PART III
Item 10. Directors, Executive Officers, and Corporate Governance
Management of Antero Midstream GP LP
Our general partner, AMGP GP LLC (“AMGP GP”), manages our operations and activities. Our shareholders are limited partners and do not participate in the management of our operations. As a general partner, our general partner is liable for all of our debts (to the extent not paid from our assets), except for indebtedness or other obligations that are made specifically non‑recourse to it. Our general partner has the sole discretion to incur indebtedness or other obligations on our behalf on a non‑recourse basis to the general partner.
We and our general partner have no employees. All of our officers and other personnel necessary for our business to function (to the extent not outsourced) are employed by Antero Resources. As a result, the services agreement provides for our payment of an annual fee to Antero Resources for corporate, general and administrative services. This fee was initially $0.5 million per year and is subject to adjustment on an annual basis based on the CPI. The fee is also subject to adjustment to reflect any increase in the cost of providing services due to changes in applicable law, rules or regulations and any increase in the scope and extent of the services provided. The fee will not be decreased below the initial fee unless the type or extent of services provided materially decreases.
All of our officers and a majority of the directors of our general partner are also officers or directors of Antero Resources and Antero Midstream’s general partner. Our general partner’s executive officers expect to spend the substantial majority of their time managing the business of Antero Midstream and Antero Resources, which benefits us as Antero Midstream’s performance determines our success. We estimate that these officers spend less than 10% of their time on our business, as distinct from Antero Midstream’s and Antero Resources’ businesses. The actual time devoted by these officers to managing our business as well as Antero Midstream’s and Antero Resources’ will fluctuate as a result of the relative activity level between the two entities. The amount of incremental time spent by non‑officer directors who serve on both boards depends to some extent on committee assignments, but our general partner estimates that such directors will spend less than 20% more time by serving on the board of directors of our general partner.
In addition to the fee and expenses described above, we reimburse Antero Resources for costs and expenses to the extent that such costs and expenses are directly allocable to the provision of services to us, our general partner, or our subsidiaries (other than Antero Midstream and its subsidiaries), including recurring costs associated with being a separate publicly traded entity, and taxes, other than payroll taxes, or other direct operating expenses, paid by Antero Resources for our benefit. We also reimburse our general partner for any additional expenses incurred on our behalf or to maintain our legal existence and good standing. There is no limit on the amount of fees and expenses we may be required to pay to affiliates of our general partner on our behalf pursuant to the services agreement.
Board Leadership Structure
The Board of Directors of AMGP GP (the “Board”) does not have a formal policy addressing whether or not the roles of Chairman and Chief Executive Officer should be separate or combined. The directors serving on the Board possess considerable professional and industry experience, significant experience as directors of both public and private companies and a unique knowledge of the challenges and opportunities that we face. As such, the Board believes that it is in the best position to evaluate our needs and to determine how best to organize our leadership structure to meet those needs.
At present, our Board has chosen to combine the positions of Chairman and Chief Executive Officer. While the Board believes it is important to retain the flexibility to determine whether the roles of Chairman and Chief Executive Officer should be separated or combined in one individual, the Board believes that the current Chief Executive Officer is an individual with the necessary experience, commitment and support of the other members of the Board to effectively carry out the role of Chairman.
The Board believes this structure promotes better alignment of strategic development and execution, more effective implementation of strategic initiatives and clearer accountability for our success or failure. Moreover, the Board believes that combining the Chairman and Chief Executive Officer positions does not impede independent oversight of AMGP. Five of the seven members of the Board are independent under NYSE rules.
Board’s Role in Risk Oversight
In the normal course of our business, we are exposed to a variety of risks. The Board oversees our strategic direction, and in doing so considers the potential rewards and risks of our business opportunities and challenges, and monitors the development and management of risks that impact our strategic goals.
Executive Sessions
To facilitate candid discussion among our directors, the non-management directors meet in regularly scheduled executive sessions. The director who presides at these meetings is chosen by the Board prior to such meetings.
Interested Party Communications
Shareholders and other interested parties may communicate by writing to: Antero Midstream GP LP, 1615 Wynkoop Street, Denver, Colorado 80202. Shareholders may submit their communications to the Board, any committee of the Board or individual directors on a confidential or anonymous basis by sending the communication in a sealed envelope marked "Shareholder Communication with Directors" and clearly identify the intended recipient(s) of the communication.
Our Chief Administrative Officer will review each communication and other interested parties and will forward the communication, as expeditiously as reasonably practicable, to the addressee if: (1) the communication complies with the requirements of any applicable policy adopted by the Board relating to the subject matter of the communication; and (2) the communication falls within the scope of matters generally considered by the Board. To the extent the subject matter of a communication relates to matters that have been delegated by the Board to a committee or to an executive officer of the general partner, then the general partner’s Chief Administrative Officer may forward the communication to the executive officer or chairman of the committee to which the matter has been delegated. The acceptance and forwarding of communications to the members of the Board or an executive officer does not imply or create any fiduciary duty of the Board members or executive officer to the person submitting the communications.
Information may be submitted confidentially and anonymously, although we may be obligated by law to disclose the information or identity of the person providing the information in connection with government or private legal actions and in other circumstances. Our policy is not to take any adverse action, and not to tolerate any retaliation, against any person for asking questions or making good faith reports of possible violations of law, our policies or our Corporate Code of Business Conduct and Ethics.
Available Governance Materials
The Board has adopted the following materials, which are available on our website at
www.anteromidstreamgp.com
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Charter of the Audit Committee of the Board of Directors;
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Corporate Code of Business Conduct and Ethics;
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Financial Code of Ethics; and
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Corporate Governance Guidelines.
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Shareholders may obtain a copy, free of charge, of each of these documents by sending a written request to Antero Midstream GP LP, 1615 Wynkoop Street, Denver, Colorado, 80202. We intend to disclose any amendments to, or waivers from, our Code of Business Conduct and Ethics on our website.
Directors and Executive Officers
The following table shows information for our general partner’s executive officers and directors. Directors hold office until their successors have been elected or qualified or until the earlier of their death, resignation, removal or disqualification. Executive officers serve at the discretion of the board. There are no family relationships among any of the directors or executive officers. Some
of the directors and all of the executive officers also serve as executive officers of Antero Resources and Antero Midstream’s general partner.
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Name
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Age
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Position With Our General Partner
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Paul M. Rady
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65
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Chairman and Chief Executive Officer
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Glen C. Warren, Jr.
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63
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Director, President and Secretary
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Michael N. Kennedy
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44
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Chief Financial Officer and Senior Vice President
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Kevin J. Kilstrom
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64
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Senior Vice President—Production
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Alvyn A. Schopp
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60
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Chief Administrative Officer, Senior Regional Vice President and Treasurer
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Peter R. Kagan
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50
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Director
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W. Howard Keenan, Jr.
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68
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Director
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James R. Levy
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42
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Director
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Brooks J. Klimley
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61
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Director
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Rose M. Robeson
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58
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Director
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Peter A. Dea
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65
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Director
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Paul M. Rady
has served as Chief Executive Officer of our general partner since January 2017 and as Chairman of the Board of Directors of our general partner since April 2017 and has served as Chief Executive Officer and Chairman of the Board of Directors of the general partner of Antero Midstream since February 2014. Mr. Rady was a co‑founder and served as Chief Executive Officer and Chairman of the Board of Directors of Antero Resources since May 2004 and of its predecessor company from its founding in 2002 to its sale to XTO Energy, Inc. in April 2005. Prior to Antero Resources, Mr. Rady served as President, CEO and Chairman of Pennaco Energy from 1998 until its sale to Marathon in early 2001. Prior to Pennaco, Mr. Rady was with Barrett Resources from 1990 until 1998 where he initially was recruited as Chief Geologist in 1990, then served as Exploration Manager, EVP Exploration, President, COO and Director and ultimately CEO. Mr. Rady began his career with Amoco where he served 10 years as a geologist focused on the Rockies and Mid‑Continent. Mr. Rady is the managing member of Salisbury Investment Holdings, LLC. Mr. Rady holds a B.A. in Geology from Western Colorado University and M.Sc. in Geology from Western Washington University.
Mr. Rady’s significant experience as a chief executive of oil and gas companies, together with his training as a geologist and broad industry knowledge, enable Mr. Rady to provide the board with executive counsel on a full range of business, strategic and professional matters.
Glen C. Warren, Jr.
has served as President and Secretary of our general partner since January 2017 and as a director of our general partner since April 2017 and has served as President and Secretary and as a director of the general partner of Antero Midstream since January 2016, prior to which he served as President, Chief Financial Officer and Secretary and as a director of the general partner of Antero Midstream beginning in February 2014. Mr. Warren was a co‑founder and served as President, Chief Financial Officer and Secretary and as a director of Antero Resources since May 2004 and of its predecessor company from its founding in 2002 to its sale to XTO Energy, Inc. in April 2005. Prior to Antero Resources, Mr. Warren served as EVP, CFO and Director of Pennaco Energy from 1998 until its sale to Marathon in early 2001. Mr. Warren spent 10 years as a natural resources investment banker focused on equity and debt financing and M&A advisory with Lehman Brothers, Dillon, Read and Kidder, Peabody & Co. Mr. Warren began his career as a landman in the Gulf Coast region with Amoco, where he spent six years. Mr. Warren is the managing member of Canton Investment Holdings, LLC. Mr. Warren holds a B.A. from the University of Mississippi, a J.D. from the University of Mississippi School of Law and an M.B.A. from the Anderson School of Management at U.C.L.A.
Mr. Warren’s significant experience as a chief financial officer of oil and gas companies, together with his experience as an investment banker and broad industry knowledge, enable Mr. Warren to provide the board with executive counsel on a full range of business, strategic, financial and professional matters.
Michael N. Kennedy
has served as our Chief Financial Officer and Senior Vice President of Finance since April 2017 and has served as Chief Financial Officer and Senior Vice President of Finance of the general partner of Antero Midstream since January 2016, prior to which he served as Vice President of Finance of the general partner of Antero Midstream beginning in February 2014. Mr. Kennedy has also served as Senior Vice President of Finance of Antero Resources since January 2016, prior to which he served as Vice President of Finance of Antero Resources beginning in August 2013. Mr. Kennedy was Executive Vice President and Chief Financial Officer of Forest Oil Corporation (“Forest”) from 2009 to 2013. From 2001 until 2009, Mr. Kennedy held various financial
positions of increasing responsibility within Forest. From 1996 to 2001, Mr. Kennedy was an auditor with Arthur Andersen focusing on the Natural Resources industry. Mr. Kennedy holds a B.S. in Accounting from the University of Colorado at Boulder.
Kevin J. Kilstrom
has served as our Senior Vice President of Production since April 2017 and has served as Senior Vice President of Production of the general partner of Antero Midstream since January 2016, prior to which he served as Vice President of Production of the general partner of Antero Midstream beginning in February 2014. Mr. Kilstrom also has served as Senior Vice President of Production of Antero Resources since January 2016, prior to which he served as Vice President of Production of Antero Resources beginning in June 2007. Mr. Kilstrom was a Manager of Petroleum Engineering with AGL Energy of Sydney, Australia (“AGL”) from 2006 to 2007. Prior to AGL, Mr. Kilstrom was with Marathon Oil (“Marathon”) as an Engineering Consultant and Asset Manager from 2003 to 2006 and as a Business Unit Manager for Marathon’s Powder River coal bed methane assets from 2001 to 2003. Mr. Kilstrom also served as a member of the board of directors of three Marathon subsidiaries from October 2003 through May 2005. Mr. Kilstrom was an Operations Manager and reserve engineer at Pennaco Energy from 1999 to 2001. Mr. Kilstrom was at Amoco for more than 22 years prior to 1999. Mr. Kilstrom holds a B.S. in Engineering from Iowa State University and an M.B.A. from DePaul University.
Alvyn A. Schopp
has served as our Chief Administrative Officer, Regional Senior Vice President, and Treasurer since April 2017 and has served as Chief Administrative Officer, Regional Senior Vice President, and Treasurer of Antero Midstream’s general partner since January 2016, prior to which he served as Chief Administrative Officer, Regional Vice President and Treasurer of Antero Midstream’s general partner beginning in February 2014. Mr. Schopp has also served as Chief Administrative Officer, Regional Senior Vice President, and Treasurer of Antero Resources since January 2016, as Chief Administrative Officer, Regional Vice President and Treasurer from September 2013 to January 2016, as Vice President of Accounting and Administration and Treasurer from January 2005 to September 2013, as Controller and Treasurer from 2003 to 2005 and as Vice President of Accounting and Administration and Treasurer of Antero Resources’ predecessor company, Antero Resources Corporation, from January 2005 until its sale to XTO Energy, Inc. in April 2005. From 1993 to 2000, Mr. Schopp was CFO, Director and ultimately CEO of T‑Netix. From 1980 to 1993 Mr. Schopp was with KPMG LLP. As a Senior Manager with KPMG, he maintained an extensive energy and mining practice. Mr. Schopp holds a B.B.A. from Drake University.
Peter R. Kagan
has served as a director of our general partner since April 2017. Mr. Kagan has also served as a director of Antero Midstream since February 2014 and a director of Antero Resources since 2004. Mr. Kagan has been with Warburg Pincus since 1997 where he leads the firm’s investment activities in energy and natural resources. He is a Partner of Warburg Pincus & Co. and a Managing Director of Warburg Pincus LLC. He is also a member of Warburg Pincus LLC’s Executive Management Group. Mr. Kagan received a B.A. degree cum laude from Harvard College and J.D. and M.B.A. degrees with honors from the University of Chicago. Prior to joining Warburg Pincus, he worked in investment banking at Salomon Brothers in both New York and Hong Kong. Mr. Kagan currently also serves on the boards of directors of the following public companies: Laredo Petroleum Holdings, Inc., MEG Energy Corp. and Targa Resources Corp., as well as the boards of several private companies. In addition, he is a director of Resources for the Future and a trustee of Milton Academy.
Mr. Kagan has significant experience with energy companies and investments and broad knowledge of the oil and gas industry. We believe his background and skill set make Mr. Kagan well‑suited to serve as a member of our board of directors.
W. Howard Keenan, Jr.
has served as a director of our general partner since April 2017. Mr. Keenan has also served as a director of Antero Midstream since February 2014 and a director of Antero Resources since 2004. Mr. Keenan has over 40 years of experience in the financial and energy businesses. Since 1997, he has been a Member of Yorktown Partners LLC, a private investment manager focused on the energy industry. From 1975 to 1997, he was in the Corporate Finance Department of Dillon, Read & Co. Inc. and active in the private equity and energy areas, including the founding of the first Yorktown Partners fund in 1991. He is serving or has served as a director of multiple Yorktown Portfolio companies and currently serves as a director of the following public companies: Ramaco Resources, Inc. and Solaris Oilfield Infrastructure, Inc. Mr. Keenan holds a B.A. degree cum laude from Harvard College and an M.B.A. degree from Harvard University.
Mr. Keenan has significant experience with energy companies and investments and broad knowledge of the oil and gas industry. We believe his background and skill set make Mr. Keenan well‑suited to serve as a member of our board of directors.
James R. Levy
has served as a director of our general partner since April 2017 and joined the audit committee of the board of directors of our general partner in connection with our listing on the NYSE. Mr. Levy has also served as a director of Antero Resources since October 2013, where he serves on the compensation committee. Mr. Levy joined Warburg Pincus in 2006 and focuses on
investments in the energy industry. Mr. Levy is a Partner of Warburg Pincus & Co. and a Managing Director of Warburg Pincus LLC. Prior to joining Warburg Pincus, Mr. Levy worked as a private equity investor at Kohlberg & Company and in M&A advisory at Wasserstein Perella & Co. Mr. Levy currently serves on the board of directors of Laredo Petroleum as well as the board of directors of several private companies. In addition, he is a trustee of Prep for Prep. Mr. Levy received a Bachelor of Arts degree from Yale University.
Mr. Levy has significant experience with energy companies and investments and broad knowledge of the oil and gas industry. We believe his background and skill set make Mr. Levy well‑suited to serve as a member of our board of directors.
Brooks J. Klimley
joined the board of our general partner in connection with our listing on the NYSE in 2017, and serves as a member of the audit committee. Mr. Klimley served as a director of Antero Midstream, where he also served as a member of the audit committee, from March 2015 until he joined the board of our general partner. In 2013, Mr. Klimley joined The Silverfern Group, which is focused on private equity co‑investments, after a nearly 25 year career leading investment banking practices covering the energy and mining sectors. In addition, he has served as an Adjunct Professor at Columbia University’s graduate schools of business and international affairs since 2010. Previously, Mr. Klimley acted as President of Brooks J. Klimley & Associates, an energy advisory services firm focused on strategy and capital raising for energy and natural resources companies. Prior to founding his own firm in 2009, Mr. Klimley acted as the President of CIT Energy and held senior leadership positions at a number of financial institutions, including Citicorp, Bear Stearns, UBS and Kidder, Peabody. Mr. Klimley holds a dual B.A./M.A. in Jurisprudence (Law) from Oxford University and a joint degree in Economics and History from Columbia University.
Mr. Klimley has significant experience with energy companies and investments and broad knowledge of the oil and gas industry. We believe his background and skill set make Mr. Klimley well‑suited to serve as a member of our board of directors.
Rose M. Robeson
joined the board of directors of our general partner in connection with our listing on the NYSE in 2017, and serves as chairman of the audit committee. Prior to her retirement in March 2014, Ms. Robeson was Senior Vice President & Chief Financial Officer of DCP Midstream GP, LLC, the general partner of DCP Midstream Partners, LP from May 2012 until January 2014. Ms. Robeson also served as Group Vice President and Chief Financial Officer of DCP Midstream LLC from January 2002 to May 2012. Ms. Robeson served as a director of American Midstream GP, LLC, the general partner of American Midstream Partners, LP (NYSE: AMID) from June 2014 to June 2016. Ms. Robeson served as a director of Tesco Corporation from November 2015 to December 2017. Ms. Robeson earned her B.S. degree in accounting from Northwest Missouri State University. Ms. Robeson became a certified public accountant in 1983 and her license is currently inactive. Ms. Robeson is a member of the board of directors of SM Energy, an independent energy company engaged in the acquisition, development, and production of crude oil, natural gas and natural gas liquids in onshore North America, and serves as Audit Committee Chair and serves on the Nominating and Governance Committee. Ms. Robeson is also a director of Newpark Resources (NYSE: NR), a worldwide provider of drilling fluids systems and composite matting systems used in oilfield services, and serves on the Audit, Compensation, and Nominating and Governance committees.
Ms. Robeson brings to the Board over 30 years of experience in various aspects of the oil and gas industry, including exploration and production, midstream and refining and marketing. She also has significant financial management, risk management and accounting oversight experience, which is important in the oversight of our financial reporting and risk management functions. Ms. Robeson’s service on other public company boards enhances her strong corporate governance background. We believe her background and skill set make Ms. Robeson well‑suited to serve as a member of our board of directors and as Chairman of the audit committee.
Peter Dea
has served as a director of our general partner since April 2018. He is the Co-Founder and Executive Chairman of Confluence Resources LP, a Denver, Colorado-based oil and gas exploration and production company, and has been with the company since its inception in September 2016. Mr. Dea also serves on the Boards of Encana Corporation and Liberty Oilfield Services. Additionally, Mr. Dea served as Co-Founder, President and CEO of Cirque Resources LP since its inception in May 2007 and served as President, CEO and a Director of Western Gas Resources, Inc., from 2001 through their merger with Anadarko Petroleum Corporation in 2006. He joined Barrett Resources Corporation in 1993 and was CEO from 1999 and Chairman of the Board from 2000 until its sale in 2001 to Williams. Prior to joining Barrett, Mr. Dea held various management and geologic positions for Exxon Company USA. In addition to receiving geology degrees from the University of Montana, MS, and Western Colorado University, BA, he also attended the Harvard Business School Advanced Management Program.
Mr. Dea brings to the Board 35 years of experience and leadership in the exploration and development of multiple shale plays across the U.S., further supporting AMGP’s and its affiliates’ integrated long-term strategy and focus. We believe his background and skill set make Mr. Dea well‑suited to serve as a member of our board of directors and audit committee.
Committees of the Board of Directors
The board of directors of our general partner has an audit committee. We do not have a compensation committee, but rather the board of directors of our general partner approves equity grants to directors and Antero Resources employees. The board of directors of our general partner may establish a conflicts committee to review specific matters that the board believes may involve conflicts of interest.
Audit Committee
Rules implemented by the NYSE and SEC require us to have an audit committee comprised of at least three directors who meet the independence and experience standards established by the NYSE and the Exchange Act. Messrs. Klimley and Dea serve on our audit committee, and Ms. Robeson serves as the Chairman of the committee. As required by the rules of the SEC and listing standards of the NYSE, the audit committee currently consists solely of independent directors under the standards established by the NYSE and the Exchange Act. SEC rules also require that a public company disclose whether or not its audit committee has an “audit committee financial expert” as a member. An “audit committee financial expert” is defined as a person who, based on his or her experience, possesses the attributes outlined in such rules. Our board of directors believes that Ms. Robeson possesses substantial financial experience based on her extensive experience in finance as it relates to the oil and gas industry as the former CFO of DCP Midstream LLC. As a result of these qualifications, we believe Ms. Robeson satisfies the definition of “audit committee financial expert.”
This committee oversees, reviews, acts on and reports on various auditing and accounting matters to our board of directors, including: the selection of our independent accountants, the scope of our annual audits, fees to be paid to the independent accountants, the performance of our independent accountants and our accounting practices. In addition, the audit committee oversees our compliance programs relating to legal and regulatory requirements. We adopted an audit committee charter defining the committee’s primary duties in a manner consistent with the rules of the SEC and NYSE.
Conflicts Committee
Our general partner may, from time to time, have a conflicts committee to which the board will appoint at least two independent directors and which may be asked to review specific matters that the board believes may involve conflicts of interest and determines to submit to the conflicts committee for review. The conflicts committee will determine if the resolution of the conflict of interest is adverse to the interest of the partnership. The members of the conflicts committee may not be officers or employees of our general partner or directors, officers or employees of its affiliates, Antero Resources, and must meet the independence standards established by the NYSE and the Exchange Act to serve on an audit committee of a board of directors, along with other requirements in our partnership agreement. Any matters approved by the conflicts committee will be conclusively deemed to be approved by us and all of our partners and not a breach by our general partner of any duties it may owe us or our unitholders.
On February 26, 2018, we announced that the board of directors of our general partner formed a conflicts committee composed solely of directors who satisfy the requirements for serving on our general partner’s conflicts committee in conjunction with the formation of the special committee at Antero Resources, and a conflicts committee at Antero Midstream. In connection with the conflicts committee’s efforts to explore, review and evaluate potential transactions involving AMGP, on October 9, 2018, we announced that we had entered into the Simplification Agreement, pursuant to which, among other things, (1) we will be converted from a limited partnership to a corporation under the laws of the State of Delaware, to be named Antero Midstream Corporation; (2) an indirect, wholly owned subsidiary of New AM will be merged with and into Antero Midstream, with Antero Midstream surviving the merger as an indirect, wholly owned subsidiary of New AM and (3) all the issued and outstanding Series B Units representing limited liability company interests of IDR LLC will be exchanged for an aggregate of approximately 17.35 million shares of New AM’s Common Stock. As a result of the Transactions, Antero Midstream will be a wholly owned subsidiary of New AM and our former shareholders, unitholders of Antero Midstream and holders of Series B Units will each own New AM’s common stock.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires executive officers and board members of our general partner and persons who beneficially own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC and to furnish us with copies of all such reports.
Based solely upon our review of reports received by us, or representations from certain reporting persons that no filings were required, we believe that all of the officers and board members of our general partner and persons who beneficially owned more than 10% of our common units complied with all applicable filing requirements during fiscal year 2018.
Item 11. Executive Compensation
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COMPENSATION DISCUSSION AND ANALYSIS
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Neither we nor our general partner have any employees. All of the executive officers of our general partner and other personnel who provide services to our business are employed by Antero Resources. This Item 11 provides information relating to the compensation of the following named executive officers of our general partner, whom we refer to herein collectively as our “Named Executive Officers”:
2018 Named Executive Officers
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Name
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Principal Position
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Paul M. Rady
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Chairman of the Board and Chief Executive Officer
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Glen C. Warren, Jr.
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Director, President and Secretary
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Michael N. Kennedy
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Chief Financial Officer and Senior Vice President—Finance
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Alvyn A. Schopp
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Chief Administrative Officer, Regional Senior Vice President and Treasurer
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Kevin J. Kilstrom
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Senior Vice President—Production
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Our Named Executive Officers currently receive all of their compensation and benefits for services provided to our business from Antero Resources, Antero Midstream and IDR LLC. All decisions regarding the compensation of our Named Executive Officers, other than with respect to long-term equity incentive awards under the Antero Midstream Partners LP Long-Term Incentive Plan (the “Midstream LTIP”) and Series B Units issued by IDR LLC, are made by the compensation committee of Antero Resources’ board of directors (the “Compensation Committee”). Pursuant to the services agreement that we have entered into with Antero Resources and our general partner, we are required to reimburse Antero Resources for a proportionate amount of compensation expenses incurred on our behalf. Although we bear an allocated portion of Antero Resources’ costs of providing such compensation and benefits to our Named Executive Officers, we have no control over such costs and do not establish or direct the compensation policies or practices of Antero Resources, Antero Midstream or IDR LLC.
The following Compensation Discussion and Analysis provides an overview of compensation policies and programs applicable to our Named Executive Officers and describes the compensation objectives, policies and practices with respect to our Named Executive Officers. The elements of compensation provided by Antero Resources and the Compensation Committee’s decisions with respect to our Named Executive Officers’ compensation are not subject to approval by the Board. Certain members of the Board are members of the board of directors of Antero Resources. Messrs. Kagan, Keenan and Levy served on our Board and the board of directors of Antero Resources in 2018. As used in this Item 11 (other than in this “Overview” and the “Compensation of Directors” section below), references to “our,” “we,” “us,” the “Company,” and similar terms refer to Antero Resources, references to the “Board” or “Board of Directors” refer to the board of directors of Antero Resources, and references to the Partnership refer to Antero Midstream.
The following discussion provides information about our compensation decisions and policies with regard to our Named Executive Officers for the 2018 fiscal year, and is intended to provide investors with the information necessary to understand our compensation policies and decisions. It also provides context for the disclosure included in the executive compensation tables below.
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2018 Say-on-Pay Advisory Vote
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At the Company’s 2018 annual meeting, the stockholders of the Company were asked to approve, on an advisory basis, the compensation of the Named Executive Officers. Advisory votes in favor of our executive compensation program were cast by over 98% of the shares of common stock of the Company counted as present and entitled to vote at the Company’s 2018 annual meeting. The Compensation Committee took the results of the “Say on Pay” vote in account when evaluating the compensation of the Named Executive Officers in 2018. We have continued, and plan to continue, engaging in ongoing shareholder outreach regarding corporate governance generally, including executive compensation programs.
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Compensation Philosophy and Objectives of Our Compensation Program
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Since our inception, our compensation philosophy has been predominantly focused on recruiting individuals who are motivated to help us achieve superior performance and growth. Our company was founded by entrepreneurs whose strategy was to employ high-impact executives who are extremely effective at sparking superior performance with low overhead. These highly qualified and experienced individuals have contributed to the continued success of our Company, driving an 20% compound annual growth rate in debt-adjusted net production per share and a 21% compound annual growth rate in oil and gas net proved reserves since the Company’s 2013 IPO.
Historically, to achieve our objectives, we sought to implement a compensation program that reflected the unique strategy and entrepreneurial culture of our organization. Specifically, we sought to reward our Named Executive Officers by emphasizing long-term equity-based incentive compensation, which allowed our senior leaders to build significant ownership in the Company. We believe this approach served to motivate our Named Executive Officers and align their interests with those of the Company and our shareholders. Our Named Executive Officers currently hold approximately 9% of our outstanding shares, which ensures they identify with the best interests of our shareholders.
As the Company continues to mature, we are continuing to transition from an entrepreneurial-based management incentive structure to a more traditional compensation program. This transition called for us to make certain modifications to our compensation philosophy and attendant adjustments in our compensation program. More specifically, our goal is to focus on returns and value creation per share that will reward more disciplined capital investment, efficient operations, and free cash flow generation. In addition, for calendar year 2018, we adopted a simplified annual incentive program that focuses on four key performance metrics. Further, our compensation program targets the market median for all elements of our Named Executive Officers’ compensation. We believe these changes to our compensation philosophy and practices promoted a stronger alignment between Named Executive Officer pay and Company performance, and deliver greater value to our shareholders as our Company continues to grow and mature.
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Compensation Best Practices
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The following table highlights the compensation best practices we follow:
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What We Do
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What We Don’t Do
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Use a representative and relevant peer group
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Target the market median for all elements of Named Executive Officers’ compensation
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Apply robust minimum stock ownership guidelines
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Link annual incentive compensation to the achievement of objective pre-established performance goals tied to operational and strategic priorities
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Evaluate the risk of our compensation programs
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Use and review compensation tally sheets
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Provide 100% long-term incentive awards in the form of performance-based equity
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Use an independent compensation consultant
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Maintain a clawback policy
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No tax gross ups for executive officers
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No “single-trigger” change-in-control cash payments
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No excessive perquisites
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No severance arrangements for Named Executive Officers
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No guaranteed bonuses for Named Executive Officers
✗
No management contracts
✗
No re-pricing, backdating or underwater cash buy-outs of options or stock appreciation rights
✗
No hedging or pledging of Company stock
✗
No separate benefit plans for Named Executive Officers
✗
No granting of stock options with an exercise price less than the fair market value of the Company’s common stock on the date of grant
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Implementing Our Compensation Program Objectives
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Role of the Compensation Committee
The Compensation Committee oversees all matters of our executive compensation program and has the final decision-making authority on all executive compensation matters. Each year, the Compensation Committee reviews, modifies (if necessary), and approves our peer group, corporate goals and objectives relevant to the compensation of the Company’s Chief Executive Officer (“CEO”) and other executive officers, and the executive compensation program. In addition, the Compensation Committee is responsible for reviewing the performance of the CEO and the Company’s President, Chief Financial Officer and Secretary (“President/CFO”) within the framework of our executive compensation goals and objectives. Based on this evaluation, the Compensation Committee sets the compensation of the CEO and the President/CFO.
The CEO and the President/CFO typically provide recommendations to the Compensation Committee regarding the compensation levels for the other executive officers and for our executive compensation program as a whole. In making their recommendations, the CEO and the President/CFO consider each executive officer’s performance during the year, the Company’s performance during the year, and comparable company compensation levels and independent oil and gas company compensation surveys. The Compensation Committee considers these recommendations when reviewing the performance of, and setting compensation for, the other executive officers.
Actual compensation decisions for individual officers are the result of a subjective analysis of a number of factors, including the individual officer’s role within our organization, performance, experience, skills or tenure with us, changes to the individual’s position, and relevant trends in compensation practices. The Compensation Committee also considers a Named Executive Officer’s current and prior compensation when setting future compensation. Specifically, current compensation is considered a base, and the Compensation Committee determines whether adjustments to that base are necessary to retain the executive in light of competition and to provide continuing performance incentives. Thus, the Compensation Committee’s decisions regarding compensation are the result of the exercise of judgment based on all reasonably available information and, to that extent, compensation is discretionary.
Role of External Advisors
The Compensation Committee has the authority to retain an independent executive compensation consultant. For 2018, the Compensation Committee retained Frederic W. Cook & Co., Inc. (“F.W. Cook”). In compliance with the SEC and NYSE disclosure requirements, the Compensation Committee reviewed the independence of F.W. Cook under six independence factors. After its review, the Compensation Committee determined that F.W. Cook was independent.
In 2018, F.W. Cook:
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·
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|
Collected and reviewed all relevant company information, including our historical compensation data and our organizational structure;
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·
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With input from management, established a peer group of companies to use for executive compensation comparisons;
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·
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Assessed our compensation program’s position relative to market for our Named Executive Officers and stated compensation philosophy;
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·
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Prepared a report of its analysis, findings and recommendations for our executive compensation program; and
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·
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Completed other ad hoc assignments, such as helping with the design of incentive arrangements.
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F.W. Cook’s reports were provided to the Compensation Committee in 2018 and also used by Messrs. Rady and Warren in making their recommendations to the Compensation Committee.
Competitive Benchmarking
When assessing the soundness of our compensation programs, the Compensation Committee compares the pay practices for our Named Executive Officers against the pay practices of other companies. This process recognizes our philosophy that our compensation practices should be competitive, though marketplace information is only one of the many factors we consider.
Messrs. Rady and Warren used market compensation data provided by F.W. Cook to assess the total compensation levels of our top five executives relative to market, and to make recommendations to the Compensation Committee. Market data is developed by comparing each executive officer’s compensation with that of officers in similar positions with companies in our Peer Group (described below) and with those in the E&P industry in general. To the extent possible, we consider the specific responsibilities assumed by our executives and those assumed by executives at other organizations (based on peer SEC filings) to determine whether the positions are comparable. We give greater weight to Peer Group data if a position appears comparable to the position of one of our Named Executive Officers. Otherwise, we supplement Peer Group data with industry data from the 2018 Oil and Gas E&P Industry Compensation Survey prepared by Effective Compensation, Incorporated.
Peer Group
In 2018, F.W. Cook identified a peer group of onshore publicly traded oil and gas companies that are reasonably similar to us in terms of size and operations. We refer to the following 17 companies as the “Peer Group”:
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Cabot Oil & Gas Corporation
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Parsley Energy, Inc.
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Cimarex Energy Co.
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Pioneer Natural Resources Company
|
CNX Resources Corporation
|
QEP Resources, Inc.
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Concho Resources Inc.
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Range Resources Corporation
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Continental Resources Corporation
|
SM Energy Company
|
Devon Energy Corporation
|
Southwestern Energy Company
|
Diamondback Energy, Inc.
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Whiting Petroleum Corporation
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EQT Corporation
|
WPX Energy, Inc.
|
Noble Energy, Inc.
|
|
Two members of our 2017 peer group, Energen Corporation and Newfield Exploration Company, were removed from our Peer Group for 2018 due to pending acquisitions at the time of the review, and three companies, CNX Resources Corporation, Diamondback Energy, Inc. and Parsley Energy, Inc., were added to the Peer Group based on similar size and operational scale.
Positioning Versus Market
Beginning in 2018, we determined that it was appropriate to target the median of the Peer Group for base salaries, annual cash incentive awards, and long-term equity-based incentive awards. This is a reduction from 2017, when compensation was targeted at the 75
th
percentile. This reduction was adopted in response to our 2017 say-on-pay vote and feedback received from our shareholder outreach program. As noted throughout this Compensation Discussion and Analysis, target compensation is only one of many factors considered by the Compensation Committee when setting compensation levels for our Named Executive Officers.
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Elements of Direct Compensation
|
Our Named Executive Officers’ compensation includes the key components described below.
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|
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Pay Component
|
Form of Pay
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How Amount is Determined
|
Objective
|
Base salary
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Cash
|
Market-competitive amount that reflects the executive’s relative skills, responsibilities, experience and contributions
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Provide a minimum, fixed level of cash compensation
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Annual incentive awards
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Cash
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Performance against four metrics
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Encourage performance that is aligned with our business strategy and that should lead to long-term shareholder value
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Long-term incentive awards
|
100% performance share units
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Three-year return on capital employed; and three-year absolute total shareholder return, as adjusted by relative total shareholder return compared to the Peer Group
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Encourage performance that delivers value to shareholders through stock price appreciation
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For 2018, these components, at target, were distributed as shown below for our CEO and our other Named Executive Officers:
Base salaries are designed to provide a minimum, fixed level of cash compensation for services rendered during the year. In addition to providing a base salary that is competitive with salaries paid by other independent oil and gas exploration and production companies, the Compensation Committee also considers whether our pay levels appropriately align each Named Executive Officer’s base salary level relative to the base salary levels of our other officers. Our objective is to have base salaries that accurately reflect each officer’s relative skills, experience and contributions to the Company. To that end, annual base salary adjustments are based on a subjective analysis of many individual factors, including:
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·
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the responsibilities of the officer;
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·
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|
the period over which the officer has performed these responsibilities;
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·
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the scope, level of expertise, and experience required for the officer’s position;
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·
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the strategic impact of the officer’s position; and
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·
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the potential future contribution and demonstrated individual performance of the officer.
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In addition to the individual factors listed above, the Compensation Committee considers our overall business performance and implementation of Company objectives when determining annual base salaries. While these metrics generally provide context for making salary decisions, base salary decisions do not depend on attainment of specific goals or performance levels and no specific weighting is given to one factor over another.
Base salaries are reviewed annually, but are not necessarily increased if the Compensation Committee believes that (1) our executives are currently compensated at proper levels in light of Company performance or external market factors, or (2) an increase or addition to other elements of compensation would be more appropriate in light of our stated objectives.
In February 2018, after comparing base salary levels to those of similarly situated executives in the Peer Group and considering the individual and business factors described above, Messrs. Rady and Warren recommended to the Compensation Committee that the Named Executive Officers other than themselves receive a 3% base salary increase to reflect increases in cost of living, as reflected in the table below. The Compensation Committee approved this recommendation.
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|
|
Executive Officer
|
Base Salary as of March 2017
|
Base Salary as of March 2018
|
Percentage Increase
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Paul M. Rady
|
$
858,000
|
$
858,000
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0%
|
Glen C. Warren, Jr.
|
$
645,000
|
$
645,000
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0%
|
Alvyn A. Schopp
|
$
432,000
|
$
444,960
|
3%
|
Kevin J. Kilstrom
|
$
432,000
|
$
444,960
|
3%
|
Michael N. Kennedy
|
$
375,000
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$
386,250
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3%
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Annual Cash Incentive Awards
Purpose and Operation
Annual cash incentive payments, which we also refer to as cash bonuses, are a key component of each Named Executive Officer’s annual compensation package. Historically, the Compensation Committee used an annual discretionary cash bonus. However, based on recommendations from F.W. Cook, the Compensation Committee implemented a formal annual incentive plan design beginning in fiscal 2014. This annual incentive plan is based on a balanced scorecard that is used to measure our performance.
As part of a more structured annual incentive program, we adopted bonus targets for each of the Named Executive Officers, expressed as a percentage of base salary. These targets, which were determined based on our compensation strategy of providing incentive compensation opportunities that are competitive with the market median, are listed below.
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Executive Officer
|
2018 Target Bonus (as a % of base salary)
|
Paul M. Rady
|
120%
|
Glen C. Warren, Jr.
|
100%
|
Alvyn A. Schopp
|
85%
|
Kevin J. Kilstrom
|
85%
|
Michael N. Kennedy
|
85%
|
Performance Metrics
For 2018, based on the feedback received from our shareholders in connection with the Company’s outreach program, the Compensation Committee decided to alter the structure of our annual incentive program. We believe the new, simplified design of the annual incentive program implemented for 2018 provides a more transparent bonus structure with more objectively determinable payouts. We also believe the new structure is more consistent with our shareholders’ investment experience. The Compensation Committee selected the four metrics described below for the 2018 fiscal year under our annual incentive plan. These metrics, which were specifically chosen for their importance in supporting the strategic initiatives we have established for 2018, are weighted equally in calculating annual bonuses. The following tables shows the results of the 2018 annual incentive program:
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|
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|
|
|
|
Weighting Factor
|
Selected Metrics
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Threshold Performance
|
Target Performance
|
Maximum Performance
|
Actual Performance
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Performance
(% of Target)
|
Weighted Score
|
25%
|
Debt-Adjusted Net Production Growth per Share
(1)
|
9%
|
13%
|
18%
|
13%
|
100%
|
25%
|
25%
|
Net Debt/EBITDAX
(2)
|
2.5x
|
2.1x
|
1.8x
|
2.2x
|
88%
|
21.88%
|
25%
|
Free Cash Flow
(3)
|
$(170 million)
|
$20 million
|
$215 million
|
$(303 million)
|
0%
|
0%
|
25%
|
Safety and Environmental
(4)
|
0.800 TRIR
|
0.580 TRIR
|
.300 TRIR
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0.554 TRIR
|
106%
|
8.83%
|
|
|
0.100 LTIR
|
0.080 LTIR
|
.030 LTIR
|
0.077 LTIR
|
109%
|
9.11%
|
|
|
—
|
0 Notices
|
—
|
0 Notices
|
100%
|
8.33%
|
100%
|
|
|
|
|
|
TOTAL
|
73.15%
|
|
(1)
|
|
Debt-Adjusted Net Production Growth per Share
|
Definition
. Annual production volumes divided by debt-adjusted shares. Debt-adjusted shares represent current shares outstanding plus the quotient of total debt at year end 2018, divided by the weighted average share price during 2018.
Rationale
. Production volumes are critical to our profitability. Measuring those volumes on a debt-adjusted per-share basis motivates management to produce those volumes in a capital-efficient manner.
Definition
. Year-end 2018 net debt divided by 2018 full-year adjusted EBITDAX.
Rationale
. Managing the balance sheet leverage is essential for growing the business efficiently. Net Debt/EBITDAX is a key debt coverage ratio that motivates management to minimize debt relative to cash flow.
Definition
. Stand-alone E&P adjusted operating cash flow, less stand-alone E&P drilling and completion capital, less land maintenance capital.
Rationale
. Measuring and rewarding Free Cash Flow directly supports our go-forward strategy of sustainable free cash flow growth by motivating management to optimize operating cash flow relative to upstream capital budgets.
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(4)
|
|
Safety and Environmental
|
Definition
. The Company measured performance in the Safety and Environmental performance category through several lagging indicators:
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·
|
|
Lost Time Incident Rate (“LTIR”)
. This metric refers to the number of lost time injuries (i.e., work-related injuries that result in an employee being unable to perform normal work duties the work day following the injury event). LTIR is calculated first by
multiplying
the total number of lost time injuries by 200,000, and then dividing that product by the number of labor hours for the recording period.
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|
·
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Total Recordable Incident Rate (“TRIR”)
. This metric refers to the number of OSHA recordable injuries/illnesses (i.e., work-related injuries/illnesses that result in medical intervention beyond first aid). TRIR is calculated first by multiplying the total
|
number of recordable injuries/illnesses by 200,000, and then dividing that product by the number of labor hours for the recording period.
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|
·
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Environmental
. Performance with respect to this metric is attained if there are no major environmental related Notices of Violation (fines not exceeding $100,000) occurring during the measurement period.
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In addition, the Company monitored several leading indicators in determining performance for the Safety and Environmental performance category. Leading indicators are proactive, preventative and predictive measures that provide current information regarding the effective performance, activities and processes of a Safety and Environmental system that may help identify, eliminate or control risks in the workplace. Management reviewed the progress of each leading indicator throughout 2018 and assessed if performance was adequate in light of the Company’s operation. These leading indicators include: HSSE training, Operational Safety Steering Team activities, Corrective Action/Preventative Action closeout, Environmental Compliance Audit Score, Operational Risk Register Reviews, and Field Safety Committee meeting compliance.
Rationale
. Maintaining a safe work environment and sustainable environmental record is critical to the success of the business and execution of our strategy. Measuring safety and environmental metrics motivates all participants to maintain focus on these metrics.
2018 Annual Incentive Program Payouts
The Compensation Committee evaluated the 2018 annual incentive scorecard and considered the factors noted above. Our performance for 2018 resulted in a payout calculation of 73.15%. The Compensation Committee elected to pay 2018 annual incentive bonuses in March 2019 in the amounts shown below for the Named Executive Officers. There were no adjustments for individual performance.
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Executive Officer
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2018 Target Bonus ($)
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Performance Achievement Level (Percentage of Target)
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Actual 2018 Bonus ($)
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Paul M. Rady
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1,029,600
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73.15%
|
753,140
|
Glen C. Warren, Jr.
|
645,000
|
73.15%
|
471,810
|
Alvyn A. Schopp
|
378,216
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73.15%
|
276,661
|
Kevin J. Kilstrom
|
378,216
|
73.15%
|
276,661
|
Michael N. Kennedy
|
328,313
|
73.15%
|
240,157
|
We are aware that equity prices for E&P companies remain depressed. However, we believe that the results of our annual incentive program are appropriate and aligned with the interests of our shareholders. We consider the results of this program to have a direct correlation to the actions of our management team. Payments under the annual incentive plan will help us to retain and reward the executive team that is responsible for our success.
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Long-Term Equity-Based Incentive Awards
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Long-Term Incentive Awards Granted in 2018
Based on feedback received from our shareholders in connection with our outreach program, the Compensation Committee adjusted our compensation philosophy with respect to long-term equity-based awards to better reflect our shareholders’ investment experience in the Company. Specifically, equity awards granted in 2018 targeted the market 50th percentile of the Peer Group, resulting in a reduced grant value for each Named Executive Officer (in the aggregate, grant values for 2018 were reduced 23% compared to grant values for 2017). In 2018, all long-term incentive awards for our Named Executive Officers were in the form of performance share units granted under the Antero Resources Corporation Long-Term Incentive Plan (the “AR LTIP”). The number of performance share units granted to our Named Executive Officers in 2018 are described more fully under “Grants of Plan-Based Awards for Fiscal Year 2018” below.
Of the performance share units granted in 2018, 70% were based on absolute total shareholder return, or “TSR”, with a relative TSR modifier (the “TSR PSUs”), and 30% were based on return on capital employed, or “ROCE” (the “ROCE PSUs”). The Compensation Committee selected these metrics as they provide for a rigorous framework that rewards the Named Executive Officers for improving absolute stock price, while measuring the Company’s performance against industry peers as well. ROCE was added as a performance metric because it motivates the Named Executive Officers to make decisions that result in efficient deployment of capital
in the business. Additionally, ROCE is a metric that many investors consider when assessing the performance of companies in the oil and gas sector.
In order to achieve payout under the TSR PSUs, the Company’s absolute TSR must be at least 50% of the target price of $24.97 (the “Target Price”) at the end of the three-year performance period on April 15, 2021, with the payout, subject to adjustment as described below, determined as follows:
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|
|
Performance Level
|
Absolute TSR
|
Performance Payout %
(Pre-Adjustment)
|
Below Threshold
|
< 50% of Target Price
|
0%
|
Threshold
|
50% of Target Price
|
50%
|
Target
|
Target Price
|
100%
|
Maximum
|
≥ 150% of Target Price
|
150%
|
Following determination of the absolute TSR, the payout of the TSR PSUs may be adjusted to reflect our TSR performance relative to our peer group over the performance period. A relative TSR ranking of less than the 25
th
percentile results in a negative 50% adjustment to the payout of the TSR PSUs, and a relative TSR ranking of greater than the 75
th
percentile results in a positive 50% adjustment to the payout of the TSR PSUs. A relative TSR ranking of between the 25
th
percentile and the 75
th
percentile would not result in an adjustment to the payout of the TSR PSUs.
In order to achieve payout under the ROCE PSUs, the Company’s ROCE must be at least 85% of 8.7% (the “Target ROCE”) at the end of the three-year performance period on December 31, 2020, with the payout determined as follows:
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|
|
Performance Level
|
ROCE
|
Performance Payout %
|
Below Threshold
|
< 85% of Target ROCE
|
0%
|
Threshold
|
85% of Target ROCE
|
50%
|
Target
|
Target ROCE
|
100%
|
Maximum
|
≥ 115% of Target ROCE
|
200%
|
Health and Welfare Benefits
Our Named Executive Officers are eligible to participate in all of our employee health and welfare benefit arrangements on the same basis as other employees (subject to applicable law). These arrangements include medical, dental and disability insurance, as well as health savings accounts. We provide these benefits in order to ensure that we can competitively attract and retain officers and other employees. This is a fixed component of compensation, and these benefits are provided on a non-discriminatory basis to all employees.
Retirement Benefits
We maintain an employee retirement savings plan through which employees may save for retirement or future events on a tax-advantaged basis. Participation in the 401(k) plan is at the discretion of each individual employee, and our Named Executive Officers participate in the plan on the same basis as all other employees. The plan permits us to make discretionary matching and non-elective contributions. Since January 1, 2014, the Company has matched 100% of the first 4% of eligible compensation that employees contribute to the plan, but on January 1, 2019, the Company increased its match to the first 6% of eligible compensation that employees contribute to the plan. These matching contributions are immediately fully vested.
|
Perquisites and Other Personal Benefits
|
We believe the total mix of compensation and benefits provided to our Named Executive Officers is currently competitive. Therefore, perquisites do not play a significant role in our Named Executive Officers’ total compensation.
|
Impact of Simplification Transaction
|
As described in “Item 13. Certain Relationships and Related Transactions and Director Independence—Agreements Related to the Transactions,” we, AMGP and certain of their affiliates entered into a Simplification Agreement. In connection with the Transactions contemplated by the Simplification Agreement, outstanding phantom units under the Midstream LTIP and Series B Units in IDR LLC held by certain of our Named Executive Officers will be converted or exchanged as described below.
The Transactions will not constitute a "change in control" transaction under the applicable compensation arrangements, thus there are no change in control payments due to the executive officers in connection with the Transactions. As a result, there are no payments that will be made to named executive officers that are based on or otherwise related to the Transactions.
Antero Midstream Phantom Units
Our Named Executive Officers spend a portion of their time providing services to the Partnership, and thus are entitled to receive grants of equity-based awards under the Partnership’s Long Term Incentive Plan (the “Midstream LTIP”). In November 2014, each of our Named Executive Officers was granted phantom units under the Midstream LTIP in connection with the initial public offering of the Partnership. In April 2016 and 2017, each of our Named Executive Officers was granted additional phantom units under the Midstream LTIP as compensation for their additional services provided to the Partnership. No phantom units under the Midstream LTIP were granted during 2018. Phantom units granted under the Midstream LTIP generally represent the right to receive common units of the Partnership upon vesting.
At the effective time of the Transactions, each outstanding phantom unit under the Midstream LTIP, including those held by our Named Executive Officers, will be converted into a restricted stock unit or similar award of New AM with substantially the same terms and conditions (including with respect to vesting) applicable to such phantom unit award immediately prior to the effective time of the Transactions, representing the right to receive a number of shares of common stock of New AM equal to (i) the number of common units of the Partnership subject to such phantom unit award immediately prior to the effective time of the Transactions, multiplied by (ii) (A) 1.6350, plus (B) $3.415 divided by the average of the 20-day volume weighted average trading price per common share representing limited partner interests in AMGP prior to the election deadline. Additionally, all distribution equivalent rights granted in tandem with a corresponding phantom unit award will be converted into a distribution equivalent right or similar award of New AM with substantially the same terms and conditions (including with respect to vesting) applicable to such distribution equivalent right immediately prior to the effective time of the Transactions, representing the right to receive (i) any balance accrued on such distribution equivalent right as of the effective time of the Transactions and (ii) any dividends paid or distributions made by New AM from and after the effective time of the Transactions with respect to the number of shares of common stock of New AM subject to the converted phantom unit award to which such converted distribution equivalent right relates.
Series B Units in IDR LLC
IDR LLC was formed to hold 100% of the Partnership’s IDRs. As of December 31, 2018, Messrs. Rady, Warren and Kennedy held 48,000, 32,000 and 4,000, respectively, of the 98,600 outstanding Series B Units in IDR LLC. To the extent vested, the Series B Units in IDR LLC entitle the holders thereof to receive, subject to the terms and provisions of the IDR LLC Agreement and the incentive unit award agreements pursuant to which the awards were granted, a proportionate amount of up to 6% of any future profits of IDR LLC that result from any distributions on the Partnership’s IDRs that are held by IDR LLC in excess of $7.5 million per quarter. Unvested Series B Units in IDR LLC are not entitled to receive any distributions; however, in connection with any subsequent distribution on the Partnership’s IDRs following the date an unvested Series B Unit in IDR LLC becomes vested, the holder of such vested Series B Unit in IDR LLC is entitled to receive an additional distribution equal to the aggregate amount of distributions that would have been made with respect to such Series B Unit in IDR LLC during the period in which such Series B Unit was unvested if such Series B Unit had been vested.
With respect to vested Series B Units in IDR LLC, Messrs. Rady, Warren and Kennedy have the right, upon delivery of notice to IDR LLC, to require IDR LLC to redeem all or a portion of their vested Series B Units for a number of newly issued AMGP common shares, equal to the quotient determined by dividing (a) the product of (i) the Per Vested B Unit Entitlement (as defined below) and (ii) the number of vested Series B Units being redeemed, by (b) the volume-weighted average price of an AMGP common share for the 20 trading days ending on and including the trading day prior to the date of such notice (the “AMGP VWAP Price”). However, in no event will the aggregate number of AMGP common shares issued by AMGP pursuant to all such redemptions by owners of Series B Units exceed 6% of the aggregate number of issued and outstanding AMGP common shares.
For purposes of the redemption right described above, the “Per Vested B Unit Entitlement” is calculated in accordance with the IDR LLC Agreement, and will equal, as of the date of determination, the quotient obtained by dividing (a) the product of (i) the fair market value of IDR LLC (which for this purpose is based on the equity value of AMGP calculated on the applicable date of determination by multiplying the AMGP VWAP Price and the number of then-outstanding AMGP common shares) as of such date minus $2.0 billion and (ii) the product of (A) 6%, (B) the percentage of authorized Series B Units that are outstanding at such time and (C) the percentage of outstanding Series B Units that have vested, by (b) the total number of vested Series B Units outstanding at such time. In addition, upon the earliest to occur of (x) December 31, 2026, (y) a change of control transaction of AMGP or of IDR LLC, or (z) a liquidation of IDR LLC, AMGP may redeem each outstanding Series B Unit in exchange for AMGP common shares in accordance with the ratio described above, subject to certain limitations.
The remaining unvested Series B Units in IDR LLC issued to Messrs. Rady and Warren on December 31, 2016, will become vested on December 31, 2019, so long as the applicable executive remains continuously employed by us or one of our affiliates through such date. The remaining unvested Series B Units in IDR LLC issued to Mr. Kennedy on January 10, 2017 will become vested on December 31, 2019, so long as Mr. Kennedy remains continuously employed by us or one of our affiliates through such date. The potential acceleration and forfeiture events relating to these units are described in greater detail under the heading “Potential Payments Upon Termination or Change of Control” below.
Pursuant to the Simplification Agreement, AMGP, as the managing member of IDR Holdings, and Messrs. Rady and Warren, as the holders of a majority of the Series B Units, entered into an amendment to the IDR Holdings LLC Agreement to facilitate the Series B Exchange. At the effective time of the Transactions, each holder of Series B Units in IDR LLC, including our Named Executive Officers, will transfer each Series B Unit in IDR LLC it owns (vested and unvested) in exchange for (i) 176.0041 shares of common stock of New AM, which will be subject to the terms set forth in the
limited liability company agreement of IDR LLC (the “IDR LLC Agreement”)
and will vest in accordance with the applicable equity grant agreement pursuant to which the Series B Unit in IDR LLC was originally issued, (ii) an amount in cash equal to the unpaid distributions (other than tax distributions) declared with respect to vested Series B Units in IDR LLC, if any, pursuant to the distribution provisions of the IDR LLC Agreement, and (iii) an amount in cash to be deposited into an escrow account equal to the distributions declared with respect to unvested Series B Units in IDR LLC, excluding any amounts attributable to any distributions made with respect to unvested Series B Units in IDR LLC after December 31, 2018 but prior to the effective time of the Transactions. Holders of Series B Units in IDR LLC, including our Named Executive Officers who hold Series B Units, will not be entitled to receive any distributions paid by IDR LLC or dividends paid by New AM during the 12 months ending December 31, 2019 that are payable on any Series B Units in IDR LLC or shares received in exchange for such Series B Units, as applicable, that are scheduled to vest on December 31, 2019.
Employment, Severance or Change-in-Control Agreements
We do not maintain any employment, severance or change-in-control agreements with any of our Named Executive Officers.
As discussed below under “Potential Payments Upon a Termination or a Change in Control,” any of Messrs. Rady, Warren, Schopp, Kilstrom or Kennedy could be entitled to receive accelerated vesting of his restricted stock units in the Company, Series B Units in IDR LLC or phantom units in the Partnership, as applicable (including shares of common stock of New AM received in exchange for such Series B Units in IDR LLC or phantom units in the Partnership), that remain unvested upon his termination of employment with us under certain circumstances or upon the occurrence of certain corporate events. The Transactions will not result in accelerated vesting of such awards or the Series B Units.
Share Ownership Guidelines
Under AMGP’s share ownership guidelines adopted in 2017, our executive officers are required to own a minimum number of AMGP common shares within five years of the adoption of the guidelines or within five years of becoming an executive officer, whichever is later. Specifically, each of our executive officers is required to own AMGP common shares having an aggregate fair market value equal to at least a designated multiple of the executive officer’s base salary, as shown below.
|
|
Officer Level
|
Ownership Guideline
|
Chief Executive Officer, President, and Chief Financial Officer
|
5x annual base salary
|
Vice President
|
3x annual base salary
|
Other Officers (if applicable)
|
1x annual base salary
|
These share ownership guidelines are designed to align our executive officers’ interests more closely with those of AMGP’s shareholders.
Tax and Accounting Treatment of Executive Compensation Decisions
Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), generally imposes a $1 million limit on the amount of compensation paid to “covered employees” (as defined in Section 162(m)) that a public corporation may deduct for federal income tax purposes in any year. The “Tax Cuts and Jobs Act,” enacted in 2017, repealed the performance-based compensation exception to the Section 162(m) deduction limitation for tax years beginning after December 31, 2017. In addition, the Tax Cuts and Jobs Act generally expanded the scope of who is considered a “covered employee.” With these changes, compensation paid to certain of our executives will be subject to the $1 million per year deduction limitation imposed by Section 162(m) unless such compensation qualifies for the transition relief applicable to certain compensation arrangements in place as of November 2, 2017. While we will continue to monitor our compensation programs in light of the deduction limitation imposed by Section 162(m), our Compensation Committee considers it important to retain the flexibility to design compensation programs that are in the best long-term interests of the Company and our shareholders. As a result, we have not adopted a policy requiring that all compensation be fully deductible. The Compensation Committee may conclude that paying compensation at levels in excess of the limits under Section 162(m) is nevertheless in the best interests of the Company and our shareholders. Given changes made to Section 162(m), it is likely that the Company will not be able to deduct for federal income tax purposes a portion of the compensation paid to our Named Executive Officers in 2018.
Many other Code provisions and accounting rules affect the payment of executive compensation and are generally taken into consideration as our compensation arrangements are developed. Our goal is to create and maintain compensation arrangements that are efficient, effective and in full compliance with these requirements.
We have reviewed our compensation policies and practices to determine if they create risks that are reasonably likely to have a material adverse effect on our Company. In connection with this risk assessment, we reviewed the design of our compensation and benefits program and related policies and determined that certain features of our programs and corporate governance generally help mitigate risk. Among the factors considered were the mix of cash and equity compensation, the balance between short- and long-term objectives of our incentive compensation, the degree to which programs provide for discretion to determine payout amounts, and our general governance structure.
Our Compensation Committee believes that our approach of evaluating overall business performance and implementation of company objectives assists in mitigating excessive risk-taking that could harm our value or reward poor judgment by our executives. Several features of our programs reflect sound risk-management practices.
|
·
|
|
The Compensation Committee believes our overall compensation program provides a reasonable balance between short- and long-term objectives, which helps mitigate the risk of excessive risk-taking in the short term.
|
|
·
|
|
The metrics that determine ultimate value awarded under our incentive compensation programs are associated with total company value. We do not believe these metrics create pressure to meet specific financial or individual performance goals.
|
|
·
|
|
The performance criteria reviewed by the Compensation Committee in determining cash bonuses are based on overall performance relative to continually evolving objectives, and the Compensation Committee uses its subjective judgment in setting bonus levels for our officers. This is consistent with the Compensation Committee’s belief that applying company-wide objectives encourages decision-making that is in the best long-term interests of our Company and our stakeholders as a whole.
|
|
·
|
|
The multi-year vesting of our equity awards discourages excessive risk-taking and undue focus on short-term gains that may not be sustainable.
|
Due to the foregoing program features, the Compensation Committee concluded that our compensation policies and practices for all employees, including our Named Executive Officers, are not reasonably likely to have a material adverse effect on the Company.
The Compensation Committee uses tally sheets as a reference point in reviewing and establishing our Named Executive Officers’ compensation. The tally sheets provide a holistic view of all material elements of our Named Executive Officers’ compensation, including base salary, annual cash incentive awards, long-term equity incentive awards and indirect compensation such as perquisites and retirement benefits. Tally sheets also demonstrate the amounts each executive could potential receive under various termination and change in control scenarios, as well as a summary of all shares beneficially owned.
|
Hedging and Pledging Prohibitions
|
We have adopted an Insider Trading Policy at each of the Company, the Partnership and AMGP that prohibits our Named Executive Officers from engaging in speculative transactions involving our common stock, common units of the Partnership, and common shares of AMGP, including buying or selling puts or calls, short sales, purchases of securities on margin, or otherwise hedging the risk of ownership of such securities. The Insider Trading Policies also strictly prohibit our Named Executive Officers from pledging such securities as collateral.
We have adopted a general clawback policy at each of the Company and the Partnership covering long-term incentive award plans and arrangements. The clawback policy applies to our current Named Executive Officers as well as certain of our former Named Executive Officers. Generally, recoupment of compensation would be triggered under the policy in the event of a financial restatement caused by fraud or intentional misconduct. In the event of such misconduct, we may recoup performance-based equity compensation that was granted, earned or vested based wholly or in part upon the attainment of any financial reporting measure during the period in which such misconduct took place. The clawback policy gives the policy administrator discretion to determine whether a clawback of compensation should be initiated in any given case, as well as the discretion to make other determinations, including whether a covered individual’s conduct meets a specified standard, the amount of compensation to be clawed back, and the form of reimbursement to the Company.
In order to comply with applicable law, the clawback policy may be updated or modified once the SEC adopts final clawback rules pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. In addition, the
AR LTIP, the Midstream LTIP and the AMGP LTIP generally provide that, to the extent required by applicable law or any applicable securities exchange listing standards, or as otherwise determined by the Compensation Committee, all awards under the AR LTIP, Midstream LTIP and AMGP LTIP, as applicable, are subject to the provisions of any clawback policy the Company or the Partnership, as applicable, implements.
The material in this report is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in such filing.
The Board of Directors of our general partner has reviewed and discussed the foregoing Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Board of Directors of our general partner has determined that the Compensation Discussion and Analysis shall be included in this Annual Report on Form 10-K.
AMGP GP LLC Board Members:
Peter R. Kagan
W. Howard Keenan, Jr.
James R. Levy
Brooks J. Klimley
Rose M. Robeson
Peter A. Dea
Paul M. Rady
Glen C. Warren, Jr.
|
Summary Compensation Table
|
The following table summarizes, with respect to our Named Executive Officers, information relating to the compensation earned for services rendered in all capacities during the fiscal years ended December 31, 2018, 2017 and 2016.
Summary Compensation Table for the Years Ended December 31, 2018, 2017 and 2016
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
Year
|
Salary ($)
(1)
|
Bonus ($)
(2)
|
Stock Awards ($)
(3)
|
Option Awards ($)
|
|
Non-Equity Incentive Plan Compensation ($)
(4)
|
All Other Compensation ($)
(5)
|
Total ($)
|
Paul M. Rady
|
2018
|
858,000
|
—
|
7,520,882
|
—
|
|
753,140
|
11,000
|
9,143,022
|
(Chairman of the Board
|
2017
|
853,833
|
823,680
|
8,240,720
|
—
|
|
—
|
10,800
|
9,929,033
|
of Directors and Chief
|
2016
|
831,667
|
1,249,500
|
8,185,133
|
—
|
(6)
|
—
|
10,600
|
10,276,900
|
Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glen C. Warren, Jr.
|
2018
|
645,000
|
—
|
3,076,725
|
—
|
|
471,810
|
11,000
|
4,204,534
|
(Director, President and
|
2017
|
641,833
|
516,000
|
5,493,827
|
—
|
|
—
|
10,800
|
6,662,460
|
Chief Financial Officer
|
2016
|
625,000
|
782,500
|
5,456,802
|
—
|
(6)
|
—
|
10,600
|
6,874,902
|
of the Company and Secretary)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alvyn A. Schopp
|
2018
|
442,800
|
—
|
1,538,352
|
—
|
|
276,661
|
11,000
|
2,226,813
|
(Chief Administrative
|
2017
|
429,833
|
367,200
|
2,032,733
|
—
|
|
—
|
10,800
|
2,840,566
|
Officer and Sr. Regional
|
2016
|
418,333
|
445,188
|
12,805,262
|
—
|
|
—
|
10,600
|
13,679,383
|
Vice President)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin J. Kilstrom
|
2018
|
442,800
|
—
|
1,538,352
|
—
|
|
276,661
|
11,000
|
2,268,813
|
(Sr. Vice President—
|
2017
|
429,833
|
367,200
|
2,032,733
|
—
|
|
—
|
10,800
|
2,840,566
|
Production)
|
2016
|
418,333
|
445,188
|
6,739,263
|
—
|
|
—
|
10,600
|
7,613,384
|
|
|
|
|
|
|
|
|
|
|
Michael N. Kennedy
|
2018
|
384,375
|
—
|
1,538,352
|
—
|
|
240,157
|
11,000
|
2,173,884
|
(Sr. Vice President—
|
2017
|
373,167
|
300,000
|
2,032,733
|
—
|
(6)
|
—
|
10,800
|
2,716,700
|
Finance, and Chief
|
2016
|
363,333
|
364,000
|
2,021,264
|
—
|
|
—
|
9,680
|
2,758,277
|
Financial Officer of the Partnership)
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amounts in this column may differ from those reported above under “Compensation Discussion and Analysis—Elements of Direct Compensation—Base Salaries” due to the fact that adjustments to the base salaries of our Named Executive Officers for the 2016, 2017 and 2018 fiscal years took effect on March 1, 2016, March 1, 2017 and March 1, 2018, respectively.
|
|
(2)
|
|
Represents the aggregate amount of the annual discretionary cash bonuses paid to each Named Executive Officer for 2016 and 2017. The new annual incentive program implemented in 2018 is intended to incentivize our Named Executive Officers to achieve specific performance goals throughout the year, and, as a result, such amounts earned under the new annual incentive program for 2018 are reported in the “Non-Equity Incentive Plan Compensation” column, rather than the “Bonus” column.
|
|
(3)
|
|
The amounts in this column represent the grant date fair value of (i) restricted stock unit awards and performance share unit awards granted to the Named Executive Officers pursuant to the AR LTIP and (ii) phantom units (which include Midstream DERs, as discussed in “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table—Phantom Unit Awards” below) granted to the Named Executive Officers pursuant to the Midstream LTIP, each as computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 718. In 2018, the only awards that were granted were performance share unit awards under the AR LTIP. See Note 9 to our consolidated financial statements for additional detail regarding assumptions underlying the value of these equity awards.
|
|
(4)
|
|
The amounts in this column represent the cash bonus paid to each Named Executive Officer under our 2018 annual incentive program.
|
|
(5)
|
|
The amounts in this column represent the amount of the Company’s 401(k) match for fiscal 2016, 2017 and 2018 for each participating Named Executive Officer. For fiscal 2016 and 2017, amounts in this column may include additional matching contributions made with respect to the applicable fiscal year after the filings of the Annual Report relating to such fiscal year.
|
|
(6)
|
|
In December 2016, Messrs. Rady and Warren were each issued Series B Units in IDR LLC, one-third of which were unvested as of December 31, 2018. Mr. Kennedy was granted Series B Units in IDR LLC on January 10, 2017, one-third of which were unvested as of December 31, 2018. As discussed below under the heading “Payments Upon Termination or Change in Control—Series B Units in IDR LLC,” the Series B Units in IDR LLC are intended to constitute “profits interests” for federal tax purposes.
|
Accordingly, if IDR LLC had been liquidated as of the date these Series B Units were granted, Messrs. Rady, Warren and Kennedy would not have been entitled to receive any distributions with respect to such Series B Units. Please see “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table—Series B Units in IDR LLC” for more information regarding the Series B Units in IDR LLC.
|
|
Grants of Plan-Based Awards for Fiscal Year 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under Non- Equity Incentive Plan Awards
(1)
|
|
Estimated Future Payouts Under Incentive Plan Awards
(2)
|
|
Grant Date Fair Value of Stock and Option
|
|
Name
|
|
Grant Date
|
|
Threshold ($)
|
|
Target
($)
|
|
Maximum ($)
|
|
Threshold (#)
|
|
Target (#)
|
|
Maximum (#)
|
|
Awards ($)
(3)
|
|
Paul M. Rady
|
|
|
|
514,800
|
|
1,029,600
|
|
2,059,200
|
|
|
|
|
|
|
|
|
|
TSR PSUs
(4)
|
|
4/15/18
|
|
|
|
|
|
|
|
111,487
|
|
222,973
|
|
445,946
|
|
5,540,879
|
|
ROCE PSUs
(5)
|
|
4/15/18
|
|
|
|
|
|
|
|
47,780
|
|
95,560
|
|
191,120
|
|
1,980,003
|
|
Glen C. Warren, Jr.
|
|
|
|
322,500
|
|
645,000
|
|
1,290,000
|
|
|
|
|
|
|
|
|
|
TSR PSUs
(4)
|
|
4/15/18
|
|
|
|
|
|
|
|
45,608
|
|
91,216
|
|
182,432
|
|
2,266,718
|
|
ROCE PSUs
(5)
|
|
4/15/18
|
|
|
|
|
|
|
|
19,547
|
|
39,093
|
|
78,186
|
|
810,007
|
|
Alvyn A. Schopp
|
|
|
|
189,108
|
|
378,216
|
|
756,432
|
|
|
|
|
|
|
|
|
|
TSR PSUs
(4)
|
|
4/15/18
|
|
|
|
|
|
|
|
22,804
|
|
45,608
|
|
91,216
|
|
1,133,359
|
|
ROCE PSUs
(5)
|
|
4/15/18
|
|
|
|
|
|
|
|
9,773
|
|
19,546
|
|
39,092
|
|
404,993
|
|
Kevin J. Kilstrom
|
|
|
|
189,108
|
|
378,216
|
|
756,432
|
|
|
|
|
|
|
|
|
|
TSR PSUs
(4)
|
|
4/15/18
|
|
|
|
|
|
|
|
22,804
|
|
45,608
|
|
91,216
|
|
1,133,359
|
|
ROCE PSUs
(5)
|
|
4/15/18
|
|
|
|
|
|
|
|
9,773
|
|
19,546
|
|
39,092
|
|
404,993
|
|
Michael N. Kennedy
|
|
|
|
164,156
|
|
328,313
|
|
656,625
|
|
|
|
|
|
|
|
|
|
TSR PSUs
(4)
|
|
4/15/18
|
|
|
|
|
|
|
|
22,804
|
|
45,608
|
|
91,216
|
|
1,133,359
|
|
ROCE PSUs
(5)
|
|
4/15/18
|
|
|
|
|
|
|
|
9,773
|
|
19,546
|
|
39,092
|
|
404,993
|
|
|
(1)
|
|
These columns reflect the threshold, target and maximum amount that may be earned under our 2018 annual incentive plan.
|
|
(2)
|
|
These columns reflect the threshold, target and maximum number of shares of the Company that may be earned under performance share unit awards granted on April 15, 2018.
|
|
(3)
|
|
The amounts in this column represent the grant date fair value of performance share unit awards granted to the Named Executive Officers pursuant to the AR LTIP, as computed in accordance with FASB ASC Topic 718. See Note 9 to our consolidated financial statements for additional detail regarding assumptions underlying the value of these equity awards.
|
|
(4)
|
|
These TSR PSUs granted on April 15, 2018 under the AR LTIP are earned (or not) based upon our three-year absolute TSR performance, as adjusted for relative TSR performance against a peer group of comparable E&P companies. Pursuant to the TSR PSUs, our Named Executive Officers are eligible to receive threshold, target and maximum payouts of 50%, 100% and 150%, respectively, of the target amount of TSR PSUs awarded. In order to achieve threshold, target and maximum payouts under the TSR PSUs, the Company’s absolute TSR performance must be at or over 50% of the target price, 100% of the target price or 150% of the target price, respectively. Additionally, the payout under the TSR PSUs may be further adjusted depending on the Company’s relative TSR performance, where a relative TSR ranking of less than the 25
th
percentile results in a negative adjustment of -50% and a relative TSR ranking of more than the 75
th
percentile results in a positive adjustment of 50%, which may result in payout at 0% of target, even if the threshold for actual TSR is achieved. If actual TSR is achieved at maximum (150% of target), the payout after the adjustment for relative TSR may be 200% of target, as reflected in the “Maximum” column.
|
|
(5)
|
|
These ROCE PSUs granted on April 15, 2018 under the AR LTIP are earned (or not) based upon the Company’s return on capital employed over the three-year performance period beginning January 1, 2018 and ending December 31, 2020. Pursuant to the ROCE PSUs, our Named Executive Officers are eligible to receive threshold, target and maximum payouts of 50%, 100% and 200%, respectively, of the target amount of ROCE PSUs. In order to achieve threshold, target and maximum payouts under the ROCE PSUs, the ROCE must be at or above 85% of the target ROCE, 100% of the target ROCE, or 115% of the target ROCE, respectively.
|
|
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
|
The following is a discussion of material factors necessary to an understanding of the information disclosed in the Summary Compensation Table and the Grants of Plan-Based Awards for Fiscal Year 2018 table.
Performance Share Units
The Compensation Committee granted performance share unit awards under the AR LTIP to each of our Named Executive Officers in April 2018. The performance share unit awards will be earned based partially upon our three-year absolute TSR, as adjusted by the relative TSR of the Peer Group, and partially upon our three-year ROCE. In each case, the applicable Named Executive Officer must remain continuously employed by us from the grant date through the applicable vesting date. All of the performance share unit awards will also vest in full upon a termination of a Named Executive Officer’s employment due to his death or disability. The potential acceleration and forfeiture events related to these performance share units are described in greater detail under the heading “Potential Payments Upon Termination or Change in Control” below.
|
Outstanding Equity Awards at 2018 Fiscal Year-End
|
The following table provides information concerning equity awards that have not vested for our Named Executive Officers as of December 31, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
Name
|
|
Number of Securities Underlying Unexercised Options Unexercisable (#)
(1)
|
|
Number of Securities Underlying Unexercised Options Exercisable (#)
|
|
Option Exercise Price ($)
|
|
Option Expiration Date
|
|
Number of Units That Have Not Vested (#)
|
|
Market Value of Units That Have Not Vested ($)
(2)
|
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)
|
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
(3)
|
Paul M. Rady
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
(4)
|
|
|
|
|
|
|
|
|
|
136,785
|
|
1,284,411
|
|
|
|
|
Performance Share
Units
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
447,739
|
|
4,204,269
|
Phantom Units
(6)
|
|
|
|
|
|
|
|
|
|
87,346
|
|
1,868,320
|
|
|
|
|
Stock Options
(7)
|
|
25,000
|
|
75,000
|
|
50.00
|
|
4/15/25
|
|
|
|
|
|
|
|
|
Series B Units in IDR LLC
(8)
|
|
16,000
|
|
32,000
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
Glen C. Warren, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
(4)
|
|
|
|
|
|
|
|
|
|
91,191
|
|
856,279
|
|
|
|
|
Performance Share
Units
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,549
|
|
2,070,955
|
Phantom Units
(6)
|
|
|
|
|
|
|
|
|
|
58,230
|
|
1,245,545
|
|
|
|
|
Stock Options
(7)
|
|
16,667
|
|
50,000
|
|
50.00
|
|
4/15/25
|
|
|
|
|
|
|
|
|
Series B Units in IDR LLC
(8)
|
|
10,667
|
|
21,333
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
Alvyn A. Schopp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
(4)
|
|
|
|
|
|
|
|
|
|
100,714
|
|
945,706
|
|
|
|
|
Performance Share
Units
(5)
|
|
|
|
|
|
|
|
|
|
22,222
|
|
208,665
|
|
231,216
|
|
2,171,118
|
Phantom Units
(6)
|
|
|
|
|
|
|
|
|
|
21,075
|
|
450,784
|
|
|
|
|
Stock Options
(7)
|
|
6,250
|
|
18,750
|
|
50.00
|
|
4/15/25
|
|
|
|
|
|
|
|
|
Kevin J. Kilstrom
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
(4)
|
|
|
|
|
|
|
|
|
|
63,214
|
|
593,581
|
|
|
|
|
Performance Share
Units
(5)
|
|
|
|
|
|
|
|
|
|
9,722
|
|
91,290
|
|
156,216
|
|
1,466,868
|
Phantom Units
(6)
|
|
|
|
|
|
|
|
|
|
21,075
|
|
450,784
|
|
|
|
|
Stock Options
(7)
|
|
6,250
|
|
18,750
|
|
50.00
|
|
4/15/25
|
|
|
|
|
|
|
|
|
Michael N. Kennedy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
(4)
|
|
|
|
|
|
|
|
|
|
34,048
|
|
319,706
|
|
|
|
|
Performance Share
Units
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,882
|
|
919,112
|
Phantom Units
(6)
|
|
|
|
|
|
|
|
|
|
21,075
|
|
450,784
|
|
|
|
|
Stock Options
(7)
|
|
6,250
|
|
18,750
|
|
50.00
|
|
4/15/25
|
|
|
|
|
|
|
|
|
Stock Options
|
|
—
|
|
60,000
|
|
54.15
|
|
10/16/23
|
|
|
|
|
|
|
|
|
Series B Units in IDR LLC
(8)
|
|
1,333
|
|
2,667
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Awards reflected as “Unexercisable” are Series B Units in IDR LLC and stock option awards granted under the AR LTIP that have not yet vested.
|
|
(2)
|
|
The amounts reflected in this column represent the market value of (i) common stock underlying the unvested restricted stock unit awards
and earned but unvested performance share unit awards granted under the AR LTIP held by the Named Executive Officers (where the applicable performance hurdle has been achieved but a period of continued service remains), computed based on the closing price of our common stock on December 31, 2018, which was $9.39 per share and (ii) common units of the Partnership underlying the phantom unit awards granted under the Midstream LTIP to the Named Executive Officers, computed based on the closing price of the Partnership’s common units on December 31, 2018, which was $21.39 per unit.
|
|
(3)
|
|
The amounts reflected in this column represent the market value common stock underlying the performance share units granted under the AR LTIP reported in the preceding column, computed based on the closing price of our common stock on December 31, 2018, which was $9.39 per share.
|
|
(4)
|
|
Except as otherwise provided in the applicable award agreement, (i) the restricted stock unit awards granted under the AR LTIP in 2016 will vest on April 15 of each of 2019 and 2020 and (ii) the restricted stock unit awards granted under the AR LTIP in 2015 will vest on April 15, 2019, in each case, so long as the applicable Named Executive Officer remains continuously employed by us from the grant date through the applicable vesting date.
|
|
(5)
|
|
This row includes performance share units granted under the AR LTIP outstanding as set forth below. The amounts included in the parentheticals reflect (i) the threshold number of performance share units for the performance share units that vest based on our relative TSR, the TSR PSU, as performance as of December 31, 2018 was below the threshold for payout of these awards; (ii) the maximum number of the ROCE PSUs, as performance as of December 31, 2018 was at maximum, and (iii) the number of unearned performance share units granted in 2016 as special retention awards for which the applicable stock price hurdle has not been achieved. The actual number of shares earned pursuant to performance share units may vary substantially from the amounts set forth below based on actual performance through the end of the applicable performance period.
|
|
·
|
|
In 2016 as a special retention award to Mr. Schopp (133,334) and Mr. Kilstrom (58,334), which vest based upon achievement of certain stock price hurdles. An additional number of performance share units granted to Mr. Schopp (22,222) and Mr. Kilstrom (9,722) have previously become earned upon achievement of the applicable stock price hurdle and will vest in February 2019, so long as the applicable Named Executive Officer remains continuously employed by us from the grant date through such date.
|
|
·
|
|
In 2016 to Mr. Rady (55,887), Mr. Warren (37,258), Mr. Schopp (13,972), Mr. Kilstrom (13,972) and Mr. Kennedy (13,972), that will vest following the Committee’s determination of our relative three-year TSR achievement for the performance period ending April 15, 2019, so long as the applicable Named Executive Officer remains continuously employed by us from the grant date through such date.
|
|
·
|
|
In 2017 to Mr. Rady (89,245), Mr. Warren (59,497), Mr. Schopp (22,014), Mr. Kilstrom (22,014) and Mr. Kennedy (22,014), that will vest following the Committee’s determination of our relative three-year TSR achievement for the performance period ending April 15, 2020, so long as the applicable Named Executive Officer remains continuously employed by us from the grant date through such date.
|
|
·
|
|
In 2018 to Mr. Rady (111,487), Mr. Warren (45,608), Mr. Schopp (22,804), Mr. Kilstrom (22,804) and Mr. Kennedy (22,804), that will vest following the Committee’s determination of our absolute three-year TSR achievement for the performance period ending April 15, 2021, subject to adjustment based on our relative three-year TSR achievement for such performance period and so long as the applicable Named Executive Officer remains continuously employed by us from the grant date through such date.
|
|
·
|
|
In 2018 to Mr. Rady (191,120), Mr. Warren (78,186), Mr. Schopp (39,092), Mr. Kilstrom (39,092) and Mr. Kennedy (39,092), that will vest following the Committee’s determination in April 2019 of our three-year ROCE achievement for the performance period ending December 31, 2020, so long as the applicable Named Executive Officer remains continuously employed by us from the grant date through the Committee’s determination.
|
|
(6)
|
|
Except as otherwise provided in the applicable award agreement, the phantom units granted in 2016 under the Midstream LTIP will vest on April 15 of each of 2019 and 2020, so long as the applicable Named Executive Officer remains continuously employed by us from the grant date through the applicable vesting date.
|
|
(7)
|
|
The unvested stock option awards reflected in this row were granted under the AR LTIP and will become vested and exercisable on April 15, 2019, so long as the applicable Named Executive Officer remains continuously employed by us or one of our affiliates through such date.
|
|
(8)
|
|
The Series B Units in IDR LLC reflected in this row are intended to constitute profits interests for federal tax purposes, rather than traditional option awards, and therefore, there is no exercise price or expiration date associated with them. The unvested Series B Units in IDR LLC reflected in this row will become vested and exercisable on December 31, 2019, so long as the applicable Named Executive Officer remains continuously employed by us or one of our affiliates through each such date.
|
Option Exercises and Stock Vested in Fiscal Year 2018
The following table provides information concerning equity awards that vested or were exercised by our Named Executive Officers during the 2018 fiscal year.
|
|
|
|
|
|
Option Awards
(1)
|
Stock Awards
|
Name
|
Number of Shares Acquired on Exercise (#)
|
Value Realized on Exercise ($)
|
Number of Shares Acquired on Vesting (#)
(2)
|
Value Realized on Vesting ($)
(3)
|
Paul M. Rady
|
|
|
|
|
Restricted Stock Units
|
—
|
—
|
79,093
|
1,638,807
|
Phantom Units
|
—
|
—
|
83,000
|
2,231,400
|
Glen C. Warren, Jr.
|
|
|
|
|
Restricted Stock Units
|
—
|
—
|
52,729
|
1,092,545
|
Phantom Units
|
—
|
—
|
55,333
|
1,487,592
|
Alvyn A. Schopp
|
|
|
|
|
Restricted Stock Units
|
—
|
—
|
139,345
|
2,531,602
|
Phantom Units
|
—
|
—
|
20,398
|
549,022
|
Kevin J. Kilstrom
|
|
|
|
|
Restricted Stock Units
|
—
|
—
|
89,345
|
1,680,602
|
Phantom Units
|
—
|
—
|
20,398
|
549,022
|
Michael N. Kennedy
|
|
|
|
|
Restricted Stock Units
|
—
|
—
|
70,984
|
1,152,468
|
Phantom Units
|
—
|
—
|
18,898
|
506,722
|
|
(1)
|
|
There were no stock option exercises during the 2018 fiscal year.
|
|
(2)
|
|
The equity awards that vested during the 2018 fiscal year disclosed in this column consist of (i) restricted stock units granted under the AR LTIP, (ii) the vested portion of the performance share unit awards granted under the AR LTIP as special retention awards in February 2016 to Messrs. Schopp and Kilstrom, and (iii) phantom units granted under the Midstream LTIP.
|
|
(3)
|
|
The amounts reflected in this column represent the aggregate market value realized by each Named Executive Officer upon vesting of (i) the restricted stock unit awards held by such Named Executive Officer, computed based on the closing price of our common stock on the applicable vesting date, and (ii) the phantom unit awards held by such Named Executive Officer, computed based on the closing price of the Partnership’s common units on the applicable vesting date.
|
We do not provide pension benefits to our employees.
|
Nonqualified Deferred Compensation
|
We do not provide nonqualified deferred compensation benefits to our employees.
|
Payments Upon Termination or Change in Control
|
Restricted Stock Units, Performance Share Units, Phantom Units and Stock Options
Any unvested restricted stock units, unvested phantom units or unvested stock options subject to time-based vesting criteria granted to our Named Executive Officers under the AR LTIP or the Midstream LTIP, as applicable, will become immediately fully vested (and, in the case of stock options, fully exercisable) if the applicable Named Executive Officer’s employment with us terminates due to his death or “disability” or in the event of a “change in control” (as such terms are defined in the AR LTIP or the Midstream LTIP, as applicable). For performance share unit awards, any continued employment conditions will be deemed satisfied on the date of the applicable Named Executive Officer’s termination due to his death or “disability” or upon the occurrence of a “change in control,” the performance period will end on the date of such termination or “change in control,” and such performance share unit awards will be settled based on the actual level of performance achieved as of such date.
For purposes of these awards, a Named Executive Officer will be considered to have incurred a “disability” if the executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or which has lasted or can be expected to last for a continuous period of at least 12 months.
For purposes of the AR LTIP awards, “change in control” generally means the occurrence of any of the following events:
|
·
|
|
A person or group of persons acquires beneficial ownership of 50% or more of either (a) the outstanding shares of our common stock or (b) the combined voting power of our voting securities entitled to vote in the election of directors, in each case with the exception of (i) any acquisition directly from us, (ii) any acquisition by us or any of our affiliates, or (iii) any acquisition by any employee benefit plan sponsored or maintained by us;
|
|
·
|
|
The incumbent members of the Board cease for any reason to constitute at least a majority of the Board;
|
|
·
|
|
The consummation of a reorganization, merger or consolidation, or sale or other disposition of all or substantially all of our assets, or an acquisition of assets of another entity (a “Business Combination”), in each case, unless, following such Business Combination, (A) our outstanding common stock immediately prior to such Business Combination represents more than 50% of the outstanding common equity interests and the outstanding voting securities entitled to vote in the election of directors of the surviving entity, (B) no person or group of persons beneficially owns 20% or more of the common equity interests of the surviving entity or the combined voting power of the voting securities entitled to vote generally in the election of directors of such surviving entity, and (C) at least a majority of the members of the board of directors of the surviving entity were members of the incumbent board at the time of the execution of the initial agreement or corporate action providing for such Business Combination; or
|
|
·
|
|
Approval by our shareholders of a complete liquidation or dissolution of the Company.
|
For purposes of the Midstream LTIP awards, “change in control” means the occurrence of any of the following events:
|
·
|
|
A person or group of persons, other than certain affiliates of the Partnership, becomes the beneficial owner, by way of merger, acquisition, consolidation, recapitalization, reorganization, or otherwise, of 50% or more of the voting power of the equity interests in the general partner of the Partnership;
|
|
·
|
|
The sale or disposition by either the Partnership or the general partner of the Partnership of all or substantially all of its assets;
|
|
·
|
|
The general partner of the Partnership’s approval of a complete liquidation or dissolution of the Partnership;
|
|
·
|
|
A transaction resulting in a person or group of persons other than the general partner of the Partnership, the Partnership, the Company or one of their respective affiliates becoming the general partner of the Partnership; or
|
|
·
|
|
A “Change in Control” as defined in the AR LTIP.
|
|
The Transactions will not result in a “change in control” under the outstanding awards described above.
|
Series B Units in IDR LLC
The Series B Units in IDR LLC held by Messrs. Rady, Warren and Kennedy will vest upon the consummation of a change of control transaction (as defined in the IDR LLC Agreement) or upon an involuntary termination without cause or due to death or disability. As discussed above, the Series B Units in IDR LLC issued to Messrs. Rady and Warren on December 31, 2016 and to Mr. Kennedy on January 10, 2017 are intended to constitute “profits interests” for federal tax purposes and are not traditional options.
As used in the IDR LLC Agreement and the award agreements pursuant to which the Series B Units in IDR LLC were granted, “change of control transaction” means the occurrence of any of the following events:
|
·
|
|
Any consolidation, conversion, merger or other business combination involving IDR Holdings or AMGP, in which a majority of the outstanding Series A Units of IDR LLC or a majority of the outstanding common shares of AMGP (the
|
“AMGP common shares”) are exchanged for or converted into cash, securities of a corporation or other business organization, or other property;
|
|
·
|
|
A sale or other disposition of all or a material portion of the assets of IDR LLC;
|
|
·
|
|
A sale or other disposition of all or substantially all of the assets of AMGP followed by a liquidation of AMGP or a distribution to the partners of AMGP of all or substantially all of the net proceeds of such disposition after payment of liabilities and other obligations of AMGP;
|
|
·
|
|
The sale by all the members of IDR LLC of all or substantially all of the outstanding IDR LLC membership interests in a single transaction or series of related transactions; or
|
|
·
|
|
The sale of all of the outstanding AMGP common shares in a single transaction or series of related transactions.
|
The Transactions will not result in a “change in control” under the IDR LLC agreement.
Pursuant to Amendment No. 2 to the IDR LLC Agreement entered into in connection with the entry into the Simplification Agreement, the Transactions contemplated by the Simplification Agreement, including the Series B Exchange, do not constitute a “change of control transaction” under the IDR LLC Agreement.
As discussed above, each of Messrs. Rady, Warren and Kennedy have the right, upon delivery of written notice to IDR LLC, to require IDR LLC to redeem all or a portion of their vested Series B Units for a number of newly issued AMGP common shares, as determined in accordance with the formula described in “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table— Series B Units in IDR LLC” above.
The above mechanisms are subject to customary conversion rate adjustments for equity splits, equity dividends and reclassifications.
|
Potential Payments Upon Termination or Change in Control Table for Fiscal 2018
|
If the employment of any of our Named Executive Officers would have terminated due to any Named Executive Officer’s death or disability, the unvested portion of his restricted stock units, phantom units and stock options, as applicable, would have become vested. The restricted stock units (and, if exercised, the stock options) granted under the AR LTIP represent a direct interest in shares of our common stock, which had a closing price on December 31, 2018, of $9.39 per share. The phantom units granted under the Midstream LTIP represent a direct interest in the Partnership’s common units, which had a closing price on December 31, 2018, of $21.39 per unit.
The amounts that each of our Named Executive Officers would receive in connection with the accelerated vesting of their equity awards (other than stock options) upon a termination due to their death or disability (assuming such termination occurred on December 31, 2018) are reflected in the last column of the Outstanding Equity Awards at 2018 Fiscal Year-End table above. Because the exercise price of stock options held by our Named Executive Officers exceeded the fair market value of the Company’s common stock on December 31, 2018, no value would have been received by our Named Executive Officers with respect to their stock options in connection with the accelerated vesting of these awards.
Quantification of Benefits
The following table summarizes the compensation and other benefits that would have become payable to each Named Executive Officer assuming a change in control of the Company and the Partnership occurred on December 31, 2018.
|
|
|
|
|
|
|
|
Potential Payments upon a Change in Control of the Company as of December 31, 2018
|
Name
|
Restricted Stock Units ($)
|
Performance Share Unit Awards ($)
(1)
|
Phantom Units ($)
|
Stock Options ($)
(2)
|
Series B Units in IDR LLC ($)
(3)
|
Total ($)
|
Paul M. Rady
|
1,284,411
|
1,794,617
|
1,868,320
|
—
|
—
|
4,947,348
|
Glen C. Warren, Jr.
|
856,279
|
734,167
|
1,245,545
|
—
|
—
|
2,835,991
|
Alvyn A. Schopp
|
945,706
|
575,738
|
450,784
|
—
|
N/A
|
1,972,228
|
Kevin J. Kilstrom
|
593,581
|
458,363
|
450,784
|
—
|
N/A
|
1,502,728
|
Michael N. Kennedy
|
319,706
|
367,074
|
450,784
|
—
|
—
|
1,137,564
|
|
(1)
|
|
Acceleration of the performance share unit awards granted under the AR LTIP in 2016 (other than the special performance share unit award in February 2016 to Messrs. Schopp and Kilstrom) and 2017, the TSR PSUs and ROCE PSUs is based upon actual performance as of the date of the change in control. As of December 31, 2018, (i) all such awards (other than the ROCE PSUs) were trending below threshold, so no value would have been received by our Named Executive Officers with respect to such awards in connection with the accelerated vesting of such awards (other than the ROCE PSUs) and (ii) the ROCE PSUs were trending at maximum, so the value reflected in this column represents settlement at each such award’s maximum value. With respect to the special performance share unit award granted in February 2016 to Messrs. Schopp and Kilstrom, the amount reflected here represents the lapse of the employment condition for the portion of such awards for which the applicable stock price hurdle has previously been achieved.
|
|
(2)
|
|
Because the exercise price of stock options held by our Named Executive Officers exceeded the fair market value of the Company’s common stock on December 31, 2018, no value would have been received by our Named Executive Officers with respect to their stock options in connection with the accelerated vesting of these awards.
|
|
(3)
|
|
The Series B Units in IDR LLC held by each of Messrs. Rady, Warren and Kennedy will vest upon the consummation of a change of control transaction or upon an involuntary termination of the applicable executive’s employment without cause or due to death or disability. The Series B Units in IDR LLC are not traditional options. The redemption right described above only applies upon a change of control transaction applicable to IDR LLC or the general partner of the Partnership (not a change of control of the Company or the Partnership), and, therefore, the redemption value is not disclosed in this table.
|
|
Compensation of Directors
|
General
Our non-employee directors are entitled to receive compensation consisting of retainers, fees and equity awards as described below. The Compensation Committee reviews and approves non-employee director compensation on a periodic basis.
Our employee directors, Messrs. Rady and Warren, do not receive additional compensation for their services as directors. All compensation that Messrs. Rady and Warren received from the Company as employees is disclosed in the Summary Compensation Table above.
Messrs. Kagan, Keenan and Levy have agreed or are otherwise obligated to transfer all or a portion of the compensation they receive for their service as directors to the sponsor with which they are affiliated.
Annual Retainers
Each non-employee director received the following compensation for the 2018 fiscal year:
|
·
|
|
an annual retainer of $70,000;
|
|
·
|
|
an additional retainer of $7,500 for each member of the audit committee, plus an additional $12,500 for the chairperson; and
|
|
·
|
|
an additional retainer of $10,000 for each member of the conflicts committee, plus an additional $5,000 for the chairperson.
|
All retainers are paid on a quarterly basis in arrears, but directors have the option to elect, on an annual basis, to receive all or a portion of their retainers in the form of shares of our common stock. Directors do not receive any meeting fees, but each director is reimbursed for (1) travel and miscellaneous expenses to attend meetings and activities of the Board or its committees, and (2) travel and miscellaneous expenses related to the director’s participation in general education and orientation programs for directors.
Equity-Based Compensation
In addition to cash compensation, our non-employee directors receive quarterly grants of fully vested common shares with an aggregate value equal to $100,000 per year, subject to the terms and conditions of the AMGP LTIP and the award agreements pursuant to which such awards are granted.
Under our share ownership guidelines adopted in 2017, each of our non-employee directors other than Messrs. Kagan, Keenan and Levy is required to own a minimum number of our common shares within five years of the adoption of the guidelines or within five years of being appointed to the Board, whichever is later. Specifically, each of such non-employee directors is required to own common shares having an aggregate fair market value equal to at least five times the amount of the annual cash retainer we pay to our non-employee directors. These share ownership guidelines are designed to align our directors’ interests more closely with those of our shareholders.
Total Non-Employee Director Compensation
The following table provides information concerning the compensation of our non-employee directors for the fiscal year ended December 31, 2018.
|
|
|
|
Name
|
Fees Earned or Paid in Cash ($)
(1)
|
Unit Awards ($)
(2)
|
Total ($)
|
Peter R. Kagan
(3)
|
70,000
|
100,000
|
170,000
|
W. Howard Keenan, Jr.
|
70,000
|
100,000
|
170,000
|
Rose M. Robeson
(4)
|
120,000
|
100,000
|
220,000
|
James R. Levy
(3)
|
77,500
|
100,000
|
177,500
|
Peter A. Dea
(5)
|
58,125
|
68,132
|
126,257
|
Brooks J. Klimley
(4)
|
117,500
|
100,000
|
217,500
|
|
(1)
|
|
Includes annual cash retainer, committee fees and committee chair fees for each non-employee director during fiscal 2018, as more fully explained above.
|
|
(2)
|
|
Amounts in this column reflect the aggregate grant date fair value of shares granted under the AMGP LTIP in fiscal year 2018, computed in accordance with FASB ASC Topic 718. See Note 5 to our consolidated financial statements on Form 10-K for the year ended December 31, 2018, for additional detail regarding assumptions underlying the value of these equity awards. The grant date fair value for awards of common shares is based on the closing price of our common shares on the grant date.
|
|
(3)
|
|
Messrs. Kagan and Levy elected to receive their retainer fees for the 2018 fiscal year in the form of common shares.
|
|
(4)
|
|
During 2018, Ms. Robeson and Mr. Klimley received additional fees of $20,000 and $25,000, respectively, in connection with their service on the special committee created for purposes of evaluating and approving the Transactions.
|
|
(5)
|
|
Mr. Dea was appointed as a non-employee director on April 26, 2018.
|
|
Equity Compensation Plan Information
|
The following table sets forth information about securities that may be issued under the existing equity compensation plans of the Company, the Partnership, and AMGP as of December 31, 2018.
|
|
|
|
Plan Category
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
|
Weighted – average exercise price of outstanding options, warrants and rights
(b)
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
|
Equity compensation plans approved by security holders
|
|
|
|
Antero Resources Corporation Long-Term Incentive Plan
(1)
|
4,059,401
|
$50.55(4)
|
8,351,638
|
Antero Midstream Partners LP Long-Term Incentive Plan
(2)
|
583,000
|
N/A(5)
|
7,932,261
|
Antero Midstream Partners GP LP Long-Term Incentive Plan
(3)
|
N/A
|
N/A(6)
|
881,626
|
Equity compensation plans not approved by security holders
|
—
|
—
|
—
|
Total
|
4,642,401
|
|
17,165,525
|
|
(1)
|
|
The Antero Resources Corporation Long-Term Incentive Plan (the “AR LTIP”) was approved by our sole shareholder prior to our IPO and by our shareholders at the 2014 annual meeting of shareholders.
|
|
(2)
|
|
The Antero Midstream Partners LP Long-Term Incentive Plan (the “Midstream LTIP”) was approved by the Company and the general partner of the Partnership prior to its IPO.
|
|
(3)
|
|
The AMGP LTIP was approved by the general partner of the general partner of the Partnership prior to its IPO.
|
|
(4)
|
|
The calculation of the weighted-average exercise price of outstanding options, warrants and rights excludes restricted stock unit awards granted under the AR LTIP.
|
|
(5)
|
|
Only phantom unit awards and restricted unit awards have been granted under the Midstream LTIP; there is no weighted average exercise price associated with these awards.
|
|
(6)
|
|
Only common shares representing limited partner interests have been granted under the AMGP LTIP; there is no weighted average exercise price associated with these awards. Awards under the AMGP LTIP have only been issued to non-employee directors of AMGP GP LLC, AMGP’s general partner. No awards have been made to our Named Executive Officers under the AMGP LTIP.
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Pursuant to Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, this section provides information regarding the relationship of the annual total compensation of all of our employees to the annual total compensation of our CEO, Mr. Rady. For 2018, the median of the annual total compensation of all Company employees (other than our CEO), calculated in accordance with paragraph (c)(2)(x) of Item 402 of Regulation S-K, was $92,772, and the annual total compensation of our CEO, as reported in the Summary Compensation Table, was $9,143,022.
Based on this information, for 2018, the ratio of the annual total compensation of Mr. Rady to the median of the annual total compensation of all of our employees was 99 to 1.
Methodology and Assumptions
When identifying our median employee in 2018, we selected December 31, 2018, as the date on which to determine our employee population for purposes of identifying the median of the annual total compensation of all of our employees (other than the CEO), because it was efficient to collect payroll data and other necessary information as of that date. As of December 31, 2018, our employee population consisted of 622 individuals, including all individuals employed by the Company or any of its consolidated subsidiaries, whether as full-time, part-time, seasonal or temporary workers. This population does not include independent contractors engaged by the Company. All of our employees are located in the United States.
In identifying our median employee in 2018, we utilized the annual total compensation as reported in Box 1 of each employee’s Form W-2 for 2018 provided to the Internal Revenue Service. We believe this methodology provides a reasonable basis for determining
each employee’s total annual compensation and is an economical method of evaluating our employee population’s total annual compensation and identifying our median employee. For the 103 employees hired during 2018, we utilized the annual total compensation reported on each such employee’s Form W-2 for 2018 without annualization adjustments. No cost-of-living adjustments were made in identifying our median employee, as all of our employees (including our CEO) are located in the United States. This calculation methodology was consistently applied to our entire employee population, determined as of December 31, 2018, in order to identify our median employee in 2018.
After we identified our median employee, we calculated each element of our median employee’s annual compensation for 2018 in accordance with paragraph (c)(2)(x) of Item 402 of Regulation S-K, which resulted in annual total compensation of $92,772. The difference between our median employee’s total compensation reported on Form W-2 and our median employee’s annual total compensation calculated in accordance with paragraph (c)(2)(x) of Item 402 of Regulation S-K was $3,181. This amount reflects the Company’s 401(k) match and non-cash imputed earnings offset by benefits deductible from gross income. Similarly, the 2018 annual total compensation of our CEO was calculated in accordance with paragraph (c)(2)(x) of Item 402 of Regulation S-K, as reported in the “Total” column of the Summary Compensation Table.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The following table sets forth the beneficial ownership of common shares of Antero Midstream GP LP that were issued and outstanding as of February 13, 2019 held by:
|
·
|
|
beneficial owners of 5% or more of our common units;
|
|
·
|
|
each director and Named Executive Officer; and
|
|
·
|
|
all of our general partner’s directors and executive officers as a group.
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Except as otherwise noted, the person or entities listed below have sole voting and investment power with respect to all of our common shares beneficially owned by them, except to the extent this power may be shared with a spouse. All information with respect to beneficial ownership has been furnished by the respective directors, officers or beneficial owners of 5% or more of our common shares, as the case may be. Unless otherwise noted, the address for each beneficial owner listed below is 1615 Wynkoop Street, Denver, Colorado 80202.
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
Common Shares
|
|
Common Shares
|
|
|
|
Beneficially
|
|
Beneficially
|
|
Name of Beneficial Owner
|
|
Owned
|
|
Owned
|
|
Warburg Pincus Funds
(¹)
|
|
55,109,589
|
|
29.6
|
%
|
AMGP GP LLC(²)
|
|
—
|
|
—
|
%
|
Peter R. Kagan
(3)(4)
|
|
55,125,401
|
|
29.6
|
%
|
W. Howard Keenan, Jr.
(5)(6)
|
|
9,619
|
|
*
|
%
|
Brooks J. Klimley
(7)
|
|
9,619
|
|
*
|
%
|
James R. Levy
(3)(4)
|
|
55,126,066
|
|
29.6
|
%
|
Rose M. Robeson
|
|
9,619
|
|
*
|
%
|
Peter A. Dea
|
|
4,486
|
|
*
|
%
|
Paul M. Rady
(8)
|
|
19,996,619
|
|
10.7
|
%
|
Glen C. Warren, Jr.
(9)
|
|
14,931,079
|
|
8.0
|
%
|
Kevin J. Kilstrom
|
|
917,548
|
|
*
|
%
|
Alvyn A. Schopp
|
|
1,394,146
|
|
*
|
%
|
Michael N. Kennedy
|
|
27,774
|
|
*
|
%
|
All directors and executive officers as a group (11 persons)
(10)
|
|
37,332,798
|
|
20.0
|
%
|
*
Less than 1%.
|
(1)
|
|
The Warburg Pincus funds are Warburg Pincus Private Equity VIII, L.P., a Delaware limited partnership (“WP VIII,” and together with its two affiliated partnerships, Warburg Pincus Netherlands Private Equity VIII C.V. I, a company formed under the laws of the Netherlands (“WP VIII CV I”), and WP-WPVIII Investors, L.P., a Delaware limited partnership (“WP-WPVIII Investors”), collectively, the “WP VIII Funds”), Warburg Pincus Private Equity X O&G, L.P., a Delaware limited partnership (“WP X O&G”), and Warburg Pincus X Partners, L.P., a Delaware limited partnership (“WP X Partners,” and together with WP X O&G, the “WP X O&G Funds”). WP-WPVIII Investors GP L.P., a Delaware limited partnership (“WP-WPVIII GP”), is the general partner of WP-WPVIII Investors. Warburg Pincus X, L.P., a Delaware limited partnership (“WP X GP”), is the general partner of each of the WP X O&G Funds. Warburg Pincus X GP L.P., a Delaware limited partnership (“WP X GP LP”), is the general partner of WP X GP. WPP GP LLC, a Delaware limited liability company (“WPP GP”), is the general partner of WP-WPVIII GP and WP X GP LP. Warburg Pincus Partners, L.P., a Delaware limited partnership (“WP Partners”), is (I) the managing member of WPP GP, and (ii) the general partner of WP VIII and WP VIII CV I. Warburg Pincus Partners GP LLC, a Delaware limited liability company (“WP Partners GP”), is the general partner of WP Partners. WP is the managing member of WP Partners GP. WP LLC is the manager of each of the WP VIII Funds and the WP X O&G Funds. Each of the WP VIII Funds, the WP X O&G Funds, WP-
|
WPVIII GP, WP X GP, WP X GP LP, WPP GP, WP Partners, WP Partners GP, WP and WP LLC are collectively referred to herein as the “Warburg Pincus Entities.”
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|
(2)
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|
Under our general partner’s amended and restated limited liability company agreement, the voting and disposition of any of our common units or the Series A Units of IDR LLC will be controlled by its sole member, AMGP. The board of directors of AMGP GP, which acts by majority approval, comprises Peter R. Kagan, W. Howard Keenan, Jr., Brooks J. Klimley, James R. Levy, Rose M. Robeson, Paul M. Rady and Glen C. Warren, Jr. Each of the members of AMGP GP’s board of directors disclaims beneficial ownership of any of our securities held by our general partner.
|
|
(3)
|
|
Has a mailing address of c/o Warburg Pincus LLC, 450 Lexington Avenue, New York, New York 10017.
|
|
(4)
|
|
Includes 55,109,589 common shares held by the Warburg Pincus Entities (as defined in footnote 1). Messrs. Kagan and Levy disclaim beneficial ownership of all common shares of AMGP attributable to the Warburg Pincus Entities except to the extent of their pecuniary interest therein.
|
|
(5)
|
|
Has a mailing address of 410 Park Avenue, 19th Floor, New York, New York 10022.
|
|
(6)
|
|
Mr. Keenan is a member and manager of the direct or indirect general partner of each of Yorktown Energy Partners V, L.P., Yorktown Energy Partners VI, L.P., Yorktown Energy Partners VII, L.P. and Yorktown Energy Partners VIII, L.P., which own 1,875,802 common shares, 1,970,846 common shares, 4,596,064 common shares and 7,091,699 common shares, respectively. Mr. Keenan does not have sole or shared voting or investment power within the meaning of Rule 13d-3 under the Exchange Act with respect to the common shares held by such investment funds and disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein.
|
|
(7)
|
|
Has a mailing address of 599 Lexington Avenue, 47th Floor, New York, New York 10022.
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|
(8)
|
|
Includes 19,180,821 common shares held by Mockingbird Investments LLC (“Mockingbird”). Mr. Rady owns a 13.1874% limited liability company interest in Mockingbird, and two trusts under his control own the remaining 86.8126%. Mr. Rady disclaims beneficial ownership of all common shares held by Mockingbird except to the extent of his pecuniary interest therein.
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|
(9)
|
|
Includes 3,891,100 common shares held by Canton Investment Holdings LLC (“Canton”). Mr. Warren is the managing member and 50% owner of Canton. Mr. Warren disclaims beneficial ownership of all common shares held by Canton except to the extent of his pecuniary interest therein.
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|
(10)
|
|
Excludes 55,109,589 common shares held by the Warburg Pincus Entities (as defined in footnote 1), over which Messrs. Kagan and Levy may be deemed to have indirect beneficial ownership.
|
The following table sets forth the number of common units representing limited partner interests in Antero Midstream owned by each of the Named Executive Officers and directors of our general partner and all directors and executive officers of our general partner as a group as of February 13, 2019:
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|
|
|
|
|
|
|
|
Percentage of
|
|
|
Common Units
|
|
Common Units
|
|
|
Beneficially
|
|
Beneficially
|
Name of Beneficial Owner
|
|
Owned
|
|
Owned
|
Peter R. Kagan
(1)
|
|
15,666
|
|
*
|
W. Howard Keenan, Jr.
(2)
|
|
15,666
|
|
*
|
Brooks J. Klimley
(3)
|
|
9,655
|
|
*
|
James R. Levy
(1)
|
|
—
|
|
—
|
Rose M. Robeson
|
|
—
|
|
—
|
Peter A. Dea
|
|
—
|
|
—
|
Paul M. Rady
|
|
194,152
|
|
*
|
Glen C. Warren, Jr.
|
|
134,996
|
|
*
|
Kevin J. Kilstrom
|
|
32,856
|
|
*
|
Alvyn A. Schopp
|
|
38,856
|
|
*
|
Michael N. Kennedy
|
|
20,256
|
|
*
|
All directors and executive officers as a group (11 persons)
|
|
462,103
|
|
*
|
* Less than 1%.
|
(1)
|
|
Has a mailing address of c/o Warburg Pincus LLC, 450 Lexington Avenue, New York, New York 10017.
|
|
(2)
|
|
Has a mailing address of 410 Park Avenue, 19th Floor, New York, New York 10022.
|
|
(3)
|
|
Has a mailing address of 599 Lexington Avenue, 47th Floor, New York, New York 10022.
|
The following table sets forth the number of shares of common stock of Antero Resources owned by each of the Named Executive Officers and directors of our general partner and all directors and executive officers of our general partner as a group as of February 13, 2019:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
Shares
|
|
Shares
|
|
|
|
Beneficially
|
|
Beneficially
|
|
Name of Beneficial Owner
|
|
Owned
|
|
Owned
|
|
Peter R. Kagan
(1)(2)(3)(4)
|
|
33,976,002
|
|
11.
|
0%
|
W. Howard Keenan, Jr.
(1)(5)(6)
|
|
199,707
|
|
*
|
|
Brooks J. Klimley
(7)
|
|
—
|
|
—
|
|
James R. Levy
(1)(2)(3)
|
|
33,719,644
|
|
10.9
|
%
|
Rose M. Robeson
|
|
—
|
|
—
|
|
Peter A. Dea
(8)
|
|
27,500
|
|
*
|
|
Paul M. Rady
(9)(10)
|
|
14,925,387
|
|
4.8
|
%
|
Glen C. Warren, Jr.
(11)(12)(13)
|
|
10,873,341
|
|
3.5
|
%
|
Kevin J. Kilstrom
(14)
|
|
135,539
|
|
*
|
|
Alvyn A. Schopp
(15)
|
|
1,126,159
|
|
*
|
|
Michael N. Kennedy
(16)
|
|
239,848
|
|
*
|
|
All directors and executive officers as a group (11 persons)
(17)
|
|
28,005,005
|
|
9.1
|
%
|
*
Less than 1%.
|
(1)
|
|
Includes options to purchase 1,477 shares of common stock that expire ten years from the date of grant, or October 10, 2023, and options to purchase 1,526 shares of common stock that expire ten years from the date of grant, or October 16, 2024.
|
|
(2)
|
|
Has a mailing address of c/o Warburg Pincus LLC, 450 Lexington Avenue, New York, New York 10017.
|
|
(3)
|
|
Includes 33,609,061 shares of common stock held by the Warburg Pincus Entities (as defined below). Messrs. Kagan and Levy are Partners of Warburg Pincus & Co., a New York general partnership (“WP”), and Members and Managing Directors of Warburg Pincus LLC, a New York limited liability company (“WP LLC”). The Warburg Pincus funds are Warburg Pincus Private Equity VIII, L.P., a Delaware limited partnership (“WP VIII,” and together with its two affiliated partnerships, Warburg Pincus Netherlands Private Equity VIII C.V. I, a company formed under the laws of the Netherlands (“WP VIII CV I”), and WP-WPVIII Investors, L.P., a Delaware limited partnership (“WP-WPVIII Investors”), collectively, the “WP VIII Funds”), Warburg Pincus Private Equity X, L.P., a Delaware limited partnership (“WP X”), Warburg Pincus X Partners, L.P., a Delaware limited partnership (“WP X Partners,” and together with WP X, the “WP X Funds”), and Warburg Pincus Private Equity X O&G, L.P., a Delaware limited partnership (“WP X O&G”). WP-WPVIII Investors GP L.P., a Delaware limited partnership (“WP-WPVIII GP”), is the general partner of WP-WPVIII Investors. Warburg Pincus X, L.P., a Delaware limited partnership (“WP X GP”), is the general partner of each of the WP X Funds and WP X O&G. Warburg Pincus X GP L.P., a Delaware limited partnership (“WP X GP LP”), is the general partner of WP X GP. WPP GP LLC, a Delaware limited liability company (“WPP GP”), is the general partner of WP-WPVIII GP and WP X GP LP. Warburg Pincus Partners, L.P., a Delaware limited partnership (“WP Partners”), is (i) the managing member of WPP GP, and (ii) the general partner of WP VIII and WP VIII CV I. Warburg Pincus Partners GP LLC, a Delaware limited liability company (“WP Partners GP”), is the general partner of WP Partners. WP is the managing member of WP Partners GP. WP LLC is the manager of each of the WP VIII Funds, the WP X Funds and WP X O&G. Each of the WP VIII Funds, the WP X Funds, WP X O&G, WP-WPVIII GP, WP X GP, WP X GP LP, WPP GP, WP Partners, WP Partners GP, WP and WP LLC are collectively referred to herein as the “Warburg Pincus Entities.” Messrs. Kagan and Levy disclaim beneficial ownership of all shares of common stock attributable to the Warburg Pincus Entities except to the extent of their pecuniary interest therein.
|
|
(4)
|
|
Includes 7,500 shares of common stock held by The 2017 Kagan Family Trust (the “Kagan Trust”), over which Mr. Kagan may be deemed to have shared voting and dispositive power. Mr. Kagan disclaims beneficial ownership of all shares held by the Kagan Trust except to the extent of his pecuniary interest therein.
|
|
(5)
|
|
Has a mailing address of 410 Park Avenue, 19th Floor, New York, New York 10022.
|
|
(6)
|
|
Mr. Keenan is a member and manager of the direct or indirect general partner of each of Yorktown Energy Partners V, L.P., Yorktown Energy Partners VI, L.P., Yorktown Energy Partners VII, L.P. and Yorktown Energy Partners VIII, L.P., which own
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235,380 shares of common stock, 215,319 shares of common stock, 3,104,317 shares of common stock and 10,425,078 shares of common stock, respectively. Mr. Keenan does not have sole or shared voting or investment power within the meaning of Rule 13d-3 under the Exchange Act with respect to the shares of common stock held by such investment funds and disclaims beneficial ownership of such securities except to the extent of his pecuniary interest therein.
|
|
(7)
|
|
Has a mailing address of 599 Lexington Avenue, 47th Floor, New York, New York 10022.
|
|
(8)
|
|
Shares of common stock held by 5star Energy LLC (“5star Energy”), over which Mr. Dea has voting and dispositive power. Mr. Dea disclaims beneficial ownership of all shares held by 5star Energy except to the extent of his pecuniary interest therein.
|
|
(9)
|
|
Includes 2,821,394 shares of common stock held by Salisbury Investment Holdings LLC (“Salisbury”) and 2,461,712 shares of common stock held by Mockingbird Investments LLC (“Mockingbird”). Mr. Rady owns a 95% limited liability company interest in Salisbury and his spouse owns the remaining 5%. Mr. Rady owns a 13.1874% limited liability company interest in Mockingbird, and two trusts under his control own the remaining 86.8126%. Mr. Rady disclaims beneficial ownership of all shares held by Salisbury and Mockingbird except to the extent of his pecuniary interest therein.
|
|
(10)
|
|
Includes 136,786 shares of common stock that remain subject to vesting and options to purchase 75,000 shares of common stock that expire ten years from the date of grant, or April 15, 2025.
|
|
(11)
|
|
Mr. Warren indirectly owns 7 shares of common stock purchased by a family member, and these shares are included because of his relation to the purchaser. Mr. Warren disclaims beneficial ownership of all shares reported except to the extent of his pecuniary interest therein.
|
|
(12)
|
|
Includes 3,847,839 shares of common stock held by Canton Investment Holdings LLC (“Canton”) and 735,000 shares of common stock held by The Titus Foundation (“Titus”). Mr. Warren is the managing member and 50% owner of Canton and the President of Titus. Mr. Warren disclaims beneficial ownership of all shares held by Canton and Titus except to the extent of his pecuniary interest therein.
|
|
(13)
|
|
Includes 91,191 shares of common stock that remain subject to vesting and options to purchase 50,000 shares of common stock that expire ten years from the date of grant, or April 15, 2025.
|
|
(14)
|
|
Includes 34,049 shares of common stock that remain subject to vesting and options to purchase 18,750 shares of common stock that expire ten years from the date of grant, or April 15, 2025.
|
|
(15)
|
|
Includes 34,049 shares of common stock that remain subject to vesting and options to purchase 18,750 shares of common stock that expire ten years from the date of grant, or April 15, 2025.
|
|
(16)
|
|
Includes 34,048 shares of common stock that remain subject to vesting, options to purchase 60,000 shares of common stock that expire ten years from the date of grant, or October 10, 2023, and options to purchase 18,750 shares of common stock that expire ten years from the date of grant, or April 15, 2025.
|
|
(17)
|
|
Excludes 33,609,061 shares of common stock held by the Warburg Pincus Entities (as defined in footnote 5), over which Messrs. Kagan and Levy may be deemed to have indirect beneficial ownership.
|
Securities Authorized for Issuance Under Equity Compensation Plan
Please read the information under “Item 11. Executive Compensation – Compensation Discussion and Analysis – Equity Compensation Plan Information.”
Item 13. Certain Relationships and Related Transactions and Director Independence
Our Related Party Transactions
Agreements Related to the Transactions
Simplification Agreement
On October 9, 2018, we, Antero Midstream and certain of our affiliates entered into the Simplification Agreement pursuant to which, among other things, (1) we will be converted from a limited partnership to a corporation under the laws of the State of Delaware, to be named Antero Midstream Corporation; (2) an indirect, wholly owned subsidiary of New AM will be merged with and into Antero Midstream, with Antero Midstream surviving the merger as an indirect, wholly owned subsidiary of New AM; and (3) all the issued and outstanding Series B Units will be exchanged for an aggregate of approximately 17.35 million shares of New AM’s Common Stock. As a result of the Transactions, Antero Midstream will be a wholly owned subsidiary of New AM and our former shareholders, unitholders of Antero Midstream and holders of Series B Units will each own New AM’s Common Stock.
If the Transactions are completed, (1) each AM Public Unitholder, will be entitled to receive, at its election, one of (i) the Public Mixed Consideration; (ii) the Public Stock Consideration; or (iii) the Public Cash Consideration; and (2) in exchange for each of the Partnership’s common units held, Antero Resources will be entitled, subject to certain adjustments (as described below), the AR Mixed Consideration.
The aggregate cash consideration to be paid to Antero Resources and the AM Public Unitholders will be fixed at an amount equal to the aggregate amount of cash that would have been paid and issued if all AM Public Unitholders received $3.415 in cash per common unit (the “Available Cash”) and Antero Resources received $3.00 in cash per common unit, which is approximately $598 million. If the Available Cash exceeds the cash consideration elected to be received by the AM Public Unitholders, Antero Resources may elect to increase the total amount of cash consideration to be received as a part of the AR Mixed Consideration up to an amount equal to the excess and the amount of shares it will receive will be reduced accordingly based on the AMGP VWAP. In addition, the consideration to be received by each AM Public Unitholder may be prorated in the event that more cash or equity is elected to be received than what would otherwise have been paid if all AM Public Unitholders had received the Public Mixed Consideration and Antero Resources received the AR Mixed Consideration.
The Merger should be a taxable event for Antero Midstream’s unitholders, even if a unitholder receives no cash consideration other than cash received in lieu of fractional shares, if any, in the Merger. The amount and character of gain or loss recognized by each unitholder in the Merger will vary depending on such unitholder’s particular situation, including the value of the shares of New AM’s Common Stock, if any, received by such unitholder, the amount of any cash received by such unitholder, the adjusted tax basis of such unitholder’s common units (and any changes to such tax basis as a result of our allocations of income, gain, loss and deduction to such unitholder for the taxable year that includes the Merger), and the amount of any suspended passive losses that may be available to such unitholder to offset a portion of the gain recognized by such unitholder in connection with the Merger.
Special meetings of AMGP shareholders and Antero Midstream unitholders will be held on March 8, 2019 to vote on the Simplification Agreement, the Merger and the other Transactions contemplated thereby, as applicable, and all AMGP shareholders and Antero Midstream unitholders of record as of the close of business on January 11, 2019, which is the record date for the special meetings, will be entitled to vote the AMGP common shares and Antero Midstream common units, respectively, owned by them on the record date. AMGP and Antero Midstream expect the Transactions to close shortly after the special meeting date, subject to certain closing conditions under the documentation for the Transactions.
We and Antero Midstream expect to fund the cash portion of the merger consideration with borrowings under Antero Midstream’s revolving credit facility. The revolving credit facility was amended on October 31, 2018 to, among other things, increase lender commitments from $1.5 billion to $2.0 billion.
Voting Agreements
AMGP Voting Agreement
On October 9, 2018, concurrently with the execution of the Simplification Agreement, Antero Midstream and the common shareholders of AMGP named in Schedule I thereto (the “AMGP Voting Agreement Shareholders”) entered into a Voting Agreement (the “AMGP Voting Agreement”), pursuant to which the AMGP Voting Agreement Shareholders agreed to vote (or cause to be voted) all of our common shares beneficially owned by them in favor of the AMGP shareholder proposals relating to the Transactions, and any other matters necessary for consummation of the Merger and the other transactions contemplated in the Simplification Agreement, including the Series B Exchange. In addition, the AMGP Voting Agreement Shareholders agreed to vote against the approval or adoption of any action, agreement, transaction or proposal that is intended to or would reasonably be expected to (1) result in a breach of any obligation of ours contained in the Simplification Agreement or of such shareholder contained in the AMGP Voting Agreement or (2) impede, interfere with, delay, postpone, discourage, frustrate the purposes of or adversely affect any of the Transactions or any action contemplated by the Simplification Agreement. If, without the prior consent of an AMGP Voting Agreement Shareholder, any provision of the Simplification Agreement described below is amended or waived, the obligations of the AMGP Voting Agreement Shareholders under the AMGP Voting Agreement will terminate with respect to such shareholder. In such event, such AMGP Voting Agreement Shareholder will be deemed to vote against all proposals at the AMGP Special Meeting (as defined in the AMGP Voting Agreement”). This termination provision applies only to amendments or waivers of the Simplification Agreement that (i) extend the Termination Date (as defined in the Simplification Agreement), (ii) adversely impact the merger consideration to be received by the AMGP Voting Agreement Shareholders or the number or value of the shares of New AM common stock (“New AM Common Stock”) held by the AMGP Voting Agreement Shareholders upon consummation of the Transactions, or (iii) otherwise have a material adverse effect on the interests of the AMGP Voting Agreement Shareholders in the Transactions. As of October 8, 2018, the AMGP Voting
Agreement Shareholders collectively owned 105,571,698 of our common shares, representing approximately 57% of our common shares outstanding.
The AMGP Voting Agreement includes certain covenants, and generally prohibits the AMGP Voting Agreement Shareholders from transferring their common shares. The AMGP Voting Agreement terminates upon the earliest to occur of (i) the closing of the Transactions, (ii) the termination of the Simplification Agreement in accordance with its terms, (iii) the written agreement of the parties to the AMGP Voting Agreement, and (iv) the Termination Date.
AR Voting Agreement
On October 9, 2018, concurrently with the execution of the Simplification Agreement, we entered into a voting agreement with Antero Resources (the “AR Voting Agreement”), pursuant to which Antero Resources agreed to vote (or cause to be voted) all of Antero Midstream’s common units beneficially owned by it in favor of the Antero Midstream unitholder proposal relating to the Merger, and any other matters necessary for consummation of the Merger and the other transactions contemplated in the Simplification Agreement, including the Series B Exchange. In addition, Antero Resources agreed to vote against the approval or adoption of any action, agreement, transaction or proposal that is intended to or would reasonably be expected to (1) result in a breach of any obligation of Antero Midstream contained in the Simplification Agreement or of Antero Resources contained in
the AR Voting Agreement or (2) impede, interfere with, delay, postpone, discourage, frustrate the purposes of or adversely affect any of the Transactions or any action contemplated by the Simplification Agreement. If, without the prior consent of the special committee of the Antero Resources board of directors (the “AR Special Committee”), any provision of the Simplification Agreement described below is amended or waived, then Antero Resources’ obligations under the AR Voting Agreement will terminate. In such event, the AR Special Committee may instruct Antero Midstream that Antero Resources and AR Sub (as defined below) are deemed to vote against all proposals at the AM Special Meeting (as defined in the AR Voting Agreement), which instruction will override any different votes, proxies or voting instructions by or on behalf of Antero Resources or AR Sub received by Antero Midstream or its designees. This termination provision applies only to amendments or waivers that (i) extend the Termination Date (as defined in the Simplification Agreement), (ii) adversely impact the merger consideration to be received by Antero Resources or the number or value of the shares of New AM Common Stock held by Antero Resources upon consummation of the Transactions, or (iii) otherwise have a material adverse effect on the interests of Antero Resources in the Transactions. As of February 13, 2019, Antero Resources owned 98,870,335 of Antero Midstream’s common units, representing approximately 52.8% of the common units outstanding.
The AR Voting Agreement includes certain covenants, including a covenant by Antero Resources to enter into a registration rights agreement and a covenant to transfer certain of Antero Midstream’s common units to a wholly owned subsidiary of Antero Resources (“AR Sub”), prior to the effective time of the Merger, following which both Antero Resources and AR Sub will remain subject to the terms of the AR Voting Agreement. The AR Voting Agreement otherwise generally prohibits Antero Resources from transferring Antero Midstream’s common units. The AR Voting Agreement terminates upon the earliest to occur of (i) the closing of the Transactions, (ii) the termination of the Simplification Agreement in accordance with its terms, (iii) the Termination Date, and (iv) the written agreement of the parties to the AR Voting Agreement.
Stockholders’ Agreement
On October 9, 2018, concurrently with the execution of the Simplification Agreement, AMGP, AR Sub, certain affiliates of Warburg Pincus LLC and Yorktown Partners LLC (collectively, the “Sponsor Holders”) and Paul M. Rady, Glen C. Warren, Jr. and certain of their respective affiliates (collectively, the “Management Stockholders”) entered into a Stockholders' Agreement (the “Stockholders’ Agreement”), which will become effective as of the closing of the Transactions and which will govern certain rights and obligations of the parties following the consummation of the Transactions.
Under the Stockholders' Agreement, and subject to additional limitations in the event of a Fundamental Change (as defined in the Stockholders’ Agreement), AR Sub will be entitled to designate two directors, who shall initially be Mr. Rady and Mr. Warren, for nomination and election to the board of directors of New AM (the “New AM Board”) for so long as, together with its affiliates, AR Sub owns an amount of shares equal to at least 8% of the qualifying New AM Common Stock and one director so long as it owns an amount of shares equal to at least 5% of the qualifying New AM Common Stock. To the extent that either Mr. Rady and/or Mr. Warren are not designated for election to the New AM Board by AR Sub pursuant to the Stockholders' Agreement, the Management Stockholders will be entitled to collectively designate two directors (or one director for so long as either Mr. Rady or Mr. Warren is designated by AR Sub) for election for so long as the Management Stockholders and their affiliates (other than Antero Resources and its subsidiaries) collectively own an amount of shares equal to at least 8% of the qualifying New AM Common Stock and one director for election for
so long as they collectively own an amount of shares equal to at least 5% of the qualifying New AM Common Stock. The Sponsor Holders will be entitled to collectively designate two directors for election to the New AM Board for so long as the Sponsor Holders and their affiliates (other than Antero Resources and its subsidiaries) collectively own an amount of shares equal to at least 8% of the qualifying New AM Common Stock and one director for election for so long as they collectively own an amount of shares equal to at least 5% of the qualifying New AM Common Stock. Notwithstanding the foregoing, upon the occurrence of a Fundamental Change, AR Sub, the Management Stockholders and the Sponsor Holders will each be entitled to designate one director so long as they own an amount of shares equal to at least 5% of the
qualifying New AM Common Stock, except to the extent that AR Sub designates either Mr. Rady or Mr. Warren, in which case the Management Stockholders will not be entitled to designate a director.
Each of the parties to the Stockholders' Agreement has agreed to vote all of their shares of New AM Common Stock in favor of the directors designated by the other parties in accordance with the Stockholders’ Agreement and, at such party's election (i) in favor of any other nominees nominated by the Nominating and Governance Committee of the New AM Board or (ii) in proportion to the votes cast by the public stockholders of New AM in favor of such nominees. In calculating the 8% and 5% ownership thresholds for purposes of the Stockholders' Agreement, qualifying New AM Common Stock is determined by dividing the New AM Common Stock ownership for each stockholder or group of stockholders as of the applicable measurement date by (i) the total number of outstanding shares of New AM Common Stock at the closing of the Transactions or (ii) the total number of outstanding shares on the applicable measurement date, whichever is less. Pursuant to the terms of the Stockholders’ Agreement no more than 45% of the shares of New AM Common Stock outstanding as of closing of the Merger will be subject to the obligations of the Stockholders' Agreement.
Under the Stockholders' Agreement, a majority of the New AM Board shall at all times consist of directors who are both (i) independent under the listing rules of the NYSE and the Exchange Act, and (ii) unaffiliated with the parties to the Stockholders’ Agreement. Such independent and unaffiliated directors will be nominated for election to the New AM Board by the Nominating and Governance Committee of the New AM Board, which will itself consist solely of independent and unaffiliated directors. In addition, under the Stockholders’ Agreement, the parties have agreed that for so long as AR Sub has the right to designate at least one director, (i) if Mr. Rady is an executive officer of Antero Resources, he shall serve as Chief Executive Officer at New AM and (ii) if Mr. Warren is an executive officer of Antero Resources, he shall serve as President at New AM, and both Mr. Rady and Mr. Warren shall be subject to removal from such officer positions at New AM only for cause. For so long as Mr. Rady is a member of the New AM Board and is an executive officer of Antero Resources and/or New AM, the parties have agreed that he shall serve as Chairman of the New AM Board, subject to his removal as Chief Executive Officer of New AM for cause. The Stockholders’ Agreement will terminate as to each stockholder upon the time at which such stockholder no longer has the right to designate an individual for nomination to the New AM Board pursuant to the Stockholders' Agreement.
Limited Liability Company Agreement of Our General Partner
Our general partner’s limited liability company agreement provides for the designation of members of the board of directors of our general partner by our Sponsors, including Mr. Rady, our Chairman, Chief Executive Officer and a member of the board of directors of our general partner, and Mr. Warren, our President and Secretary and a member of the board of directors of our general partner.
Pursuant to the terms of the limited liability company agreement of our general partner, during the ten‑year period commencing with the closing of our IPO, if either Mr. Rady or Mr. Warren serves as an executive officer or in an active role in the management of any company (other than AMGP, Antero Resources, Antero Midstream or their respective subsidiaries and joint ventures) that is primarily engaged in an operating oil and gas exploration, production, gathering, compression or water handling and treatment business, then such individual (or his designee) will be removed as a member of the board of directors of our general partner and such individual will no longer be entitled to designate a member of the board of directors of our general partner.
Limited Liability Company Agreement of IDR LLC
On December 31, 2016, our Predecessor entered into the limited liability company agreement of IDR LLC, pursuant to which IDR LLC created two classes of membership interests, including capital interests referred to as Series A Units and profits interests referred to as Series B Units. We own all of the Series A Units and the Series B Holders currently own all of the Series B Units.
The Series B Units are subject to restrictions on transfer and vest in three annual installments in one‑third increments upon each anniversary of the vesting commencement date, subject to the holder’s continuous service with us and our affiliates through the vesting commencement date. Series B Units will also vest in full upon a change in control of us or IDR LLC or upon a termination by
us or our applicable affiliate of the holder’s service with us and our affiliates without cause or due to the holder’s death or disability. In the event any Series B Units fail to vest, they will be forfeited to IDR LLC and may not be re‑issued.
On May 9, 2018, in connection with the entry into the Credit Facility, we, in our capacity as the managing member of IDR LLC, and a majority of the Series B Holders, entered into Amendment No. 1 to the
Limited Liability Company Agreement of IDR LLC, to, among other things, permit us to pledge the Series A Units as collateral under the Credit Facility.
In connection with the entry into the Simplification Agreement, we, in our capacity as the managing member of IDR LLC, a majority of the Series B Holders, entered into the Amendment No. 2 to the Limited Liability Company Agreement of IDR LLC (the “Second IDR Holdings LLCA Amendment”) to provide for the Series B Exchange. Pursuant to the Second IDR Holdings LLCA Amendment, upon the consummation of the Merger, New AM, in its capacity as managing member of IDR Holdings, will cause each outstanding Series B Unit to be exchanged for 176.0041 shares of New AM Common Stock through a wholly owned subsidiary. Pursuant to the Second IDR LLC Agreement Amendment, the shares of New AM Common Stock issued in exchange for outstanding Series B Units will be subject to the same vesting conditions to which the Series B Units are currently subject, with two-thirds currently vested and one-third vesting at December 31, 2019. Consistent with the existing terms of the Series B Units, declared and unpaid distributions on unvested Series B Units will not be paid until the applicable vesting date, and declared dividends with respect to unvested shares of New AM Common Stock will be deposited into an escrow account and not paid until the applicable vesting date. With respect to the shares of New AM Common Stock that will be scheduled to vest on December 31, 2019, the holders of Series B Units have agreed to forego any dividends from New AM that are paid with respect to such shares during the twelve months ended December 31, 2019.
Prior to the entry into the Second IDR LLC Agreement Amendment, holders of Series B Units were entitled to receive up to 6% of all quarterly cash distributions in excess of $7.5 million distributed by Antero Midstream on its IDR’s and had the ability to redeem vested Series B Units for our common shares with a value equal to such holder’s pro rata share of up to 6% of our market capitalization (calculated by reference to the 20-day volume weighted average price of the AMGP Common Shares preceding the date of redemption request) in excess of $2.0 billion. Pursuant to the Second IDR LLC Agreement Amendment, the Series B Holders have agreed to the early termination of their Series B Units in exchange for the issuance of 176.0041 shares of New AM Common Stock for each Series B Unit. The 176.0041 shares of New AM Common Stock represent approximately 4.4% of the pro forma market capitalization of New AM in excess of $2 billion. The number of shares to be issued in exchange for outstanding Series B Units will be reduced proportionately if a holder forfeits his or her Series B Units prior to closing of the Transactions, with no re-allocation to the remaining holders.
Cash Distributions
Our sole cash‑generating asset consists of our interest in IDR LLC, which owns all of the IDRs of Antero Midstream. Through our ownership interest in IDR LLC, our shareholders will be entitled to a portion of the cash distributions paid by Antero Midstream on its IDRs. We expect to receive at least 94% of the cash distributions paid by Antero Midstream on the IDRs.
We will pay to our shareholders, on a quarterly basis, distributions equal to the cash we receive from IDR LLC, less distributions paid to or reserved for the Series B Holders, taxes and other expenses, including reserves relating to our general and administrative expenses (including expenses we will incur as the result of being a public company) and reserves that our general partner (on our behalf as the managing member of IDR LLC) believes prudent to pay or provide for payment of existing and projected obligations and to provide a reasonable reserve for working capital and contingencies. If the distribution on the IDRs exceeds such amount, the Series B Holders will receive an aggregate distribution of up to 6% of the excess amount distributed on the IDRs with respect to such fiscal quarter, and we will receive all remaining distributions. The Series B Units are subject to restrictions on transfer and vest ratably over a three‑year period upon each anniversary of the vesting commencement date. The Series B Holders are entitled to distributions only with respect to Series B Units that are vested. Any distributions that would otherwise be made with respect to a Series B Unit that is unvested will instead be made to the holders of Series A Units.
As Series B Units vest, each holder of such vested Series B Units will be entitled to receive a make‑whole distribution corresponding to the aggregate amount of distributions such holder would have received on such Series B Units had they been vested on the vesting commencement date prior to IDR LLC making any distributions in respect of the other IDR LLC units. The payment of these make‑whole distributions to the holders of the Series B Units will be paid out of the quarterly distribution for the fiscal quarter following the vesting date and will lower the amount of cash paid on the Series A Units until the full amount of the make‑whole distribution has been paid. In anticipation of such make‑whole distributions, each quarter we expect to retain from the cash distributions we receive on the Series A Units an amount equal to the portion of the future make‑whole distributions attributable to that quarter.
Accordingly, when IDR LLC pays a make‑whole distribution to a holder of newly‑vested Series B Units that reduces the amount otherwise payable on our Series A Units, we will supplement the lower distributions we receive with the cash retained in prior periods so that our distributions remain constant.
In addition, the holders of interests in IDR LLC, including us, will be subject to tax on their proportionate share of any taxable income of IDR LLC and will be allocated their proportionate share of any taxable loss of IDR LLC.
For the year ended December 31, 2018, we received distributions of approximately $123.2 million pursuant to the terms of the IDR LLC agreement.
Redemption Right
Each of the Series B Holders will have the right, upon delivery of written notice to IDR LLC, to require IDR LLC to redeem all or a portion of such holder’s vested Series B Units for a number of our newly‑issued common shares equal to the quotient determined by dividing (a) the product of (i) the Per Vested B Unit Entitlement and (ii) the number of vested Series B Units being redeemed by (b) the volume weighted average price of a common share for the 20 trading days ending on and including the trading day prior to the date of such notice, which we refer to as the “AMGP VWAP Price”; provided, however, that, in no event will the aggregate number of common shares issued by us pursuant to such redemptions exceed 6% of the aggregate number of issued and outstanding common shares. The Per Vested B Unit Entitlement will be calculated in accordance with the IDR LLC Agreement from time to time and will equal, as of a date of determination, the quotient obtained by dividing (a) the product of (i) the fair market value of IDR LLC (which for this purpose is based on our equity value and which shall be calculated on any date of determination by multiplying the AMGP VWAP Price and the number of then‑outstanding common shares) as of such date minus $2.0 billion and (ii) the product of (A) 6%, (B) the percentage of authorized Series B Units that are outstanding and (C) the percentage of outstanding Series B Units that have vested by (b) the total number of vested Series B Units outstanding at such time.
In addition, upon the earliest to occur of (a) December 31, 2026, (b) a change of control of us or of IDR LLC or (c) a liquidation of IDR LLC, our general partner (on our behalf in our capacity as the managing member of IDR LLC) may redeem each outstanding Series B Unit in exchange for our common shares in accordance with the ratio described above, subject to certain limitations.
The above mechanisms are subject to customary conversion rate adjustments for equity splits, equity dividends and reclassifications.
Services Agreement
We, our general partner, IDR LLC and Antero Resources have entered into a services agreement, which govern, among other things, certain administrative services that Antero Resources will provide to us.
Administrative Services and Fees
We and our general partner have no employees. All of our officers and other personnel necessary for our business to function (to the extent not outsourced) are employed by Antero Resources, and we pay Antero Resources an annual fee for corporate, general and administrative services. This fee is initially $0.5 million per year and is subject to adjustment on an annual basis based on the CPI. The fee is also subject to adjustment to reflect any increase in the cost of providing services due to changes in applicable law, rules or regulations and any increase in the scope and extent of the services provided. The fee will not be decreased below the initial fee unless the type or extent of services provided materially decreases.
In addition to the fee and expenses described above, we reimburse Antero Resources for costs and expenses to the extent that such costs and expenses are directly allocable to the provision of services to us, our general partner, or our subsidiaries (other than Antero Midstream and its subsidiaries), including recurring costs associated with being a separate publicly traded entity, and taxes, other than payroll taxes, or other direct operating expenses, paid by Antero Resources for our benefit. We also reimburse our general partner for any additional expenses incurred on our behalf or to maintain our legal existence and good standing. There is no limit on the amount of fees and expenses we may be required to pay to affiliates of our general partner on our behalf pursuant to the services agreement.
For the year ended December 31, 2018, we reimbursed Antero Resources for approximately $1.3 million of its direct and allocated indirect expenses under the services agreement.
License of Names and Marks
Pursuant to the services agreement, Antero Midstream has also granted us a license to use the names “Antero Midstream” and any associated or related marks.
Registration Rights Agreement
We have entered into a registration rights agreement with the Sponsors and certain of our affiliates. Pursuant to the registration rights agreement, we have agreed to register the resale of all common shares held by the Sponsors and certain of our affiliates or issuable to them upon the redemption of Series B Units (the “AMGP Registrable Securities”) under certain circumstances. Additionally, if necessary, upon the vesting of additional Series B Units held by a Series B Holder, we have agreed to amend the registration rights agreement to include any common shares issuable upon the redemption of vested Series B Units for our common shares as AMGP Registrable Securities, so long as the holder of such units agrees to be bound by the terms and conditions of the registration rights agreement.
Demand Registration Rights
At any time after the six month anniversary of the IPO, each Sponsor that, together with its affiliates, owns at least 3% of our outstanding common shares has the right to require us by written notice to register the sale of a number of their AMGP Registrable Securities in an underwritten offering. We are required to provide notice of the request within 10 days following the receipt of such demand request to all additional holders of AMGP Registrable Securities, if any, who may, in certain circumstances, participate in the registration. We are not obligated to effect any demand registration in which the anticipated aggregate offering price included in such offering is less than $50,000,000. Once we are eligible to effect a registration on Form S‑3, any such demand registration may be for a shelf registration statement.
Piggyback Registration Rights
If, at any time, we propose to register an offering of our securities (subject to certain exceptions) for our own account, then we must give each holder of AMGP Registrable Securities the opportunity to allow such holder to include a specified number of AMGP Registrable Securities in that registration statement.
Redemptive Offerings
We may be required pursuant to the registration rights agreement to undertake a future public or private offering and use the proceeds (net of underwriting or placement agency discounts, fees and commissions, as applicable) to redeem an equal number of common units from the holders of AMGP Registrable Securities.
Conditions and Limitations; Expenses
The registration rights are subject to certain conditions and limitations, including the right of the underwriters to limit the number of AMGP Registrable Securities to be included in a registration and our right to delay or withdraw a registration statement under certain circumstances. We will generally pay all registration expenses in connection with our obligations under the registration rights agreement, regardless of whether a registration statement is filed or becomes effective. The obligations to register AMGP Registrable Securities under the registration rights agreement will terminate when no AMGP Registrable Securities remain outstanding. AMGP Registrable Securities shall cease to be covered by the registration rights agreement when they have (i) been sold pursuant to an effective registration statement under the Securities Act, (ii) been sold in a transaction exempt from registration under the Securities Act (including transactions pursuant to Rule 144), (iii) ceased to be outstanding, (iv) been sold in a private transaction in which Antero Resources’ rights under the registration rights agreement are not assigned to the transferee or (v) become eligible for resale pursuant to Rule 144(b) (or any similar rule then in effect under the Securities Act).
Employment
Each of (i) Timothy Rady, the son of Paul M. Rady, the Chairman and Chief Executive Officer of our general partner, and (ii) Cole Kilstrom, the son of Kevin J. Kilstrom, Senior Vice President—Production of our general partner, is a non-executive employee of Antero Resources and provides services to us pursuant to our agreements with Antero Resources. Total
compensation paid to Timothy Rady in 2018 consisted of base salary, bonus and other benefits totaling $307,948 and award grants under the AR LTIP and
Midstream LTIP having an aggregate grant date fair value of $413,946 and subject to certain time-based and performance-based vesting conditions. Total compensation paid to Cole Kilstrom in 2018 consisted of base salary, bonus and other benefits totaling $100,110 and award grants under the AR LTIP having an aggregate grant date fair value of $20,000 and subject to certain time-based vesting conditions.
Procedures for Review, Approval and Ratification of Transactions with Related Persons
The board has determined that the audit committee will periodically review all related person transactions that the rules of the SEC require be disclosed in this Annual Report on Form 10-K, and make a determination regarding the initial authorization or ratification of any such transaction.
The audit committee is charged with reviewing the material facts of all related person transactions and either approving or disapproving of our participation in such transactions under our Related Persons Transaction Policy, as adopted by the board ("RPT Policy") on May 3, 2017. Our RPT Policy also pre-approves certain related person transactions, including:
any employment of an executive officer if his or her compensation is required to be reported in our Annual Reports on Form 10-K under Item 402;
director compensation which is required to be reported in our Annual Reports on Form 10-K under Item 402;
any transaction with an entity at which the related person's only relationship is as an employee (other than an executive officer), director or beneficial owner of less than 10% of the entity's equity, if the aggregate amount involved does not exceed $1 million;
any charitable contribution, grant or endowment by us to a charitable organization, foundation or university at which a related person's only relationship is as an employee (other than an executive officer) or a director is pre-approved or ratified (as applicable) if the aggregate amount involved does not exceed $200,000;
any transaction where the related person's interest arises solely from the ownership of our common units and all holders of our common units received the same benefit on a pro rata basis (e.g., distributions) is pre-approved or ratified (as applicable);
any transaction involving a related person where the rates or charges involved are determined by competitive bids is pre-approved or ratified (as applicable);
any transaction with a related person involving the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority is pre-approved or ratified (as applicable); and
any transaction with a related person involving services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture or similar services is pre-approved or ratified (as applicable).
The audit committee chairman may approve any related person transaction in which the aggregate amount involved is expected to be less than $120,000. A summary of such approved transactions and each new related person transaction deemed pre-approved under the RPT Policy is provided to the audit committee for its review. The audit committee has the authority to modify the RPT Policy regarding pre-approved transactions or to impose conditions upon our ability to participate in any related person transaction.
There were no related person transactions during 2018 which were required to be reported in "Related Persons Transactions" where the procedures described above did not require review, approval or ratification or where these procedures were not followed.
Conflicts of Interest
The Board has adopted a written code of business conduct and ethics, under which a director would be expected to bring to the attention of our chief executive officer or the board any conflict or potential conflict of interest that may arise between the director or any affiliate of the director, on the one hand, and us or our general partner on the other. The resolution of any such conflict or potential conflict should, at the discretion of the board in light of the circumstances, be determined by a majority of the disinterested directors.
If a conflict or potential conflict of interest arises between our general partner or its affiliates, on the one hand, and us or our unitholders, on the other hand, the resolution of any such conflict or potential conflict should be addressed by the board of directors of our general partner in accordance with the provisions of our partnership agreement. At the discretion of the board in light of the circumstances, the resolution may be determined by the board in its entirety or by the conflicts committee.
Pursuant to our code of business conduct, our general partner’s executive officers are required to avoid conflicts.
Conflicts of interest exist and may arise in the future as a result of the relationships between our general partner and its directors, officers, affiliates (including Antero Resources) and owners, on the one hand, and us and our limited partners, on the other hand. Conflicts may arise as a result of the duties of our general partner and its directors and officers to act for the benefit of its owners, which may conflict with our interests and the interests of our public unitholders. We are managed and operated by the board of directors and officers of our general partner, AMGP GP, which is owned by our Sponsors. All of our officers and a majority of our directors are officers or directors of Antero Resources. Although our general partner has a contractual duty to manage us in a manner that it believes is not adverse to our interests, the directors and officers of our general partner have a fiduciary duty to manage our general partner in a manner that is beneficial to its owners. Our general partner’s directors and officers who are also directors and officers of Antero Resources have a fiduciary duty to manage Antero Resources in a manner that is beneficial to Antero Resources and its shareholders. Our partnership agreement specifically defines the remedies available to unitholders for actions taken that, without these defined liability standards, might constitute breaches of fiduciary duty under applicable Delaware law. The Delaware Act provides that Delaware limited partnerships may, in their partnership agreements, expand, restrict or eliminate the fiduciary duties otherwise owed by the general partner to the limited partners and the partnership.
Whenever a conflict arises between our general partner or its owners and affiliates (including Antero Resources), on the one hand, and us or our limited partners, on the other hand, the resolution or course of action in respect of such conflict of interest shall be permitted and deemed approved by us and all our limited partners and shall not constitute a breach of our partnership agreement, of any agreement contemplated thereby or of any duty, if the resolution or course of action in respect of such conflict of interest is:
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approved by the conflicts committee of our general partner, although our general partner is not obligated to seek such approval; or
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approved by the holders of a majority of the outstanding common units, excluding any such units owned by our general partner or any of its affiliates.
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Our general partner may, but is not required to, seek the approval of such resolutions or courses of action from the conflicts committee of its board of directors or from the holders of a majority of the outstanding common units as described above. If our general partner does not seek approval from the conflicts committee or from holders of common units as described above and the board of directors of our general partner approves the resolution or course of action taken with respect to the conflict of interest, then it will be presumed that, in making its decision, the board of directors of our general partner acted in good faith, and in any proceeding brought by or on behalf of us or any of our unitholders, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption and proving that such decision was not in good faith. Unless the resolution of a conflict is specifically provided for in our partnership agreement, the board of directors of our general partner or the conflicts committee of the board of directors of our general partner may consider any factors they determine in good faith to consider when resolving a conflict. An independent third party is not required to evaluate the resolution. Under our partnership agreement, a determination, other action or failure to act by our general partner, the board of directors of our general partner or any committee thereof (including the conflicts committee) will be deemed to be “in good faith” unless our general partner, the board of directors of our general partner or any committee thereof (including the conflicts committee) believed such determination, other action or failure to act was adverse to the interest of the partnership. Please read “Item
10—Committees of the Board of Directors—Conflicts Committee” for information about the conflicts committee of our general partner’s board of directors.
Director Independence
Rather than adopting categorical standards, the Board assesses director independence on a case-by-case basis, in each case consistent with applicable legal requirements and the listing standards of the NYSE. After reviewing all relationships each director has with us, including the nature and extent of any business relationships between us and each director, as well as any significant charitable contributions we make to organizations where our directors serve as board members or executive officers, the Board has affirmatively determined that the following directors have no material relationships with us and are independent as defined by the current listing standards of the NYSE: Messrs. Kagan, Keenan, Klimley, Levy, Dea and Ms. Robeson. Neither Mr. Rady, the Chairman and Chief Executive Officer of our general partner, nor Mr. Warren, the President and Secretary of our general partner, is considered by the Board to be an independent director because of his employment with Antero Resources.
Item 14. Principal Accountant Fees and Services
The table below sets forth the aggregate fees and expenses billed by KPMG LLP, our independent registered public accounting firm, for the Partnership and its Predecessor for the following periods:
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For the Years Ended December 31,
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(in thousands)
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2017
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2018
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Audit and quarterly reviews
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$
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207
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283
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Audit related fees
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489
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48
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Total
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$
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696
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331
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The charter of the Audit Committee and its pre-approval policy require that the Audit Committee review and pre-approve our independent registered public accounting firm’s fees for audit, audit-related, tax and other services. The Chairman of the Audit Committee has the authority to grant pre-approvals, provided such approvals are within the pre-approval policy and are presented to the Audit Committee at a subsequent meeting. For the year ended December 31, 2018, the audit committee of our predecessor approved 100% of the services described above under the captions "Audit Fees."