
Legacy
TUR |
____________________
** |
Adjusted Alerian
Index means a subset of companies included in the Alerian MLP Index as
determined by the compensation committee and excludes publicly traded
general partners of MLPs and shipping companies, as of the beginning of
each fiscal year. The calculation of the Adjusted Alerian Index along with
calculation of percentile results and the Legacy TUR percentile ranking is
subject to third-party review. |
To determine the
performance-based awards earned on this Legacy TUR vs. Adjusted Alerian Index
component, the percentage earned in accordance with the above matrix (using
straight-line interpolation between the percentages set forth in the matrix) is
multiplied by 50% and multiplied by the maximum number of phantom units
available for vesting that particular year.
Step 3: The respective award values arrived at by
performing the calculations set forth in Step 1 and Step 2 above will be added
to determine the total vested portion of the performance-based equity award with
respect to a particular fiscal year.
Amended and Restated Legacy
Reserves LP Long-Term Incentive Plan (LTIP)
Long-term incentive
compensation awards are administered through our LTIP adopted in March 2006 and
amended and restated on August 17, 2007, and, by a vote the unitholders at the
2015 Annual Meeting, amended on June 12, 2015. The plan is administered by the
compensation committee and permits the grant of awards resulting in the issuance
of an aggregate of 5,000,000 units (of which 2,692,895 remain available for
grant, as of March 1, 2016). Employees, consultants and directors of our general
partner and its affiliates who perform services for us are eligible to receive
awards under the LTIP (Eligible Persons).
As of March 1, 2016, grants of
awards that could result in the issuance of units, net of forfeitures, covering
2,188,111 units have been made, including 904,551 restricted units, 266,014 unit
options, 821,018 phantom units and 196,528 units primarily issued to directors.
We selected these types of awards because of the expectation by most of our
employees as well as our directors that part of their compensation would be
derived from the growth in value of Partnership units.
39
Table of Contents
Our Board of Directors, or its
compensation committee, in its discretion may terminate, suspend or discontinue
the LTIP at any time with respect to any award that has not yet been granted.
Our Board of Directors, or its compensation committee, also has the right to
alter or amend the LTIP or any part of the plan from time to time, including
increasing the number of units that may be granted, subject to unitholder
approval as required by the exchange upon which the units are listed at that
time. However, no change in any outstanding grant may be made that would
materially impair the rights of the participant without the consent of the
participant.
Unit Grants
The LTIP permits the grant of
units. A unit grant is a grant of units that vests immediately upon issuance. In
2014 and 2015, the only unit grants were made to non-employee directors.
Restricted Units and
Phantom Units
A restricted unit is a unit
that is subject to forfeiture prior to the vesting of the award. A phantom unit
is a notional unit that entitles the grantee to receive a unit or, in the
discretion of our Board of Directors or its compensation committee, cash equal
to market value of a unit upon the vesting of the phantom unit. The compensation
committee may make grants under the LTIP of restricted units and phantom units
to employees, consultants and directors containing such terms, consistent with
the LTIP, as the compensation committee shall determine. The compensation
committee will determine the period over which the restricted units and phantom
units granted to employees, consultants and directors will vest. The
compensation committee may base vesting upon the achievement of specified
financial objectives or on the grantees completion of a period of service. In
addition, the restricted units and phantom units will vest upon a change of
control of the Partnership or our general partner, unless provided otherwise by
the compensation committee in the award agreement. All restricted unit and
phantom unit grants to our executive officers and employees provide for at least
one year vesting periods with some providing for three and five year vesting.
All 2015 phantom unit grants to executive officers have three year vesting.
If the grantees employment,
service relationship or membership on the Board of Directors terminates for any
reason, the grantees unvested restricted units and phantom units will be
automatically forfeited unless, and to the extent, the compensation committee
provides otherwise in the award agreement or waives (in whole or in part) any
such forfeiture. Units to be delivered in connection with the grant of
restricted units or upon the vesting of phantom units settled in units may be
units acquired by us on the open market, or from any other person, or we may
issue new units, or any combination of the foregoing. Our general partner is
entitled to reimbursement by us for the cost it incurs in acquiring units. Thus,
the cost of the restricted units and the delivery of units upon the vesting of
phantom units will be borne by us. If we issue new units in connection with the
grant of restricted units or upon vesting of the phantom units settled in units,
the total number of units outstanding will increase. The compensation committee,
in its discretion, may provide for tandem distribution rights with respect to
restricted units and grant tandem DERs with respect to phantom units that
entitle the holder to receive cash equal to any cash distributions made on
units prior to the vesting of a restricted or phantom
unit. On phantom units, any such cash distributions will accumulate and accrue
based on the assumed 100% vesting of any such phantom units but will not be
payable until such vesting occurs. The actual amounts payable pursuant to such
tandem DERs will be based solely on the number of underlying restricted or
phantom units that actually vest. Holders of unvested restricted units are
entitled to receive cash payments equal to any cash distribution payable at the
time any cash distribution is paid to unitholders regardless of whether vesting
has occurred.
Unit Options and Unit
Appreciation Rights (UARs)
The LTIP permits the grant of
options covering units and the grant of unit appreciation rights. A unit
appreciation right is an award that, upon exercise, entitles the participant to
receive the excess of the fair market value of a unit on the exercise date over
the exercise price established for the unit appreciation right. Such excess may
be paid in units, cash, or a combination thereof, as determined by the
compensation committee in its discretion. The compensation committee will be
able to make grants of unit options and unit appreciation rights under the plan
to employees, consultants and directors containing such terms as the committee
shall determine consistent with the plan. Unit options and unit appreciation
rights may not have an exercise price that is less than the fair market value of
the units on the date of grant. In general, unit options and unit appreciation
rights granted will become exercisable over a period determined by the
compensation committee. In addition, the unit options and unit appreciation
rights will become exercisable upon a change in control of the Partnership or
our general partner, unless provided
otherwise by the committee in the award agreement. The compensation committee,
in its discretion may grant tandem DERs with respect to unit options and unit
appreciation rights.
40
Table of Contents
Upon exercise of a unit option
(or a unit appreciation right settled in units), we will acquire units on the
open market or from any other person or we may issue new units, or any
combination of the foregoing. If we issue new units upon exercise of the unit
options (or a unit appreciation right settled in units), the total number of
units outstanding will increase, and we will receive the proceeds from an
optionees exercise of a unit option. The availability of unit options and unit
appreciation rights is intended to furnish additional compensation to employees,
consultants and directors and to align their economic interests with those of
unitholders.
Currently, we only settle UARs
in cash and not in units and therefore such UARs are not taken into
consideration in calculating the number of units available for issuance under
the LTIP.
Unit Option Practices
Although our LTIP permits us
to award options under a variety of circumstances, we have not granted unit
options since early 2007 and do not anticipate granting any further unit
options. We have not back-dated any option awards. The option grants we have
made to date had an exercise price that corresponded with the offering price to
purchasers of our units in a private offering we conducted in March 2006, the
price at which our units traded on the Portal Market, the price to the public of
our units in our January 2007 initial public offering, or the market value of
our units at the close of trading on the date of the grant. Any option grants we
may make in the future will have an exercise price equal to the market value of
our units at the close of trading on the date of the grant. We have chosen to
replace the use of unit options in the future with unit appreciation rights to
reduce the administrative costs associated with unit options.
Perquisites and Other
Personal Benefits
We maintain a 401(k) plan. The
plan permits eligible full-time employees, including named executive officers,
to make voluntary, pre-tax contributions to the plan up to a specified
percentage of compensation, subject to applicable tax limitations. We may make a
discretionary matching contribution to the plan for each eligible employee equal
to 8.0% (6.0% prior to January 1, 2015) of an employees annual compensation not
in excess of $255,000 for 2013, $260,000 for 2014 and $265,000 for 2015, subject
to applicable tax limitations. Eligible employees who elect to participate in
the plan are generally vested in any matching contribution after commencement of
employment with the company. The plan is intended to be qualified under Section
401(a) of the Internal Revenue Code so that contributions to the plan, and
income earned on plan contributions, are not taxable to employees until
withdrawn from the plan, and so that contributions, if any, will be deductible
when made.
We maintain an employee
benefit plan that provides our employees with the opportunity to enroll in our
health, dental and life insurance plans. We pay all of our employees health and
life insurance premiums. Our dental plan requires the employee to pay a portion
of the premium, and we pay the remainder. We provide these benefits so that we
will remain competitive in the employment market and offer the benefits to all
employees on the same basis.
Unit Ownership Guidelines
On November 19, 2013, the
nominating, governance and conflicts committee recommended and the Board of
Directors approved a policy of unit ownership by executive officers and
directors. Target ownership, which is based on market values, is in excess of
the following thresholds: 5 times annual cash retainers for directors, 6 times
base salary for the Chief Executive Officer, and 3 times base salary for all
other executive officers. To accumulate this target ownership, executive
officers and directors are not required to purchase units in the open market,
but are generally required to retain at least 50% of each vesting of units or
grant of unrestricted units, net of reductions for taxes due, until such target
ownership is achieved. Notwithstanding the severe decline in our unit price that has rendered certain executive officers and directors unit ownership below the policys thresholds,
as of March 18, 2016, all executive officers and directors are in compliance with this policy.
As of December 31, 2015, our
named executive officers as a group beneficially owned 1,461,972 units. Our
named executive officers beneficially own approximately 2.1% of our 69,512,781
issued and outstanding units.
41
Table of Contents
COMPENSATION COMMITTEE
REPORT
The compensation committee of
the board of directors of Legacy Reserves GP, LLC held three meetings during
fiscal year 2015. The compensation committee has reviewed and discussed the
Compensation Discussion and Analysis with management. Based upon such review,
the related discussions and such other matters deemed relevant and appropriate
by the compensation committee, the compensation committee has recommended to the
board of directors of Legacy Reserves GP, LLC that the Compensation Discussion
and Analysis be included in this proxy statement.
Members of the compensation
committee of the board of directors of Legacy Reserves GP, LLC:
Kyle D. Vann
(Chairman)
William R. Granberry
William D. Sullivan
42
Table of Contents
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth
the aggregate compensation awarded to, earned by or paid to our named executive
officers for the fiscal year ended December 31, 2015, 2014, and 2013.
|
|
|
|
|
|
|
|
|
|
Option |
|
All Other |
|
|
Name and Principal |
|
|
|
Salary |
|
Bonus |
|
Unit Awards |
|
Awards |
|
Compensation |
|
Total |
Position |
|
Year |
|
($)(a) |
|
($) |
|
($)(b) |
|
($) |
|
($) |
|
($) |
Cary D. Brown (i) |
|
2015 |
|
$91,667 |
|
|
|
$2,560,756 |
|
$ |
|
|
$491,372 |
(c) |
|
$3,143,795 |
Chairman of the
Board, |
|
2014 |
|
$540,000 |
|
$595,683 |
|
$2,119,875 |
|
$ |
|
|
$167,260 |
(c) |
|
$3,422,818 |
President and
Chief |
|
2013 |
|
$483,333 |
|
$544,740 |
|
$804,765 |
|
$ |
|
|
$77,511 |
(c) |
|
$1,910,349 |
Executive
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
T. Horne (j) |
|
2015 |
|
$521,667 |
|
$425,981 |
|
$1,088,764 |
|
$ |
|
|
$45,249 |
(d) |
|
$2,081,660 |
Director, President
and |
|
2014 |
|
$375,000 |
|
$284,118 |
|
$913,791 |
|
$ |
|
|
$79,032 |
(d) |
|
$1,651,941 |
Chief Executive
Officer |
|
2013 |
|
$341,667 |
|
$261,982 |
|
$341,415 |
|
$ |
|
|
$42,840 |
(d) |
|
$987,904 |
James Daniel Westcott |
|
2015 |
|
$375,000 |
|
$240,802 |
|
$1,002,817 |
|
$ |
|
|
$124,860 |
(e) |
|
$1,743,479 |
Executive Vice
President |
|
2014 |
|
$341,667 |
|
$275,688 |
|
$861,208 |
|
$ |
|
|
$201,416 |
(e) |
|
$1,679,979 |
and Chief
Financial |
|
2013 |
|
$295,833 |
|
$284,556 |
|
$268,248 |
|
$ |
|
|
$198,315 |
(e) |
|
$1,046,952 |
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kyle
A. McGraw |
|
2015 |
|
$360,000 |
|
$181,181 |
|
$902,533 |
|
$ |
|
|
$42,790 |
(f) |
|
$1,486,504 |
Director, Executive
Vice |
|
2014 |
|
$358,333 |
|
$276,365 |
|
$877,395 |
|
$ |
|
|
$68,523 |
(f) |
|
$1,580,616 |
President and
Chief |
|
2013 |
|
$341,667 |
|
$240,982 |
|
$341,415 |
|
$ |
|
|
$36,843 |
(f) |
|
$960,907 |
Development |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kyle M. Hammond (k) |
|
2015 |
|
$316,667 |
|
$206,446 |
|
$1,186,900 |
|
$ |
|
|
$128,200 |
(g) |
|
$1,838,213 |
Executive Vice
President |
|
2014 |
|
$ |
|
$ |
|
$ |
|
$ |
|
|
$ |
|
|
$ |
and Chief Operating
Officer |
|
2013 |
|
$ |
|
$ |
|
$ |
|
$ |
|
|
$ |
|
|
$ |
Dan
G. LeRoy |
|
2015 |
|
$260,000 |
|
$102,040 |
|
$279,360 |
|
$ |
|
|
$34,182 |
(h) |
|
$675,582 |
Vice
President, General |
|
2014 |
|
$258,333 |
|
$121,498 |
|
$268,572 |
|
$ |
|
|
$36,278 |
(h) |
|
$684,681 |
Counsel and
Secretary |
|
2013 |
|
$246,667 |
|
$88,565 |
|
$112,181 |
|
$ |
|
|
$36,070 |
(h) |
|
$483,483 |
____________________
(a) |
For Messrs. C. Brown,
Horne, Westcott, McGraw and LeRoy, annual salary increases (where
applicable) for 2015, 2014 and 2013 became effective on March 1, 2015,
March 1, 2014 and March 1, 2013, respectively. The 2015 salary for Mr.
Hammond became effective on his first day of employment, which was March
1, 2015. |
|
(b) |
Phantom units were
granted to officers on February 24, 2015, March 3, 2014 and March 7, 2013.
The amount shown reflects the grant date fair value of these awards based
upon the Financial Accounting Standards boards authoritative guidance
relating to stock compensation. The assumptions used in calculating these
amounts are incorporated by reference to Note 13 Unit Based Compensation to the financial statements in our annual
report on Form 10-K filed with the SEC on February 26, 2016. In the prior
years Summary Compensation Table, based on then prevailing rules, the
value of these awards reflected the grant date fair value of the amounts
expensed each year, for financial reporting purposes. On December 16,
2009, the SEC adopted a final rule that requires reporting all stock and
option awards granted during the fiscal year at the full grant date fair
value. The value for each of the three years in this Summary Compensation
Table reflects the full grant date fair value. Assuming all performance
and service conditions are met at the maximum possible level, the grant
date fair value of the unit awards granted in 2015 pursuant to the
Compensation Policy for each named executive officer is as follows: Mr. C.
Brown: $2,560,756; Mr. Horne: $1,088,764; Mr. Westcott: $1,002,817; Mr.
McGraw: $902,533; and Mr. LeRoy: $279,360. This table also reflects the
grant date fair values of 130,000 restricted units granted to Mr. Hammond
on June 15, 2015 in connection with the hiring of Mr.
Hammond. |
43
Table of Contents
(c) |
Reflects for 2015:
Pertaining to compensation received as President and CEO, $18,000 of
401(k) employer matching contributions, $57,999 of unit distributions
received by Mr. C. Brown on his phantom units, and pertaining to
compensation received pursuant to the Chairman Agreement (as defined
below), $299,667 of cash fees, $100,000 of unit awards and $15,706 of
reimbursement for expenses incurred by Mr. C. Brown for the continuation
of health care coverage under Legacys group health plan under the health
care provisions of the Consolidated Omnibus Budget Reconciliation Act
(COBRA). Reflects for 2014: $15,600 of 401(k) employer matching
contributions and $151,600 of unit distributions received by Mr. C. Brown
on his phantom units. Reflects for 2013: $15,300 of 401(k) employer
matching contributions and $62,211 of unit distributions received by Mr.
C. Brown on his vested phantom units. |
|
(d) |
Reflects for 2015:
$21,200 of 401(k) employer matching contributions and $24,049 of unit
distributions received by Mr. Horne on his phantom units. Reflects for
2014: $15,600 of 401(k) employer matching contributions and $63,432 of
unit distributions received by Mr. Horne on his phantom units. Reflects
for 2013: $15,300 of 401(k) employer matching contributions and $27,540 of
unit distributions received by Mr. Horne on his vested phantom
units. |
|
(e) |
Reflects for 2015:
$17,995 of 401(k) employer matching contributions, $10,095 of unit
distributions received by Mr. Westcott on his phantom units and $96,770 of
unit distributions received by Mr. Westcott on his unvested restricted
units. Reflects for 2014: $15,600 of 401(k) employer matching
contributions, $12,116 of unit distributions received by Mr. Westcott on
his phantom units and $173,700 of unit distributions received by Mr.
Westcott on his unvested restricted units. Reflects for 2013: $15,300 of
401(k) employer matching contributions and $183,015 of unit distributions
received by Mr. Westcott on his unvested restricted units. |
|
(f) |
Reflects for 2015:
$21,200 of 401(k) employer matching contributions and $21,590 of unit
distributions received by Mr. McGraw on his phantom units. Reflects for
2014: $15,600 of 401(k) employer matching contributions and $52,923 of
unit distributions received by Mr. McGraw on his phantom units. Reflects
for 2013: $15,300 of 401(k) employer matching contributions and $21,543 of
unit distributions received by Mr. McGraw on his vested phantom
units. |
|
(g) |
Reflects for 2015:
$17,700 of 401(k) employer matching contributions and $110,500 of unit
distributions received by Mr. Hammond on his on his unvested restricted
units. |
|
(h) |
Reflects for 2015:
$21,200 of 401(k) employer matching contributions, $4,222 of unit
distributions received by Mr. LeRoy on his phantom units and $8,760 of
unit distributions received by Mr. LeRoy on his unvested restricted units.
Reflects for 2014: $15,600 of 401(k) employer matching contributions,
$5,068 of unit distributions received by Mr. LeRoy on his phantom units
and $15,610 of unit distributions received by Mr. LeRoy on his unvested
restricted units. Reflects for 2013: $15,300 of 401(k) employer matching
contributions and $20,770 of unit distributions received by Mr. LeRoy on
his unvested restricted units. |
|
(i) |
Mr. C. Brown resigned
as President and Chief Executive Officer, effective March 1,
2015. |
|
(j) |
Mr. Horne was
appointed as President and Chief Executive Officer effective as of March
1, 2015. |
|
(k) |
Mr. Hammond was
appointed as Executive Vice President and Chief Operating Officer
effective as of March 1, 2015. |
44
Table of Contents
Grants of Plan-Based Awards
for Fiscal Year 2015
The following table sets forth
the payments that may be made under the Compensation Policy in our LTIP.
|
|
Grant Date(a) |
|
Date
Action Taken(b) |
|
Estimated
Future Payouts Under Equity Incentive Plan Awards (in
Units) |
|
All
Other Unit Awards: Number of Units(c)(d) |
|
All
Other Option Awards: Number
of Securities Underlying Options |
|
Exercise
or Base Price of Option Awards ($/Unit) |
|
Grant
Date Fair Value of Unit and Option Awards |
Name |
|
|
|
Threshold |
|
Target |
|
Maximum |
|
|
|
|
Cary D. Brown |
|
2/24/15 |
|
2/24/15 |
|
|
|
54,789 |
|
109,578 |
|
143,822 |
|
$ |
|
|
$ |
|
|
$ |
2,560,756 |
Paul
T. Horne |
|
2/24/15 |
|
2/24/15 |
|
|
|
23,295 |
|
46,590 |
|
61,149 |
|
$ |
|
|
$ |
|
|
$ |
1,088,764 |
James Daniel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Westcott |
|
2/24/15 |
|
2/24/15 |
|
|
|
21,456 |
|
42,912 |
|
56,322 |
|
$ |
|
|
$ |
|
|
$ |
1,002,817 |
Kyle
A. McGraw |
|
2/24/15 |
|
2/24/15 |
|
|
|
19,310 |
|
38,620 |
|
50,690 |
|
$ |
|
|
$ |
|
|
$ |
902,533 |
Kyle M. Hammond |
|
6/15/15 |
|
6/15/15 |
|
|
|
|
|
|
|
130,000 |
|
$ |
|
|
$ |
|
|
$ |
1,186,900 |
Dan
G. LeRoy |
|
2/24/15 |
|
2/24/15 |
|
|
|
5,977 |
|
11,954 |
|
15,690 |
|
$ |
|
|
$ |
|
|
$ |
279,360 |
____________________
(a) |
Reflects grants made
in fiscal year 2015. |
|
(b) |
Reflects the date on
which the compensation committee or Board of Directors was deemed to take
action in making a grant of phantom, restricted or other
units. |
|
(c) |
Phantom units for
Messrs. C. Brown, Horne, Westcott, McGraw and LeRoy vest on the third
anniversary of their respective grant dates or other such date as
determined by the compensation committee, and are payable in units. For
2015, the numbers granted reflect the subjective portion under the
Compensation Policy. |
|
(d) |
Restricted units for
Mr. Hammond vest as follows: 30,000 vest equally over three years on the
anniversary date of the grant and 100,000 vest in full on the fifth
anniversary date of the grant. |
Outstanding Equity Awards
at 2015 Fiscal Year-End
The following table reflects
all of the outstanding equity awards held by our named executive officers as of
December 31, 2015.
|
Equity Incentive Plan
Awards |
|
Number of
Unearned |
|
Market Value
of |
|
Units That Have
Not |
|
Unearned Units
That |
|
Vested |
|
Have Not
Vested |
Name |
(#)(a)(b) |
|
($)(c) |
Cary
D. Brown |
358,791 |
|
$627,884 |
Paul T. Horne |
153,090 |
|
$267,908 |
James Daniel Westcott |
200,481 |
|
$350,842 |
Kyle A. McGraw |
133,313 |
|
$233,298 |
Kyle
M. Hammond |
130,000 |
|
$227,500 |
Dan G. LeRoy |
47,274 |
|
$82,730 |
____________________
(a) |
Includes 14,779
phantom units that were granted on March 7, 2013 to Messrs. C. Brown,
McGraw, Horne, Westcott and LeRoy, which vest annually in one-third
increments, which began on the first anniversary of the grant date or
other such date as determined by the compensation committee, over a three
year period. Also includes 112,246 phantom units and 327,673 phantom units
that were granted to Messrs. C. Brown, McGraw, Horne, Westcott and LeRoy
on March 3, 2014 and February 24, 2015, respectively, which vest on the
third anniversary of the grant date or other such date as determined by
the compensation committee. Further includes 24,425 phantom units that
were granted to Messrs. C. Brown, McGraw, Horne, Westcott and LeRoy, which
represents the maximum number of phantom units available to vest in
one-third tranches over the three years following the grant, pending
attainment of specified performance criteria. In accordance with such
criteria, 0% of the first one-third of the 2013 phantom unit grants vested
in 2014 and 2015. Further includes 98,172 phantom units
and 249,654 phantom units granted on March 3, 2014 and February 24, 2015,
respectively, which represents the maximum number of phantom units
available to vest on the third anniversary of the grant date or such other
date as determined by the compensation committee. |
45
Table of Contents
(b) |
Includes 60,000
restricted units granted to Mr. Westcott on September 24, 2012, 6,000
restricted units granted to Mr. LeRoy on May 9, 2012 and 130,000
restricted units granted to Mr. Hammond on June 15, 2015 in connection
with the hiring of Mr. Westcott, Mr. LeRoy and Mr. Hammond,
respectively. |
|
|
(c) |
Reflects the value of
phantom and restricted units based on the closing price of our units on
the NASDAQ Global Select Market on December 31, 2015 of
$1.75. |
Employment Agreements
Through our wholly owned
subsidiary Legacy Reserves Services, Inc., we have employment agreements with
Messrs. Horne, Hammond, McGraw, Westcott, and LeRoy. These agreements establish
that the executive officers are employed by Legacy Reserves Services, Inc. The
agreements with Messrs. Horne and McGraw became effective upon the completion of
our private placement on March 15, 2006, and Mr. LeRoys employment agreement
became effective May 1, 2012. Mr. Westcotts employment agreement became
effective September 24, 2012. Mr. Hammonds employment agreement became
effective March 1, 2015. Mr. C. Browns employment agreement was terminated
March 1, 2015. All agreements are terminable either by the executive or by us at
any time.
Base Salaries
2012-2013. On February
1, 2012, the compensation committee of our general partner approved an increased
salary for Mr. C. Brown of $425,000 effective March 1, 2012. On February 2,
2012, upon the recommendation of the compensation committee, the Board of
Directors approved salaries for each of the other named executive officers
effective March 1, 2012 as follows: Mr. Horne, $300,000 and Mr. McGraw,
$280,000. On March 1, 2012, the Board appointed Micah C. Foster as Chief
Accounting Officer effective April 1, 2012. Also, the compensation committee
increased Mr. C. Browns salary to $450,000 effective March 1, 2012 and the
Board of Directors, upon recommendation of the compensation committee, increased
Mr. McGraws salary to $300,000 effective March 1, 2012. The Board appointed Mr.
LeRoy as Vice President and General Counsel effective May 1, 2012, and also
appointed him as Secretary effective May 9, 2012 with a base salary of $230,000.
The Board appointed Mr. Westcott as
Executive Vice President and Chief Financial Officer effective September 24,
2012 with a base salary of $275,000.
2013-2014. On March 7,
2013, the compensation committee of our general partner approved an increased
salary for Mr. C. Brown of $490,000 effective March 1, 2013. On March 7, 2013,
upon the recommendation of the compensation committee, the Board of Directors
approved salaries for each of the other named executive officers effective March
1, 2013 as follows: Mr. Westcott, $300,000; Mr. Horne, $350,000; Mr. McGraw,
$350,000; and Mr. LeRoy, $250,000.
2014-2015. On March 3,
2014, the compensation committee of our general partner approved an increased
salary for Mr. C. Brown of $550,000 effective March 1, 2014. On March 3, 2014,
upon the recommendation of the compensation committee, the Board of Directors
approved salaries for each of the other named executive officers effective March
1, 2014 as follows: Mr. Westcott, $350,000; Mr. Horne, $380,000; Mr. McGraw,
$360,000; and Mr. LeRoy, $260,000.
2015-2016. On February
10, 2015, the compensation committee of our general partner approved a salary
for Mr. Horne of $550,000 effective March 1, 2015. On February 24, 2015, upon
the recommendation of the compensation committee, the Board of Directors
approved salaries for each of the other named executive officers effective March
1, 2015 as follows: Mr. Westcott, $380,000; Mr. McGraw, $360,000; and Mr. LeRoy,
$260,000. Mr. C. Brown resigned as President and Chief Executive Officer,
effective March 1, 2015. The Board appointed Mr. Hammond as Executive Vice
President and Chief Operating Officer effective March 1, 2015 with a base salary
of $380,000.
The employment agreements
provide that each executive officer is entitled to participate in equity and
non-equity incentive programs that we may establish from time to time and
incentive compensation will be paid at the discretion of the Board of Directors.
See Compensation Discussion and Analysis - Components of Compensation - Named
Executive Officer Compensation.
46
Table of Contents
Intellectual Property
and Non-Compete Clauses
The employment agreements with
each of our named executive officers require that the executive officer must
promptly disclose and assign any individual rights that he may have in any
intellectual property and business opportunities to us. For purposes of the
employment agreements, intellectual property includes inventions, discoveries,
processes, designs, methods, substances, articles, computer programs, or
improvements and business opportunities include business ideas, prospects,
proposals or other opportunities pertaining to the lease, acquisition,
exploration, production, gathering or marketing of hydrocarbons and related
products and the exploration potential of geographical areas on which
hydrocarbon exploration prospects are located. Under the non-compete provisions
of these agreements, the executive officers are prohibited from engaging or
participating, with any person or entity, in any activity pertaining to the
leasing, acquiring, exploring, producing, gathering or marketing of hydrocarbons
during the term of the executive officers employment and the executive officer
may not invest in any other such business unless prior approval is granted in
writing by our Board of Directors. The non-compete provisions limit the
executives right to engage in these activities for a period of 90 days after
termination of employment in counties where we do business, 90 days in adjacent
counties, and limit investment to $500,000 in publicly traded companies engaged
in similar businesses for a period of one year after termination unless such
competitive activity is approved in writing by a majority of the independent
directors of our Board of Directors. The employment agreements also prohibit the
executive officer from soliciting any of our employees or customers for two
years following termination.
The employment agreements
prohibit the executive officers from engaging in or participating in any
publicly traded partnership or limited liability company or privately held
company contemplating an initial public offering as a limited partnership or a
limited liability company that is in direct competition with us for one year
following the termination of employment.
The non-compete provisions
contained in the employment agreements will not apply to investments by the
executive officers made prior to the effective date of their respective
employment agreements, provided that the
investments were identified in the employment agreement. In addition, the
non-compete provisions will not apply if we terminate the executive officers
employment within one year following a change of control.
Severance and Change in
Control Payments
Pursuant to the terms of the
employment agreements as of December 31, 2015, we may have been obligated to
make severance payments to our named executive officers following the
termination of their employment. These benefits are described below under
Benefits Payable Upon Termination or Change in
Control.
Effective March 1, 2015, we
amended our employment agreements with Messrs. Horne and McGraw to terminate our
obligation to make gross-up payments associated with any excise tax that could
have been imposed by Section 4999 of the Internal Revenue Code. Upon the completion of such amendments, we are no longer obligated to make any such payments to any
named executive officer in the event that a named executive officer is subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code. Mr. C.
Browns employment agreement was terminated effective March 1, 2015, and
therefore he is not entitled to any benefits upon termination or change in
control. The employment agreements with our other officers do not include the
gross-up provisions eliminated from Mr. Hornes and Mr. McGraws employment
agreements.
47
Table of Contents
Benefits Payable Upon
Termination or Change in Control
The following table presents,
for each named executive officer, the potential post-employment payments and
payments upon a change in control as of December 31, 2015. Set forth below the
table is a description of certain post-employment arrangements with our named
executive officers, including the severance benefits and change in control
benefits to which they are entitled under their employment
agreements.
Named Executive
Officer |
|
Benefit |
|
Before Change
in Control w/o Cause or for Good Reason |
|
After Change
in Control w/o Cause or for Good Reason |
Paul T. Horne |
|
Severance(a) |
|
$ |
1,100,000 |
|
$ |
1,650,000 |
|
|
Bonus(b) |
|
$ |
710,099 |
|
$ |
1,065,149 |
|
|
Benefits(c) |
|
$ |
44,160 |
|
$ |
66,240 |
|
|
Phantom Units(d) |
|
$ |
267,908 |
|
$ |
267,908 |
James Daniel Westcott |
|
Severance(a) |
|
$ |
760,000 |
|
$ |
1,140,000 |
|
|
Bonus(b) |
|
$ |
516,490 |
|
$ |
774,735 |
|
|
Benefits(c) |
|
$ |
44,160 |
|
$ |
66,240 |
|
|
Phantom and Restricted Units(e) |
|
$ |
350,842 |
|
$ |
350,842 |
Kyle A. McGraw |
|
Severance(a) |
|
$ |
720,000 |
|
$ |
1,080,000 |
|
|
Bonus(b) |
|
$ |
457,546 |
|
$ |
686,319 |
|
|
Benefits(c) |
|
$ |
44,160 |
|
$ |
66,240 |
|
|
Phantom Units(d) |
|
$ |
233,298 |
|
$ |
233,298 |
Kyle
M. Hammond |
|
Severance(a) |
|
$ |
760,000 |
|
$ |
1,140,000 |
|
|
Bonus(b) |
|
$ |
206,446 |
|
$ |
309,669 |
|
|
Benefits(c) |
|
$ |
44,160 |
|
$ |
66,240 |
|
|
Restricted Units(f) |
|
$ |
227,500 |
|
$ |
227,500 |
Dan G. LeRoy |
|
Severance(a) |
|
$ |
520,000 |
|
$ |
780,000 |
|
|
Bonus(b) |
|
$ |
223,538 |
|
$ |
335,307 |
|
|
Benefits(c) |
|
$ |
44,160 |
|
$ |
66,240 |
|
|
Phantom and Restricted Units(e) |
|
$ |
82,730 |
|
$ |
82,730 |
____________________
(a) |
If terminated without
cause, or executive terminates with good reason, executive is entitled to
an amount equal to two years annual salary payable in 24 monthly
payments, or three years annual salary if termination occurs within one
year of a change of control. |
|
|
(b) |
Executives are
entitled to an average of bonus paid over past two years plus the pro-rata
bonus earned in the year of termination but unpaid at the time of
termination. |
|
(c) |
Executives are
entitled to COBRA benefits for the shorter of the severance period or the
time at which executive receives substantially similar benefits from a
subsequent employer. |
|
(d) |
Reflects the market
value on December 31, 2015 of the unvested phantom units granted on March
7, 2013, March 3, 2014 and February 24, 2015. |
|
(e) |
Reflects the market
value on December 31, 2015 of the unvested restricted units granted to Mr.
Westcott on September 24, 2012 and to Mr. LeRoy on May 9, 2012, as well as
unvested phantom units granted on March 3, 2014 and February 24,
2015. |
|
(f) |
Reflects the market
value of the unvested restricted units granted to Mr. Hammond on June 15,
2015. |
Severance Benefits
Under the employment
agreements, we may be obligated to make severance payments following the
termination of each executive officers employment if we terminate him without
cause or he terminates his employment for good reason, subject to certain cure
periods. Cause is defined
under each employment agreement as:
● |
the executive officers
conviction of or plea of nolo contendere to any felony or crime or offense
causing substantial harm to the Partnership, general partner, or its
direct or indirect subsidiaries, or involving acts of theft, fraud,
embezzlement, moral turpitude or similar
conducts; |
● |
the executive officers
repeated intoxication by alcohol or drugs during the performance of his
duties; |
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Table of Contents
● |
the executive officers
malfeasance in the conduct of the executives duties including, but not
limited to, willful and intentional misuse or diversion of any funds,
embezzlement or fraudulent or willful material misrepresentations or
concealments on any written reports; |
● |
the executive officers
material failure to perform the duties of his employment consistent with
his position, expressly including the provisions of the employment
agreements or material failure to follow or comply with the reasonable and
lawful written directives of the Board; |
● |
a material breach of the
employment agreement; or |
● |
a material breach by the
executive officer of written policies of the Partnership, the general
partner, or any of our direct or indirect subsidiaries.
|
Each named executive officer
will have a 15-day cure period prior to termination for cause under these
agreements.
Good reason is defined under each employment agreement
as:
● |
a reduction in the executive officers base
salary; |
● |
the relocation of the
executive officers primary place of employment to a location more than 20
miles from Midland, Texas; or |
● |
any material reduction
in the executive officers title, authority or responsibilities.
|
If the employment of any named
executive officer is terminated by us for cause or by the executive officer
without good reason, we are not obligated to make any severance payments to the
executive officer. The amount that an executive officer is entitled to receive
upon a termination of his employment by us without cause or by the executive
officer with good reason is based on the executive officers salary and his
incentive compensation. Under the severance provisions of each executive
officers employment agreement, they are each entitled to severance pay in the
amount of two years of annual base salary payable monthly at the highest rate
in effect at any time during the 36 month period prior to termination, a lump
sum payment equal to the average annual bonus of the two years preceding the
termination and an amount equal to the executives pro-rata bonus for the fiscal
year in which the termination occurs, such pro-rata bonus amount to be paid in a
lump sum within 30 days following the date of termination. In addition, the
executive officers are entitled to the full costs of the executives COBRA
continuation coverage for the shorter of the severance period or the time when
the executive receives substantially similar benefits from a subsequent
employer. In addition, Messrs. C. Brown and McGraw would have the right to
exercise one demand registration right each.
Change in Control
Benefits
Pursuant to the employment
agreements, we may be required to make payments to named executive officers upon
a change in control, which occurs upon any of the following (provided that, with respect to Messrs. Westcott, LeRoy and Hammond, any such
change in control qualifies as a change in ownership, change in effective
control or change in ownership of a substantial portion of assets of the
Partnership within the meaning of Section 409A of the Internal Revenue
Code):
● |
the acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act)(Person) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more
of either (i) the then-outstanding equity interests of the Partnership
(the Outstanding Legacy
Equity) or (ii) the
combined voting power of the then-outstanding voting securities of the
Partnership entitled to vote generally in the election of directors (the
Outstanding Legacy
Voting Securities),
provided that the following will not constitute a
change of control: (A) any acquisition directly from the Partnership; (B)
with respect to Messrs. McGraw and Horne only, any acquisition by the
Partnership; (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Partnership or any affiliated
company; (D) any acquisition by any corporation or other entity pursuant
to a transaction that complies with clauses (i), (ii) and (iii) below ; or
(E) any acquisition of units from the Partnership arising out of or in
connection with an initial public offering or private placement of the
Partnerships securities; |
● |
any time at which
individuals who, as of the date of the agreement, constitute the Board
(the Incumbent Board) cease for any reason to constitute at
least a majority of the Board, provided, however,
that any individual becoming a director
subsequent to the date of the agreement whose election, or nomination for
election by the unitholders of the Partnership, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board will be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; |
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Table of Contents
● |
consummation of a
reorganization, merger, statutory share exchange or consolidation or
similar corporate transaction involving the Partnership or any of its
subsidiaries, or, solely with respect to Messrs. McGraw and Horne, a sale
or other disposition of all or substantially all of the assets of the
Partnership or the acquisition of assets or equity interests of another
entity by the Partnership or any of its Subsidiaries, or, solely with
respect to Messrs. Westcott, LeRoy and Hammond, a sale or other
disposition of all or substantially all of the assets of the Partnership
or any of its subsidiaries, in each case unless, following such
transaction, (i) all or substantially all of the individuals and entities
that were the beneficial owners of the Outstanding Legacy Equity and the
Outstanding Legacy Voting Securities immediately prior to such transaction
beneficially own, directly or indirectly, more than 50% of the
then-outstanding equity interests and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation, resulting
from such transaction (including, without limitation, a corporation or
other entity that, as a result of such transaction, owns the Partnership
or all or substantially all of the Partnerships assets either directly or
through one or more subsidiaries) in substantially the same proportions as
their ownership immediately prior to such transaction of the Outstanding
Legacy Equity and the Outstanding Legacy Voting Securities, as the case
may be, (ii) no Person (excluding any corporation resulting from such
transaction or any employee benefit plan (or related trust) of the
Partnership or such corporation or other entity resulting from such
transaction) beneficially owns, directly or indirectly, 35% or more of,
respectively, the then-outstanding equity interests of the corporation or
other entity resulting from such transaction or the combined voting power
of the then-outstanding voting securities of such corporation or other
entity, except to the extent that such ownership existed prior to such
transaction, and (iii) at least a majority of the members of the board of
directors of the corporation or equivalent body of any other entity
resulting from such transaction were members of the Incumbent Board at the
time of the execution of the initial agreement or of the action of the
Board providing for such transaction; or |
● |
solely with respect to
Messrs. McGraw and Horne, consummation of a complete liquidation or
dissolution of the Partnership. |
If a termination without cause
or by the executive officer with good reason occurs within one year following a
change in control, the executive officer will be entitled to a lump-sum payment
in an amount equal to 36 months of his annual base salary (where each monthly
amount equals one-twelfth of such executives annual base salary), determined at
the highest rate in effect at any time during the 36-month period prior to the
termination. Such lump-sum payment shall be payable, with respect to Messrs.
McGraw and Horne, within 30 days of the date of termination, and with respect to
Messrs. Westcott, LeRoy and Hammond, within 60 days following the date of
termination, provided that if the
60-day period begins and ends in two distinct taxable years, any such payment
shall not be made until the second taxable year. In addition, the executive will
be entitled to receive an amount equal to the average annual bonus of the two
years preceding the termination, an amount equal to the executives accrued but
unpaid base salary and other amounts reimbursable by the employer to the
executive pursuant to the agreement (any such accrued but unpaid base salary or
other reimbursable amount to be paid in a lump sum within 30 days following the
date of termination), an amount equal to any accrued but unpaid bonus and a cash
amount equal to the executives pro-rata bonus for the fiscal year in which the
date of termination occurs, in each case, payable at such time as bonuses of
other executive officers are paid such bonuses, and the full costs of the
executives COBRA continuation coverage for the shorter of the severance period
or the time when the executive receives substantially similar benefits from a
subsequent employer.
50
Table of Contents
Option Exercises and Units
Vested in 2015
None of our executive officers
exercised options during 2015. On February 18, 2015, pursuant to the achievement
of certain objective criteria, two one-third tranches of the objective phantom
units vested which were granted to Messrs. C. Brown, McGraw and Horne on
February 1 and 2, 2012 and March 7, 2013. On February 18, 2015, two one-third tranches
of subjective phantom units vested which were granted to Messrs. C. Brown,
McGraw and Horne on February 1 and 2, 2012 and March 7, 2013. On February 18,
2015, pursuant to certain objective criteria, the second one-third tranche of
the objective phantom units vested which were granted to Messrs. Westcott and
LeRoy on March 7, 2013. On February 18, 2015, the second one-third tranche of
the subjective phantom units vested which were granted to Messrs. Westcott and
LeRoy on March 7, 2013. In addition, 7,000 restricted units granted to Mr.
Westcott on September 24, 2012, vested on September 24, 2015. The following
table reflects all of the phantom units and restricted units held by our named
executive officers which vested during 2015.
|
|
Unit Awards |
Name |
|
Number of
Units Acquired On Vesting (#) |
|
Value Realized On
Vesting ($)(a) |
Cary D. Brown |
|
10,325 |
|
$ |
136,806 |
Paul
T. Horne |
|
4,301 |
|
$ |
56,988 |
James Daniel Westcott |
|
9,123 |
|
$ |
58,720 |
Kyle
A. McGraw |
|
3,950 |
|
$ |
52,338 |
Kyle M. Hammond |
|
0 |
|
$ |
0 |
Dan
G. LeRoy |
|
888 |
|
$ |
11,766 |
|
|
28,587 |
|
$ |
316,618 |
____________________
(a) |
Represents the value
of the units acquired by Messrs. C. Brown, McGraw and Horne upon vesting
of the third tranche of the February 1, 2012 and February 2, 2012 phantom
unit grant, and the second tranche of the March 7, 2013 phantom unit grant
for Messrs. C. Brown, McGraw and Horne, as well as the value of the units
acquired by Messrs. Westcott and LeRoy upon the vesting of the second
one-third tranche of the March 7, 2013 phantom unit grant and certain of
the restricted units owned by Messrs. Westcott and LeRoy. The values of
these phantom and restricted units were calculated using units vested
times the closing market price of our units on the date of vesting or, if
our units were not traded on the date of vesting, the closing market price
of our units on the last trading date prior to
vesting. |
Equity Compensation Plan
Information
The following table provides
information as of March 1, 2016 with respect to the units that may be issued
under our existing equity compensation plans.
Plan
Category |
|
Number of Securities
to be Issued Upon Exercise of Outstanding Options, Warrants
and Rights(b) |
|
Weighted
Average Exercise Price of Outstanding Options, Warrants and
Rights |
|
Number of
Securities Remaining Available For Future Issuance Under Equity
Compensation Plan |
Equity compensation plans approved
by |
|
|
|
|
|
|
|
security
holders |
|
|
|
|
|
|
|
Equity compensation plans not approved by |
|
|
|
|
|
|
|
security
holders(a) |
|
821,018 |
|
$ |
0 |
|
2,692,895 |
Total |
|
821,018 |
|
$ |
0 |
|
2,692,895 |
____________________
(a) |
Please read
Compensation Discussion and
Analysis Components of Compensation Equity-Based Incentive
Compensation for a
description of the material features of the plan, including the awards
that may be granted under the plan. This plan did not require approval by
our limited partners since it was adopted prior to our initial public
offering. |
|
(b) |
Comprised of phantom
units. These phantom units will be settled in units unless the
compensation committee determines that they should be settled in
cash. |
51
Table of Contents
DIRECTOR COMPENSATION
Officers or employees of our
general partner and its affiliates who also serve as directors of our general
partner did not receive additional compensation for their Board service in 2015.
In accordance with this policy, Kyle A. McGraw and Paul T. Horne did not receive
any compensation for their service as a director in 2015 and Cary D. Brown did
not receive any such compensation for his service as Chairman during the period
of time in 2015 while Mr. C. Brown was still an employee of Legacy. Each
non-employee director, except as described below, was entitled to receive an
annual retainer of $40,000 and $1,000 for each Board of Directors and committee
meeting lasting less than one hour and $1,500 for each Board of Directors and
committee meeting lasting one hour or more for each meeting in excess of the
four quarterly meetings scheduled each year. In connection with Mr. C. Browns
resignation as President and Chief Executive Officer of our general partner and
as an employee of any Legacy entity, effective March 1, 2015, Mr. C. Brown
entered into a Non-Executive Chairman Agreement by and among our general
partner, the Partnership, Legacy Reserves Services, Inc. and Mr. C. Brown (the
Chairman
Agreement).
The Chairman Agreement was
approved by the compensation committee and the Board of Directors on February 3,
2015. Pursuant to the Chairman Agreement, Mr. C. Brown will be compensated for
his services through a cash retainer of $125,000 per quarter (the
Cash
Retainer) in lieu of any
annual or quarterly retainer paid to other non-employee members of the Board
described above. In addition to the Cash Retainer, Mr. C. Brown will be paid any
of the cash directors fees described above for which other non-employee members
of the Board would be eligible to receive in connection with any meetings of the
Board attended by him and will be eligible to receive grants of equity
consistent with those that are granted to other non-employee directors. The
Company will also continue to provide health care coverage under COBRA for a
period of 18 months following Mr. C. Browns resignation as President and Chief
Executive Officer. Under the terms of the LTIP, Mr. C. Brown will be entitled to
continued vesting of his outstanding equity awards in accordance with the grant
agreements.
Each non-employee director
receives an annual grant of units valued at $100,000, generally corresponding to
the service period between each annual election of the Board members. In
accordance with this policy, Messrs. C. Brown, D. Brown, Granberry, Lawrence,
Sullivan, and Vann each received grants of 11,025 units on June 15, 2015.
In 2015, in addition to the
annual retainer and units paid to non-employee Board members, the chairmen of
our audit, conflicts, compensation, and nominating and governance committees
each received an annual retainer for their additional service. For 2015, Mr.
Lawrence received $25,000 as chairman of the audit committee, Mr. Granberry
received $10,000 as chairman of the nominating, governance and conflicts
committee and Mr. Vann received $15,000 as chairman of the compensation
committee.
Other than as described above
for Mr. C. Brown, our general partners directors are eligible to receive awards
under the LTIP but do not participate in any non-equity incentive plan, pension
plan or deferred compensation plan. Each non-employee director and independent
director is reimbursed for out-of-pocket expenses in connection with attending
meetings of the Board of Directors or committees. Each director will be
indemnified by us for actions associated with being a director to the fullest
extent permitted under Delaware law.
52
Table of Contents
The following table sets forth
the aggregate compensation awarded to, earned by or paid to our general
partners non-employee and independent directors during 2015.
Director Compensation for
the 2015 Fiscal Year
|
|
Year |
|
Fees
Earned ($)(a)(b) |
|
Unit
Awards ($)(c) |
|
Option Awards ($) |
|
Non-Equity Incentive
Plan Compensation ($) |
|
Change in Pension
Value and
Nonqualified Deferred Compensation Earnings |
|
All
Other Compensation ($) |
|
Total
($) |
Cary D. Brown |
|
2015 |
|
$299,667 |
|
$100,000 |
|
|
|
|
|
|
|
$15,706(d) |
|
$415,373 |
Dale
A. Brown |
|
2015 |
|
$50,500 |
|
$100,000 |
|
|
|
|
|
|
|
|
|
$150,500 |
William R. |
|
2015 |
|
$75,500 |
|
$100,000 |
|
|
|
|
|
|
|
|
|
$175,500 |
Granberry |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G. Larry |
|
2015 |
|
$86,000 |
|
$100,000 |
|
|
|
|
|
|
|
|
|
$186,000 |
Lawrence |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William D. |
|
2015 |
|
$64,000 |
|
$100,000 |
|
|
|
|
|
|
|
|
|
$164,000 |
Sullivan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kyle
D. Vann |
|
2015 |
|
$76,500 |
|
$100,000 |
|
|
|
|
|
|
|
|
|
$176,500 |
____________________
(a) |
For 2015, Mr. Lawrence received $25,000 as
chairman of the audit committee, Mr. Granberry received $10,000 as
chairman of the nominating, governance and conflicts committee, and Mr.
Vann received $15,000 as chairman of the compensation
committee. |
|
|
(b) |
Fees paid in cash to each of our general
partners non-employee directors during 2015 are as follows: Mr. C. Brown:
$299,667; Mr. D. Brown: $52,000; Mr. Granberry: $82,500; Mr. Lawrence:
$91,500; Mr. Sullivan: $71,000; and Mr. Vann: $83,500. |
|
(c) |
On June 15, 2015, each non-employee director
was awarded a unit grant valued at $100,000, or 11,025 units. |
|
(d) |
Reimbursement for expenses incurred by Mr.
C. Brown for the continuation of health care coverage under Legacys group
health plan under the health care provisions of
COBRA. |
53
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MANAGEMENT
Executive Officers
The following table shows
information for the executive officers of our general partner.
Name |
|
Age |
|
Position with Legacy
Reserves GP, LLC |
Paul
T. Horne |
|
54 |
|
Director, President and Chief Executive Officer |
James Daniel Westcott |
|
35 |
|
Executive Vice President and Chief Financial
Officer |
Kyle
M. Hammond |
|
55 |
|
Executive Vice President and Chief Operating
Officer |
Kyle
A. McGraw |
|
56 |
|
Director, Executive Vice President and Chief Development
Officer |
Dan
G. LeRoy |
|
54 |
|
Vice
President, General Counsel and Secretary |
Micah C. Foster |
|
36 |
|
Chief Accounting Officer and
Controller |
Officers of our general
partner serve at the discretion of the Board of Directors. None of our executive
officers and directors are related.
Paul T.
Horne was appointed to the Board
of Directors in December 2014 and was also appointed as President and Chief
Executive Officer of our general partner since March 1, 2015. Mr. Horne
previously served as our Executive Vice President and Chief Operating Officer of
our general partner from March 16, 2012 to March 1, 2015 and as Executive Vice
President of Operations of our general partner from our founding in October 2005
to March 2012. From January 2000 to October 2005, Mr. Horne served as Operations
Manager of Moriah Resources, Inc. From January 1985 to January 2000, Mr. Horne
worked for Mobil E&P U.S. Inc. in a variety of petroleum engineering and
operations management roles primarily in the Permian Basin. Mr. Horne has a
Bachelor of Science degree in Petroleum Engineering from Texas A&M
University. Mr. Horne has 32 years of experience in the oil and natural gas
industry with 30 years of experience in the Permian Basin.
James Daniel
Westcott was appointed Executive
Vice President and Chief Financial Officer of our general partner effective
September 24, 2012. From July 2006 to his appointment at the Partnership, Mr.
Westcott served as a Principal at GSO Capital Partners LP, a division of The
Blackstone Group L.P., where he was involved in the sourcing, structuring,
evaluation and management of debt and equity investments for public and private
companies in the energy and power industries. From August 2004 to July 2006, Mr.
Westcott worked as an investment banker at J.P. Morgans Global Energy Group.
Mr. Westcott is currently a Director of Peace Gospel International, a nonprofit
organization with charitable programs in Asia and Africa. Mr. Westcott received
a Bachelor of Arts degree in Science Technology & Society and a Master of
Science degree in Management Science, both from Stanford University.
Kyle M.
Hammond was appointed Executive
Vice President and Chief Operating Officer of our general partner effective
March 1, 2015. From its formation in August 2011 to his appointment as Executive
Vice President and Chief Operating Officer of our general partner, Mr. Hammond
served as President and Chief Executive Officer and a director of FireWheel
Energy LLC (FireWheel), a private
equity backed oil and gas development company headquartered in Midland, Texas.
Prior to forming FireWheel, Mr. Hammond served as VP of Operations for the
Permian Division of XTO Energy/Exxon from 2003 to August 2011. Mr. Hammond
earned a Bachelor of Science degree in Petroleum Engineering from Texas A&M
University. Mr. Hammond currently serves on the board of directors of Abilene
Christian University and Midland Christian School.
Kyle A.
McGraw is a member of the Board
of Directors and also serves as Executive Vice President and Chief Development
Officer of our general partner. Mr. McGraw was appointed as Executive Vice
President and Chief Development Officer effective March 16, 2012, and has served
as a director since our founding in October 2005. Previously, Mr. McGraw served
as Executive Vice President of Business Development and Land of our general
partner from our founding in October 2005 to March 2012. Mr. McGraw joined
Brothers Production Company in 1983, and has served as its General Manager since
1991 and became President in 2003. During his 23-year tenure at Brothers
Production Company, Mr. McGraw has served in numerous capacities including
reservoir and production engineering, acquisition evaluation and land
management. Mr. McGraw has a Bachelor of Science degree in Petroleum Engineering
from Texas Tech University. Mr. McGraw has 33 years of experience in the oil and
natural gas industry in the Permian Basin.
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Table of Contents
Dan G.
LeRoy is Vice President, General
Counsel and Secretary of our general partner, and was appointed to these roles
in May 2012. Prior to joining Legacy, Mr. LeRoy was a Shareholder and President
of the board of directors of Cotton, Bledsoe, Tighe & Dawson, PC, a Midland,
Texas-based law firm, where he specialized in energy-related finance,
securities, and acquisition transactions for 25 years. He joined Cotton Bledsoe
in August 1987 and became a Shareholder with the firm in 1994, serving on the
firms board of directors and as its President for multiple terms. Mr. LeRoy has
a Bachelor of Arts degree, with honors, from Kansas State University and
graduated with a Juris Doctorate degree from Notre Dame Law School.
Micah C.
Foster is Chief Accounting
Officer and Controller of our general partner. Mr. Foster was appointed Chief
Accounting Officer effective April 1, 2012. Mr. Foster joined Legacys
predecessor in January 2006 and served as Financial Accountant from March 2006
to July 2008, Financial Reporting Manager from July 2008 to July 2010, and
Assistant Controller from July 2010 to October 2011. In October 2011, Mr. Foster
was promoted to Controller. Prior to joining Legacy, Mr. Foster worked as staff
auditor and then senior auditor at Ernst & Young, LLP from July 2003 to
January 2006. Mr. Foster holds a BBA in Accounting and Finance from Abilene
Christian University and is a Certified Public Accountant.
55
Table of Contents
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth
the beneficial ownership of our units as of March 1, 2016 for:
● |
each person known by us
to be a beneficial owner of 5% or more of our outstanding
units; |
● |
each of the directors of
our general partner; |
● |
each named executive
officer of our general partner; and |
● |
all directors and
executive officers of our general partner as a group.
|
The amounts and percentage of
units beneficially owned are reported on the basis of regulations of the SEC
governing the determination of beneficial ownership of securities. Under the
rules of the SEC, a person is deemed to be a beneficial owner of a security if
that person has or shares voting power, which includes the power to vote or to
direct the voting of such security, or investment power, which includes the
power to dispose of or to direct the disposition of such security. A person is
also deemed to be a beneficial owner of any securities of which that person has
a right to acquire beneficial ownership within 60 days of March 14, 2016. Under
these rules, more than one person may be deemed a beneficial owner of the same
securities, and a person may be deemed a beneficial owner of securities as to
which he has no economic interest.
Except as indicated by
footnote, to our knowledge the persons named in the table below have sole voting
and investment power with respect to all units shown as beneficially owned by
them, subject to community property laws where applicable. Percentage of total
units beneficially owned is based on 69,512,781 units outstanding as of March
14, 2016. The business address for the beneficial owners listed below is 303 W.
Wall, Suite 1800, Midland, Texas 79701.
|
|
|
Units Beneficially
Owned1 |
|
|
|
Number |
|
Percentage |
Directors and Officers |
|
|
|
|
|
|
Cary D. Brown(a)(b)(c) |
|
3,624,747 |
|
5.2 |
% |
|
Dale A. Brown(d)(e) |
|
3,004,919 |
|
4.3 |
% |
|
Kyle A. McGraw(a)(f)(g) |
|
1,033,625 |
|
1.5 |
% |
|
Kyle M. Hammond(h) |
|
188,000 |
|
* |
|
|
Paul T. Horne(a)(i) |
|
143,855 |
|
* |
|
|
James Daniel Westcott(a)(j) |
|
81,949 |
|
* |
|
|
Kyle D. Vann |
|
80,334 |
|
* |
|
|
William R. Granberry |
|
45,467 |
|
* |
|
|
William D. Sullivan |
|
44,384 |
|
* |
|
|
G. Larry Lawrence |
|
28,334 |
|
* |
|
|
Micah C. Foster(a)(j) |
|
15,341 |
|
* |
|
|
Dan G. LeRoy(a)(j) |
|
14,543 |
|
* |
|
|
All directors and executive officers as a
group (12 persons) |
|
7,899,121 |
|
10.2 |
% |
____________________
* |
Percentage of units
beneficially owned does not exceed 1%. |
|
|
(a) |
Does not include
grants of 341,900 phantom units to Cary D. Brown, grants of 126,148
phantom units to Kyle A. McGraw, grants of 145,925 phantom units to Paul
T. Horne, grants of 134,852 phantom units to James Daniel Westcott, grants
of 38,920 phantom units to Dan G. LeRoy and grants of 33,273 phantom units
to Micah C. Foster. |
|
(b) |
Includes Mr. C.
Brown's pecuniary interest in 406,827 units held by DAB Family Properties,
Ltd., an entity partially owned by Brown Heirs 2012 Trust, of which Mr. C.
Brown is a beneficiary; includes 3,199,738 units held by Cary and Jill
Brown Family Partners Ltd. |
|
(c) |
Includes 3,199,738
units pledged as loan collateral. |
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Table of Contents
(d) |
Mr. D. Brown is
deemed to beneficially own 2,440,961 units held by DAB Family Properties,
Ltd.; and 542,281 units held by DAB Resources, Ltd. Mr. D. Brown directly
owns 21,677 units. |
|
(e) |
Includes 1,640,961
units pledged as loan collateral. |
|
(f) |
Mr. McGraw is deemed
to beneficially own the 374,386 units held by Kyle A. McGraw Family
Holdings, Ltd. |
|
(g) |
Includes the 645,674
units related to Mr. McGraws indirect pecuniary interest in Brothers
Production Properties, Ltd., Brothers Production Company, Inc. and
Brothers Operating Company, Inc. |
|
(h) |
Mr. Hammond is deemed
to beneficially own the 52,300 units held by SDH Trust. |
|
(i) |
Mr. Horne is deemed
to beneficially own the 121,684 units held by H2K Holdings,
Ltd. |
|
(j) |
Includes the 60,000
unvested restricted units granted to Mr. Westcott, the 130,000 unvested
restricted units granted to Mr. Hammond, the 6,000 unvested restricted
units granted to Mr. LeRoy and the 6,000 unvested restricted units granted
to Mr. Foster. |
The following table sets forth
the beneficial ownership of equity interests of Legacy Reserves GP,
LLC:
|
|
Equity |
Name of Beneficial
Owner |
|
Interest |
Dale A. Brown(a) |
|
63.1 |
% |
Cary
D. Brown(b) |
|
57.9 |
% |
Kyle A. McGraw |
|
|
|
William R. Granberry |
|
|
|
Kyle D. Vann |
|
|
|
William D. Sullivan |
|
|
|
G. Larry Lawrence |
|
|
|
Paul
T. Horne(c) |
|
0.5 |
% |
James Daniel Westcott |
|
|
|
Micah C. Foster |
|
|
|
Dan G. LeRoy |
|
|
|
Kyle
M. Hammond |
|
|
|
|
|
All directors and executive officers as a
group (12 persons) |
|
63.6 |
% |
____________________
(a) |
Includes a 57.9%
equity interest held by Moriah Properties, Ltd. and a 5.2% equity interest
held by DAB Resources, Ltd. |
|
(b) |
Held by Moriah
Properties, Ltd. |
|
(c) |
Held by H2K Holdings,
Ltd. |
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Table of Contents
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Our founding investors,
including members of our general partners management team and directors, own an
aggregate of 10,403,030 units, which represents a 15% limited partner interest
in us. In addition, our general partner owns an approximate 0.03% general
partner interest in us.
Distributions and Payments
to Our General Partner and Its Affiliates
The following table summarizes
the distributions and payments made or to be made by us to our general partner
and our founding investors in connection with our formation, ongoing operation
and any liquidation of the Partnership. These distributions and payments were
determined by and among affiliated entities and, consequently, are not the
result of arms-length negotiations.
Distributions of
available |
|
|
cash to our general partner and
our |
|
|
founding investors |
|
We will generally make cash
distributions of approximately 99.9% of available cash to the unitholders
pro rata, including our founding investors and members of our general
partners management team and directors, as the holders of an aggregate of
10,430,030 units, and approximately 0.03% to our general
partner. |
|
|
|
Payments to our general
partner |
|
Our general partner is
entitled to reimbursement for all expenses it incurs on our behalf. Our
partnership agreement provides that our general partner will determine the
expenses that are allocable to us in good faith. |
|
|
|
Withdrawal or removal of
our |
|
|
general partner |
|
If our general partner
withdraws or is removed, its general partner interest will either be sold
to the new general partner for cash or converted into units, for an amount
equal to the fair market value of that interest. |
|
|
|
Liquidation |
|
Upon our liquidation,
the partners, including our general partner, will be entitled to receive
liquidating distributions according to their respective capital account
balances. |
Transactions with Related
Persons
Office Leases
TCTB Partners, a limited
partnership in which Dale A. Brown, a member of the Board of Directors, Cary D.
Brown, the chairman of the Board of Directors, and Kyle A. McGraw, Executive
Vice President and Chief Development Officer and a member of the Board of
Directors, are limited partners with a combined, non-controlling 4.16% ownership
interest, that until November 10, 2014 owned the office building in which our
principal office is located. We currently rent 72,466 square feet of office
space with a monthly rental payable of $102,465, without respect to property
taxes, operating expenses and insurance. The lease expires in September 2020.
Other
In mid-2015 Legacy performed a
technical evaluation of a potential acquisition and, based on such evaluation
and Legacys business model, subsequently decided not to pursue such
acquisition. In September 2015, Moriah Powder River LLC, an oil and natural gas
exploration and production company which Cary D. Brown and Dale Brown indirectly
control and Mr. C. Brown is Chairman of the Board of Directors, decided to
pursue such opportunity and paid Legacy a one-time expense reimbursement of
$500,000 to utilize Legacys prior technical work product.
Blue Quail Energy Services,
LLC (Blue
Quail), a company
specializing in water transfer services, is an affiliate of Moriah Energy
Services LLC. Mr. C. Brown, and Mr. D. Brown, are principals of Moriah Energy Services LLC. Legacy has
contracted with Blue Quail to provide water transfer services and in 2015 paid
$382,629 to Blue Quail for such services.
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Table of Contents
Travis McGraw, the brother of
Kyle A. McGraw, is an employee of the Partnership serving as our Production
Accounting/Marketing Manager. The aggregate value of compensation paid by us to
Travis McGraw in 2015 was less than $250,000. There were no material differences
between the compensation paid to Travis McGraw and the compensation paid to any
other employees who hold analogous positions.
Michael McGraw, the son of
Kyle A. McGraw, is an employee of the Partnership serving as an Exploitation
Engineer. The aggregate value of compensation paid by us to Michael McGraw in
2015 was less than $250,000. There were no material differences between the
compensation paid to Michael McGraw and the compensation paid to any other
employees who hold analogous positions.
Review, Approval and
Ratification of Transactions with Related Persons
Our partnership agreement
contains specific provisions that address potential conflicts of interest
between our general partner and its affiliates, on one hand, and us and our
subsidiaries, on the other hand. Whenever such a conflict of interest arises,
our general partner will resolve the conflict. Our general partner may, but is
not required to, seek the approval of such resolution from the conflicts
committee of the Board of Directors, which is comprised of independent
directors. Our partnership agreement provides that our general partner will not
be in breach of its obligations under the partnership agreement or its duties to
us or to our unitholders if the resolution of the conflict is:
● |
approved by the
nominating, governance and conflicts committee; |
● |
approved by the vote of
a majority of the outstanding common units, excluding any common units
owned by our general partner or any of its
affiliates; |
● |
on terms no less
favorable to us than those generally being provided to or available from
unrelated third parties; or |
● |
fair and reasonable to
us, taking into account the totality of the relationships between the
parties involved, including other transactions that may be particularly
favorable or advantageous to us. |
If our general partner does
not seek approval from the nominating, governance and conflicts committee and
the Board of Directors determines that the resolution or course of action taken
with respect to the conflict of interest satisfies either of the standards set
forth in the third and fourth bullet points above, then it will be presumed
that, in making its decision, the Board of Directors acted in good faith, and in
any proceeding brought by or on behalf of any limited partner or the
Partnership, the person bringing or prosecuting such proceeding will have the
burden of overcoming such presumption. Unless the resolution of a conflict is
specifically provided for in our partnership agreement, our general partner or
the nominating, governance and conflicts committee may consider any factors it
determines in good faith to consider when resolving a conflict. When our
partnership agreement requires someone to act in good faith, it requires that
person to reasonably believe that he is acting in the best interests of the
Partnership, unless the context otherwise requires.
In addition, our code of
ethics requires that all employees, including employees, officers and members of
the Board of Directors, avoid or disclose any activity that may interfere, or
have the appearance of interfering, with their responsibilities to us and our
unitholders.
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Table of Contents
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
No current executive officer
served as a member of the Board of Directors or compensation committee of any
other entity (other than our subsidiaries) that has or has had one or more
executive officers serving as a member of the Board of Directors or the
compensation committee of our general partner.
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Table of Contents
PROPOSAL 5
RATIFICATION OF
APPOINTMENT OF
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The audit committee has
selected BDO USA, LLP as independent registered public accountants of the
Partnership to audit the
Partnerships consolidated financial statements for the fiscal year ending
December 31, 2016 and the Board of Directors has determined that it would be
desirable to request that the unitholders ratify such appointment. BDO USA, LLP
was our independent registered public accounting firm for our 2015 audit.
The audit committees policy
is to pre-approve all audit and permissible non-audit services provided by the
independent registered public accounting firm. These services may include audit
services, audit-related services, and other services. Pre-approval is detailed
as to the specific service or category of service and is subject to a specific
approval.
Before selecting BDO USA, LLP,
the audit committee considered the firms qualifications as independent
registered public accountants and concluded that, based on BDO USA, LLPs prior
performance and its reputation for integrity and competence, it was qualified.
The audit committee also considered whether any non-audit services performed for
the Partnership by BDO USA, LLP would impair BDO USA, LLPs independence and
concluded that they did not. Even if the selection is ratified, the audit
committee, in its sole discretion, may change the appointment at any time during
the year if it determines that such a change would be in the best interests of
the Partnership and its unitholders.
A representative of BDO USA,
LLP will attend our 2016 Annual Meeting. The representative will have the
opportunity to make a statement if he or she desires to do so and to respond to
appropriate questions.
The aggregate fees for
professional services rendered by our principal accountants, BDO USA, LLP, for
the years ended December 31, 2015 and 2014 were:
|
|
Year Ended December
31, |
|
|
2015 |
|
2014 |
Audit
Fees(1) |
|
$ |
590,582 |
|
$ |
817,018 |
Audit-Related Fees(1) |
|
$ |
91,995 |
|
$ |
48,212 |
Tax
Fees |
|
$ |
|
|
$ |
|
All Other
Fees (Executive compensation and LTIP studies)(2) |
|
$ |
20,000 |
|
$ |
56,729 |
Total |
|
$ |
702,577 |
|
$ |
921,959 |
____________________
(1) |
In the above table,
Audit Fees are fees we paid for professional services
for the audit of our consolidated financial statements included in our
annual report on Form 10-K or for services that are normally provided by
our principal accountants in connection with statutory and regulatory
filings or engagements and fees for Sarbanes-Oxley 404 audit work.
Audit-Related
Fees are fees billed for
assurance and related services in connection with acquisition transactions
and related regulatory filings. |
|
(2) |
All Other Fees (Executive compensation
studies and LTIP studies)
are fees billed for compensation consulting services in connection with a
study of compensation programs related to named executive officers and
outside directors of a broad peer group of exploration and production
companies and publicly traded limited partnerships and consulting services
provided in 2014 pertaining to an LTIP amendment adopted in 2015 which
increased the number of units available under the
program. |
In regard to executive
compensation services, as required by the Public Company Accounting Oversight
Board, all services are approved in advance by the audit committee. All
compensation consulting services are provided under the terms of a separate
engagement letter that describes the approved services and the companys
acceptance of its responsibilities. Under the terms of the engagement, BDO USA,
LLP does not perform management functions or make any management decisions. The
company must designate an individual with suitable skill, knowledge and
experience to oversee the consulting engagement, evaluate the adequacy and
results of the services performed, accept responsibility for the
results of the services and establish and maintain internal controls and monitor
ongoing activities.
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Table of Contents
Vote Required for Approval
Unitholder ratification is not
required for making such appointment for the fiscal year ending December 31,
2016 because the Audit Committee has responsibility for the appointment of our
independent registered public accountants. The appointment is being submitted
for ratification with a view toward soliciting the opinion of unitholders, which
opinion will be taken into consideration in future deliberations. No
determination has been made as to what action the Board of Directors or the
audit committee would take if unitholders do not approve the appointment.
THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF BDO USA, LLP
AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTANT.
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Table of Contents
AUDIT COMMITTEE REPORT
FOR FISCAL YEAR 2015
The audit committee is
responsible for overseeing the Partnerships financial reporting process,
reviewing the financial information that will be provided to unitholders and
others, monitoring internal accounting controls, selecting our independent
registered public accountants and providing to the board of directors of Legacy
Reserves GP, LLC such additional information and materials as we may deem
necessary to make the board of directors of Legacy Reserves GP, LLC aware of
significant financial matters. We operate under a written audit committee
charter adopted by the board of directors of Legacy Reserves GP, LLC.
We have reviewed and discussed
the audited financial statements of the Partnership for the fiscal year ended
December 31, 2015 with management and BDO USA, LLP, our independent registered
public accountants for the fiscal year ended December 31, 2015. In addition, we
have received from and discussed with BDO USA, LLP the matters required to be
discussed by Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 16 (Communications with Audit Committees). We
also have received the written disclosures and the letter from BDO USA, LLP, as
required by the PCAOB Rule 3526 regarding the independent accountants
communications with the audit committee concerning independence and we have
discussed the independence of BDO USA, LLP with that firm.
We, the members of the audit
committee, are not professionally engaged in the practice of auditing or
accounting nor are we experts in the fields of accounting or auditing, including
determination of auditor independence. We rely, without independent
verification, on the information provided to us and on the representations made
by management and the independent registered public accountants. Accordingly,
our oversight does not provide an independent basis to determine that management
has maintained appropriate accounting and financial reporting principles or
appropriate internal controls and procedures designed to assure compliance with
accounting standards and applicable laws and regulations. Furthermore, our
considerations and discussions referred to above do not assure that the audit of
our financial statements has been carried out in accordance with the auditing
standards of the PCAOB, or that the financial statements are presented in
accordance with accounting principles generally accepted in the United States of
America.
Based upon the discussions
referred to above, the audit committee recommended to the Board of Directors
that our audited financial statements be included in our Annual Report on Form
10-K for the year ended December 31, 2015.
|
Members of
the audit committee of the board of |
|
directors of
Legacy Reserves GP, LLC |
|
|
|
|
|
G. Larry
Lawrence (Chairman) |
|
William D.
Sullivan |
|
William R.
Granberry |
63
Table of Contents
OTHER MATTERS
Section 16(a) Beneficial
Ownership Reporting Compliance
Under Section 16(a) of the Exchange Act,
directors, certain officers, and beneficial owners of 10% or more of any class of the Partnerships units
(Reporting Persons)
are required from time to time to file with the SEC and NASDAQ reports of ownership and changes of ownership. Reporting
Persons are required to furnish the Partnership with copies of all Section 16(a)
reports they file. Based solely on its review of forms and written representations received from Reporting Persons by it with
respect to the fiscal year ended December 31, 2014, the Partnership believes that all filing requirements applicable to the
general partners officers and directors and the Partnerships greater than 10% unitholders have been met.
Unitholder Proposals
Any unitholder who wishes to
submit a proposal for action to be included in the proxy statement and form of
proxy relating to the 2017 annual meeting of unitholders must submit the
proposal to us on or before January 11, 2017, but no earlier than December 27,
2016. Any such proposals should be timely sent to our Secretary at 303 W. Wall,
Suite 1800, Midland, Texas 79701. Such proposal must meet all of the
requirements of the SEC and our partnership agreement to be eligible for
inclusion in our 2016 proxy materials. Furthermore, proposals by unitholders may
be considered untimely if we have not received notice of the proposal within the
deadline set under the SEC rules. In no event are limited partners allowed to
vote on matters that would cause the limited partners to be deemed to be taking
part in the management and control of our business and affairs so as to
jeopardize the limited partners limited liability under the Delaware limited
partnership act or the law of any other state in which we are qualified to do
business.
Communications with
Directors or the Board of Directors
Unitholders wishing to
communicate with the Board of Directors should send any communication to our
Secretary at 303 W. Wall, Suite 1800, Midland, Texas 79701. Any such
communication should state the number of units beneficially owned by the
unitholder making the communication. Communications received are distributed to
the Board or to any individual director or directors as appropriate, depending
upon the directions and the facts and circumstances outlined in the
communication. The Board of Directors has directed the Secretary to forward such
communication to the full Board of Directors or to any individual director or
directors to whom the communication is directed, excluding only any
communication that does not relate to the business or affairs of the Company or
the function or duties of the Board of Directors or any of its committees, or is
a job inquiry or an advertisement or other commercial solicitation or
communication.
Availability of Annual
Report
The Annual Report to
Unitholders of the Partnership for the year ended December 31, 2015, including
audited financial statements, is enclosed with this proxy statement but does not
constitute a part of the proxy soliciting material. The Partnership will furnish
a copy of its Annual Report for the year ended December 31, 2015, without
exhibits, free of charge to each person who forwards a written request to our
Secretary at 303 W. Wall, Suite 1800, Midland, Texas 79701.
64
Table of Contents
Annex
A
FORM OF AMENDMENT
TO
FOURTH AMENDED AND
RESTATED
AGREEMENT OF LIMITED
PARTNERSHIP
OF
LEGACY RESERVES LP
[VOTING STANDARD
AMENDMENT PROPOSAL]
THIS AMENDMENT TO FOURTH
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF LEGACY RESERVES LP,
(this Amendment) is entered into effective as of [●], 2016 (the
Effective Date) by Legacy Reserves GP, LLC (the
General Partner), a Delaware
limited liability company and the general partner of Legacy Reserves LP (the
Partnership), a Delaware limited partnership, pursuant to
Sections 13.2 and 13.3(a) of the Fourth
Amended and Restated Agreement of Limited Partnership of the Partnership, dated
June 17, 2014 (the Partnership
Agreement), upon approval by the
holders of a Unit Majority. Unless otherwise defined herein, all capitalized
terms used herein shall have the meaning given to them in the Partnership
Agreement.
PREAMBLE
WHEREAS, Section 13.2 of the
Partnership Agreement provides that, subject to certain exceptions, a proposed
amendment is effective upon its approval by the General Partner and the holders
of a Unit Majority;
WHEREAS, Section 13.3(a) of the Partnership Agreement
provides that any amendment that reduces a percentage of Outstanding Units
required to take any action requires the approval of holders of Outstanding
Units whose aggregate Outstanding Units constitute not less than the voting
requirement sought to be reduced;
WHEREAS, the General Partner approved this Amendment and
deemed it advisable and in the best interest of the Partnership and the Limited
Partners to approve this Amendment;
WHEREAS, the General Partner proposed this Amendment to
the Limited Partners at an annual meeting of the Limited Partners on
[●], 2016 to (i) clarify voting
procedures, (ii) amend voting standards, (iii) provide for the application of
different voting standards in certain circumstances and (iv) provide for such
other matters as are provided herein and recommended that the Limited Partners
approve this Amendment; and
WHEREAS, the holders of a Unit Majority have approved
this Amendment in accordance with Sections 13.2 and 13.3(a) of the Partnership
Agreement.
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NOW,
THEREFORE, in consideration of
the covenants, conditions and agreements contained herein, the General Partner
hereby adopts the following:
AMENDMENT
A. Amendment. The Partnership
Agreement is hereby amended as follows:
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Section 13.9
of the Partnership
Agreement is hereby amended and restated in its entirety to read as
follows: |
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The presence, in person or
by proxy, of holders of a majority in voting power of the Outstanding
Partnership Securities of the class, classes or series for which a meeting has
been called (including Outstanding Partnership Securities deemed owned by the
General Partner), entitled to vote at the meeting, shall constitute a quorum at
a meeting of Limited Partners of such class, classes or series. For purposes of
establishing a quorum, abstentions and broker non-votes in respect of such
Outstanding Partnership Securities shall be deemed to be Outstanding Partnership
Securities present at such meeting. However, if any such action by the Limited
Partners requires approval by holders of a greater percentage in voting power of
such Partnership Securities, then the quorum shall be the holders of such
greater percentage in voting power. For all matters presented to the Limited
Partners holding Outstanding Partnership Securities at a meeting at which a
quorum is present, for which no minimum or other vote of Limited Partners is
required by any other provision of this Agreement, the rules or regulations of
any National Securities Exchange on which the Partnership Securities are
admitted to trading, or applicable law or pursuant to any regulation applicable
to the Partnership or its Partnership Interests, a majority of the votes cast by
Limited Partners holding Outstanding Partnership Securities and entitled to vote
on the matter shall be deemed to constitute the act of all Limited Partners.
Abstentions and broker non-votes shall be deemed to not be votes cast with
respect to such matter. On any matter for which a minimum or other vote of
Limited Partners holding Outstanding Partnership Securities is provided by any
other provision of this Agreement or required by the rules or regulations of any
National Securities Exchange on which the Partnership Securities are admitted to
trading, or applicable law or pursuant to any regulation applicable to the
Partnership or its Partnership Interests, then the act of the Limited Partners
holding Outstanding Partnership Securities with voting power that in the
aggregate represent at least such greater or different percentage shall be
required (with the effect of abstentions and broker non-votes to be determined
based on the applicable rule, regulation or law governing the vote of Limited
Partners required to approve such matter; provided that if the effect of
abstentions and broker non-votes is to be specified by such applicable rule,
regulation or law and there is no prevailing interpretation of such effect, then
abstentions and broker non-votes shall be deemed to not have been cast with
respect to such matter; provided
further, that, for the avoidance
of doubt, with respect to any matter on which this Agreement requires the
approval of a specified percentage of the Outstanding Partnership Securities,
abstentions and broker non-votes shall be counted as votes against such matter). The
Limited Partners present at a duly called or held meeting at which a quorum is
present may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Limited Partners to leave less than a quorum, if any action
taken (other than adjournment) is approved by the required percentage of
Outstanding Partnership Securities specified in this Agreement (including
Outstanding Partnership Securities deemed owned by the General Partner). In the
absence of a quorum any meeting of Limited Partners may be adjourned from time
to time by the affirmative vote of holders of at least a majority in voting
power of the Outstanding Partnership Securities entitled to vote at such meeting
(including Outstanding Partnership Securities deemed owned by the General
Partner) represented either in person or by proxy, but no other business may be
transacted, except as provided in Section 13.7. |
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B. Agreement in Effect.
Except as hereby amended, the Partnership Agreement shall remain in full force
and effect.
C. Applicable Law. This
Amendment shall be construed in accordance with and governed by the laws of the
State of Delaware, without regard to principles of conflicts of laws.
D. Severability. Each
provision of this Amendment shall be considered severable and if for any reason
any provision or provisions herein are determined to be invalid, unenforceable
or illegal under any existing or future law, such invalidity, unenforceability
or illegality shall not impair the operation of or affect those portions of this
Amendment that are valid, enforceable and legal.
E. Ratification of Partnership Agreement. Except as expressly modified and amended herein,
all of the terms and conditions of the Partnership Agreement shall remain in
full force and effect.
(Signature page follows)
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IN WITNESS WHEREOF, the
undersigned has executed this Amendment effective as of the Effective Date.
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General
Partner |
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LEGACY RESERVES GP,
LLC |
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By: |
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AMENDMENT TO
FOURTH AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP OF LEGACY RESERVES LP
A-4
Table of Contents
Annex B
FORM OF AMENDMENT
TO
FOURTH AMENDED AND
RESTATED
AGREEMENT OF LIMITED
PARTNERSHIP
OF
LEGACY RESERVES
LP
[AMENDMENT
APPROVAL]
THIS AMENDMENT TO FOURTH
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF LEGACY RESERVES LP,
(this Amendment) is entered into effective as of [●], 2016 (the
Effective Date) by Legacy Reserves GP, LLC (the
General Partner), a Delaware
limited liability company and the general partner of Legacy Reserves LP (the
Partnership), a Delaware limited partnership, pursuant to
Sections 13.2 and 13.3(a) of the Fourth
Amended and Restated Agreement of Limited Partnership of the Partnership, dated
June 17, 2014 (the Partnership
Agreement), upon approval by the
holders of a Unit Majority. Unless otherwise defined herein, all capitalized
terms used herein shall have the meaning given to them in the Partnership
Agreement.
PREAMBLE
WHEREAS, Section 13.2 of the
Partnership Agreement provides that, subject to certain exceptions, a proposed
amendment is effective upon its approval by the General Partner and the holders
of a Unit Majority;
WHEREAS, Section 13.3(a) of the Partnership Agreement
provides that any amendment that reduces a percentage of Outstanding Units
required to take any action requires the approval of holders of Outstanding
Units whose aggregate Outstanding Units constitute not less than the voting
requirement sought to be reduced;
WHEREAS, the General Partner approved this Amendment and
deemed it advisable and in the best interest of the Partnership and the Limited
Partners to approve this Amendment;
WHEREAS, the General Partner proposed this Amendment to
the Limited Partners at an annual meeting of the Limited Partners on
[●], 2016 to (i) amend a voting standard and (ii) provide for such other
matters as are provided herein and recommended that the Limited Partners approve
this Amendment; and
WHEREAS, the holders of a Unit Majority have approved
this Amendment in accordance with Sections 13.2 and 13.3(a) of the Partnership
Agreement.
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NOW,
THEREFORE, in consideration of
the covenants, conditions and agreements contained herein, the General Partner
hereby adopts the following:
AMENDMENT
A. Amendment. The Partnership
Agreement is hereby amended as follows:
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1. |
Section 13.2
of the Partnership
Agreement is hereby amended and restated in its entirety to read as
follows: |
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Except as provided in
Section 13.1 and Section 13.3, all amendments to this Agreement shall be made in
accordance with the following requirements. Amendments to this Agreement may be
proposed only by the General Partner; provided, however, that the General
Partner shall have no duty or obligation to propose any amendment to this
Agreement and may decline to do so free of any fiduciary duty or obligation
whatsoever to the Partnership or any Limited Partner and, in declining to
propose an amendment, to the fullest extent permitted by law shall not be
required to act in good faith or pursuant to any other standard imposed by this
Agreement, any Group Member Agreement, any other agreement contemplated hereby
or under the Delaware Act or any other law, rule or regulation or at equity.
Subject to Section 6.7(h), Section 16.5 and Section 17.5, to the extent
applicable, a proposed amendment shall be effective upon its approval by (a) the
General Partner, and (b) a majority of the votes cast by the holders of Units
entitled to vote on the proposed amendment at a meeting at which a quorum is
present [(with abstentions and broker non-votes being deemed to not have been
cast with respect to such matter)]1 [in accordance with Section 13.9]2, unless a greater or
different percentage is required under this Agreement or by Delaware law.
[Notwithstanding Section 13.9, the presence, in person or by proxy, of holders
of a majority in voting power of the Outstanding Units, entitled to vote on the
proposed amendment, shall constitute a quorum at a meeting of Limited Partners
called for purposes of considering an amendment proposal pursuant to this
Section 13.2. Abstentions and broker non-votes in respect of such Outstanding
Units shall be deemed to be Outstanding Units present at such meeting for
purposes of establishing a quorum.]3 Each proposed amendment that requires the approval
of the holders of a specified percentage of Outstanding Units shall be set forth
in a writing that contains the text of the proposed amendment. If such an
amendment is proposed, the General Partner shall seek the written approval of
the requisite percentage of Outstanding Units or call a meeting of the
Unitholders to consider and vote on such proposed amendment. The General Partner
shall notify all Record Holders upon final adoption of any such proposed
amendments. |
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1 |
To be inserted if
Proposal 2 is not approved at the annual meeting. |
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2 |
To be inserted if
Proposal 2 is approved at the annual meeting. |
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To be inserted if
Proposal 2 is not approved at the annual
meeting. |
B-2
Table of Contents
B. Agreement in Effect.
Except as hereby amended, the Partnership Agreement shall remain in full force
and effect.
C. Applicable Law. This
Amendment shall be construed in accordance with and governed by the laws of the
State of Delaware, without regard to principles of conflicts of laws.
D. Severability. Each
provision of this Amendment shall be considered severable and if for any reason
any provision or provisions herein are determined to be invalid, unenforceable
or illegal under any existing or future law, such invalidity, unenforceability
or illegality shall not impair the operation of or affect those portions of this
Amendment that are valid, enforceable and legal.
E. Ratification of Partnership Agreement. Except as expressly modified and amended herein,
all of the terms and conditions of the Partnership Agreement shall remain in
full force and effect.
(Signature page follows)
B-3
Table of Contents
IN WITNESS WHEREOF, the
undersigned has executed this Amendment effective as of the Effective Date.
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General
Partner |
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LEGACY RESERVES GP,
LLC |
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By: |
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AMENDMENT TO
FOURTH AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP OF LEGACY RESERVES LP
B-4
Table of Contents
Annex C
FORM OF AMENDMENT
TO
FOURTH AMENDED AND
RESTATED
AGREEMENT OF LIMITED
PARTNERSHIP
OF
LEGACY RESERVES
LP
[MERGER
APPROVAL]
THIS AMENDMENT TO FOURTH
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF LEGACY RESERVES LP,
(this Amendment) is entered into effective as of [●], 2016
(the Effective
Date) by Legacy Reserves GP, LLC
(the General Partner), a Delaware
limited liability company and the general partner of Legacy Reserves LP (the
Partnership), a Delaware limited partnership, pursuant to
Sections 13.2 and 13.3(a) of the Fourth
Amended and Restated Agreement of Limited Partnership of the Partnership, dated
June 17, 2014 (the Partnership
Agreement), upon approval by the
holders of a Unit Majority. Unless otherwise defined herein, all capitalized
terms used herein shall have the meaning given to them in the Partnership
Agreement.
PREAMBLE
WHEREAS, Section 13.2 of the
Partnership Agreement provides that, subject to certain exceptions, a proposed
amendment is effective upon its approval by the General Partner and the holders
of a Unit Majority;
WHEREAS, Section 13.3(a) of the Partnership Agreement
provides that any amendment that reduces a percentage of Outstanding Units
required to take any action requires the approval of holders of Outstanding
Units whose aggregate Outstanding Units constitute not less than the voting
requirement sought to be reduced;
WHEREAS, the General Partner approved this Amendment and
deemed it advisable and in the best interest of the Partnership and the Limited
Partners to approve this Amendment;
WHEREAS, the General Partner proposed this Amendment to
the Limited Partners at an annual meeting of the Limited Partners on
[●], 2016 to (i) amend certain
voting standards, and (ii) provide for such other matters as are provided herein
and recommended that the Limited Partners approve this Amendment; and
WHEREAS, the holders of a Unit Majority have approved
this Amendment in accordance with Sections 13.2 and 13.3(a) of the Partnership
Agreement.
NOW,
THEREFORE, in consideration of
the covenants, conditions and agreements contained herein, the General Partner
hereby adopts the following:
C-1
Table of Contents
AMENDMENT
A. Amendment. The Partnership
Agreement is hereby amended as follows:
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1. |
Section 14.3(b) of the Partnership Agreement is hereby
amended and restated in its entirety to read as
follows: |
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(b) Except as provided in
Section 14.3(d) or Section 14.3(e), the Merger Agreement shall be approved upon
receiving the affirmative vote of a majority of the votes cast by the holders of
Units entitled to vote on the Merger Agreement at a meeting at which a quorum is
present [(with abstentions and broker non-votes being deemed to not have been
cast with respect to such matter)]1 [in accordance with Section 13.9]2. [Notwithstanding
Section 13.9, the presence, in person or by proxy, of holders of a majority in
voting power of the Outstanding Units, entitled to vote on the approval of the
Merger Agreement, shall constitute a quorum at a meeting of Limited Partners
called for purposes of considering a Merger Agreement pursuant to this Section
14.3(b). Abstentions and broker non-votes in respect of such Outstanding Units
shall be deemed to be Outstanding Units present at such meeting for purposes of
establishing a quorum.]3 |
B. Agreement in Effect.
Except as hereby amended, the Partnership Agreement shall remain in full force
and effect.
C. Applicable Law. This
Amendment shall be construed in accordance with and governed by the laws of the
State of Delaware, without regard to principles of conflicts of laws.
D. Severability. Each
provision of this Amendment shall be considered severable and if for any reason
any provision or provisions herein are determined to be invalid, unenforceable
or illegal under any existing or future law, such invalidity, unenforceability
or illegality shall not impair the operation of or affect those portions of this
Amendment that are valid, enforceable and legal.
E. Ratification of Partnership Agreement. Except as expressly modified and amended herein,
all of the terms and conditions of the Partnership Agreement shall remain in
full force and effect.
(Signature page follows)
____________________
1 |
To be inserted if
Proposal 2 is not approved at the annual meeting. |
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2 |
To be inserted if
Proposal 2 is approved at the annual meeting. |
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3 |
To be inserted if
Proposal 2 is not approved at the annual
meeting. |
C-2
Table of Contents
IN WITNESS WHEREOF, the
undersigned has executed this Amendment effective as of the Effective Date.
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General
Partner |
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LEGACY RESERVES GP,
LLC |
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By: |
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AMENDMENT TO
FOURTH AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP OF LEGACY RESERVES LP
C-3
Table of
Contents
Using a black ink pen, mark your votes with an
X as shown in this example. Please do not
write outside the designated areas. |
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Electronic Voting
Instructions |
Available 24 hours a
day, 7 days a week! |
Instead of mailing your
proxy, you may choose one of the voting methods outlined below to vote
your proxy. |
VALIDATION DETAILS ARE
LOCATED BELOW IN THE TITLE BAR. |
Proxies submitted by
the Internet or telephone must be received by 11:59 p.m., Eastern Daylight
Time, on May 9, 2016. |
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Vote by
Internet |
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Go to www.investorvote.com/LGCY |
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Or scan the QR code with your smartphone |
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Follow the steps outlined on the secure
website |
Vote by
telephone |
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Call toll free
1-800-652-VOTE (8683) within the USA, US territories & Canada on a
touch tone telephone |
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Follow the instructions
provided by the recorded message |
Annual Meeting Proxy Card |
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IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD
ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE
ENCLOSED ENVELOPE. |
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To vote FOR
all of the Board of Directors' recommendations, do not check any of the
boxes, date and sign below and return the form in the postage paid
envelope. |
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A |
Proposals The Board of Directors recommends a vote
FOR all the nominees listed and FOR Proposals 2, 3, 4 and 5. |
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1. |
Nominees to serve a
one-year term: |
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For |
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Withhold |
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For |
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Withhold |
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For |
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Withhold |
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01
Cary D. Brown |
☐ |
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02
Kyle A. McGraw |
☐ |
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03
Dale A. Brown |
☐ |
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04
G. Larry Lawrence |
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05
William D. Sullivan |
☐ |
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06
William R. Granberry |
☐ |
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07
Kyle D. Vann |
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08
Paul T. Horne |
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For |
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Against |
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Abstain |
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For |
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Against |
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Abstain |
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2. |
Approval of an amendment to our Partnership Agreement
relating to voting standards for votes of the Partnership’s
securities (“Voting Standards Amendment”). |
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Approval of an amendment to our Partnership Agreement
relating to voting standards for approval of an amendment
to our Partnership Agreement (“Partnership Agreement
Amendment Amendment”). |
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Approval of an
amendment to our Partnership Agreement relating to voting standards for
approval of merger agreements under consideration by the Partnership
(Merger Agreement Amendment). |
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5. |
Ratification of the
appointment of BDO USA, LLP as our independent registered public
accounting firm for the fiscal year ending December 31,
2016. |
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B |
Authorized
Signatures This section must be completed for your vote to be counted.
Date and Sign Below |
Please sign exactly as name(s) appears
hereon. Joint owners should each sign. When signing as attorney, executor,
administrator, corporate officer, trustee, guardian, or custodian, please
give full title. If no box is checked with respect to Proposal 1, Proposal
2, Proposal 3, Proposal 4 or Proposal 5, your signature below authorizes the proxies to vote "FOR"
the Board of Directors' recommendations for these proposals as indicated on
the reverse side of this proxy card. |
Date
(mm/dd/yyyy) Please print date below. |
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Signature 1 Please keep signature within the box. |
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Signature 2 Please keep signature within the box. |
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IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD.
Table of
Contents
▼ |
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD
ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE
ENCLOSED ENVELOPE. |
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Proxy
Legacy Reserves LP |
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303 W. Wall, Suite
1800
Midland, Texas 79701
THIS PROXY
IS SOLICITED BY THE BOARD OF DIRECTORS OF LEGACY RESERVES GP, LLC FOR THE ANNUAL
MEETING OF UNITHOLDERS OF LEGACY RESERVES LP TO BE HELD ON MAY 10, 2016.
The
undersigned hereby appoints Micah C. Foster and James Daniel Westcott, each of
them, any one of whom may act without joinder of the other, with full power of
substitution, resubstitution and ratification, attorneys and proxies of the
undersigned to vote all units representing limited partnership interests of
Legacy Reserves LP which the undersigned is entitled to vote at the annual
meeting of unitholders to be held at the Midland Petroleum Club located at 501
W. Wall, Midland, Texas 79701 on Tuesday, May 10, 2016 at 10:30 a.m., local
time, and at any adjournment or postponement thereof, in the manner stated
herein as to the matters set forth in the Notice of Annual Meeting and Proxy
Statement, and in their discretion on any other matter that may properly come
before the meeting.
You are
encouraged to specify your choices by marking the appropriate boxes, but you
need not mark any boxes if you wish to vote in accordance with the Board of
Directors recommendations:
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
THE SPECIFICATIONS MADE HEREON. IF NO CONTRARY SPECIFICATION IS MADE, THEN THIS PROXY WILL BE VOTED FOR THE ELECTION OF
THE DIRECTOR NOMINEES NAMED IN ITEM 1, FOR THE VOTING STANDARDS AMENDMENT, FOR THE PARTNERSHIP AGREEMENT AMENDMENT AMENDMENT,
FOR THE MERGER AGREEMENT AMENDMENT AND FOR THE RATIFICATION OF THE APPOINTMENT OF OUR SELECTION OF THE INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM, AND, IN THE DISCRETION OF THE PROXIES, WITH RESPECT TO SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE MEETING.
THE BOARD OF DIRECTORS OF LEGACY RESERVES GP, LLC
RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR, A VOTE FOR THE VOTING STANDARDS AMENDMENT, A VOTE FOR THE
PARTNERSHIP AGREEMENT AMENDMENT AMENDMENT, A VOTE FOR THE MERGER AGREEMENT AMENDMENT AND A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF OUR SELECTION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING OF UNITHOLDERS, THE 2015 ANNUAL REPORT AND THE PROXY STATEMENT FURNISHED HEREWITH. PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED, PRE-ADDRESSED STAMPED ENVELOPE.
(To be Voted and Signed
on Reverse Side)
Change of Address
Please print new address below. |
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IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD. |
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