Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): February 18, 2010
Legacy
Reserves LP
(Exact
name of registrant as specified in its charter)
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Delaware
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1-33249
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16-1751069
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(State
or other jurisdiction of
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(Commission
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(IRS
Employer
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incorporation)
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File
Number)
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Identification
No.)
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303
W. Wall, Suite 1400
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Midland,
Texas
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79701
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (432) 689-5200
NOT
APPLICABLE
(Former
name or former address, if changed since last report.)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
(17 CFR 240.14d-2(b))
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
(17 CFR 240.13e-4(c))
Item
5.02 Departure
of Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers.
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Amendment
to Legacy Reserves LP Compensation
Policy
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On
February 18, 2010, the Compensation Committee ( the “Committee”) of Legacy Reserves
GP, LLC, the general partner (the “General Partner”) of Legacy
Reserves LP (the “Partnership”), approved a
revised methodology of calculating the objective portion of equity-based
incentive compensation applicable to the General Partner’s Chairman and Chief
Executive Officer, Cary D. Brown. With respect to the General Partner’s
remaining executive officers, the Committee recommended the revised methodology
to the board of directors (the “Board”) of the General
Partner, and the Board approved such revised methodology.
With the
exception of the revised calculation methodology for the number of phantom units
subject to vesting under the objective portion of the equity-based incentive
compensation, the provisions of the Legacy Reserves LP Compensation Policy as
previously adopted on September 21, 2009 remain in full force and
effect. All material provisions of the Legacy Reserves LP
Compensation Policy, as amended and restated (the “Compensation Policy”), are set
forth below.
The goals
of the new Compensation Policy are to:
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·
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align
the compensation of the executive officers of the General Partner with
unitholder return;
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·
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be
competitive with peer companies;
and
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·
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have
the flexibility to be both competitive and aligned with unitholder return
in a volatile economic climate.
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Non-Equity
Incentive Compensation (Cash Bonus). The objective and
subjective components of the non-equity incentive compensation under the
Compensation Policy each comprise 50% of the maximum bonus available expressed
as a percentage of annual salary for each executive officer, as set forth in the
following table.
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Maximum
Cash Bonus Opportunity as
a
Percentage of Annual Salary
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||||
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Executive
Officer
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Title
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Subjective
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Objective
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Total
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Cary
D. Brown
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Chairman
of the Board and Chief Executive Officer
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55%
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55%
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110%
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Steven
H. Pruett
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President,
Chief Financial Officer and Secretary
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50%
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50%
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100%
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Paul
T. Horne
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Executive
Vice President of Operations
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40%
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40%
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80%
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Kyle
A. McGraw
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Director,
Executive Vice President of Business Development and Land
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35%
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35%
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70%
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William
M. Morris
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Vice
President, Chief Accounting Officer and Controller
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30%
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30%
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60%
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The
objective component (up to 50% of the annual cash bonus) will be based on two
measures of equal weight:
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·
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EBITDA
(as defined in the Partnership’s revolving credit facility);
and
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·
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Growth
in cash distributions per unit.
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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.
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Measure
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Weight
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Performance
Level/Percent Earned
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EBITDA
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50%
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85%
of Target
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100%
of Target
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115%
of Target
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30%
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75%
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100%
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Cash
Distributions Per Unit
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50%
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0%
Growth
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7.5%
Growth
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15%
Growth
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50%
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75%
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100%
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||
These
objective measures are intended to align the incentive compensation of each
executive officer with unitholder return by rewarding performance that maintains
or grows distributions and increases EBITDA. EBITDA and growth in cash
distributions per unit are used to determine the objective component of the
cash bonus. The respective target levels, for purposes of the annual
cash bonus determination only, will be set by the Committee at the
beginning of each year after considering management’s
recommendation.
Equity-Based
Incentive Compensation. The equity-based incentive compensation will also
employ a mix of subjective and objective measures.
Subjective or Service-Based
Component. The subjective or service-based component will be determined
by a subjective evaluation of prior fiscal year performance and, with respect to
each executive officer, may be awarded up to the maximum percentage of annual
salary as set forth in the table 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 vesting period. The vesting of
service-based equity-based awards, once granted, is not subject to the
attainment of any performance criteria.
Objective or Performance-Based
Component. The objective or performance-based component will be granted
each year at the maximum percentage listed in the table below, but the amount
vested each year for the three-year vesting period will be determined on each
vesting date in accordance with a formula (as set forth under “Calculation of
Vesting of Objective Component of Equity-Based Compensation” below) based on the
objective total unitholder return and relative performance measures (described
below) achieved during the fiscal year prior to the applicable vesting date. If
none or only a portion of phantom units of a particular tranche 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 will be phantom units, with
associated distribution equivalent rights (“DERs”), up to the maximum
amounts reflected as percentages of annual salary as set forth in the following
table.
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Maximum
Grant Value of Phantom Units as
a
Percentage of Annual Salary
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Executive
Officer
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Title
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Subjective
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Objective
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Total
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Cary
D. Brown
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Chairman
of the Board and Chief Executive Officer
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100%
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150%
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250%
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Steven
H. Pruett
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President,
Chief Financial Officer and Secretary
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80%
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120%
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200%
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Paul
T. Horne
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Executive
Vice President of Operations
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60%
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90%
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150%
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Kyle
A. McGraw
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Director,
Executive Vice President of Business Development and Land
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50%
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75%
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125%
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William
M. Morris
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Vice
President, Chief Accounting Officer and Controller
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40%
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60%
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100%
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A phantom
unit is a notional unit that entitles the holder upon vesting to receive the
same number of Partnership units, or, at the discretion of the Compensation
Committee, cash valued at the closing price of units on the vesting date. The
number of phantom units granted will be 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.
All
phantom unit grants will vest over a three-year period, with each tranche to
vest on the first, second and third anniversary of the initial grant date, as
applicable. 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 will accumulate and accrue based on the
assumed 100% vesting of each tranche. With respect to the objective component
only, the actual amounts payable will be based solely on the number of vested
underlying phantom units.
Calculation of
Vesting of Objective Component of Equity-Based Compensation.
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 will be 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 percentage of the 50% of the
performance-based award to vest under this Step 1 is determined within a matrix
which ranges from 0% to 100% and will increase from 0% to 100% as each of the
Legacy TUR and the ordinal rank of the Legacy TUR among the Peer Group
increase. The applicable Legacy TUR range is from less than 8% (where
no vesting will occur) to more than 20% (where 100% of the amount available
under this Step 1 is subject to vesting, dependent upon the Legacy TUR rank
among the Peer Group).
For the
2010-2012 performance period, the Peer Group consists of the Partnership,
Breitburn Energy Partners L.P., Encore Energy Partners LP, EV Energy Partners,
L.P., Linn Energy, LLC, Pioneer Southwest Energy Partners L.P. 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.
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”). The percentage of the 50% of the performance-based
award to vest under this Step 2 is determined within a matrix which ranges from
0% to 100% and will increase from 0% to 100% as the Legacy TUR and the
percentile rank of the Legacy TUR among the Adjusted Alerian Index
increases. The applicable Legacy TUR range is from less than 8%
(where no vesting occurs) to more than 20% (where 100% vesting will be
available, dependent upon the percentile rank of the Legacy TUR within the
Adjusted Alerian Index).
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.
2010
Salaries and 2009 Cash Bonuses for Executive Officers
Salaries.
The Committee determined the Chief Executive Officer’s 2010 salary as follows,
and, upon recommendation of the Committee, the Board determined 2010 salaries
for the remaining executive officers as follows, all effective March 1,
2010:
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Executive
Officer
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2010
Salary
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Cary
D. Brown
Chairman of the Board and
Chief Executive Officer
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$364,000
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Steven
H. Pruett
President, Chief Financial
Officer and Secretary
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$292,000
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Paul
T. Horne
Executive Vice President of
Operations
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$258,000
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Kyle
A. McGraw
Executive Vice President of
Business Development and Land
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$242,000
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William
M. Morris
Vice President, Chief
Accounting Officer and Controller
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$227,000
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The
Committee recommended, and the Board approved, that salaries will be reviewed
annually in the first quarter of each year.
Cash Bonuses with
respect to 2009. On February 18, 2010, in accordance with the
Compensation Policy, the Committee approved, subject to Audit Committee approval
of the final EBITDA calculation for 2009, the following bonus awards for
Mr. Cary Brown, and, with respect to the remaining executive officers,
recommended the following bonus awards to the Board and the Board approved such
awards, also subject to Audit Committee approval of the final EBITDA calculation
for 2009.
Subjective Cash
Award. Each executive officer will be awarded the cash bonuses
in the amounts determined by the percentage of maximum levels available, as set
forth under “% of Subjective
Factor” in the table below, and the potential maximum level of the
subjective component of short-term (cash) incentive compensation for 2009 (the
“Subjective Factor” as
set forth below).
Objective Cash
Award. As set forth in the Compensation Policy, the
objective component (up to 50% of the annual cash bonus) is based on EBITDA and
growth in cash distributions per unit, weighted equally. In
accordance with the performance level/percentage earned calculation set forth in
the Compensation Policy, the cash bonus with respect to each executive officer
will be awarded as follows:
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Objective
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Subjective
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Total
Bonus
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Executive
Officer
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2009
Salary
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Objective
Factor
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Bonus
Amount
(1)
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Subjective
Factor
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%
of
Subjective
Factor
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Bonus
Amount
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Cary
D. Brown
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$ 325,000
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55%
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$ 102,996
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55%
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80%
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$ 143,000
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$ 245,996
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Steve
H. Pruett
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$ 275,000
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50%
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$ 79,228
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50%
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80%
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$ 110,000
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$ 189,228
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Paul
T. Horne
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$ 250,000
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40%
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$ 57,620
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40%
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90%
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$ 90,000
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$ 147,620
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Kyle
A. McGraw
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$ 235,000
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35%
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$ 47,392
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35%
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70%
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$ 57,575
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$ 104,967
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William
M. Morris
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$ 220,000
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30%
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$ 38,029
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30%
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70%
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$ 46,200
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$ 84,229
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(1)
The amounts shown are preliminary and are
subject to Audit Committee approval of the final EBITDA calculation for
2009. The amounts are determined by using a
weighted earned percentage of 57.6% of the Objective Factor as determined
in accordance with the formula set forth in the Compensation Policy. See
“Amendment to Legacy Reserves LP Compensation Policy – Non-Equity
Incentive Compensation (Cash Bonus)”
above.
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2010
Phantom Unit Grant
On
February 18, 2010, in accordance with the Compensation Policy, the Committee
approved the following phantom unit awards for Mr. Cary Brown, and, with respect
to the remaining executive officers, recommended the following phantom unit
awards to the Board and the Board approved such awards.
A phantom
unit is a notional unit that entitles the holder upon vesting to receive the
same number of Partnership units, or, at the discretion of the Compensation
Committee, cash valued at the closing price of units on the vesting date. All
phantom unit grants will vest over a three-year period, with each tranche to
vest on the first, second and third anniversary of the initial grant date, as
applicable. With respect to the objective component only, the actual number
vested will be determined based on the attainment of objective performance
criteria as set forth in the Compensation Policy.
With
respect to all phantom unit grants, associated DERs have been granted, which
will accrue and be payable upon vesting. DERs will accumulate and accrue based
on the assumed 100% vesting of each tranche. With respect to the objective
component only, the actual amounts payable will be based solely on the number of
vested underlying phantom units.
Subjective or Service-Based
Component. Each executive officer was awarded the maximum
level available of the potential subjective component of long-term (equity)
incentive compensation for 2009 (such maximum available level as set forth in
the table below), with the number of phantom units granted determined by using
the 20-day average closing price of Partnership units prior to February 18,
2010, or $20.07. The only condition to vesting will be that the award
recipient remain in the service of the Partnership until the end of the
respective vesting period. The vesting of service-based equity-based
awards, once granted, is not subject to the attainment of any performance
criteria.
Objective Equity
Compensation. The number of phantom units for the objective
component of equity-based compensation was granted as prescribed by the
Compensation Policy at the maximum level, in an amount based on the average
closing price of Partnership units for the 20 trading day period ended the last
trading day prior to January 1, 2010, or $18.86. As set forth in the
Compensation Policy, the objective or performance-based component is granted
each year at the maximum percentage listed in the table below, but the amount
vested each year for the three-year vesting period will be determined on each
vesting date in accordance with a formula based on the objective total
unitholder return measures achieved during the fiscal year prior to the
applicable vesting date. If none or only a portion of phantom units
of a particular one-third tranche vest as a result of target levels not being
met, such number of phantom units will be forfeited.
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Phantom
Unit Grants
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Objective
Grant
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Subjective
Grant
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Executive
Officer
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2009
Salary
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Objective
Factor (1)
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Maximum
Phantom
Units (2)
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Subjective
Factor (1)
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Subjective
Award
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Phantom
Units
(3)
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Cary
D. Brown
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$325,000
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150%
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25,848
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100%
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100%
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16,193
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Steve
H. Pruett
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$275,000
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120%
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17,497
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80%
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100%
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10,962
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Paul
T. Horne
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$250,000
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90%
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11,930
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60%
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100%
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7,474
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Kyle
A. McGraw
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$235,000
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75%
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9,345
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50%
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100%
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5,855
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William
M. Morris
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$220,000
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60%
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6,999
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40%
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100%
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4,385
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(1) Represents
percentage of 2009 salary.
(2) Represents
maximum number of phantom units available to vest in one-third tranches
over the next three years starting February 18, 2011, pending attaining
specified performance criteria. Unvested phantom units will be
forfeited.
(3) Phantom
units vest 1/3 each anniversary
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Item
9.01 Financial Statements and Exhibits.
(d)
Exhibits.
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Exhibit
Number
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Description
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Exhibit
99.1
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Form
of Grant Agreement - Phantom Units (Objective).
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| Exhibit 99.2 | Form of Grant Agreement - Phantom Units (Subjective). |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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Legacy Reserves
LP
By:
Legacy Reserves GP, LLC, its General Partner
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Date:
February 24, 2010
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By:
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/s/
Cary D. Brown
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Name:
Cary D. Brown
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Title:
Chairman of the Board and Chief Executive Officer
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EXHIBIT
INDEX
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Exhibit
Number
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Description
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Exhibit
99.1
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Form
of Grant Agreement - Phantom Units (Objective).
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| Exhibit 99.2 | Form of Grant Agreement - Phantom Units (Subjective). |