Proxy Statement (definitive) (def 14a)

Date : 05/20/2019 @ 10:12PM
Source : Edgar (US Regulatory)
Stock : Legacy Reserves Inc. (MM) (LGCY)
Quote : 0.0395  0.0 (0.00%) @ 1:00AM

Proxy Statement (definitive) (def 14a)

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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 ☒
Filed by a Party other than the Registrant o

Check the appropriate box:

o
Preliminary Proxy Statement
o
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
o
Definitive Additional Materials
o
Soliciting Material Pursuant to §240.14a-12
Legacy Reserves Inc.
(Name of Registrant as Specified In Its Charter)

Payment of Filing Fee (Check the appropriate box):

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

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303 W. Wall, Suite 1800
Midland, Texas 79701

May 20, 2019

To Our Stockholders:

You are cordially invited to attend the 2019 Annual Meeting of Stockholders (the “ Annual Meeting ”) of Legacy Reserves Inc. to be held on June 6, 2019 commencing at 10:30 a.m. local time at Midland Country Club located at 6101 N. Highway 349, Midland, Texas 79705. Proxy materials, which includes a Notice of the Annual Meeting, proxy statement and proxy card, are enclosed with this letter. The attached proxy statement is first being mailed to our stockholders on or about May 20, 2019. We have also enclosed our 2018 Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Our board of directors has called this Annual Meeting for you to consider and act upon:

(1) The election of six directors nominated to our board of directors to serve until the next annual meeting of stockholders;
(2) The ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019; and
(3) 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 stockholders in favor of adopting the foregoing proposals.

Our board of directors recommends that you approve both of the above-listed proposals .

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 Corporate Secretary. If you would like to attend and your shares 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 share ownership.

We look forward to seeing you at the meeting.

 
Sincerely,
 

 
Paul T. Horne
 
Chairman of the Board
 
Legacy Reserves Inc.

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303 W. Wall, Suite 1800
Midland, Texas 79701

NOTICE OF THE 2019
ANNUAL MEETING OF STOCKHOLDERS

The 2019 Annual Meeting of Stockholders (the “ Annual Meeting ”) of Legacy Reserves Inc. will be held on June 6, 2019, at 10:30 a.m. local time at Midland Country Club located at 6101 N. Highway 349, Midland, Texas 79705 for the following purposes:

1. To elect six directors to our board of directors, each to serve until the next annual meeting of stockholders;
2. To ratify the appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019; and
3. 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 stockholders in favor of adopting the foregoing proposals.

Only stockholders of record at the close of business on May 16, 2019, are entitled to vote at the Annual Meeting and at any adjournment or postponement thereof. A list of such stockholders will be open to examination, during regular business hours, by any stockholder for at least ten days prior to the Annual Meeting, at our offices at 303 W. Wall, Suite 1800, Midland, Texas 79701. Stockholders of record holding a majority of the outstanding shares of common stock entitled to vote 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 shares on your behalf for on Proposal 1 unless and 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 Annual Meeting to stockholders or their duly authorized proxies. Admission to the Annual Meeting will be on a first-come, first-served basis. Registration will begin at 9:30 a.m. Each stockholder must present proof of ownership of our shares and a valid government-issued picture identification, such as a driver’s license or passport, to be admitted to the Annual Meeting. If your shares are held in the name of a bank, broker or other nominee and you plan to attend the Annual Meeting in person, you must bring proof of ownership, such as a legal proxy, your brokerage statement, the proxy card mailed to you by your bank, broker or other nominee or other proof of ownership as of the record date to be admitted to the Annual Meeting. Cameras, recording devices and other electronic devices will not be permitted at the meeting. The use of mobile phones or other electronic devices during the Annual Meeting is also prohibited.

 
By Order of the Board of Directors,
 

 
Paul T. Horne
 
Chairman of the Board
 
Legacy Reserves Inc.

Midland, Texas
May 20, 2019

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Proxy Statement for the
Annual Meeting of Stockholders of
LEGACY RESERVES INC.
To Be Held on Thursday, June 6, 2019

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Legacy Reserves Inc.
303 W. Wall, Suite 1800
Midland, Texas 79701

PROXY STATEMENT
FOR THE 2019 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 6, 2019

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING

The Annual Meeting

Definitions:

Unless otherwise indicated, the terms “ Company ,” “ Legacy, ” “ we ,” “ our ,” and “ us ” are used in this proxy statement to refer to Legacy Reserves Inc. together with its subsidiaries for the periods after September 19, 2018, the date the we completed our transition from a master limited partnership to a corporation (the “ Corporate Reorganization ”). For the periods prior to September 20, 2018, unless the context requires otherwise or unless otherwise noted, all references to “ Partnership ,” “ Legacy, ” “ we ,” “ our ,” and “ us ” are to Legacy Reserves LP and its subsidiaries.

The terms “ Board ” and “ Board of Directors ” refer to our board of directors. The term “ compensation committee ” refers to the compensation committee of the Board of Directors. The term “a udit committee ” refers to the audit committee of the Board of Directors. The term “ nominating and governance committee ” refers to the nominating and governance committee of the Board of Directors. The term “ shares ” refers to shares of our common stock, par value $0.01.

What is a proxy statement and why is it important?

We hold a meeting of our stockholders annually. This year’s meeting will be held on June 6, 2019. Our Board of Directors is seeking your proxy to vote at the 2019 Annual Meeting of Stockholders (“ Annual Meeting ”). This proxy statement contains important information about the Company and each of the matters to be voted on at the Annual Meeting. We are mailing this proxy statement to stockholders on or about May 20, 2019. 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 Annual Meeting will be held on Thursday, June 6, 2019, at 10:30 a.m., local time, at Midland Country Club located at 6101 N. Highway 349, Midland, Texas 79705.

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 stockholders; (2) ratify the appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019; and (3) 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 stockholders in favor of adopting the foregoing proposals.

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Voting and Proxy Procedures

Who may vote at the Annual Meeting?

Only stockholders of record at the close of business on May 16, 2019, the record date for the Annual Meeting, are entitled to participate in the Annual Meeting. If you were a stockholder of record on that date, you will be entitled to vote all of the shares 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 bank, broker or other nominee how you wish to vote your units on Proposal 1. Absent instructions from you, your broker may not vote your shares on this proposal and your shares will be considered broker non-votes, which will have no effect on the outcome of Proposal 1.

What are the voting rights of stockholders?

Each share is entitled to one vote on all matters. Your proxy card indicates the number of shares that you owned as of the record date.

Who is soliciting my proxy?

Our Board of Directors and officers, on behalf of the Company, are soliciting proxies to be voted at the Annual Meeting.

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” (Robert L. Norris and Micah C. Foster) are the individuals named as proxies on your proxy card) will vote your shares as you have directed. Unless otherwise directed by you, your proxy will vote your shares:

For the election of the six director nominees proposed by our Board of Directors; and
For the ratification of the appointment of BDO USA, LLP as our independent registered accounting firm for the fiscal year ending December 31, 2019.

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 stockholders, 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 stockholders of record at the close of business on May 16, 2019 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 shares are held in the name of a bank, broker or other nominee and you plan to attend the Annual Meeting in person, you must bring proof of ownership, such as a legal proxy, your brokerage statement, the proxy card mailed to you by your bank, broker or other nominee or other proof of ownership as of the record date to be admitted to the Annual Meeting.

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 Annual Meeting to our Corporate 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 by mail, telephone or the internet that is received by 11:59 p.m., Eastern Time, on June 5, 2019; or
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 Annual Meeting as described below.

If you have instructed a bank, broker or other nominee to vote your shares, you must follow directions received from your bank, broker or other nominee to change those instructions.

What does it mean if I get more than one proxy card?

It indicates that your shares 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 shares 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 bank, broker or other 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 issued and outstanding shares entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business at the Annual Meeting. As of May 16, 2019, the record date, there were 114,812,812 shares issued and outstanding held by approximately 107 holders of record. Stockholders are entitled to one vote, exercisable in person or by proxy, for each share held by such stockholder on the record date. Our second amended and restated bylaws (“ bylaws ”) does not provide for cumulative voting.

Who will count the vote?

Representatives of Computershare Trust Company, N.A., our transfer agent, will tabulate the votes cast by proxy. The Inspector of Election will tabulate any votes cast at the Annual Meeting.

How many votes are required to approve the proposals?

Proposal 1 . Directors will be elected by a plurality of the votes cast in respect of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the election of directors.

Proposal 2 . The ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019 will be determined by the affirmative vote of holders of a majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote thereon.

How are abstentions and broker non-votes counted?

Abstentions and broker non-votes are included in determining whether a quorum is present.

Proposal 1 . Abstentions and broker non-votes will not have an effect on the outcome of the election of directors. Banks, brokers or other nominees do not have the discretionary authority to vote on the directors standing for election.

Proposal 2 . Brokers have the discretionary authority to vote your shares on the ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm if you have not furnished voting instructions within a specified period of time prior to the Annual Meeting. Abstentions will not have an effect on the outcome of this vote.

How are proxies solicited?

Proxies may be solicited by mail, telephone or other means by our officers, directors and 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 stockholders.

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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 shares, you should contact:

Legacy Reserves Inc.
303 W. Wall, Suite 1800
Midland, Texas 79701
Attention: Albert E. Ferrara, III
General Counsel and Corporate Secretary

BACKGROUND OF THE SOLICITATION

On April 1, 2019, the Company received a letter from Baines Creek Partners, L.P. (“Baines Creek”), a beneficial holder of approximately 23.0% of our outstanding common stock, purporting to give notice (the “Notice Letter”) of Baines Creek’s intention to nominate three director candidates for election to the Company’s Board of Directors at the Annual Meeting. The Notice Letter was deficient because Baines Creek failed to satisfy the requirements set forth in Section 2.03(A)(1)(c) of the Bylaws to be a “stockholder of record” of the Company “at the time of giving of notice.” On April 9, 2019, the Company sent to Baines Creek a response letter to that effect. As a result, the Company does not believe that Baines Creek is entitled to nominate directors for election to the Board of Directors at the Annual Meeting. Since that date, Baines Creek has given no further indication of an intent to solicit proxies for the Annual Meeting. Therefore, the Company does not expect a “solicitation in opposition” as defined under Exchange Act Rule 14a-6(a) at the Annual Meeting.

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 6, 2019.

The Notice of the Annual Meeting and proxy statement are available at https://www.legacyreserves.com/proxy and our Annual Report on Form 10-K for the year ended December 31, 2018 is available at https://www.legacyreserves.com/annual-reports.

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PROPOSAL 1
ELECTION OF DIRECTORS

Board of Directors

Our bylaws provide 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. Currently, our Board has six directors. Each of the nominees for election to the Board of Directors is currently a director. 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, retirement, disqualification or removal.

Voting

Directors will be elected by a plurality of the votes cast in respect of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the election of directors. Shares 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 shares 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 shares 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.

Nominees for Election

Name
Principal Occupation
Age
Director Since
Paul T. Horne
Mr. Horne was appointed to the Board of Directors in December 2014 and was appointed as the Chairman of the Board of Directors in May 2016. Mr. Horne served as Chief Executive Officer of Legacy from March 2015 until February 2019. Mr. Horne previously served as President of Legacy from March 2015 to March 2018, as Executive Vice President and Chief Operating Officer of Legacy from March 2012 to March 2015 and as Executive Vice President of Operations of Legacy 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 prior service as Chief Executive Officer and pertinent experience, qualifications, attributes and skills, which include: the knowledge and experience attained through 35 years of service in the oil and gas industry and 33 years of experience in the Permian Basin.
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December 2014

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Name
Principal Occupation
Age
Director Since
Kyle D. Vann
Mr. Vann was appointed to the Board of Directors upon completion of our private equity offering in March 2006 and was named Lead Independent Director of the Board of Directors on May 12, 2016. 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. 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. From October 2012 to October 2017, Mr. Vann served as an Executive Advisor for CCMP Capital Advisors, LLC, a private equity firm. In October 2017, Mr. Vann joined the board of PQ Chemical, which is a portfolio company of CCMP Capital. In March 2019, Mr. Vann began serving on the advisory board of Refined Technologies, a private energy and chemical services company. 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 47 years of service in the commodity trading business and his background and expertise in risk assessment and leadership in the energy sector.
71
March 2006
   
 
William R. Granberry
Mr. Granberry was appointed to our Board of Directors in January 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. From May 2015 through May 2017, he was elected to one year terms 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. In January 2014, he retired and sold his interest in Compass Operating Company, LLC, to his partners. 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
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January 2008

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Name
Principal Occupation
Age
Director Since
 
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 53 years of service in engineering and service in executive positions with companies ranging from a large global energy company to small independents.
 
 
   
 
G. Larry Lawrence
Mr. Lawrence has been a member of our Board of Directors since May 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.
   
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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May 2006
   
 
James Daniel Westcott
James Daniel Westcott was promoted to Chief Executive Officer of Legacy in March 2019 and was appointed to the Board in March 2019. Prior to Mr. Westcott’s promotion, he served as President of Legacy since March 2018 and as Chief Financial Officer since September 2012. From July 2006 to his appointment at Legacy, 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,
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March 2019

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Name
Principal Occupation
Age
Director Since
 
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. Morgan’s 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.
   
The Board of Directors determined that Mr. Westcott should be nominated to our Board of Directors due to his service as our Chief Executive Officer and prior service as our Chief Financial officer, and his pertinent experience, qualifications, attributes and skills, which include: sourcing and structuring investments in oil and gas companies and familiarity with our operations.
 
 
   
 
Douglas W. York
Douglas W. York has been a member of our Board of Directors since October 2018. Mr. York is a Co-Founder and Managing Director of Sequel Energy Group LLC. Sequel Energy Group was formed in November, 2016 to pursue investments in drilling joint ventures in North American resource plays. Doug has served in a number of managerial and executive roles during his tenure in the E&P sector, most recently as Co-Founder and Managing Member of privately held Sequel Energy, LLC (September 2006-July 2014). Sequel Energy, LLC was formed in September 2006 and was focused on the acquisition and development of operated and non-operated interests in Louisiana, Oklahoma and North Dakota prior to divesting its assets in late 2013 and early 2014. Before co-founding Sequel, Doug spent ten years (August 1996-March 2006) with St. Mary Land and Exploration Company (NYSE - SM), a publicly-traded company with operations in multiple U.S. basins, where he served as VP, Engineering and Acquisitions and later as EVP and COO. Mr. York served as Regional Engineer for the Northern Business Unit of the Rockies Region during three years (December 1993-July 1996) with Meridian Oil Company. Doug began his career with ARCO Oil and Gas Company (January 1984-November 1993) where his roles included Drilling Engineering, Reservoir Engineering and Planning. Doug holds a B.S. Degree in Petroleum Engineering from the University of Tulsa. He has served on the Boards of the Independent Petroleum Association of the Mountain States, Montana Petroleum Association, Petroleum Engineering Advisory Board at the University of Tulsa, KLR Energy Acquisition Corp. and the Development Board of Colorado UpLift.
   
The Board of Directors determined that Mr. York should be nominated to our Board of Directors due to his pertinent experience, qualifications, attributes and skills, which include: managing a public oil and gas company, experience in the valuation of oil and gas properties and financial expertise.
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October 2018

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR”
THE FOREGOING DIRECTOR NOMINEES.

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CORPORATE GOVERNANCE

Board Participation

During the fiscal year ended December 31, 2018, our Board of Directors held 15 meetings. It is the policy of our Board of Directors to encourage directors to attend each meeting of stockholders. All of our directors serving on the Board of Directors at the time of the annual meeting held in 2018 attended the annual meeting held in 2018.

During 2018, the audit committee met 6 times, the compensation committee met 11 times, and the nominating and governance committee met 9 times.

Director Independence

As required by NASDAQ listing standards, a majority of the members of a listed company’s board of directors must qualify as independent as affirmatively determined by the board of directors. The Board of Directors determines the independence of each director in accordance with the rules and regulations of the Securities and Exchange Commission (“ SEC ”) and NASDAQ independence standards. The Board of Directors includes four individuals who the Board has determined meet the independence and experience standards established by the SEC and NASDAQ: Messrs. Granberry, Lawrence, Vann and York.

The Board annually reviews all relevant business relationships any director may have with Legacy and the independence standards established by NASDAQ.

Leadership Structure of the Board

Our current leadership structure of the Board comprises of a Chairman of the Board, Mr. Horne, and a Lead Independent Director, Mr. Vann. The Lead Independent Director has clearly defined leadership authority and responsibilities, which include presiding at all meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent directors, and serving as liaison between the Chairman of the Board and the independent directors. Our Lead Independent Director is afforded direct and complete access to the Chairman of the Board at any time as such director deems necessary or appropriate.

In connection with Mr. Horne’s retirement as our Chief Executive Officer and the separation of the roles of Chairman of the Board and Chief Executive Officer, the nominating and governance committee has determined that following the annual meeting it will not reappoint Mr. Vann as, or appoint a new, Lead Independent Director. Mr. Horne will continue serve as Chairman of the Board. The nominating and governance committee believes that Mr. Horne’s history as one of Legacy’s founders, his industry experience and excellent performance in his previous roles at Legacy make him the appropriate leader of the Board. As prescribed by our bylaws, the Chairman of the Board of Directors has the power to preside at all meetings of the Board, and if the Chairman of the Board is not present, the Chief Executive Officer (if the Chief Executive Officer is a director and is not also the Chairman of the Board) will preside at such meeting. The independent directors will continue to hold executive sessions of the independent directors and be afforded direct and complete access to the Chairman of the Board at any time such director deems necessary or appropriate. The nominating and governance committee will reevaluate its view on the Board’s leadership structure periodically.

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 Board’s role in risk oversight has an effect on the Board’s leadership structure.

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Evaluation of Compensation Risk

Our compensation committee has reviewed the risks related to 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 committee’s 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, equity-linked 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 Legacy’s compensation policy could have a material adverse effect on Legacy.

Committees of the Board

Our Board of Directors has standing audit, compensation and nominating and governance committees. Each committee has a written charter, which is available on our website at www.legacyreserves.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.

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, Granberry and York as members of the audit committee. Mr. Lawrence serves as the chairman of the audit committee. Each of the members of the audit committee has been determined by the Board of Directors to be independent under NASDAQ’s 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.

Compensation Committee

Membership

The compensation committee consists of three members of the Board of Directors, Messrs. Vann, Granberry and York, 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. Mr. Vann is the chairman of the compensation committee.

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Responsibilities

The compensation committee’s responsibilities under its charter are to:

evaluate and/or develop the compensation policies applicable to our executive officers, 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 our executive officers;
evaluate at least once a year the performance of our executive officers 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 compensation for each of our executive officers, including salary, bonus, incentive and equity compensation based on this evaluation;
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 Legacy’s incentive compensation and other stock-based plans, including determining whether such plans encourage excessive risk-taking, reviewing and discussing at least annually the relationship between risk management policies and practices and compensation, and evaluating compensation policies and practices that could mitigate any such risk;
assist the full Board of Directors with respect to the administration of our incentive compensation and other stock-based plans;
maintain regular contact with our management team and oversee engagement with stockholders and proxy advisory firms on executive compensation matters;
prepare and publish an annual executive compensation report in our proxy statement or annual report on Form 10-K;
review and recommend to the Board of Directors for approval the frequency with which we will conduct Say on Pay Votes, taking into account the results of the most recent stockholder advisory vote on frequency of Say on Pay Votes required by Section14A of the Exchange Act, and review and approve proposals regarding the Say on Pay Vote and the frequency of the Say on Pay Vote to be included in our proxy statement; and
evaluate its own performance, and review the adequacy of the compensation committee’s 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.

Nominating and Governance Committee

Membership

The nominating and governance committee consists of Messrs. Granberry, Lawrence, and Vann. Mr. Granberry serves as the chairman of the nominating and governance committee. The Board of Directors has determined that all members of the nominating and governance committee are independent under NASDAQ listing standards.

Responsibilities

The responsibilities of the nominating and governance 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 nominating and governance committee in identifying and evaluating candidates for membership on the Board of Directors and its committees;
annually present to the Board of Directors a list of nominees recommended for election to the Board of Directors at the annual meeting of stockholders;

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present to the Board of Directors, as necessary, nominees for committee membership and individuals recommended to fill any vacancies that may occur on the Board of Directors;
evaluate any director candidates recommended by our stockholders pursuant to the procedures set forth in our amended and restated certificate of incorporation and bylaws to be followed by stockholders in making such recommendations;
adopt a process for our stockholders 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 its 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;
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 our 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 our executive officers;
oversee our policies and procedures regarding compliance with applicable laws and regulations relating to the honest and ethical conduct of our directors, officers and employees;
have the sole responsibility for granting any waivers under our Code of Ethics and Code of Ethics for Chief Executive Officer and Senior Financial Officers (or any successor codes, guidelines or policies) applicable to our directors, officers and employees;
review and approve related party transactions as described in the nominating and governance committee’s charter; and
perform any other activities consistent with the nominating and governance committee’s charter, amended and restated certificate of incorporation and bylaws (as each may be amended and/or restated and in effect from time to time) and applicable law as the nominating and governance committee or the Board of Directors deems necessary or appropriate.

Further, the nominating and governance 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 nominating and governance committee will determine if the resolution of the conflict of interest is fair and reasonable to the stockholders. Any matters approved by the nominating and governance committee will be conclusively deemed to be fair and reasonable to Legacy and not a breach of any duties Legacy may owe to its stockholders.

Director Nominations

Under our bylaws, stockholders of record desiring to suggest a Board nominee must give prior written notice to our Corporate 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 our bylaws. A copy of our bylaws may be obtained by writing to our Corporate Secretary at the address shown on the cover page of this proxy statement.

Recommendations by stockholders of record for persons to be nominated for election as director nominees at the 2020 annual meeting of stockholders must be in writing, include the specified information described in our bylaws and follow the procedures outlined in our bylaws. Notice and the accompanying information must be received by our Corporate Secretary at our principal executive office at the address shown on the cover page of this proxy statement no later than March 8, 2020 and no earlier than February 7, 2020.

Our bylaws permit a stockholder (or a group of no more than 20 stockholders) who has maintained continuous qualifying ownership of at least 3% of our outstanding common stock for at least three years and has complied with

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the other requirements set forth in our bylaws, to submit director nominees for inclusion in our proxy statement if the stockholder(s) and the nominee(s) satisfy the requirements set forth in our bylaws. Notice of director nominees submitted under these bylaw provisions must be received by our Corporate Secretary no later than January 21, 2020 and no earlier than December 22, 2019.

Our bylaws do not affect any stockholder’s right to request inclusion of proposals in our proxy statement pursuant to Rule 14a-8 of the Exchange Act or to submit proposals to be presented at the 2020 annual meeting of stockholders. For more information with respect to stockholder proposals, please see “Other Matters—Stockholder Proposals.”

Nomination Criteria

The nominating and governance 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 nominee’s 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 and governance 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 candidate’s ability to contribute to the collaborative culture among the members of the Board of Directors.

The nominating and governance 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 and governance 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 executive 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.

Code of Ethics

The Board of Directors has adopted a Code of Ethics applicable to all employees, officers and directors. The Code of Ethics is available on our website at www.legacyreserves.com and in print to any stockholder who requests it. Amendments to or waivers from the Code of Ethics 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 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.

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COMPENSATION DISCUSSION AND ANALYSIS

The following discussion and analysis of compensation arrangements of the named executive officers of the Company should be read together with the compensation tables and related disclosures set forth below.

Introduction

For part of fiscal year 2018 (prior to the consummation of the transactions described below), our former general partner managed our operations and activities through its board of directors. Under our former fifth amended and restated agreement of limited partnership, we reimbursed our former general partner for direct and indirect general and administrative expenses incurred on our behalf, including the compensation of our former general partner’s executive officers. Our former general partner did not incur any reimbursable expenses related to the compensation of our former general partner’s executive officers for their management of us. Our former general partner’s executive officers were employed by our wholly-owned subsidiary, Legacy Reserves Services, Inc., and were directly compensated by Legacy Reserves Services, Inc. for their management of us pursuant to their employment agreements. Our executive officers are employed by Legacy Reserves Services LLC, our wholly-owned subsidiary and successor by conversion of Legacy Reserves Services, Inc., and are directly compensated by Legacy Reserves Services LLC for their management of us pursuant to their employment agreements. The compensation amounts disclosed, including amounts paid prior to the Corporate Reorganization, in this section and under “Executive Compensation” reflect the total compensation paid to our executive officers. For a description of the impact of the Corporate Reorganization on certain outstanding equity awards in Legacy Reserves LP held by our executive officers, please see page 28 .

Executive Summary

We are a corporation headquartered in Midland, Texas, focused on the horizontal development of unconventional plays in the Permian Basin and the cost-efficient management of shallow-decline oil and natural gas wells in the Permian Basin, East Texas, Rocky Mountain and Mid-Continent regions of the United States. The fundamental philosophy of the Company with respect to compensation remained unchanged after the Corporate Reorganization. The Corporate Reorganization did not have a substantive impact on our business strategy or approach to executive compensation. The compensation policy applicable to our named executive officers (“ NEOs ”), which was initially adopted by our former general partner’s compensation committee and approved by its board of directors (the “ Compensation Policy ”), remains in place (mutatis mutandis to reflect the Corporate Reorganization) and is designed to make NEO total compensation comparable to that of similarly-sized exploration and production companies. The goals of our Compensation Policy are to:

align the compensation of the executive officers with stockholder return;
provide financial incentives to our executive officers for performance, achievement of goals and enhancement of stockholder value;
drive and support the long-term goal of growing asset value and total stockholder return by paying for performance; and
enable us to attract and retain highly qualified executive officers.

To achieve these goals, our total compensation to our executive officers is comprised of base salary, annual cash incentive compensation (annual cash bonuses), and equity-based incentive compensation.

This CD&A provides information regarding the compensation and benefits provided our NEOs for 2018:

Name
Title as of 12/31/18
Current Title (6)
Paul T. Horne (1)
Chief Executive Officer and Chairman of the Board
Chairman of the Board
James D. Westcott (2)
President and Chief Financial Officer
Chief Executive Officer
Kyle M. Hammond (3)
Executive Vice President and Chief Operating Officer
President and Chief Operating Officer
Kyle A. McGraw (4)
Executive Vice President and Chief Development Officer
N/A
Dan G. LeRoy (5)
Vice President, General Counsel and Secretary
Senior Legal Advisor
(1) Effective March 1, 2018, Mr. Horne resigned as President of our former general partner. Effective March 1, 2019, in connection with Mr. Westcott’s promotion to Chief Executive Officer of the Company, Mr. Horne retired from his role as Chief Executive Officer of the Company and continues to serve as Chairman of the Company’s Board of Directors.

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(2) In connection with Mr. Horne’s resignation as President of our former general partner, effective March 1, 2018, Mr. Westcott was promoted to President of our former general partner. Effective March 1, 2019, in connection with Mr. Horne’s retirement as Chief Executive Officer of the Company, Mr. Westcott was promoted to Chief Executive Officer of the Company.
(3) Effective March 1, 2019, in connection with Mr. Westcott’s promotion to Chief Executive Officer of the Company, Mr. Hammond was promoted to President and Chief Operating Officer of the Company.
(4) Effective December 31, 2018, Mr. McGraw retired from his position as Executive Vice President and Chief Development Officer of the Company.
(5) Effective December 31, 2018, Mr. LeRoy ceased serving as the Company’s Vice President, General Counsel and Secretary. Mr. LeRoy continues to serve as Senior Legal Advisor reporting to the General Counsel and Corporate Secretary following December 31, 2018.
(6) On February 6, 2019, the Company appointed Robert L. Norris as Chief Financial Officer effective as of February 19, 2019. Effective January 1, 2019, Albert E. Ferrara, III became the General Counsel and Corporate Secretary of the Company pursuant to the terms of his employment agreement with Legacy Reserves Services LLC and the Company.

Cash Incentive Compensation. We believe meaningful annual cash incentive compensation to be a strong motivating factor that will result in significant increases in value and in growth. Payouts of annual cash incentive compensation to our executive officers during fiscal year 2019 were made in accordance with the Compensation Policy based on performance during fiscal year 2018. For more information regarding cash incentive compensation earned in fiscal year 2018 please see “— Components of Compensation Cash Incentive Compensation (Cash Bonus) under the Compensation Policy.

Subjective Component of Cash Incentive Compensation . In determining cash incentive awards earned in fiscal year 2018, our compensation committee conducted a subjective evaluation of individual officer and Company performance attributable to fiscal year 2018 for 50% of target annual cash incentive compensation. Under the Compensation Policy, the compensation committee has the discretion to award up to 200% of the subjective component of target annual cash incentive compensation based on the performance of the individual officer and the Company.

Objective Component of Cash Incentive Compensation . The remaining 50% of target annual cash incentive compensation earned in fiscal year 2018 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 2018 and are designed to align the incentive compensation of each executive officer with stockholder return by rewarding performance that exceeds the specified target levels for EBITDA (which is defined here to mean Adjusted EBITDA, a non-GAAP financial measure, as described in our annual report on Form 10-K) and results in the actual ratio of Total Debt (as defined in our Third Amended and Restated Credit Agreement, as amended) to EBITDA being less than the specified target ratio. The respective criteria target levels, for purposes of the determination of annual objective cash incentive compensation only, are set by the compensation committee at the beginning of each year after considering management’s recommendation and the Company’s internal operating plan.

Set forth below are the target levels for EBITDA and the target ratios of Total Debt to EBITDA used to determine the objective component of each executive officer’s annual cash bonus that may be earned with respect to fiscal year 2018. Achievement of less than 75% of Target EBITDA or failure to achieve a Total Debt to EBITDA ratio that is less than 125% of the target Total Debt to EBITDA ratio, respectively, will result in no annual cash bonus awarded with respect to that particular performance measure.

Performance Measure
Weight
Performance Level/Percent Earned
EBITDA
50%
75% of Target
100% of Target
125% of Target
 
 
0%
100%
200%
Ratio of Total Debt to EBITDA
50%
125% of Target
Target
75% of Target
 
 
0%
100%
200%

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Set forth in the table below is a summary of the target cash incentive award amounts attributable to performance during 2018 of each NEO pursuant to the Compensation Policy, expressed as a percentage of each of such executive officer’s applicable base salary.

 
Target Cash Bonus as a
Percentage of 2018 Annual Salary
Named Executive Officer
Subjective
Objective
Total
Paul T. Horne
 
55
%
 
55
%
 
110
%
James Daniel Westcott
 
45
%
 
45
%
 
90
%
Kyle M. Hammond
 
40
%
 
40
%
 
80
%
Kyle A. McGraw
 
40
%
 
40
%
 
80
%
Dan G. LeRoy
 
37.5
%
 
37.5
%
 
75
%

Equity-Based Incentive Compensation. We believe meaningful equity participation by each NEO to be a strong motivating factor that will result in significant increases in value and in growth and serves as a powerful retention tool. Grants of equity-based compensation to our executive officers during fiscal year 2018 were made in accordance with the Compensation Policy based on performance during fiscal year 2017. As a result of the Corporate Reorganization, effective September 20, 2018, all outstanding equity awards held by our NEOs in Legacy Reserves LP vested in full and were paid out. In connection with the consummation of the Corporate Reorganization, to ensure the retention of our NEOs, the Company made additional equity awards in the Company to our NEOs.

The subjective or service-based component of equity-based incentive compensation (awarded as phantom units and associated distribution equivalent rights (“ DERs ”) prior to the Corporate Reorganization, and as restricted stock units and associated DERs in the aftermath of the Corporate Reorganization) is determined by a subjective evaluation of prior fiscal year performance by the compensation committee and took into consideration the importance of retaining our NEOs. The objective or performance-based component of equity-based incentive compensation, (awarded as phantom units and associated DERs prior to the Corporate Reorganization, and as restricted stock units and associated DERs in the aftermath of the Corporate Reorganization), is designed to reward our executive officers for their long-term performance and to align their interests with those of our stockholders.

Subjective Component of Equity–Based Incentive Compensation under the Compensation Policy (60% of target). Under the Compensation Policy, equity-based incentive compensation awarded under this component cliff vest after a three-year vesting period and are not subject to any performance criteria. The compensation committee has the discretion to award up to 200% of the subjective component of target equity-based incentive compensation.

Objective Component of Equity–Based 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 performance period 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 our objective average annual total stockholder return and the following: 1) our total stockholder return compared to the total stockholder returns of a group of our exploration and production MLP peers, and 2) our total stockholder return compared to the total stockholder returns of a broader group of MLPs. All total stockholder returns are measured during the cumulative three-year vesting measurement period prior to the vesting date. If none or only a portion of the award vests as a result of target levels not being met, the unvested portion of the award will be forfeited.

Set forth in the table below is a summary of the target equity-based incentive award amounts attributable to performance during 2018 of each NEO pursuant to the Compensation Policy, expressed as a percentage of each of such executive officer’s applicable base salary. On February 16, 2018, the compensation committee adjusted target levels for Mr. LeRoy based upon input from our compensation consultant and a review of market data, as described below under “Selection of Compensation Comparative Data.”

 
Target Value of Phantom Units as a
Percentage of 2018 Annual Salary
Named Executive Officer
Subjective
Objective
Total
Paul T. Horne
 
240
%
 
160
%
 
400
%
James Daniel Westcott
 
180
%
 
120
%
 
300
%
Kyle M. Hammond
 
180
%
 
120
%
 
300
%
Kyle A. McGraw
 
105
%
 
70
%
 
175
%
Dan G. LeRoy
 
100
%
 
50
%
 
150
%

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2018 Say on Pay Vote

The compensation committee considers whether the executive compensation program serves the interests of our stockholders. In that respect, as part of its ongoing review of our executive compensation program, the compensation committee considered the approval by approximately 96% of the votes cast for our “say on pay” vote at the Partnership’s 2018 annual meeting of unitholders. After considering the 2018 “say on pay” results, the committee determined that our executive compensation philosophy, compensation objectives, and compensation elements continued to be appropriate and did not make any changes to our executive compensation program in response to the 2018 “say on pay” vote.

Corporate Governance

Compensation Committee Authority

Prior to the Corporate Reorganization, executive officer compensation was administered by the compensation committee of the Board of Directors of our former general partner, which for 2018 was composed of three members, Messrs. Vann, Granberry and Sullivan. Currently, executive officer compensation is administered by our compensation committee, which is composed of three members, Messrs. Vann, Granberry and York. The Board of Directors appoints the compensation committee members and, pursuant to the compensation committee’s charter adopted on September 18, 2018, delegates to the compensation committee the responsibility for, among other things, determining and approving the compensation for our executive officers and reviewing and making recommendations to our Board of Directors with respect to our incentive compensation and other stock-based plans.

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.

Role of Compensation Experts in Determining Executive Officer Compensation

The compensation committee is authorized to obtain, at the Company’s 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.

The compensation committee retained Meridian Compensation Partners, LLC (“ Meridian ”) as a compensation consultant for performance year 2018. Meridian was engaged to provide advice as needed by the compensation committee. For example, the compensation committee requested Meridian undertake a study of compensation programs related to NEOs and outside directors offered by a broad peer group of exploration and production companies 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 Company to attract and retain highly qualified executive officers and to further align the interests of our executive officers with those of our stockholders. Meridian did not provide any other services to the Company.

Selection of Compensation Comparative Data

As discussed in greater detail below, central to our compensation philosophy is the alignment of the interests of our NEOs with the interests of our stockholders. 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 stockholders. In addition to comparing compensation packages of our NEOs and outside directors with the compensation of their counterparts within a comparable group of exploration and production companies, other specific performance levels or “benchmarks,” as described in the Compensation Policy, were used in 2018 to establish the compensation packages of our NEOs and outside directors.

The 2018 comparable group included: Bill Barrett Corporation; Callon Petroleum Company; Carrizo Oil & Gas, Inc.; Comstock Resources, Inc.; Eclipse Resources Corporation; Exco Resources, Inc.; Jones Energy, Inc.; Laredo Petroleum Inc.; Matador Resources Company; PDC Energy, Inc.; QEP Resources, Inc.; Resolute Energy Corporation; Sanchez Energy Corporation; SM Energy Company; and SRC Energy Inc.

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Decision-Making Process and Role of Executive Officers

Compensation decisions for executive officers involve both objective and subjective criteria. In evaluating performance and compensation for 2018, the compensation consultant first provided information to the compensation committee regarding competitive market data. The second component of the decision-making process was our current and former Chief Executive Officer providing a written overview of performance by the Company, including an overview of the performance by each NEO, in light of established operational and financial goals and objectives. After reviewing this written overview, the compensation committee met with the current and former 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 approve the compensation of all of the NEOs.

In determining the compensation of the NEOs, the compensation committee took into account the information provided by the compensation consultant. The compensation committee then evaluated the performance of the NEOs 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 NEOs’ compensation.

Executive Officer Compensation Strategy and Philosophy

Our Compensation Policy is designed to provide our executive officers total compensation comparable to that of executives at similarly sized exploration and production companies.

Our executive officer compensation strategy is designed to:

align the compensation of the executive officers with stockholder return;
provide financial incentives to our executive officers for performance, achievement of goals and enhancement of stockholder value;
drive and support the long-term goal of growing asset value and total stockholder 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 shares in the Company, we have attempted to maintain competitive levels of compensation while focusing on the growth of our business. Through this approach, our executives receive cash and equity-based compensation for their services. We believe that the design of our executive compensation program creates alignment of interests with our stockholders.

Components of Compensation

Named Executive Officer Compensation

Total compensation to our executive officers is comprised of base salary, cash incentive compensation (annual cash bonus), and equity-based incentive compensation.

2018 Performance Goals and Objectives

For the 2018 performance year, the operational and financial goals and objectives established at the beginning of 2018 were as follows:

Conduct a corporate reorganization;
Generate EBITDA of $341.1 million; and
Year-end 2018 Total Debt to EBITDA ratio of 3.8x.

These goals and objectives, as supplemented by more detailed supporting goals and objectives put forth by our NEOs, provided a framework for the compensation committee to assess our 2018 performance and to determine NEOs’ total compensation levels. Relative weight is not assigned to any of these goals and objectives. Additionally, the 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 NEOs was reviewed and determined.

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2018 Performance Assessment for Determination of Incentive Compensation under the Compensation Policy

The compensation committee assessed the 2018 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 2018 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 Company and the executive officers during 2018:

Completed the Corporate Reorganization;
Generated EBITDA of $277.5 million; and
Resulted in a year-end Total Debt to EBITDA ratio of 4.9x.

Base Salaries

Overview

We pay base salary to attract talented executives and provide a fixed base of cash compensation. Under the compensation committee’s charter, the compensation committee determines and approves the base salaries of all of our executive officers.

It is the intent of the compensation committee to have the base salaries of our NEOs reviewed on an annual basis as well as at the time of a promotion or other material change in responsibilities.

2018 Base Salary Determinations

Based on the input of Meridian, our 2018 compensation consultant, a review of market data of NEOs at comparable exploration and production companies, and, with respect to Mr. Westcott, his promotion to President, effective March 1, 2018, base salaries were set at the following: Mr. Horne: $675,000; Mr. Westcott: $500,000; Mr. Hammond: $450,000; Mr. McGraw: $380,000; and Mr. LeRoy: $320,000. In connection with their promotions as of March 1, 2019 to Chief Executive Officer and President and Chief Operating Officer, respectively, the base salaries of Mr. Westcott and Mr. Hammond were increased to $675,000 and $500,000, in each case, effective on the date of such promotion.

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 often support the achievement of long-term operating 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. For 2018, the compensation committee did not approve an increase in the target amounts for any of the NEOs.

In determining cash incentive awards earned during a fiscal year, a subjective evaluation of the individual officer and Company performance (subjective criteria) for the fiscal year that 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.

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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 2018.

 
Target Cash Bonus as a
Percentage of 2018 Annual Salary
Named Executive Officer
Subjective
Objective
Total
Paul T. Horne
 
55
%
 
55
%
 
110
%
James Daniel Westcott
 
45
%
 
45
%
 
90
%
Kyle M. Hammond
 
40
%
 
40
%
 
80
%
Kyle A. McGraw (1)
 
40
%
 
40
%
 
80
%
Dan G. LeRoy
 
37.5
%
 
37.5
%
 
75
%
(1) Mr. McGraw was not eligible for, and did not receive, a cash bonus with respect to 2018 because he was not employed by the Company on the date of the payment of such cash bonus.

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; and
Total Debt to EBITDA.

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.

Achievement of less than 75% of Target EBITDA or failure to achieve a Total Debt to EBITDA ratio that is less than 125% of the target Total Debt to EBITDA ratio, respectively, will result in no annual cash bonus awarded with respect to that particular performance measure.

Performance Measure
Weight
Performance Level/Percent Earned
EBITDA
50%
75% of Target
100% of Target
125% of Target
 
 
0%
100%
200%
Ratio of Total Debt to EBITDA
50%
125% of Target
Target
75% of Target
 
 
0%
100%
200%

These objective measures are intended to align the cash incentive compensation of each executive officer with stockholder return by rewarding performance that achieves the EBITDA and Total Debt to EBITDA targets. The respective target levels of EBITDA and Total Debt to EBITDA, 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 management’s recommendation.

During 2018, the Company achieved EBITDA of $277.5 million, or 81.36% of the $341.1 million target EBITDA, resulting in a Percentage Earned (pursuant to the table above) of 25.43% (weighted at 50%, yielding 12.71%) and Total Debt to EBITDA at year-end 2018 was 4.9x, or 128.84% of the 3.8x target, resulting in a Percentage Earned of 0% (weighted at 50%, yielding 0%), resulting in bonus amounts at 12.71% of the potential target level of the objective component of the cash incentive compensation (the “ Objective Factor ” as set forth in the table below).

Subjective Cash Award

Each executive officer was awarded the annual 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 2018 (the “ Subjective Factor ” as set forth below). Under the Compensation Policy, the compensation committee has the discretion to award up to 200% of the subjective target annual cash bonus.

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Based on the Company’s and the individual executive officers’ accomplishments and performances as set forth above, under the caption “—2018 Performance Assessment for Determination of Incentive Compensation under the Compensation Policy,” the compensation committee set the subjective portion of the annual cash bonus as shown in the table below.

The chart below illustrates the cash incentive award bonus earned during 2018 for each NEO in accordance with the performance level/percentage earned calculation set forth in the Compensation Policy:

 
 
Subjective
Objective
 
Named Executive Officer
2018
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
$
675,000
 
 
55
%
 
150
%
$
556,875
 
 
55
%
 
12.71
%
$
47,186
 
$
604,061
 
James Daniel Westcott
$
500,000
 
 
45
%
 
150
%
$
337,500
 
 
45
%
 
12.71
%
$
28,598
 
$
366,098
 
Kyle M. Hammond
$
450,000
 
 
40
%
 
125
%
$
225,000
 
 
40
%
 
12.71
%
$
22,878
 
$
247,878
 
Kyle A. McGraw
$
380,000
 
 
40
%
 
0
%
$
0
 
 
40
%
 
0
%
$
0
 
$
0
 
Dan G. LeRoy
$
320,000
 
 
37.5
%
 
100
%
$
120,000
 
 
37.5
%
 
12.71
%
$
15,252
 
$
135,252
 
(a) The amounts are determined by using a weighted earned percentage of 12.71% 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.

Equity-Based Incentive Compensation – Overview

We consider equity-based incentive compensation to be an important element of our compensation program for NEOs. We believe meaningful equity participation by each NEO to be a strong motivating factor that ties the interests of our executive officers directly to the interests of our stockholders. We also believe that equity-based incentive compensation serves as an important attraction and retention tool. Our award structure for long-term equity-based incentives employs a mix of subjective and objective measures as set forth below.

In prior years, the compensation committee of our former general partner awarded NEOs phantom units. After the Corporate Reorganization, we made grants of restricted stock units as all other equity awards had otherwise vested in full. These new grants were made under the Company’s 2018 Omnibus Incentive Plan (the “ 2018 Incentive Plan ”), which was adopted in connection with the Corporate Reorganization and approved by a majority of unitholders at the September 19, 2018 special meeting of the Partnership. Pursuant to the 2018 Incentive Plan, the Board of Directors (or any committee authorized by the Board of Directors to administer the plan) may grant stock options, restricted stock awards, performance awards, other stock-based awards, and other cash-based awards.

In light of the Company’s pursuit of strategic alternatives, the compensation committee did not make grants of equity-based compensation to executive officers in 2019 based on the Company’s performance during fiscal year 2018.

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 Company until the end of the respective 3-year cliff 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 under the Compensation Policy. The objective component is granted each year at 200% of the target percentage listed in the table below, but the amount vested at the end of the three-year performance 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 stockholder return and our total stockholder return compared to the total stockholder returns of a group of our peers as well as the total stockholder returns of a broader group of MLPs achieved during the cumulative three-year performance period prior to the vesting date. If none or only a portion of the award vests as a result of target levels not being met, the unvested portion of the award will be forfeited.

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Prior to the Corporate Reorganization, all equity-based incentive compensation awards were phantom units, with associated DERs. After the Corporate Reorganization, all-equity based incentive compensation awards will be restricted stock units with time-based and performance-based vesting. In each case, these awards were up to 200% of the specified percentage of annual salary as set forth in the following table. On February 16, 2018, the compensation committee adjusted target levels for Mr. LeRoy based upon input from our compensation consultant and a review of market data, as described above under “Selection of Compensation Comparative Data.”

 
Target Value of Phantom Units as a
Percentage of 2018 Annual Salary
Named Executive Officer
Subjective
Objective
Total
Paul T. Horne
 
240
%
 
160
%
 
400
%
James Daniel Westcott
 
180
%
 
120
%
 
300
%
Kyle M. Hammond
 
180
%
 
120
%
 
300
%
Kyle A. McGraw
 
105
%
 
70
%
 
175
%
Dan G. LeRoy
 
100
%
 
50
%
 
150
%

Calculation of Vesting of Objective Component of Equity-Based Compensation under the Compensation Policy

In connection with the Corporate Reorganization, all outstanding awards granted under the Partnership LTIP, including all objective phantom units awarded to the NEOs on March 1, 2018, automatically vested in full pursuant to the terms of the Partnership LTIP and the individual award agreements thereunder. Under the individual phantom unit award agreements, such vested phantom units (and any related DERs) were generally to be settled in cash. Although no such election was made, pursuant to certain amendments entered into by the Company with such executives, the executives were given the right to elect to reinvest a portion of such cash proceeds to which he was otherwise entitled in shares of our common stock (subject to a certain cap amount). In December 2018, each of our NEOs entered into a settlement agreement with respect to outstanding phantom units issued under the Partnership LTIP (the “ Phantom Unit Settlement Agreement ”). Pursuant to the terms of the Phantom Unit Settlement Agreement, each NEO that was to receive a cash amount in settlement of their phantom units became eligible instead to receive a portion of that settlement amount and forfeited, without consideration, his right to receive any remaining portion of the settlement amount. The aggregate settlement amount to be awarded to all executive officers, including each of NEOs, was $13.8 million, and the executive officers, including each of NEOs, agreed to forfeit an aggregate of $7.8 million pursuant to the Phantom Unit Settlement Agreements, each in proportion to each executive officer’s settlement amount.

2018 Objective Phantom Unit Vesting

In accordance with description of the objective component of equity compensation as set forth in the Compensation Policy and calculated as described above in “— Equity-Based Incentive Compensation ” and “— Calculation of Vesting of Objective Component of Equity-Based Compensation ,” the phantom units granted to each executive officer, automatically vested in full pursuant to the terms of the Partnership LTIP and the individual award agreements thereunder, in connection with the Corporate Reorganization. Under the individual phantom unit award agreements, such vested phantom units (and any related DERs) were generally to be settled in cash. As described above, pursuant to the terms of the Phantom Unit Settlement Agreement, each NEO that was to receive a cash amount in settlement of their phantom units became eligible instead to receive a portion of that settlement amount and forfeited, without consideration, his right to receive any remaining portion of the settlement amount. The aggregate settlement amount to be awarded to all executive officers, including each of NEOs, was $13.8 million, and the executive officers, including each of NEOs, agreed to forfeit an aggregate of $7.8 million pursuant to the Phantom Unit Settlement Agreements, each in proportion to each executive officer’s settlement amount.

2018 Adjustments to Compensation Policy

On February 16, 2018, the compensation committee approved an amendment to the Compensation Policy. The amendment to the Compensation Policy applies to incentive awards granted to Mr. LeRoy commencing in fiscal year 2019 with respect to the Company’s and Mr. LeRoy’s performance during fiscal year 2018 and provides that Mr. LeRoy’s target value of units awarded as a percentage of annual salary will be set at 100% and 50% for the subjective and objective components, respectively. As mentioned above, the Company did not make any substantial modifications to the Compensation Policy in fiscal year 2018 in the aftermath of the Corporate Reorganization, although changes may be made in fiscal year 2019 and beyond as necessary.

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Letter Agreements with our NEOs

As previously disclosed on Form 8-K on October 31, 2018, we entered into letter agreements with three of our NEOs on October 31, 2018, as described below.

The Company and Mr. Horne entered into a transition letter agreement (the “ Horne Transition Agreement ”) in connection with Mr. Horne’s transition out of the role of Chief Executive Officer. Under the Horne Transition Agreement, all outstanding equity awards will continue to vest on the basis of, and only to the extent of, his continued service with the Company on its Board. Mr. Horne is entitled to an annual fee of $120,000 in connection with such service.

The Company and Mr. LeRoy entered into a transition letter agreement (the “ LeRoy Transition Agreement ”) in connection with Mr. LeRoy’s transition out of the role of Vice President and General Counsel and into the role of Senior Legal Advisor. The LeRoy Transition Agreement supersedes the terms of Mr. LeRoy’s prior employment agreement with the Company. Under the LeRoy Transition Agreement, Mr. LeRoy is entitled to a base salary of $235,000 for 2019 for his service as Senior Legal Advisor. He will continue to be eligible for an annual bonus and certain equity awards. Under the LeRoy Transition Agreement, if Mr. LeRoy’s employment is terminated by us for without cause or by Mr. LeRoy with good reason, subject to his performance of all post-employment obligations and the execution and non-revocation of a release, any outstanding equity awards granted to Mr. LeRoy in 2019 or earlier will fully vest, in each chase within 60 days of such termination of employment. Under the LeRoy Transition Agreement, Mr. LeRoy may terminate his employment for “good reason” if three of the five individuals serving as executive officers of the Company as of March 1, 2019 are no longer with the Company, provided that the general counsel as of March 1, 2019 must also no longer be with the Company.

The Company and Mr. McGraw entered into a separation letter agreement (the “ McGraw Separation Agreement ”) in connection with Mr. McGraw’s retirement from the Company as of December 31, 2018. The McGraw Separation Agreement supersedes the terms of Mr. McGraw’s prior employment agreement with the Company. Under the agreement, any vested equity awards that had not yet been settled as of December 31, 2018 will be settled at the same time vested equity awards are generally settled for other executive officers. In addition, under the McGraw Separation Agreement, in connection with his retirement, Mr. McGraw received a lump sum cash payment of $2,133,210.

Perquisites and Other Personal Benefits

We maintain a 401(k) plan. The plan permits eligible full-time employees, including NEOs, 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% of an employee’s annual compensation not in excess of $275,000 for 2018, 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.

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 and offer certain other optional insurance programs that require the employee to pay the applicable premium. 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.

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COMPENSATION COMMITTEE REPORT

The compensation committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based upon such review and discussion, the compensation committee has recommended to the board of directors of Legacy Reserves Inc. 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 Inc.:

Kyle D. Vann (Chairman)
William R. Granberry
Douglas W. York

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EXECUTIVE COMPENSATION

2018 Summary Compensation Table

The following table sets forth the aggregate compensation awarded to, earned by or paid to our NEOs for the fiscal year ended December 31, 2018, 2017, and 2016.

Name and Principal Position
Year
Salary
($) (a)
Bonus
($) (b)
Unit
Awards
($) (c)
Stock
Awards
($) (d)(e)
All Other
Compensation
($)
Total ($)
Paul T. Horne
Chairman of the
Board and Chief
Executive Officer (1)
2018
$
666,667
 
$
604,061
 
$
6,423,085
 
$
4,030,984
 
$
838,621
(f)  
$
12,563,418
 
2017
$
612,500
 
$
1,436,581
 
$
2,125,125
 
$
 
$
87,807
(f)  
$
4,262,013
 
2016
$
550,000
 
$
1,131,250
 
$
1,834,085
 
$
 
$
38,217
(f)  
$
3,553,552
 
James Daniel Westcott
President and
Chief Financial
Officer (2)
2018
$
491,667
 
$
366,098
 
$
3,468,466
 
$
11,197,183
 
$
481,971
(g)  
$
16,005,385
 
2017
$
438,333
 
$
951,732
 
$
1,129,437
 
$
 
$
84,207
(g)  
$
2,603,709
 
2016
$
380,000
 
$
727,500
 
$
874,060
 
$
 
$
31,368
(g)  
$
2,012,928
 
Kyle M. Hammond
Executive Vice
President and Chief
Operating Officer (3)
2018
$
445,833
 
$
247,878
 
$
3,275,773
 
$
6,718,312
 
$
689,907
(h)  
$
11,377,703
 
2017
$
417,500
 
$
863,182
 
$
903,550
 
$
 
$
21,600
(h)  
$
2,205,832
 
2016
$
380,000
 
$
680,000
 
$
639,247
 
$
 
$
21,200
(h)  
$
1,720,447
 
Kyle A. McGraw
Executive Vice
President and
Chief Development
Officer (4)
2018
$
380,000
 
$
 
$
1,708,540
 
$
992,817
 
$
2,655,264
(i)  
$
5,736,621
 
2017
$
376,667
 
$
538,139
 
$
748,995
 
$
 
$
83,393
(i)  
$
1,747,194
 
2016
$
360,000
 
$
474,000
 
$
628,587
 
$
 
$
38,217
(i)  
$
1,500,804
 
Dan G. LeRoy
Vice President,
General Counsel and
Secretary (5)
2018
$
316,667
 
$
135,252
 
$
770,774
 
$
716,618
 
$
125,113
(j)  
$
2,064,424
 
2017
$
293,333
 
$
378,393
 
$
247,287
 
$
 
$
40,516
(j)  
$
959,529
 
2016
$
260,000
 
$
250,500
 
$
182,058
 
$
 
$
26,788
(j)  
$
719,346
 
(1) Effective March 1, 2018, Mr. Horne resigned as President of our former general partner. Effective March 1, 2019, Mr. Horne retired from his role as Chief Executive Officer of the Company. Mr. Horne continues to serve his term as Chairman of the Company’s Board of Directors.
(2) In connection with Mr. Horne’s resignation as President of our former general partner, Mr. Westcott was promoted to President of our former general partner. Effective March 1, 2019, in connection with Mr. Horne’s retirement as Chief Executive Officer of the Company, Mr. Westcott was promoted to Chief Executive Officer of the Company.
(3) Effective March 1, 2019, in connection with Mr. Westcott’s promotion to Chief Executive Officer of the Company, Mr. Hammond was promoted to President and Chief Operating Officer of the Company.
(4) Effective December 31, 2018, Mr. McGraw retired from his position as Executive Vice President and Chief Development Officer of the Company. As such, all unvested stock awards granted in 2018 were forfeited.
(5) Effective December 31, 2018, Mr. LeRoy ceased serving as the Company’s Vice President, General Counsel and Secretary. Mr. LeRoy continues to serve as Senior Legal Advisor reporting to the General Counsel and Corporate Secretary following December 31, 2018.
(a) For Messrs. Horne, Westcott, Hammond, McGraw and LeRoy, annual salary increases (where applicable) for 2018, 2017 and 2016 became effective on March 1, 2018, March 1, 2017 and March 1, 2016, respectively.
(b) For fiscal year 2017, includes quarterly cash retention bonuses paid with respect to continuous employment with the Partnership through each fiscal quarter in the fiscal year ended December 31, 2017 in the amounts per quarter of: $125,000 to Mr. Horne, $100,000 to Mr. Westcott, $100,000 to Mr. Hammond, $50,000 to Mr. McGraw and $25,000 to Mr. LeRoy. For fiscal year 2016, includes quarterly cash retention bonuses paid with respect to continuous employment with the Partnership through the fiscal quarters ended June 30, 2016, September 30, 2016 and December 31, 2016 in the amounts per quarter of: $125,000 to Mr. Horne, $100,000 to Mr. Westcott, $100,000 to Mr. Hammond, $50,000 to Mr. McGraw and $25,000 to Mr. LeRoy. The total amount of the quarterly cash retention bonuses paid in 2016 were subtracted from the cash settlement of phantom units in connection with the vesting of phantom units awarded in 2016.
(c) Phantom units were granted to officers on February 16, 2018, March 1, 2017, and June 13, 2016. The amount shown reflects the grant date fair value of these awards based upon the Financial Accounting Standards board’s authoritative guidance relating to stock compensation. The assumptions used in calculating these amounts are discussed further in Note 13 – “ Unit Based Compensation ” to the financial statements in the Partnership’s annual report on Form 10-K filed with the SEC on February 23, 2018. Assuming all performance and service conditions are met at the maximum possible level, the grant date fair value of the unit awards granted in 2018 pursuant to the Compensation Policy for each NEO is as follows: Mr. Horne: $6,936,093; Mr. Westcott: $3,745,490; Mr. Hammond: $3,537,407; Mr. McGraw: $1,845,000; and Mr. LeRoy: $832,335. In connection with the Corporate Reorganization, all outstanding awards granted under the Partnership LTIP automatically vested in full pursuant to the terms of the Partnership LTIP and the individual award agreements thereunder. Under the individual phantom unit award agreements, such vested phantom units (and any related DERs) were generally to be settled in cash. As

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described above, pursuant to the terms of the Phantom Unit Settlement Agreement, each NEO that was to receive a cash amount in settlement of their phantom units became eligible instead to receive a portion of that settlement amount and forfeited, without consideration, his right to receive any remaining portion of the settlement amount. The aggregate settlement amount to be awarded to all executive officers, including each of NEOs, was $13.8 million, and the executive officers, including each of NEOs, agreed to forfeit an aggregate of $7.8 million pursuant to the Phantom Unit Settlement Agreements, each in proportion to each executive officer’s settlement amount.

(d) Represents initial grants of restricted stock units in the Company to our NEOs after the consummation of the Corporate Reorganization under our 2018 Incentive Plan. The following vesting schedule applies to the restricted stock units awarded in 2018: (i) 25% on March 1, 2020; (ii) 25% on March 1, 2021, and (ii) the remaining 50% on March 1, 2022, calculated in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation — Stock Compensation. The grant date fair value of RSUs is determined using the fair value of our common stock on the date of grant.
(e) The market value of the restricted stock units, based on the closing price of the Partnership’s units on March 23, 2018, the approval date, for each NEO is as follows: Mr. Horne: $2,700,000; Mr. Westcott: $7,500,000; Mr. Hammond: $4,500,000; Mr. McGraw: $665,000; and Mr. LeRoy: $480,000. The information in this footnote is provided as supplemental to, and not as a substitute for, the information presented in accordance with SEC rules in the 2018 Summary Compensation Table.
(f) Reflects for 2018: $22,000 of 401(k) employer matching contributions and $51,977 of unit distributions received by Mr. Horne on his phantom units. As described above, in connection with the Corporate Reorganization, all outstanding awards granted under the Partnership LTIP automatically vested in full pursuant to the terms of the Partnership LTIP and the individual award agreements thereunder. For phantom units, amounts, if any, for 2018 include the cash settlement amount provided for in Mr. Horne’s Phantom Unit Settlement Agreement, less any amount already accounted for in the “Unit Awards” column. Reflects for 2017: $21,600 of 401(k) employer matching contributions and $66,207 of unit distributions received by Mr. Horne on his phantom units. Reflects for 2016: $21,200 of 401(k) employer matching contributions and $17,017 of unit distributions received by Mr. Horne on his phantom units.
(g) Reflects for 2018: $18,500 of 401(k) employer matching contributions and $47,874 of unit distributions received by Mr. Westcott on his phantom units. As described above, in connection with the Corporate Reorganization, all outstanding awards granted under the Partnership LTIP automatically vested in full pursuant to the terms of the Partnership LTIP and the individual award agreements thereunder. For phantom units, amounts, if any, for 2018 include the cash settlement amount provided for in Mr. Westcott’s Phantom Unit Settlement Agreement, less any amount already accounted for in the “Unit Awards” column. Reflects for 2017: $18,000 of 401(k) employer matching contributions and $66,207 of unit distributions received by Mr. Westcott on his phantom units. Reflects for 2016: $18,000 of 401(k) employer matching contributions and $13,368 of unit distributions received by Mr. Westcott on his phantom units.
(h) Reflects for 2018: $22,000 of 401(k) employer matching contributions. As described above, in connection with the Corporate Reorganization, all outstanding awards granted under the Partnership LTIP automatically vested in full pursuant to the terms of the Partnership LTIP and the individual award agreements thereunder. For phantom units, amounts, if any, for 2018 include the cash settlement amount provided for in Mr. Hammond’s Phantom Unit Settlement Agreement, less any amount already accounted for in the “Unit Awards” column. Reflects for 2017: $21,600 of 401(k) employer matching contributions received by Mr. Hammond. Reflects for 2016: $21,200 of 401(k) employer matching contributions.
(i) Reflects for 2018: $22,000 of 401(k) employer matching contributions and $43,087 of unit distributions received by Mr. McGraw on his phantom units. As described above, in connection with the Corporate Reorganization, all outstanding awards granted under the Partnership LTIP automatically vested in full pursuant to the terms of the Partnership LTIP and the individual award agreements thereunder. For phantom units, amounts, if any, for 2018 include the cash settlement amount provided for in Mr. McGraw’s Phantom Unit Settlement Agreement, less any amount already accounted for in the “Unit Awards” column. In addition, in 2018, under the terms of the McGraw Separation Agreement, in connection with his retirement, Mr. McGraw received a lump sum cash payment of $2,133,210. Reflects for 2017: $21,600 of 401(k) employer matching contributions and $61,793 of unit distributions received by Mr. McGraw on his phantom units. Reflects for 2016: $21,200 of 401(k) employer matching contributions and $17,017 of unit distributions received by Mr. McGraw on his phantom units.
(j) Reflects for 2018: $22,000 of 401(k) employer matching contributions and $13,337 of unit distributions received by Mr. LeRoy on his phantom units. As described above, in connection with the Corporate Reorganization, all outstanding awards granted under the Partnership LTIP automatically vested in full pursuant to the terms of the Partnership LTIP and the individual award agreements thereunder. For phantom units, amounts, if any, for 2018 include the cash settlement amount provided for in Mr. LeRoy’s Phantom Unit Settlement Agreement, less any amount already accounted for in the “Unit Awards” column. Reflects for 2017: $21,600 of 401(k) employer matching contributions and $18,916 of unit distributions received by Mr. LeRoy on his phantom units. Reflects for 2016: $21,200 of 401(k) employer matching contributions, $5,588 of unit distributions received by Mr. LeRoy on his phantom units.

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Grants of Plan-Based Awards for Fiscal Year 2018

The following table and footnotes set forth certain information regarding grants of plan-based awards made to each of our NEOs for the fiscal year ended December 31, 2018 under the Compensation Policy or the 2018 Incentive Plan, as applicable.

 
 
 
Estimated Future Payouts
Under Objective Component of
Equity Incentive Plan Awards
(in Units) (c)
All
Other
Unit
Awards:
Number of
Units (d)
All
Other
Option
Awards:
Number of
Securities
Underlying
Options
Exercise
or Base
Price of
Option
Awards
($/Unit)
All
Other
Awards (e)
Grant
Date Fair
Value of
Unit and
Option
Awards (f)
Name
Grant
Date (a)
Approval
Date (b)
Threshold
Target
Maximum
Paul T. Horne
 
02/16/2018
 
 
02/16/2018
 
 
 
%
 
751,880
 
 
1,503,760
 
 
 
$
 
$
 
 
 
 
$
5,035,867
 
 
02/16/2018
 
 
02/16/2018
 
 
100
%
 
 
 
 
 
250,627
 
$
 
$
 
 
 
 
$
924,814
 
 
02/16/2018
 
 
02/16/2018
 
 
100
%
 
 
 
 
 
125,313
 
$
 
$
 
 
 
 
$
462,405
 
 
09/20/2018
 
 
03/23/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
760,563
 
 
 
 
James Daniel Westcott
 
02/16/2018
 
 
02/16/2018
 
 
 
%
 
406,015
 
 
812,030
 
 
 
$
 
$
 
 
 
 
$
2,719,367
 
 
02/16/2018
 
 
02/16/2018
 
 
100
%
 
 
 
 
 
135,339
 
$
 
$
 
 
 
 
$
499,401
 
 
02/16/2018
 
 
02/16/2018
 
 
100
%
 
 
 
 
 
67,669
 
$
 
$
 
 
 
 
$
249,699
 
 
09/20/2018
 
 
03/23/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,112,676
 
 
 
 
Kyle M. Hammond
 
02/16/2018
 
 
02/16/2018
 
 
 
%
 
383,459
 
 
766,918
 
 
 
$
 
$
 
 
 
 
$
2,568,293
 
 
02/16/2018
 
 
02/16/2018
 
 
100
%
 
 
 
 
 
127,819
 
$
 
$
 
 
 
 
$
471,652
 
 
02/16/2018
 
 
02/16/2018
 
 
100
%
 
 
 
 
 
63,910
 
$
 
$
 
 
 
 
$
235,828
 
 
09/20/2018
 
 
03/23/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,267,606
 
 
 
 
Kyle A. McGraw
 
02/16/2018
 
 
02/16/2018
 
 
 
%
 
200,000
 
 
400,000
 
 
 
$
 
$
 
 
 
 
$
1,339,540
 
 
02/16/2018
 
 
02/16/2018
 
 
100
%
 
 
 
 
 
66,667
 
$
 
$
 
 
 
 
$
246,001
 
 
02/16/2018
 
 
02/16/2018
 
 
100
%
 
 
 
 
 
33,333
 
$
 
$
 
 
 
 
$
122,999
 
 
09/20/2018
 
 
03/23/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
187,324
 
 
 
 
Dan G. LeRoy
 
02/16/2018
 
 
02/16/2018
 
 
 
%
 
90,226
 
 
180,452
 
 
 
$
 
$
 
 
 
 
$
604,307
 
 
02/16/2018
 
 
02/16/2018
 
 
100
%
 
 
 
 
 
30,075
 
$
 
$
 
 
 
 
$
110,977
 
 
02/16/2018
 
 
02/16/2018
 
 
100
%
 
 
 
 
 
15,038
 
$
 
$
 
 
 
 
$
55,490
 
 
09/20/2018
 
 
03/23/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
135,211
 
 
 
 
(a) Reflects grants made in fiscal year 2018 based, in part, on fiscal 2017 performance. In connection with the Corporate Reorganization, all outstanding awards granted under the Partnership LTIP prior to September 20, 2018, automatically vested in full pursuant to the terms of the Partnership LTIP and the individual award agreements thereunder. All grants made on or after September 20, 2018 remain outstanding subject to continued employment.
(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. Horne, Westcott, Hammond, 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 cash. The number of phantom units that vest is subject to the achievement of certain objective, performance-based criteria during the three fiscal years prior to the vesting date. If none or only a portion of phantom units vest as a result of specified performance levels not being met, such number of phantom units that fail to vest will be forfeited. In connection with the Corporate Reorganization, all outstanding awards granted under the Partnership LTIP automatically vested in full pursuant to the terms of the Partnership LTIP and the individual award agreements thereunder.
(d) Phantom units for Messrs. Horne, Westcott, Hammond, McGraw and LeRoy vest on the third anniversary of their respective grant dates or other such date as determined by the compensation committee, and a portion are payable in cash and a portion are payable in units. For each executive officer, the amount payable in cash is as follows: Mr. Horne 125,313, Mr. Westcott 67,669, Mr. Hammond 63,910, Mr. McGraw 33,333, and Mr. LeRoy 15,038. For each executive officer, the amount payable in units is as follows: Mr. Horne 250,627, Mr. Westcott 135,339, Mr. Hammond 127,819, Mr. McGraw 66,667, and Mr. LeRoy 30,075. For 2018, the numbers granted reflect the subjective portion of the equity incentive plan under the Compensation Policy. In connection with the Corporate Reorganization, all outstanding awards granted under the Partnership LTIP automatically vested in full pursuant to the terms of the Partnership LTIP and the individual award agreements thereunder. Under the individual phantom unit award agreements, such vested phantom units (and any related DERs) were generally to be settled in cash. As described above, pursuant to the terms of the Phantom Unit Settlement Agreement, each NEO that was to receive a cash amount in settlement of their phantom units became eligible instead to receive a portion of that settlement amount and forfeited, without consideration, his right to receive any remaining portion of the settlement amount. The aggregate settlement amount to be awarded to all executive officers, including each of NEOs, was $13.8 million, and the executive officers, including each of NEOs, agreed to forfeit an aggregate of $7.8 million pursuant to the Phantom Unit Settlement Agreements, each in proportion to each executive officer’s settlement amount.
(e) For 2018, represents initial grants of restricted stock units in the Company to our NEOs after the consummation of the Corporate Reorganization under our 2018 Incentive Plan. The following vesting schedule applies to the restricted stock units awarded in 2018: (i) 25% on March 1, 2020; (ii) 25% on March 1, 2021, and (ii) the remaining 50% on March 1, 2022.
(f) The amount shown reflects the grant date fair value of these awards based upon the Financial Accounting Standards board’s authoritative guidance relating to stock compensation. The assumptions used in calculating these amounts are discussed further in to Note 13 – “Unit-Based Compensation” to the financial statements in the Partnership’s annual report on Form 10-K filed with the SEC on February 23, 2018.

27

TABLE OF CONTENTS

Outstanding Equity Awards at 2018 Fiscal Year-End

The following table reflects all of the outstanding equity awards held by our NEOs as of December 31, 2018. In connection with the Corporate Reorganization, all outstanding awards granted under the Partnership LTIP automatically vested in full pursuant to the terms of the Partnership LTIP and the individual award agreements thereunder.

 
Equity Incentive Plan Awards
Name
Number of Restricted
Stock Units That Have
Not Vested (#) (a)
Market value of
Restricted Stock
Units That Have Not
Vested ($) (b)
Number of
Unearned Units
That Have Not
Vested (#)
Market Value
of Unearned
Units That
Have Not
Vested ($)
Paul T. Horne (c)
 
760,503
 
$
1,171,267
 
 
 
 
 
 
 
James Daniel Westcott
 
2,112,676
 
$
3,253,521
 
 
 
 
 
 
 
Kyle M. Hammond
 
1,267,606
 
$
1,952,113
 
 
 
 
 
 
 
Kyle A. McGraw (d)
 
187,324
 
$
288,479
 
 
 
 
 
 
 
Dan G. LeRoy
 
135,211
 
$
208,225
 
 
 
 
 
 
 
(a) Represents restricted stock units that were granted to Messrs. Horne, Westcott, McGraw and LeRoy on September 20, 2018, which vest fully on March 1, 2022.
(b) Reflects the value of restricted stock units based on the closing price of our shares on December 31, 2018.
(c) Under the terms of the Horne Transition Agreement, all outstanding equity awards will continue to vest on the basis of, and only to the extent of, his continued service with the Company as its Chairman.
(d) Under the terms of the McGraw Separation Agreement, any vested equity awards that had not yet been settled as of December 31, 2018 will be settled at the same time vested equity awards are generally settled for other executive officers.

Option Exercises and Units Vested in 2018

None of our executive officers exercised options during 2018. On February 16, 2018, pursuant to certain objective criteria, the compensation committee determined that no phantom units vested which were granted to Westcott, McGraw, LeRoy and Horne in 2015. As described above, in connection with the Corporate Reorganization, all outstanding awards granted under the Partnership LTIP automatically vested in full pursuant to the terms of the Partnership LTIP and the individual award agreements thereunder.

The following table reflects all of the phantom units and restricted stock units held by our named executive officers which vested during 2018.

 
Unit Awards
Name
Number of Units
Acquired On Vesting (#)
Value Realized On
Vesting ($) (a)
Paul T. Horne
 
2,461,963
 
$
11,146,940
 
James Daniel Westcott
 
1,315,940
 
$
5,887,561
 
Kyle M. Hammond
 
1,121,174
 
$
5,486,478
 
Kyle A. McGraw
 
791,881
 
$