CVR ENERGY INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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CVR Energy, Inc.
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(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Title of each class of securities to which transaction applies:
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Aggregate number of securities to which transaction applies:
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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Proposed maximum aggregate value of transaction:
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Total fee paid:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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Amount Previously Paid:
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Form, Schedule or Registration Statement No.:
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Filing Party:
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Date Filed:
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April 29, 2016
To the Stockholders of CVR Energy, Inc.:
You are cordially invited to attend the 2016 Annual Meeting of Stockholders of CVR Energy, Inc., on June 8, 2016 at 10:00 a.m. (Central Time) at 2245 Texas Drive, Suite 300, Sugar Land, Texas 77479.
At the Annual Meeting, we will ask you to (1) elect eight directors, (2) ratify the appointment of Grant Thornton LLP, an independent registered public accounting firm, as our independent auditors for the fiscal year ending December 31, 2016, (3) consider an advisory vote on the compensation of our named executive officers, (4) re-approve the performance incentive plan, and (5) take action upon any other business that may properly come before the Annual Meeting or any adjournments or postponements thereof.
We have elected to take advantage of the rules of the U.S. Securities and Exchange Commission that allow us to furnish our proxy materials over the Internet. As a result, we are mailing a Notice of Internet Availability of Proxy Materials (the “Notice”), rather than a full paper set of the proxy materials, unless you previously requested to receive printed copies. The Notice contains details regarding the date, time and location of the meeting and the business to be conducted, as well as instructions on how to access our proxy materials on the Internet and instructions on how to obtain a paper copy of the proxy materials. This process will substantially reduce the costs associated with printing and distributing our proxy materials.
Whether or not you are able to attend, it is important that your shares be represented at the meeting. You can vote your proxy by telephone by following the instructions on the Notice. Alternatively, you may complete, sign, date and return the proxy card included in our proxy materials at your earliest convenience. If you hold your shares through a broker, bank or other nominee, please complete and return the voting instruction form that you receive from them or follow the telephone voting instructions provided on the form. If you attend the meeting in person, you may revoke your proxy, if you wish, and vote personally.
As the representation of stockholders at the meeting is very important, we thank you in advance for your participation.
Sincerely yours,
John J. Lipinski
Chief Executive Officer and President
CVR ENERGY, INC.
2277 Plaza Drive, Suite 500
Sugar Land, Texas 77479
(281) 207-3200
www.cvrenergy.com
NOTICE OF 2016 ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the 2016 Annual Meeting (the “Annual Meeting”) of Stockholders of CVR Energy, Inc. (“CVR Energy”) will be held on June 8, 2016 at 10:00 a.m. (Central Time), at
2245 Texas Drive, Suite 300, Sugar Land, Texas 77479,
to consider and vote upon the following matters:
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Election of eight directors, each to serve a one-year term expiring upon the 2017 Annual Meeting of Stockholders or until his successor has been duly elected and qualified;
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A proposal to ratify the Audit Committee’s selection of Grant Thornton LLP as CVR Energy’s independent registered public accounting firm for the fiscal year ending December 31, 2016;
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A non-binding proposal to approve, on an advisory basis, the compensation of CVR Energy’s named executive officers;
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Re-approval of the performance incentive plan; and
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Transaction of such other business as may properly come before the meeting or any adjournments or postponements thereof.
Only stockholders of record as of the close of business on April 19, 2016 will be entitled to notice of, and to vote at, the Annual Meeting and any adjournments or postponements thereof. A list of stockholders entitled to vote at the meeting will be available for inspection during normal business hours beginning May 27, 2016 at CVR Energy’s offices at 2277 Plaza Drive, Suite 500, Sugar Land, Texas 77479. You can vote your proxy by telephone by following the instructions on the Notice. Alternatively, you may complete, sign, date and return the proxy card included in our proxy materials at your earliest convenience. If you hold your shares through a broker, bank or other nominee, please complete and return the voting instruction form that you receive from them or follow the telephone voting instructions provided on the form. If you attend the meeting in person, you may revoke your proxy, if you wish, and vote personally.
YOUR VOTE IS VERY IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING, WE REQUEST THAT YOU READ THE PROXY STATEMENT AND VOTE EITHER (I) BY TELEPHONE BY FOLLOWING THE INSTRUCTIONS PROVIDED ON THE NOTICE OR (II) BY SIGNING, DATING AND RETURNING THE PROXY CARD INCLUDED IN OUR PROXY MATERIALS. IF YOU HOLD YOUR SHARES THROUGH A BROKER, BANK OR OTHER NOMINEE, PLEASE COMPLETE AND RETURN THE VOTING INSTRUCTION FORM THAT YOU RECEIVE FROM THEM OR FOLLOW THE TELEPHONE VOTING INSTRUCTIONS PROVIDED ON THE FORM.
IMPORTANT INFORMATION REGARDING THE AVAILABILITY OF PROXY MATERIALS
Our Proxy Statement and the CVR Energy 2015 Annual Report (our “Annual Report”), which includes our Annual Report on Form 10-K for the year ended December 31, 2015 and financial statements, are available at http://annualreport.cvrenergy.com.
By Order of the Board of Directors,
John R. Walter
Senior Vice President, General Counsel and Secretary
Sugar Land, Texas
April 29, 2016
If you vote by telephone, you do not need to return your proxy card.
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CVR ENERGY, INC.
2277 Plaza Drive, Suite 500
Sugar Land, Texas 77479
(281) 207-3200
www.cvrenergy.com
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PROXY STATEMENT
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Table of Contents
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PROXY STATEMENT FOR CVR ENERGY, INC.
2016 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Why has CVR Energy prepared this proxy statement?
We have prepared this proxy statement (“Proxy Statement”) in connection with the solicitation by the Board of Directors (“Board”) of CVR Energy, Inc. (“CVR Energy,” the “Company,” “we,” “us” or “our”) of proxies to be voted at our 2016 Annual Meeting of Stockholders and at any adjournment or postponement thereof (“Annual Meeting”).
This Proxy Statement describes the matters on which we would like you to vote and provides information on those matters so that you can make an informed decision.
The Notice is being mailed starting April 29, 2016.
What matters will be voted on at the Annual Meeting?
There are four matters scheduled to be voted on at the Annual Meeting:
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the election of eight directors;
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a proposal to ratify the selection by the Audit Committee of Grant Thornton LLP (“Grant Thornton”) as CVR Energy’s independent registered public accounting firm for 2016, which we refer to as the “auditor ratification proposal”;
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a non-binding proposal to approve, on an advisory basis, the compensation of CVR Energy’s named executive officers, which we refer to as the “say-on-pay proposal”; and
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re-approval of the CVR Energy Performance Incentive Plan (the "Performance Incentive Plan").
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What is our Board’s voting recommendation?
Our Board recommends that you vote your shares:
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“FOR” the election of each of the Board’s eight director nominees;
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“FOR” the auditor ratification proposal;
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“FOR” the say-on-pay proposal; and
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“FOR” the re-approval of the Performance Incentive Plan.
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Who is entitled to vote at the Annual Meeting?
Holders of CVR Energy common stock at the close of business on April 19, 2016 (the “Record Date”) are entitled to receive the Notice and to vote their shares at the Annual Meeting. On that date, there were 86,831,050 shares of CVR Energy common stock outstanding. CVR Energy common stock is our only class of voting stock issued and outstanding.
How many votes do I have?
You will have one vote for every share of CVR Energy common stock that you owned at the close of business on the Record Date.
What is the difference between holding shares as a stockholder of record and as a beneficial owner?
If your shares are registered directly in your name with CVR Energy’s transfer agent, American Stock Transfer & Trust Company, you are considered the “stockholder of record” with respect to those shares. The Notice would have been sent directly to you.
If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial owner” with respect to those shares. These shares are sometimes referred to as being held “in street name.” The Notice has been forwarded to you by your broker, bank or other holder of record who is considered the stockholder of record with respect to those shares. As the beneficial owner, you have the right to direct your
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broker, bank or other nominee on how to vote your shares by using the voting instruction form included in the mailing or by following the instructions on the form for voting by telephone.
How do I vote in accordance with the Board’s recommendations?
You may vote using any of the following methods:
By telephone
Telephone voting has been provided for your convenience. Simply follow the instructions on the Notice. If you are a beneficial owner of shares, follow the instructions provided by your broker, bank or other nominee.
By mail
Be sure to complete, sign and date the proxy card and return it in accordance with the instructions included in our proxy materials. If you are a beneficial owner of shares, follow the instructions provided by your broker, bank or other nominee. If you are a stockholder of record and you return your signed proxy card but do not indicate your voting preferences, the persons named in the proxy card will vote the shares represented by that proxy as recommended by our Board.
Whether or not you plan to attend the Annual Meeting, we urge you to vote. Returning the proxy card or voting by telephone will not affect your right to attend the Annual Meeting and vote in person.
In person at the Annual Meeting
All stockholders may vote in person by ballot at the Annual Meeting. You may also be represented by another person at the Annual Meeting by executing a proper proxy designating that person. If you are a beneficial owner of shares but not the record holder, you must obtain a legal proxy from your broker, bank or other nominee and present that legal proxy to the inspectors of election with your ballot to be able to vote at the Annual Meeting.
What can I do if I change my mind after I vote?
If you are a stockholder of record, you can revoke your proxy before it is exercised by:
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written notice of revocation to the Company’s Secretary at CVR Energy, Inc., 2277 Plaza Drive, Suite 500, Sugar Land, Texas 77479;
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timely delivery of a valid, later-dated proxy or a later-dated vote by telephone; or
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attending the Annual Meeting and voting in person by ballot.
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If you are a beneficial owner of shares but not the record holder, you may submit new voting instructions by contacting your broker, bank or other nominee. You may also vote in person at the Annual Meeting if you obtain a legal proxy as described in the answer to the question “How do I vote in accordance with the Board’s recommendations?” above. All shares that have been properly voted and not revoked will be voted at the Annual Meeting.
How can I attend the Annual Meeting?
You are entitled to attend the Annual Meeting only if you were a stockholder of record as of the Record Date(April 19, 2016) or you hold a valid proxy for the Annual Meeting as described in the previous questions. Since seating is limited, admission to the meeting will be on a first-come, first-served basis. You should be prepared to present photo identification for admittance. If you are not a stockholder of record but hold shares as a beneficial owner, you should provide proof of beneficial ownership as of the Record Date (April 19, 2016), such as your most recent account statement prior to the Record Date (April 19, 2016), a copy of the voting instruction form provided by your broker, bank or other nominee, or other similar evidence of ownership. You may contact us via the Internet or by telephone at (281) 207-3200 to obtain directions to vote in person at the Annual Meeting.
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What votes need to be present to hold the Annual Meeting?
Under our Amended and Restated By-Laws, the presence, in person or by proxy, of the holders of a majority of the aggregate voting power of the common stock issued and outstanding on the Record Date (April 19, 2016) entitled to vote at the Annual Meeting will constitute a quorum for the transaction of business at the Annual Meeting. Abstentions and broker “non-votes” are counted as present and entitled to vote for purposes of determining whether a quorum exists. Although not expected, if a quorum is not present or represented, we may adjourn and reschedule the Annual Meeting, without notice other than announcement at the Annual Meeting, until a quorum is present or represented.
What vote is required to approve each proposal?
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Proposal 1: Elect Eight Directors
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The affirmative vote of a plurality of the votes present in person or by proxy and entitled to vote at the Annual Meeting is required to elect directors (meaning that the eight nominees for director who receive the most votes "FOR" their election will be elected).
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Proposal 2: Ratify Selection of Independent Auditors
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The affirmative vote of a majority of the votes present in person or by proxy and entitled to vote at the Annual Meeting is required for the proposal to ratify the selection of Grant Thornton as CVR Energy’s independent registered public accounting firm for 2016 to be approved.
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Proposal 3: Non-binding, Advisory Vote on Named Executive Officer Compensation (“Say-on-Pay”)
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The affirmative vote of a majority of the votes present in person or by proxy and entitled to vote at the Annual Meeting is required to approve the Say-on-Pay proposal. However, the vote is non-binding and CVR Energy will not be required to take any action as a result of the outcome of the vote.
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Proposal 4: Re-approval of the Performance Incentive Plan
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The affirmative vote of a majority of the votes present in person or by proxy and entitled to vote at the Annual Meeting is required to re-approve the Performance Incentive Plan.
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How are votes counted?
In the election of directors, your vote may be cast “FOR” all of the nominees or your vote may be “WITHHELD” with respect to one or more of the nominees. If you withhold your vote with respect to any nominee, your vote will have no effect on the election of such nominee. For all other proposals, your vote may be cast “FOR” or “AGAINST” or you may “ABSTAIN.” If you “ABSTAIN” from voting with respect to any of these proposals, it has the same effect as a vote “AGAINST” the proposal. If you sign your voting instruction form with no further instructions and you are a stockholder of record, then your shares will be voted in accordance with the recommendations of our Board. If you sign your voting instruction form with no further instructions and you are a beneficial owner, then please see the response to the question immediately below for a description of how your shares will be voted.
What is the effect of broker non-votes?
A broker “non-vote” occurs when a broker, bank or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner. Under current New York Stock Exchange (the “NYSE”) rules, a broker, bank or other nominee may exercise discretionary voting power for the ratification of the selection of Grant Thornton and, therefore, no broker non-votes are expected for this proposal. However, your broker, bank or other nominee will not be permitted to exercise discretion to vote your shares for the election of directors, the say-on-pay proposal or the re-approval of the Performance Incentive Plan. Directors are elected by a plurality vote and, therefore, shares subject to a broker non-vote with respect to the election of directors will have no effect on the election of nominees. Shares subject to a broker non-vote with respect to the say-on-pay proposal or the re-approval of the Performance Incentive Plan will be considered to be entitled to vote at the Annual Meeting and, therefore, will have the effect of a vote "AGAINST" these proposals. Therefore, if you are a beneficial owner and do not provide your broker, bank or other nominee with voting instructions with
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respect to the say-on-pay proposal or the re-approval of the Performance Incentive Plan, then your shares will be counted as votes "AGAINST" those matters.
Who will pay the costs of soliciting these proxies?
We will bear all costs of solicitation. Upon request, we will reimburse brokers, banks and other nominees for the expenses they incur in forwarding the proxy materials to you.
Is this Proxy Statement the only way that proxies are being solicited?
No. In addition to our mailing the Notice, members of our Board, executive officers and certain employees may solicit proxies by telephone, by fax or other electronic means of communication (through electronic mail and the Company’s webpage), or in person. They will not receive any compensation for their solicitation activities in addition to their regular compensation. We have not engaged an outside solicitation firm in connection with the solicitation of proxies at this year’s Annual Meeting.
Where can I find the voting results?
We will publish voting results in a current report on Form 8-K that we will file with the Securities and Exchange Commission (“SEC”) within four business days following the Annual Meeting. If on the date of this filing the inspector of election for the Annual Meeting has not certified the voting results as final, we will note in the filing that the results are preliminary and publish the final results in a subsequent amended Form 8-K filing within four business days after the final voting results are known.
Can a stockholder communicate directly with our Board?
Stockholders and other interested parties may communicate with members of our Board by writing to:
CVR Energy, Inc.
2277 Plaza Drive, Suite 500
Sugar Land, Texas 77479
Attention: Senior Vice President, General Counsel and Secretary
Stockholders and other interested parties may also send an e-mail to CVR Energy’s Senior Vice President, General Counsel and Secretary at jwalter@cvrenergy.com. Our General Counsel will forward all appropriate communications directly to our Board or to any individual director or directors, depending upon the facts and circumstances outlined in the communication.
Why did I receive only one Notice when there are several stockholders at my address?
If you and other residents at your mailing address own shares in street name, your broker, bank or other nominee may have sent you a notice that your household will receive only one annual report and proxy statement for each company in which you hold shares through that broker, bank or nominee. This practice is called “householding.” If you did not respond that you did not want to participate in householding, you are deemed to have consented to that process. If these procedures apply to you, your broker, bank or other nominee will have sent one copy of the Notice and, if applicable, our Annual Report and Proxy Statement to your address. You may revoke your consent to householding at any time by contacting your broker, bank or other nominee.
If you did not receive an individual copy of the Notice or our Annual Report or Proxy Statement, we will send copies to you if you contact us at 2277 Plaza Drive, Suite 500, Sugar Land, Texas 77479, (281) 207-3200, Attention: Senior Vice President, General Counsel and Secretary. If you and other residents at your address have been receiving multiple copies of the Notice or, if applicable, our Annual Report and Proxy Statement, and desire to receive only a single copy of these materials, you may contact your broker, bank or other nominee or contact us at the above address or telephone number.
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Whom should I call if I have any questions?
If you have any questions about the Annual Meeting or your ownership of CVR Energy common stock, please contact our transfer agent at:
American Stock Transfer & Trust Company, LLC
6201 15
th
Avenue
Brooklyn, NY 11219
Telephone: (800) 937-5449
Website Address: www.amstock.com
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INFORMATION ABOUT THE ANNUAL REPORT
Will I receive a copy of the Annual Report?
Unless you have previously requested a printed copy of the Annual Report or request a printed copy via the methods set forth herein, we will not be mailing you the Annual Report, and you should access it electronically pursuant to the instructions set forth herein.
How can I receive a copy of our Annual Report on Form 10-K for the year ended December 31, 2015 (“2015 Form 10-K”)?
You can obtain, free of charge, a copy of the 2015 Form 10-K, by:
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accessing the Internet site at http://annualreport.cvrenergy.com; or
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writing to:
CVR Energy, Inc.
Attention: Investor Contacts
2277 Plaza Drive, Suite 500
Sugar Land, Texas 77479
You can also obtain a copy of our 2015 Form 10-K and other periodic filings with the SEC from the SEC’s Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) database at www.sec.gov.
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PROPOSAL 1
ELECTION OF DIRECTORS
Nominees for Election as Directors
Our Board has nominated eight people for election as directors at the Annual Meeting. Each of the nominees currently is a director of our Company. If our stockholders elect these directors, then the directors will hold office until the next annual meeting of stockholders, or until their successors have been elected and qualified. Each of the Board’s nominees has consented to be named in this Proxy Statement and has agreed to serve if elected. If for some reason any of the Board’s nominees is unable to serve or for good cause will not serve if elected, the persons named as proxies may vote for a substitute nominee recommended by the Board and, if you are a stockholder of record, unless you indicate otherwise on the proxy card, your shares will be voted in favor of the Board’s remaining nominees.
A Board consisting of eight directors is proposed to be elected. The eight nominees of the Board are Bob G. Alexander, SungHwan Cho, Jonathan Frates, Carl C. Icahn, Andrew Langham, John J. Lipinski, Stephen Mongillo and James M. Strock. Biographical information regarding these eight director nominees is included beginning on page 14 of this Proxy Statement. Messrs. Alexander, Cho, Mongillo and Strock were appointed to the Board in May 2012 pursuant to the Transaction Agreement among the Company, IEP Energy LLC (“IEP”), an affiliate of Icahn Enterprises L.P., and each of the other parties listed on the signature pages thereto, dated as of April 18, 2012 (the “Transaction Agreement”) and were recommended by Carl C. Icahn and certain of his affiliates. Mr. Icahn was appointed to the Board in June 2012, Mr. Lipinski has served on the Board since September 2006 and was last appointed to the Board in May 2012, Mr. Langham was appointed in September 2014 and Mr. Frates was appointed in March 2016.
We believe each of the Board’s nominees meets the qualifications established by the Board for service on our Board and has professional experience in areas that are extremely relevant to our strategy and operations. We also believe the Board’s nominees have attributes necessary to create a cohesive and effective Board, including high personal and professional ethics, integrity and values, vision and long-term strategic perspective, experience in our industry, practical judgment, the ability to devote significant time to serve on our Board and its committees, and a commitment to representing the long-term interests of all our stockholders.
The Board recommends that our stockholders vote
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the election of the eight nominees listed above. The recommendation of the Board is based on its carefully considered judgment that the skills, experience, backgrounds and attributes of the Board’s nominees make them the best candidates to serve on our Board.
Vote Required and Recommendation of Board
The affirmative vote of a plurality of the votes present in person or by proxy and entitled to vote at the Annual Meeting is required to elect directors (meaning that the eight director nominees receiving the greatest number of votes duly cast for election as directors will be elected).
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF ALL EIGHT OF THE BOARD’S NOMINEES.
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PROPOSAL 2
RATIFICATION OF THE AUDIT COMMITTEE’S
SELECTION OF GRANT THORNTON LLP
The Audit Committee has selected Grant Thornton as our independent registered public accounting firm for fiscal year 2016. Our Board requests stockholders to ratify such selection.
Grant Thornton will:
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audit our consolidated financial statements and internal control over financial reporting;
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review certain reports we will file with the SEC;
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provide you and our Board with certain reports; and
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provide such other services as the Audit Committee and its chairman from time to time determine.
Grant Thornton served as our independent registered public accounting firm for 2015, performing professional services for us. We expect representatives of Grant Thornton to attend the Annual Meeting. We will allow them to make a statement if they desire and to respond to appropriate questions.
The Audit Committee is responsible for selecting the Company’s independent registered public accounting firm for 2016. Accordingly, stockholder approval is not required to appoint Grant Thornton as the Company’s independent registered public accounting firm. However, the Board of Directors believes that the submission of the Audit Committee’s selection to the stockholders for ratification is a matter of good corporate governance. If the Company’s stockholders do not ratify the selection of Grant Thornton as the Company’s independent registered public accounting firm, the Audit Committee will review its future selection of an independent registered public accounting firm. The Audit Committee may retain another independent registered public accounting firm at any time during the year if it concludes that such change would be in your best interest.
Vote Required and Recommendation of Board
The affirmative vote of a majority of the votes present in person or by proxy and entitled to vote at the Annual Meeting is required for the proposal to ratify the selection of Grant Thornton as CVR Energy’s independent registered public accounting firm for 2016 to be approved.
OUR BOARD UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" THE RATIFICATION OF
THE AUDIT COMMITTEE’S SELECTION OF GRANT THORNTON.
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PROPOSAL 3
NON-BINDING, ADVISORY VOTE ON COMPENSATION OF THE NAMED EXECUTIVE OFFICERS
(“Say-on-Pay”)
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (known as the “Dodd-Frank Act”) added provisions to Section 14A of the Securities and Exchange Act of 1934 (as amended, the “Exchange Act”) to provide that a public company’s proxy statement in connection with the annual meeting of stockholders must, at least once every three years, allow stockholders to cast a non-binding, advisory vote regarding the compensation of the company’s named executive officers as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion.
In accordance with the Dodd-Frank Act and rules adopted by the SEC required thereunder, at the Annual Meeting, we are providing stockholders with an opportunity to cast an advisory vote on our compensation program for our named executive officers. This vote is referred to as a “Say-on-Pay” vote. Further, based on the results of the advisory vote on the frequency of future say-on-pay votes at our 2011 Annual Meeting of stockholders, we intend to provide our stockholders with an annual, non-binding advisory say-on-pay vote on executive compensation at least until the next required non-binding advisory vote on the frequency of future advisory say-on-pay votes as required by the rules of the SEC, which shall take place in connection with our 2017 Annual Meeting.
As described in the Compensation Discussion and Analysis section of this Proxy Statement and the compensation tables and narrative discussions that follow, our executive compensation program is based on our pay-for-performance philosophy and is designed with the following goals in mind: (1) aligning named executive officer and stockholder interests, (2) attracting and retaining quality leadership and (3) supporting a pay-for-performance philosophy. In excess of 92% of our outstanding shares voted to approve our say-on-pay proposal related to compensation for the 2014 fiscal year. For additional information on the compensation program for our named executive officers, including specific information about compensation in fiscal year 2015, please read the Compensation Discussion and Analysis section of this Proxy Statement, along with the subsequent tables and narrative descriptions, beginning on page 26 of this Proxy Statement.
The Board recommends that stockholders vote in favor of the following resolution:
“RESOLVED, the stockholders hereby approve, on an advisory basis, the compensation paid to the Company’s named executive officers, as disclosed in the Company’s Proxy Statement for the 2016 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion included in this Proxy Statement.”
Because the vote is advisory, it will not be binding upon the Board or the compensation committee and the Company will not be required to take any action as a result of the outcome of the vote. However, our Board and compensation committee value the opinions of our stockholders and, to the extent there is any significant vote against the named executive officer compensation as disclosed in this Proxy Statement, our Board and compensation committee will consider the stockholders’ concerns and evaluate whether any actions are necessary to address those concerns.
Vote Required and Recommendation of the Board
The affirmative vote of a majority of the votes present in person or by proxy and entitled to vote at the Annual Meeting is required for the say-on-pay proposal to be approved.
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS, ON AN ADVISORY, NON-BINDING BASIS, AS DISCLOSED IN THIS PROXY STATEMENT PURSUANT TO ITEM 402 OF REGULATION S-K, INCLUDING THE COMPENSATION DISCUSSION AND ANALYSIS, COMPENSATION TABLES AND NARRATIVE DISCUSSION.
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PROPOSAL 4
RE-APPROVAL OF THE PERFORMANCE INCENTIVE PLAN
Purpose of Proposal
Section 162(m) of the Internal Revenue Code and the regulations promulgated thereunder (the “Code”) provide that the Company may not deduct remuneration in excess of $1 million for services performed by any employee who, on the last day of the taxable year, was the chief executive officer or whose compensation is reported in the Summary Compensation Table by reason of being among the three highest paid compensation executive officers of the Company. The deduction limit described in the preceding sentences will not apply, however, to any compensation that constitutes “qualified performance-based compensation.” “Qualified performance-based compensation,” which can include compensation derived from cash bonus compensation, is compensation that meets certain conditions under the Code. One of these conditions is periodic stockholder approval of the material terms of the performance goals under which the compensation is paid.
The Company’s Performance Incentive Plan (referred to in this proposal as the “PIP”) was adopted by the compensation committee of the Board in March 2011, and approved by the Company’s stockholders at the Annual Meeting in May 2011. The PIP contains features designed to comply with the exemption for “qualified performance-based compensation.” Section 162(m) of the Code requires re-approval of the performance goals under the PIP after five years if the compensation committee has retained discretion to vary the targets under the performance goals from year to year. The compensation committee of the Board has retained discretion to vary the targets under the performance goals from year to year. Accordingly, the Company is seeking re-approval of the performance goals included in the PIP in order to preserve the Company’s ability to deduct compensation earned by certain executives pursuant to any performance-based award that may be made in the future under the plan. As such, the Company asks that the stockholders re-approve the material terms of the performance goals to which cash awards may be subject under the PIP to give the compensation committee the ability to structure cash bonuses to qualify as “qualified performance-based compensation” for executive officers who are subject to Section 16 of the Securities Exchange Act of 1934 (the “1934 Act”) or who the compensation committee determines at the beginning of the year may be subject to Section 162(m) of the Code as of the end of the performance period. If the Company’s stockholders do not approve these material terms at the Annual Meeting, no cash bonuses will be made under the PIP.
Material Terms of the Performance Goals
The material terms of the performance goals for cash bonus awards under the PIP for purposes of the stockholder approval requirement under Section 162(m) of the Code consist of (i) the class of employees eligible to receive these awards; (ii) the types of business criteria on which the payouts may be based; and (iii) the maximum amounts that can be paid during a specified period to any employee for awards under the PIP.
Eligible Class
. Employees of the Company or its subsidiaries at the level of vice president or above are eligible to participate in the PIP (approximately 32 employees of which 3 are eligible to participate in comparable plans adopted by the Company's subsidiaries, in which case such employees are expected to participate in those plans in lieu of participation in the PIP). However, participation is generally limited to those employees who, because of their significant impact on the current and future success of the Company, the compensation committee selects. Under the PIP, certain provisions will apply only to “Covered Officers” and a Covered Officer is defined as (i) any employee who, as of the beginning of the performance period, is an officer subject to Section 16 of the 1934 Act, and (ii) who, prior to determining target awards for the performance period, the compensation committee designates as a Covered Officer for purposes of the PIP. If the compensation committee does not make the designation in clause (ii) for a performance period, all employees described in clause (i) shall be deemed to be Covered Officers for purposes of the PIP.
Business Criteria
. To determine the payments of cash bonuses subject to performance goals, the compensation committee sets performance goals, target award percentages and targets with respect to participants; provided that the compensation committee may delegate the setting of performance goals, target award percentages and targets with respect to participants other than Executive Officers. These goals, percentages and targets will be used to determine awards for specified performance periods, generally one-year in duration unless otherwise designated by the compensation committee. Performance objectives, for any performance period, may be expressed in terms of (i) stock price, (ii) earnings per share, (iii) operating income, (iv) return on equity or assets, (v) adjusted operating cash flow, (vi) free cash flow (vii) EBITDA or adjusted EBITDA, (viii) revenues, (ix) overall revenue or sales growth, (x) expense reduction or management, (xi) market position, (xii) total shareholder return, (xiii) return on investment, (xiv) earnings before interest and taxes (EBIT), (xv) net income, (xvi) pre-tax income, (xvii) return on net assets, (xviii) economic value added, (xix) shareholder value added, (xx) cash flow return on investment, (xxi) net
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operating profit, (xxii) net operating profit after tax, (xxiii) return on capital, (xxiv) return on invested capital, (xxv) gross margin (per barrel), (xxvi) operational costs (per barrel), (xxvii) cost reductions; (xxviii) cost ratios; (xxix) reportable air emissions or spills to ground or water; (xxx) OSHA-recordable personal injuries or lost time accidents; (xxxi) facility reliability measured through the processing of crude oil, fertilizer components and/or other measures relating to the operation of facilities, (xxxii) process safety incidents, (xxxiii) trucking incidents, or (xxxiv) any combination, including one or more ratios, of the foregoing. For participants other than Covered Officers, the compensation committee may also set other financial or non-financial performance measures. Generally, a participant earns an award for a performance period based on the Company’s and/or his or her operating unit’s achievement of the applicable performance objectives. In addition, the award for any participant (other than a Covered Officer) may be adjusted based on the participant’s personal performance.
Performance goals may be absolute or relative (to prior performance or to the performance of one or more other entities or external indices) and may be expressed in terms of a progression within a specified range. To the extent permitted under Section 162(m) of the Code without adversely affecting the treatment of any cash bonus award as “qualified performance-based compensation,” the compensation committee may provide for the manner in which performance will be measured against the performance goals (or may adjust the performance goals) to reflect the impact of specified corporate transactions, special charges, foreign currency effects, accounting or tax law changes and other extraordinary or nonrecurring events.
Maximum Amounts
. The maximum award a Covered Officer may receive for any fiscal year of the Company is $5 million. There is no maximum award for participants other than the Covered Officers.
Other Material Features of the Performance Incentive Plan
General
The PIP is intended to provide a means of annually rewarding certain employees based on the performance of the Company and/or its operating units. The PIP is designed to qualify the compensation payable to a Covered Officer under the PIP as “qualified performance-based compensation” eligible for exclusion from the tax deduction limitation of Section 162(m) of the Code. It is expected that the PIP will be used primarily to provide annual cash incentive compensation for those employees who participate in the PIP and, for those employees, would be in lieu of the Company’s historical use of discretionary annual bonuses. The approval by stockholders of the material terms of the performance goals, and the certification by the compensation committee that the performance goals and other material terms were in fact satisfied, will be a condition to the payment of compensation to the Covered Officers pursuant to the PIP.
Although the Company generally will attempt to structure cash incentive compensation under the PIP so as to preserve deductibility, there may be circumstances where the Company's best interests may be best served by maintaining flexibility in the way compensation is provided even if it might result in the non-deductibility of such cash incentive compensation. In this regard, the PIP is not exclusive. The Company may pay other compensation to named executive officers and other key employees as authorized by the Board of Directors and applicable law. In addition, because of the uncertainties associated with the application and interpretation of Section 162(m) of the Code and the regulations issued thereunder, there can be no assurance that compensation intended to satisfy the requirements for deductibility under Section 162(m) of the Code will in fact be deductible.
The principal provisions of the PIP are summarized below. This summary, however, does not purport to be complete and is qualified in its entirety by the terms of the PIP, included as Appendix A to this Proxy Statement.
Purpose
The purpose of the PIP is to enhance the Company’s ability to attract, motivate, reward and retain key employees, to strengthen their commitment to the success of the Company and to align their interests with those of the Company’s stockholders by providing additional compensation to designated key employees of the Company based on the achievement of performance objectives. To this end, the PIP provides a means of rewarding participants primarily based on the performance of the Company and/or its operating units.
As discussed above, any of the approximately 32 employees of the Company and its subsidiaries at the level of vice president and above are eligible to participate in the PIP of which 3 are eligible to participate in comparable plans adopted by the Company's subsidiaries, in which case such employees are expected to participate in those plans in lieu of participation in the PIP. However, participation is generally limited to those key employees who,
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because of their significant impact on the current and future success of the Company, are selected by the compensation committee.
Administration
The PIP will be administered by the compensation committee with respect to participants who are Covered Officers; provided, however, that with respect to employees who are not Covered Officers, the compensation committee may delegate to the CEO the authority and responsibility to administer the PIP to the same extent as the compensation committee (or to such lesser extent as the compensation committee may provide). Each member of the compensation committee is an “outside director” within the meaning of the regulations promulgated under Section 162(m) of the Code. The compensation committee shall have full authority to establish the rules and regulations relating to the PIP, to interpret the PIP and those rules and regulations, to select participants in the PIP, to determine the Company’s and, if applicable, operating unit’s performance objectives and each participant’s target award percentage for each performance period, to approve all the awards, to decide the facts in any case arising under the PIP and to make all other determinations and to take all other actions necessary or appropriate for the proper administration of the PIP, including the delegation of such authority or power, where appropriate.
Determination of Awards
For each performance period, the compensation committee shall determine the employees who will participate in the PIP during that performance period and determine each such participant’s target award percentage and the performance goals for that performance period.
Generally, as described above, a participant earns an award for a performance period based on the Company’s and/or his or her operating unit’s achievement of the applicable performance goals. In addition, awards for any participant (other than the Covered Officers) may be adjusted based on the participants’ personal performance. The compensation committee may, in its discretion, reduce the amount otherwise payable to any participant. However, with respect to any participant who is a Covered Officer, the compensation committee may not increase the amount otherwise payable under the PIP.
Payment of Awards
Generally, each award to the extent earned is paid in a single lump sum cash payment and in no event later than two and one-half months following the end of the performance period. The compensation committee certifies the amount of the Covered Officers’ awards prior to payment thereof.
Limitations on Rights to Payment of Awards
No participant shall have any right to receive payment of an award under the PIP for a performance period unless the participant remains in the employ of the Company through the payment date of the award for such performance period. However, the compensation committee, in its sole discretion, may determine that a participant whose employment terminates prior to the payment date of the award for a performance period may receive a prorated portion of any earned award, based on the number of days that the participant was actively employed and performed services during such performance period; provided, that, with respect to a Covered Officer, a prorated portion of any earned award shall be paid only (i) based on actual performance with respect to the applicable performance objectives for such performance period and (ii) if the compensation committee makes the determination at the time the award is granted that such Covered Officer shall be entitled to a prorated portion of an award (or such determination had previously been made or the right to a prorated portion is provided for in an agreement between the Company and the Covered Officer) or, if permitted under Section 162(m) of the Code, at any time thereafter.
Amendment and Termination
The compensation committee may at any time amend or terminate (in whole or in part) the PIP. No such amendment may adversely affect a participant’s rights to, or interest in, an award granted prior to the date of the amendment, unless the participant shall have agreed thereto.
Non-Transferability
Except in connection with the death of a participant, a participant’s right and interest under the PIP may not be assigned or transferred. Any attempted assignment or transfer will be null and void and will extinguish, in the Company’s sole discretion, the Company’s obligation under the PIP to pay awards with respect to the participant.
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Unfunded Status
The PIP will be unfunded. The Company will not be required to establish any special or separate fund, or to make any other segregation of assets, to assure payment of awards.
New Plan Benefits
Future benefits that will be awarded or paid under the PIP cannot currently be determined. Awards granted under the PIP are within the discretion of the compensation committee. For additional details on the PIP awards granted as compensation for 2015, please read the Compensation Discussion and Analysis section of this Proxy Statement, along with the subsequent tables and narrative descriptions, beginning on page 26 of this Proxy Statement.
Vote Required and Recommendation of the Board
The affirmative vote of a majority of the votes present in person or by proxy and entitled to vote at the Annual Meeting is required for the proposal to re-approve the Performance Incentive Plan to be approved.
OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR”
THE RE-APPROVAL OF THE PERFORMANCE INCENTIVE PLAN.
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MEMBERS OF AND NOMINEES TO OUR BOARD
The following table sets forth the names and ages (as of April 19, 2016) of each of our existing directors, each of whom is a nominee, and the year they first joined our Board:
|
Name
|
Age
|
Position
|
Joined Board
|
|
Bob G. Alexander
|
82
|
Director
|
5/12
|
|
SungHwan Cho
|
42
|
Director
|
5/12
|
|
Jonathan Frates
|
33
|
Director
|
3/16
|
|
Carl C. Icahn
|
80
|
Chairman of the Board
|
6/12
|
|
Andrew Langham
|
43
|
Director
|
9/14
|
|
John Lipinski
|
65
|
Chief Executive Officer, President and Director
|
9/06
|
|
Stephen Mongillo
|
54
|
Director
|
5/12
|
|
James M. Strock
|
59
|
Director
|
5/12
|
Principal Occupations and Qualifications
The Board has concluded that each of its members, all of who have again been nominated to serve as a director, is qualified to serve as a director due to the value of his experiences, qualifications, attributes and skills as noted below:
Bob G. Alexander
has served as a director since May 2012 when IEP acquired the majority of our common stock (the “IEP Acquisition”). Mr. Alexander has served as a director of TransAtlantic Petroleum Corp., an international exploration and production company doing business in Turkey, Poland, Bulgaria and Romania, since June 2010, and Seventy Seven Energy Inc., a diversified oilfield services company, since June 2014. Mr. Alexander previously served on the board of directors of Chesapeake Energy Corporation, an oil and gas exploration and production company, from June 2012 until June 2014. Mr. Alexander, a founder of Alexander Energy Corporation, served as Chairman of the Board, President and Chief Executive Officer of Alexander Energy from 1980 to 1996. Alexander Energy merged with National Energy Group, Inc., an oil and gas property management company, in 1996 and Mr. Alexander served as President and Chief Executive Officer from 1998 to 2006. National Energy Group was previously indirectly controlled by Carl C. Icahn. From 1976 to 1980, Mr. Alexander served as Vice President and General Manager of the Northern Division of Reserve Oil, Inc. and President of Basin Drilling Corporation, both subsidiaries of Reserve Oil and Gas Company of Denver, Colorado. Mr. Alexander also served on the board of Quest Resource Corporation from June to August 2008. Mr. Alexander has served on numerous committees with the Independent Petroleum Association of America, the Oklahoma Independent Petroleum Association and the State of Oklahoma Energy Commission. Mr. Alexander received a Bachelor of Science degree in Geological Engineering from the University of Oklahoma. Based upon Mr. Alexander’s experience in the oil and gas services industry, as well as his experience serving as a director of
other public companies, we believe that Mr. Alexander has the requisite set of skills to serve as a Board member.
SungHwan Cho
has served as Chief Financial Officer of Icahn Enterprises L.P., a diversified holding company engaged in a variety of businesses, including investment, automotive, energy, gaming, railcar, food packaging, metals, mining, real estate and home fashion, since March 2012. Prior to that time, he was Senior Vice President and previously Portfolio Company Associate at Icahn Enterprises since October 2006. Mr. Cho has been a director of: Trump Entertainment Resorts, Inc., a company engaged in the business of owning and operating casinos and resorts, since February 2016; The Pep Boys - Manny, Moe & Jack, an automotive parts installer and retailer, since February 2016; Ferrous Resources Limited, an iron ore mining company with operations in Brazil, since June 2015; IEH Auto Parts LLC, an automotive parts distributor, since June 2015; CVR Refining, LP ("CVR Refining"), an independent downstream energy limited partnership, since January 2013; Icahn Enterprises L.P., since September 2012; CVR Partners LP ("CVR Partners"), a nitrogen fertilizer company, since May 2012; Federal-Mogul Holdings Corporation, a supplier of automotive powertrain and safety components, since May 2012; XO Holdings, a competitive provider of telecom services, since August 2011; American Railcar Industries, Inc., a railcar manufacturing company, since June 2011 (and has been Chairman of the Board of American Railcar Industries since July 2014); WestPoint Home LLC, a home textiles manufacturer, since January 2008; PSC Metals Inc., a metal recycling company, since December 2006; and Viskase Companies, Inc., a meat casing company, since November 2006. Mr. Cho has also been a member of the Executive Committee of American Railcar Leasing LLC, a lessor and seller of specialized railroad tank and covered hopper railcars, since September 2013. Mr. Cho was previously a director of Take-Two Interactive Software Inc., a publisher of interactive entertainment products, from April 2010 to November 2013. Trump Entertainment, Pep Boys, Ferrous Resources Limited, IEH Auto Parts,
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American Railcar Leasing, CVR Refining, Icahn Enterprises, CVR Energy, CVR Partners, Federal-Mogul, XO Holdings, American Railcar Industries, WestPoint Home, PSC Metals and Viskase Companies each are indirectly controlled by Carl C. Icahn. Mr. Icahn also previously had a non−controlling interest in Take-Two Interactive Software through the ownership of securities. Mr. Cho received a B.S. in Computer Science from Stanford University and an MBA from New York University, Stern School of Business. Based upon Mr. Cho’s deep understanding of finance and risk obtained from his past experience, including his position as an investment banker at Salomon Smith Barney, we believe that Mr. Cho has the requisite set of skills to serve as a member of our Board.
Jonathan Frates
has been a Portfolio Company Associate at Icahn Enterprises L.P., a diversified holding company engaged in a variety of businesses, including investment, automotive, energy, gaming, railcar, food packaging, metals, mining, real estate and home fashion, since November 2015. Prior to joining Icahn Enterprises, Mr. Frates served as a Senior Business Analyst at First Acceptance Corp. and as an Associate at its holding company, Diamond A Ford Corp. Mr. Frates began his career as an Investment Banking Analyst at Wachovia Securities LLC. Mr. Frates has served as a director of: American Railcar Industries, Inc., a railcar manufacturing company, since March 2016; Viskase Companies, Inc., a meat casing company, since March 2016; and CVR Refining since March 2016. American Railcar Industries, Viskase Companies, CVR Energy and CVR Refining are each indirectly controlled by Carl C. Icahn. Mr. Frates received a BBA from Southern Methodist University and an MBA from Columbia Business School. Based upon Mr. Frate’s strong financial background and experience as an analyst, we believe that Mr. Frates has the requisite set of skills to serve as a member of our Board.
Carl C. Icahn
has served as chairman of our board since June 2012 and as chairman of the board and a director of Starfire Holding Corporation, a privately-held holding company, and chairman of the board and a director of various subsidiaries of Starfire, since 1984. Since August 2007, through his position as Chief Executive Officer of Icahn Capital LP, a wholly owned subsidiary of Icahn Enterprises L.P., and certain related entities, Mr. Icahn’s principal occupation is managing private investment funds, including Icahn Partners LP and Icahn Partners Master Fund LP. Since November 1990, Mr. Icahn has been chairman of the board of Icahn Enterprises L.P. (a diversified holding company engaged in a variety of businesses, including investment, automotive, energy, gaming, railcar, food packaging, metals, mining, real estate and home fashion). Mr. Icahn has been: chairman of the board of CVR Refining since January 2013; chairman of the board of Tropicana Entertainment Inc., a company that is primarily engaged in the business of owning and operating casinos and resorts, since March 2010; and President and a member of the executive committee of XO Holdings, a competitive provider of telecom services, since September 2011, and chairman of the board and a director of its predecessors since January 2003. Mr. Icahn was previously: director of Federal-Mogul Holdings Corporation, a supplier of automotive powertrain and safety components, from December 2007 to May 2015, and the non-executive chairman of the board of Federal-Mogul from January 2008 to May 2015; chairman of the board and a director of American Railcar Industries, Inc., a railcar manufacturing company, from 1994 to July 2014; a director of American Railcar Leasing LLC, a lessor and seller of specialized railroad tank and covered hopper railcars, from June 2004 to November 2013; a director of WestPoint Home LLC, a home textiles manufacturer, from October 2005 until December 2011; and a director of Cadus Corporation, a company engaged in the acquisition of real estate for renovation or construction and resale, from July 1993 to July 2010. Mr. Icahn received his B.A. from Princeton University. Mr. Icahn brings to his role as director his significant business experience and leadership role as director in various companies as discussed above. In addition, Mr. Icahn is uniquely qualified based on his historical background for creating value in companies across multiple industries. Mr. Icahn has proven to be a successful investor over the past 40 years.
Andrew Langham
has been General Counsel of Icahn Enterprises L.P. (a diversified holding company engaged in a variety of businesses, including investment, automotive, energy, gaming, railcar, food packaging, metals, mining, real estate and home fashion) since January 2015. From 2005 to January 2015, Mr. Langham was Assistant General Counsel of Icahn Enterprises. Prior to joining Icahn Enterprises, Mr. Langham was an associate at Latham & Watkins LLP focusing on corporate finance, mergers and acquisitions, and general corporate matters. Mr. Langham has been a director of: Manitowoc Foodservice, Inc., a commercial foodservice equipment manufacturer, since March 2016; Freeport-McMoRan Inc., the world’s largest publicly traded copper producer, since October 2015; CVR Partners since September 2015; and CVR Refining since September 2014. CVR Partners, CVR Refining and CVR Energy are each indirectly controlled by Carl C. Icahn. Mr. Icahn also has non-controlling interests in Manitowoc Foodservice and Freeport-McMoRan through the ownership of securities. Mr. Langham received a B.A. in 1995 from Whitman College, and a J.D. from the University of Washington in 2000. Based on Mr. Langham’s extensive corporate and public company experience, we believe that Mr. Langham has the requisite set of skills to serve as a member of our Board.
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John J. Lipinski
has served as our chief executive officer, president and a member of our Board since September 2006 and served as chairman of our Board from October 2007 until the IEP Acquisition. In addition, Mr. Lipinski has served as executive chairman of the general partner of CVR Partners since June 2011 and as chief executive officer and president from October 2007 to June 2011 and from January 2014 to May 2014. He has been a director of the general partner of CVR Partners since October 2007. In addition, Mr. Lipinski has served as the chief executive officer, president, and director of the general partner of CVR Refining since its inception in September 2012. For a discussion of CVR Partners and CVR Refining, see “Certain Relationships and Related Party Transactions - Transactions with CVR Partners and CVR Refining.” Mr. Lipinski has over 40 years of experience in the petroleum refining and nitrogen fertilizer industries. He began his career with Texaco Inc. In 1985, Mr. Lipinski joined The Coastal Corporation, eventually serving as Vice President of Refining with overall responsibility for Coastal Corporation’s refining and petrochemical operations. Upon the merger of Coastal with El Paso Corporation in 2001, Mr. Lipinski was promoted to Executive Vice President of Refining and Chemicals, where he was responsible for all refining, petrochemical, nitrogen-based chemical processing and lubricant operations, as well as the corporate engineering and construction group. Mr. Lipinski left El Paso in 2002 and became an independent management consultant. In 2004, he became a managing director and partner of Prudentia Energy, an advisory and management firm. Mr. Lipinski currently serves on the board of directors of Chesapeake Energy Corporation, an oil and gas exploration and production company. Mr. Lipinski graduated from Stevens Institute of Technology with a bachelor’s degree in Engineering (chemical) and received a Juris Doctor degree from Rutgers University School of Law. Mr. Lipinski’s over 40 years of experience in the petroleum refining and nitrogen fertilizer industries adds significant value to the Board. His in-depth knowledge of the issues, opportunities and challenges facing the Company provides the direction and focus the Board needs to ensure the most critical matters are addressed.
Stephen Mongillo
has served as a director since the IEP Acquisition. Mr. Mongillo is a private investor. From 2009 to 2011, Mr. Mongillo served as a director of American Railcar Industries, Inc. From January 2008 to January 2011, Mr. Mongillo served as a managing director of Icahn Capital LP, the entity through which Mr. Carl Icahn managed third-party investment funds. From March 2009 to January 2011, Mr. Mongillo served as a director of WestPoint International Inc. Prior to joining Icahn Capital, Mr. Mongillo worked at Bear Stearns for 10 years, most recently as a senior managing director overseeing the leveraged finance group’s efforts in the healthcare, real estate, gaming, lodging, leisure, restaurant and education sectors. American Railcar Industries and WestPoint International are each, directly or indirectly, controlled by Carl C. Icahn. Mr. Mongillo received a B.A. from Trinity College and an M.B.A from the Amos Tuck School of Business Administration at Dartmouth College. Based upon Mr. Mongillo’s over 25 years of experience in the financial industry and his strong understanding of the complex business and financial issues encountered by large complex companies, we believe that Mr. Mongillo has the requisite set of skills to serve as a Board member.
James M. Strock
has served as a director since the IEP Acquisition. Mr. Strock is CEO of the Serve to Lead Group, which he founded in 1997. The Serve to Lead Group serves diverse sectors including: finance, manufacturing, transportation, technology, defense, aerospace, health care, real estate, chemicals, professional services, insurance, environmental safety and health, remediation, clean tech, sustainability, energy, and medical cannabis.
Mr. Strock, individually and as part of various teams and organizations, serves various functions, including: management, project management, financing, sales and marketing, stakeholder engagement, public advocacy, communication (including new media), crisis communication, strategic planning, regulatory compliance, negotiation, mediation, facilitation, human resources, and training. Mr. Strock has served in senior executive and board positions in the public, private, and not-for-profit sectors. He served as California’s founding Secretary for Environmental Protection, and as Assistant Administrator for Enforcement (chief law enforcement officer) of the U.S. Environmental Protection Agency. Mr. Strock is the author of three books on leadership, management, and communication. He is a member of the Council on Foreign Relations, and the Authors Guild. Mr. Strock holds an A.B. from Harvard College and a J.D. from Harvard Law School. He served to captain in the USAR-JAGC. Based upon Mr. Strock’s extensive business and public service experience, which enable him to assist boards in meeting their responsibilities in various functions, we believe that Mr. Strock has the requisite set of skills to serve as a Board member.
None of our directors or executive officers has any family relationship with any other director or executive officer.
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CORPORATE GOVERNANCE
We believe that good corporate governance helps to ensure the Company is managed for the long-term benefits of our stockholders. We regularly review and consider our corporate governance policies and practices, the SEC’s corporate governance rules and regulations, and the corporate governance listing standards of the NYSE, the stock exchange on which our common stock is traded. The Board initially consisted of nine directors in 2015, but currently consists of eight directors, three of whom at all times the Board has affirmatively determined are independent in accordance with the rules of the NYSE (Stephen Mongillo, Bob G. Alexander and James M. Strock). Effective September 25, 2015, Andrew Roberto resigned from the Board, and the Board subsequently reduced its size to eight directors. Effective March 14, 2016, Courtney Mather resigned from the Board and Jonathan Frates was concurrently appointed to the Board.
Operation and Meetings
The Board oversees the business of the Company, which is conducted by the Company’s employees and officers under the direction of the chief executive officer of the Company. The Board performs a number of specific functions, including: (1) reviewing, approving and monitoring fundamental financial and business strategies, risks and major corporate actions; (2) selecting, evaluating and compensating the chief executive officer and other executive officers of the Company; and (3) reviewing the Company’s compliance with its public disclosure obligations. The Board appoints the members of the three Board committees: the audit committee, the compensation committee and the nominating and corporate governance committee. Members of the Board are kept informed about our Company’s business by various documents sent to them before each meeting and oral reports made to them during these meetings by members of the Company’s management. The full Board is also advised of actions taken by the various committees of our Board by the chairmen of those committees. Directors have access to all of our books, records and reports and members of management are available at all times to answer their questions. Management also communicates with the various members of our Board on a regular informal basis as is needed to effectively oversee the activities of our Company.
During 2015, the Board held five meetings. All of the directors who served during 2015 attended at least 75% of the total meetings of the Board and each of the Board committees on which such director served during their respective tenure on the Board, except that Mr. Mather was absent for one of the two compensation committee meetings during the year. In addition, while we do not have a specific policy regarding attendance at the annual meeting of stockholders, all director nominees are encouraged to attend the Annual Meeting. In 2015, one of the directors attended our annual meeting of stockholders.
Meetings of Non-Management Directors and Executive Sessions
To promote open discussion among non-management directors, we schedule regular executive sessions in which our independent or non-management directors meet without management participation. “Non-management directors” are all directors who are not executive officers. During 2015, three of our directors were independent (Messrs. Alexander, Mongillo and Strock) and all of our directors are non-management directors, except for Mr. John J. Lipinski, our president and chief executive officer. Currently, we do not have a lead independent director. Our independent directors met in executive session two times during 2015. Mr. Mongillo presided over the executive sessions held by our independent directors. Our non-management directors did not meet during 2015. In the absence of further action, Mr. Carl C. Icahn, chairman of the Board, will serve as chairman of the executive sessions held by our non-management directors.
Board Leadership Structure and Risk Oversight
The Board believes that it should have the flexibility to make determinations as to whether the same individual should serve as both the chief executive officer and the chairman of the Board, and the Board’s leadership has varied over time. In determining the appropriate leadership structure, the Board considers, among other things, the current composition of the Board and the challenges and opportunities specific to the Company. Mr. Lipinski served as the Company’s chief executive officer and chairman of the Board until the IEP Acquisition. Since the IEP Acquisition, Mr. Lipinski has served as the Company’s chief executive officer, president and a director, and Mr. Icahn has served as chairman of the Board since June 2012. The Board believes that this leadership structure, which separates the chairman and chief executive officer roles, is appropriate at this time in light of IEP’s ownership of over 80% of our common stock. In particular, the Board believes that this structure clarifies the individual roles and responsibilities of Mr. Lipinski and Mr. Icahn and enhances accountability. The Board recognizes that there is no single, generally
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accepted approach to providing Board leadership and that the Board’s leadership structure may vary in the future as circumstances warrant.
Our governance processes, including the Board’s involvement in developing and implementing strategy, active oversight of risk, regular review of business results and thorough evaluation of the chief executive officer’s performance and compensation, provide rigorous Board oversight of the chief executive officer as he fulfills his various responsibilities.
The Board considers oversight of CVR Energy’s risk management efforts to be a responsibility of the entire Board. The Board’s role in risk oversight includes receiving regular reports from members of senior management on areas of material risk to the Company, or to the success of a particular project or endeavor under consideration, including operational, financial, legal and regulatory, strategic and reputational risks. The full Board (or the appropriate committee, in the case of risks that are under the purview of a particular committee) receives these reports from the appropriate members of management to enable the Board (or committee) to understand the Company’s risk identification, risk management, and risk mitigation strategies. When a report is vetted at the committee level, the chairman of that committee subsequently reports on the matter to the full Board. This enables the Board and its committees to coordinate the Board’s risk oversight role. The Board also believes that risk management is an integral part of CVR Energy’s annual strategic planning process, which addresses, among other things, the risks and opportunities facing the Company. The audit committee assists the Board with oversight of the Company’s material financial risk exposures and the Company’s material financial statement and financial reporting risks. The compensation committee assists the Board with oversight of risks associated with the Company’s compensation policies and practices. The nominating and corporate governance committee assists the Board with oversight of risks associated with the Company’s governance. In each case, the Board or the applicable committee oversees the steps Company management has taken to monitor and control such exposures.
The chief executive officer’s membership on and collaboration with the Board allows him to gauge whether management is providing adequate information for the Board to understand the interrelationships of our various business and financial risks. He is available to the Board to address any questions from other directors regarding executive management’s ability to identify and mitigate risks and weigh them against potential rewards.
We have performed an internal review of all of our material compensation programs and have concluded that there are no plans that provide meaningful incentives for employees, including the named executive officers and other executive officers, to take risks that would be reasonably likely to have a material adverse effect on us.
Communications with Directors
Stockholders and other interested parties wishing to communicate with our Board may send a written communication addressed to:
CVR Energy, Inc.
2277 Plaza Drive, Suite 500
Sugar Land, Texas 77479
Attention: Senior Vice President, General Counsel and Secretary
Our General Counsel will forward all appropriate communications directly to our Board or to any individual director or directors, depending upon the facts and circumstances outlined in the communication. Any stockholder or other interested party who is interested in contacting only the independent directors or non-management directors as a group or the director who presides over the meetings of the independent directors or non-management directors may also send written communications to the contact above and should state for whom the communication is intended.
The “Controlled Company” Exemption and Director Independence “Controlled Company” Exemption
Our Board has determined that we are a controlled company under the rules of the NYSE and, as a result, we qualify for and may rely on exemptions from certain director independence requirements of the NYSE.
Under the rules of the NYSE, a listed company is a controlled company when more than 50% of the voting power is held by an individual, a group or another company. Our Board has determined that we are a controlled company because IEP currently owns approximately 82% of our outstanding common stock. Consequently, the Company has availed itself of the controlled company exemption.
18
Director Independence
Due to our status as a controlled company, we are relying on exemptions from the NYSE rules that require that (a) our Board be comprised of a majority of independent directors as defined under the rules of the NYSE, (b) our compensation committee be comprised solely of independent directors and (c) our nominating and corporate governance committee be comprised solely of independent directors.
The controlled company exemption does not modify the independence requirements for the audit committee. The Sarbanes-Oxley Act of 2002 (as amended, the “Sarbanes-Oxley Act”) and NYSE rules require that our audit committee be composed entirely of independent directors. The members of the audit committee are Messrs. Mongillo, Alexander and Strock. Our Board has affirmatively determined that Messrs. Mongillo, Alexander and Strock are independent directors under the rules of the SEC and the NYSE.
Committees
Our Board has the authority to delegate the performance of certain oversight and administrative functions to committees of the Board. Our Board currently has an audit committee, a compensation committee and a nominating and corporate governance committee. In addition, from time to time, special committees may be established under the direction of our Board when necessary to address specific issues.
Each committee has adopted a charter which is reviewed annually by that committee and changes, if any, are recommended to our Board for approval. The charters for the audit committee, the compensation committee and the nominating and corporate governance committee are subject to certain NYSE rules and our charters for those committees comply with such rules. Copies of the audit committee charter, compensation committee charter and nominating and corporate governance committee charter, as in effect from time to time, are available free of charge on our Internet site at www.cvrenergy.com. These charters are also available in print to any stockholder who requests them by writing to CVR Energy, Inc., at 2277 Plaza Drive, Suite 500, Sugar Land, Texas 77479, Attention: Senior Vice President, General Counsel and Secretary.
The following table shows the membership of each committee of our Board as of December 31, 2015 and the number of meetings held by each committee during 2015.
Committee Membership as of December 31, 2015 and Meetings Held During 2015
|
Director
|
Audit
Committee
|
Compensation
Committee
|
Nominating
and
Corporate
Governance
Committee
|
||
|
Carl C. Icahn
|
|||||
|
Bob G. Alexander
|
X
|
||||
|
SungHwan Cho
|
X
|
||||
|
Andrew Langham
|
Chair
|
||||
|
John J. Lipinski
|
|||||
|
Courtney Mather
|
X
|
Chair
|
|||
|
Stephen Mongillo
|
Chair
|
X
|
|||
|
James M. Strock
|
X
|
X
|
|||
|
Number of 2015 Meetings
|
7
|
2
|
0
|
||
Audit Committee
The Board has established an audit committee, in accordance with Section 3(a)(58)(A) of the Exchange Act, comprised of Stephen Mongillo (chairman), Bob G. Alexander and James M. Strock. Each of the members of the audit committee meets the independence and experience standards established by the NYSE and the Exchange Act. Our Board has determined that Mr. Mongillo qualifies as an “audit committee financial expert,” as defined by applicable rules of the SEC, and that each member of the audit committee is “financially literate” under the requirements of the NYSE.
19
The audit committee (1) appoints, terminates, retains, compensates and oversees the work of the independent registered public accounting firm, (2) pre-approves all audit, review and attest services and permitted non-audit services provided by the independent registered public accounting firm, (3) oversees the performance of the Company’s internal audit function, (4) oversees and reviews the independence, qualifications and performance of the independent registered public accounting firm, (5) reviews external and internal audit reports and management’s responses thereto, (6) oversees the integrity of the financial reporting process, system of internal accounting controls and financial statements and reports of the Company, (7) oversees the Company’s compliance with certain legal and regulatory requirements, (8) reviews the Company’s annual and quarterly financial statements, including disclosures made in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in periodic reports filed with the SEC, (9) discusses with management earnings press releases, (10) meets with management, the internal auditors, the independent auditors and the Board, (11) provides the Board with information and materials as it deems necessary to make the Board aware of significant financial, accounting and internal control matters of the Company, (12) oversees the receipt, investigation, resolution and retention of all complaints submitted under the Company’s whistleblower policy, (13) produces an annual report for inclusion in the Company’s proxy statement and (14) otherwise complies with its responsibilities and duties as stated in the Company’s Audit Committee Charter. At each regularly scheduled meeting, audit committee members have the opportunity to meet privately with representatives of Grant Thornton, the Company’s internal auditors and management of the Company.
Compensation Committee
In addition, the Board has established a compensation committee. During 2015, the compensation committee was initially comprised of Andrew Roberto (chairman), Andrew Langham and Courtney Mather. Mr. Roberto resigned from the Board on September 25, 2015 and Mr. Mather resigned from the Board on March 14, 2016. Effective March 14, 2016, Jonathan Frates was appointed to the Board and was named to serve on the compensation committee. The compensation committee currently consists of Andrew Langham (chairman), and Jonathan Frates.
The principal responsibilities of the compensation committee are to (1) make determinations or recommendations to the Board, as deemed appropriate by the committee, with respect to annual and long-term performance goals and objectives as well as the annual salary, bonus and other compensation and benefits, direct and indirect, of the chief executive officer and our other senior executives as well as non-employee directors, (2) review and authorize the Company to enter into employment, severance or other compensation agreements with the chief executive officer and other senior executives, (3) recommend changes in employee benefit programs, (4) provide counsel regarding key staffing, (5) administer our equity incentive plans, (6) establish and periodically review perquisites and fringe benefits policies, (7) administer the Company’s Performance Incentive Plan and (8) assist the Board in assessing any risks to the Company associated with the Company’s employee compensation practices and policies. In addition, the compensation committee reviews and discusses our Compensation Discussion and Analysis with management and produces a report on executive compensation for inclusion in our annual proxy statement in compliance with applicable federal securities laws.
As discussed in Compensation Discussion and Analysis, the compensation committee has engaged Longnecker & Associates (“Longnecker”), a compensation consultant, to assist the committee with benchmarking of certain executive compensation levels and to generally assess the level of compensation increases from 2013 to 2014, 2015 and 2016. In 2015, the fees for any additional services provided by Longnecker to the Company did not exceed $120,000.
Pursuant to SEC rules, the compensation committee has assessed the independence of Longnecker and concluded that no conflict of interest exists that would prevent Longnecker from independently representing the compensation committee.
Nominating and Corporate Governance Committee
Our Board has also established a nominating and corporate governance committee. During 2015, the nominating and corporate governance committee was initially comprised of Andrew Roberto (chairman), SungHwan Cho, Stephen Mongillo and James M. Strock. On September 25, 2015, Mr. Roberto resigned from the Board, and Mr. Frates was subsequently appointed to the Board and as chairman of the nominating and corporate governance committee.
The nominating and corporate governance committee (1) annually reviews the Company’s Corporate Governance Guidelines, (2) oversees the performance of the Board and committees thereof and (3) otherwise
20
complies with its responsibilities and duties as stated in the Company’s Nominating and Corporate Governance Committee Charter.
Identifying and Evaluating Nominees for Directors
The Board seeks a diverse group of directors who have attributes necessary to create a cohesive and effective Board, including high personal and professional ethics, integrity and values, vision and long-term strategic perspective, experience in our industry, practical judgment, the ability to devote significant time to serve on our Board and its committees, and a commitment to representing the long-term interests of all our stockholders.
As a result of its control of a majority of our outstanding common stock, IEP ultimately controls the election of all of the members of our Board. Consequently, our Board has deemed it appropriate not to maintain a formal policy with respect to the review of potential nominees or to charge the nominating and corporate governance committee with the nomination of directors. However, all of our directors ultimately participate in the review of potential nominees to our Board.
The Board may consider candidates recommended by stockholders, as well as from other sources such as other directors or officers, third-party search firms or other appropriate sources. If a stockholder wishes to recommend a candidate for director for election at the 2017 Annual Meeting of Stockholders, it must follow the procedures described below under “Stockholder Proposals.”
Compensation Committee Interlocks and Insider Participation
During 2015, the compensation committee was initially comprised of Andrew Roberto (chairman), Andrew Langham and Courtney Mather. Mr. Roberto resigned from the Board on September 25, 2015 and Mr. Mather resigned from the Board on March 14, 2016. Effective March 14, 2016, Jonathan Frates was appointed to the Board and was named to serve on the compensation committee. The compensation committee currently consists of Andrew Langham (chairman) and Jonathan Frates. No member of the compensation committee (1) was or is an officer or employee of the Company, or (2) had any relationship requiring disclosure by the Company under the SEC’s rules requiring disclosure of certain related-party transactions. Additionally, none of the Company’s executive officers served as a director or member of a compensation committee (or other committee serving an equivalent function) of any other entity, an executive officer of which served as a director or member of the Company’s compensation committee during 2015.
C
orporate Governance Guidelines and Codes of Ethics
Our Corporate Governance Guidelines, as well as our Code of Ethics, which applies to all of our directors, officers and employees, and our Principal Executive and Senior Financial Officers’ Code of Ethics, which applies to our principal executive and senior financial and accounting officers, are available free of charge on our Internet site at www.cvrenergy.com. Our Corporate Governance Guidelines, Code of Ethics and Principal Executive and Senior Financial Officers’ Code of Ethics are also available in print to any stockholder who requests them by writing to CVR Energy, Inc., at 2277 Plaza Drive, Suite 500, Sugar Land, Texas 77479, Attention: Senior Vice President, General Counsel and Secretary. Amendments to and waivers from the Principal Executive and Senior Financial Officers' Code of Ethics will be posted on our website within four business days after approval by the Board.
21
DIRECTOR COMPENSATION FOR 2015
The fees for independent non-employee directors are described below on an annual basis.
Compensation
For 2015, independent non-employee directors (Messrs. Mongillo, Alexander and Strock) received an annual retainer of $75,000, paid on a quarterly basis, and meeting fees of $1,000 per meeting. In addition, these directors received an additional annual retainer of $5,000 for serving as the chairman of any Board committee and an additional annual retainer of $1,000 for serving on a Board committee. These directors are also reimbursed for travel expenses and other out-of-pocket costs incurred in connection with their attendance at meetings. Messrs. Icahn, Cho, Frates and Langham are employees of Icahn Enterprises L.P., or its affiliates, and did not receive compensation for services as a director of the Company.
Director Compensation Table
The following table reflects compensation received by independent non-employee directors for their service on the Board during 2015.
|
Name
|
Fees Earned or Paid in Cash
($)
|
All Other Compensation
($)
|
Total ($)
|
||
|
Bob G. Alexander
|
81,000
|
—
|
81,000
|
||
|
Stephen Mongillo
|
87,000
|
—
|
87,000
|
||
|
James M. Strock
|
82,000
|
—
|
82,000
|
||
22
SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND OFFICERS AND DIRECTORS
The following table presents information regarding beneficial ownership of our common stock by:
•
each of our current directors and nominees for director;
•
each of our named executive officers;
•
each stockholder known by us to beneficially hold five percent or more of our common stock; and
•
all of our executive officers and directors as a group.
Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Unless indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned by them, subject to community property laws where applicable. Except as otherwise indicated, the business address for each of the beneficial owners listed in the table is c/o CVR Energy, Inc., 2277 Plaza Drive, Suite 500, Sugar Land, Texas 77479.
|
Beneficial Owner Name and Address
|
Shares Beneficially Owned
|
||
|
Number
|
Percent(1)
|
||
|
Carl C. Icahn (2)
c/o Icahn Associates Holding LLC
767 Fifth Avenue, 47
th
Floor
New York, NY 10153
|
71,198,718
|
82%
|
|
|
Bob G. Alexander
|
—
|
—
|
|
|
SungHwan Cho
|
—
|
—
|
|
|
Jonathan Frates
|
—
|
--
|
|
|
Andrew Langham
|
—
|
—
|
|
|
John J. Lipinski
|
—
|
—
|
|
|
Stephen Mongillo
|
—
|
—
|
|
|
James M. Strock
|
—
|
—
|
|
|
Susan M. Ball
|
—
|
—
|
|
|
Robert W. Haugen
|
1
|
*
|
|
|
Martin J. Power
|
—
|
—
|
|
|
John R. Walter
|
—
|
—
|
|
|
All directors and executive officers, as a group (12 persons)(3)
|
71,198,719
|
82%
|
|
* Less than 1% of our outstanding common stock as of the record date.
(1) Percentage based upon 86,831,050 shares of common stock outstanding as of the record date.
|
(2)
|
The following disclosures are based on a Schedule 13D/A filed with the Commission on May 29, 2012 by IEP, IEP Energy Holding LLC, American Entertainment Properties Corp., Icahn Building LLC, Icahn Enterprises Holdings L.P. (“Icahn Enterprises Holdings”), Icahn Enterprises G.P. Inc. (“Icahn Enterprises GP”), Beckton Corp. (“Beckton”) and Carl C. Icahn (collectively, the “Icahn Reporting Persons”).
|
According to the filing, the principal business address of each of (i) IEP, IEP Energy Holding LLC, American Entertainment Properties Corp., Icahn Building LLC, Icahn Enterprises Holdings, Icahn Enterprises GP and Beckton is White Plains Plaza, 445 Hamilton Avenue - Suite 1210, White Plains, NY 10601 and (ii) Mr. Icahn is c/o Icahn Associates Holding LLC, 767 Fifth Avenue, 47th Floor, New York, NY 10153. According to the filing, IEP has sole voting power and sole dispositive power with regard to 71,198,718 shares. Each of IEP Energy Holding LLC, American Entertainment Properties Corp., Icahn Building LLC, Icahn Enterprises Holdings, Icahn Enterprises GP, Beckton and Carl C. Icahn has shared voting power and shared dispositive power with regard to such shares.
According to the filing, each of IEP Energy Holding LLC, American Entertainment Properties Corp., Icahn Building LLC, Icahn Enterprises Holdings, Icahn Enterprises GP, Beckton and Carl C. Icahn, by virtue of their relationships to IEP, may be deemed to indirectly beneficially own (as that term is defined in Rule 13d-3 under the Exchange Act) the shares which IEP directly beneficially owns. Each of IEP Energy Holding LLC, American Entertainment Properties Corp., Icahn Building LLC, Icahn Enterprises Holdings, Icahn Enterprises GP, Beckton and Carl C. Icahn disclaims beneficial ownership of such shares for all other purposes.
23
|
(3)
|
The number of shares of common stock owned by all directors and executive officers, as a group, reflects the sum of the 71,198,718 shares of common stock beneficially owned by Mr. Icahn and the 1 share of common stock owned by Mr. Haugen.
|
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers and directors and each person who owns more than 10% of our outstanding common stock, to file reports of their stock ownership and changes in their ownership of our common stock with the SEC and the NYSE. These same people must also furnish us with copies of these reports and representations made to us that no other reports were required. We have performed a general review of such reports and amendments thereto filed in 2015. Based solely on our review of the copies of such reports furnished to us or such representations, as appropriate, to our knowledge all of our executive officers and directors, and other persons who owned more than 10% of our outstanding common stock, fully complied with the reporting requirements of Section 16(a) during 2015.
EQUITY COMPENSATION PLANS
The table below contains information about securities authorized for issuance under our long-term incentive plan as of December 31, 2015. This plan was initially approved by our stockholders in October 2007 and re-approved by our stockholders in June 2014.
|
Equity Compensation Plan Information
|
|||||
|
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 (a)) (c)
|
||
|
Equity compensation plans approved by security holders:
|
|||||
|
CVR Energy, Inc. Long Term Incentive Plan
|
—
|
—
|
6,787,341
|
(3)
|
|
|
Stock Options
|
—
|
(1)
|
—
|
—
|
|
|
Common stock
|
—
|
(2)
|
—
|
—
|
|
|
Equity compensation plans not approved by security holders:
|
|||||
|
None
|
—
|
—
|
—
|
||
|
Total
|
—
|
—
|
6,787,341
|
||
|
(1)
|
No stock options are outstanding under the CVR Energy, Inc. 2007 Long Term Incentive Plan.
|
|
(2)
|
The only awards outstanding under the CVR Energy, Inc. 2007 Long Term Incentive Plan are unvested restricted stock units, which are settled in cash on the vesting date; therefore, common stock will not be issued upon vesting.
|
|
(3)
|
Represents shares of common stock that remain available for future issuance pursuant to the CVR Energy, Inc. 2007 Long Term Incentive Plan in connection with awards of stock options, non-vested restricted shares, restricted stock units, stock appreciation rights, dividend equivalent rights, share awards and performance awards.
|
24
EXECUTIVE OFFICERS
The following table sets forth the names, positions and ages (as of April 19, 2016) of each person who currently is an executive officer of CVR Energy. We also indicate in the biographies below which executive officers of CVR Energy hold similar positions with the general partners of CVR Partners and CVR Refining. Certain members of CVR Energy’s senior management manage CVR Partners and CVR Refining pursuant to services agreements between us and the applicable partnership.
|
Name
|
Age
|
Position
|
|
John J. Lipinski
|
65
|
Chief Executive Officer and President
|
|
Susan M. Ball
|
52
|
Chief Financial Officer and Treasurer
|
|
Robert W. Haugen
|
57
|
Executive Vice President, Refining Operations
|
|
Martin J. Power
|
60
|
Chief Commercial Officer
|
|
John R. Walter
|
39
|
Senior Vice President, General Counsel and Secretary
|
INFORMATION CONCERNING EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Susan M. Ball
has served as chief financial officer and treasurer of our Company and CVR Partners’ general partner since August 2012. She previously served as vice president, chief accounting officer and assistant treasurer of CVR Energy and the general partner of CVR Partners since October 2007 and as vice president, chief accounting officer and assistant treasurer for Coffeyville Resources, LLC (“CRLLC”) since May 2006. In addition, Ms. Ball has also served as the chief financial officer and treasurer of CVR Refining’s general partner since its inception in September 2012. Ms. Ball has more than 30 years of experience in the accounting industry, with more than 12 years serving clients in the public accounting industry. Prior to joining CVR Energy, she served as a Tax Managing Director with KPMG LLP, where she was responsible for all aspects of federal and state income tax compliance and tax consulting, which included a significant amount of mergers and acquisition work on behalf of her clients. Ms. Ball received a Bachelor of Science in Business Administration from Missouri Western State University and is a Certified Public Accountant.
Robert W. Haugen
joined our business on June 24, 2005 and has served as executive vice president, refining operations at our Company since September 2006 and as executive vice president, engineering and construction at CRLLC since June 24, 2005. In addition, Mr. Haugen has served as executive vice president, refining operations of CVR Refining’s general partner since its inception in September 2012. Mr. Haugen brings more than 30 years of experience in the refining, petrochemical and nitrogen fertilizer business to our Company. Prior to joining us, Mr. Haugen was a managing director and Partner of Prudentia Energy, an advisory and management firm focused on mid-stream/downstream energy sectors, from January 2004 to June 2005. On leave from Prudentia, he served as the Senior Oil Consultant to the Iraqi Reconstruction Management Office for the U.S. Department of State. Prior to joining Prudentia Energy, Mr. Haugen served in numerous engineering, operations, marketing and management positions at the Howell Corporation and at the Coastal Corporation. Upon the merger of Coastal and El Paso in 2001, Mr. Haugen was named Vice President and General Manager for the Coastal Corpus Christi Refinery and later held the positions of Vice President of Chemicals and Vice President of Engineering and Construction. Mr. Haugen received a Bachelor of Science degree in Chemical Engineering from the University of Texas.
Martin J. Power
has served as chief commercial officer of our company and CVR Refining’s general partner since December 2014. Mr. Power has more than 35 years of experience in the areas of crude oil and petroleum products related to trading, marketing, logistics and business development. Before joining CVR Energy, he served as manager of business development and as a trading manager at Koch Supply & Trading, LP. Previous to Koch Supply & Trading, Mr. Power was co-founder and president of Riverway Petroleum Partners, LLC, a petroleum products trading and logistics company. Prior to Riverway Petroleum Partners, Mr. Power spent much of his career in senior management roles for major petroleum companies. He served as managing director of light products and managing director of crude oil for El Paso Merchant Energy; vice president of trading, vice president of foreign crude and senior vice president of light products for Coastal States Trading; and as a senior trader for BP North America Petroleum and BP Oil Supply. Mr. Power holds a Bachelor of Science in Business Administration - Accounting from Nichols College and serves on its Board of Trustees.
John R. Walter
has served as senior vice president, general counsel and secretary of our company and each of the general partners of CVR Refining and CVR Partners since January 2015. He has served as vice president,
25
associate general counsel since January 2011, assistant secretary since May 2011 and associate general counsel since March 2008. Prior to joining CVR Energy, Mr. Walter was an associate at Stinson Leonard Street LLP in Kansas City, Missouri, from 2006 to 2008, and was an associate at Seigfreid Bingham, P.C. in Kansas City, Missouri, from 2002 to 2006. Mr. Walter received a Bachelor of Science in psychology from Colorado State University and a Juris Doctor from the University of Kansas.
COMPENSATION DISCUSSION AND ANALYSIS
The following executives who were responsible for the management of our business during 2015 are (as of December 31, 2015) employed by CVR Energy: John J. Lipinski (our chief executive officer and president); Susan M. Ball (our chief financial officer); Robert W. Haugen (our executive vice president, refining operations); Martin J. Power (our chief commercial officer); and John R. Walter (our general counsel). Throughout this Proxy Statement, we refer to Mr. Lipinski, Ms. Ball and Messrs. Haugen, Power and Walter as our named executive officers.
Executive Compensation Program Highlights
The primary goals of the Company’s executive compensation program are to align the interests of our executives and our stockholders by linking a significant portion of compensation to our operating and financial results and to attract and retain quality leadership. Some key features of our executive compensation program which serve to accomplish these objectives are as follows:
|
•
|
Annual Incentive Awards
. At the 2011 Annual Meeting, the Company’s stockholders approved the CVR Energy, Inc. Performance Incentive Plan (referred to in this Compensation Discussion and Analysis section and the Compensation of Executive Officers section as the “PIP”), pursuant to which annual incentive awards are determined for our executives. Prior to the adoption of the PIP, the compensation committee determined annual bonuses based upon consideration of various factors with respect to Company performance and/or individual performance, which were not established in advance. The compensation committee believes that establishing performance goals pursuant to the PIP at the beginning of the performance period serves to more directly align annual incentive awards with increases in our stockholder value.
|
|
•
|
Equity-Based Incentive Awards
. A portion of targeted compensation is intended to be delivered through equity-based incentives. This has the effect of aligning our executives’ interests with those of our stockholders and encouraging them to remain in our employ through the duration of the relevant vesting schedule applicable to awards.
|
|
•
|
Double
-
Trigger Change in Control Provisions
. A change in control of the Company would not trigger the payment of severance benefits to our named executive officers under their employment agreements, or cause accelerated vesting of their equity-based awards, except in the event of a termination without cause or for good reason within one year following the change in control or in specified circumstances prior to and in connection with the change in control.
|
Overview
During 2015, the compensation committee was initially comprised of Andrew Roberto (chairman), Andrew Langham and Courtney Mather. Mr. Roberto resigned from the board of directors on September 25, 2015 and Mr. Mather resigned on March 14, 2016. Effective March 14, 2016, Jonathan Frates was appointed to the Board and was named to serve on the compensation committee. The compensation committee currently consists of Andrew Langham (chairman) and Jonathan Frates. The compensation committee has regularly scheduled meetings and additionally meets at other times as needed throughout the year.
The principal responsibilities of the compensation committee are to: (1) make determinations or recommendations to the Board, as deemed appropriate by the committee, with respect to annual and long-term performance goals and objectives as well as the annual salary, bonus and other compensation and benefits, direct and indirect, of the chief executive officer and our other senior executives as well as non-employee directors; (2) review and authorize the Company to enter into employment, severance or other compensation agreements with the chief executive officer and other senior executives; (3) recommend changes in employee benefit programs; (4) provide counsel regarding key staffing; (5) administer our equity incentive plans; (6) establish and periodically review perquisites and fringe benefits policies; (7) administer the PIP; and (8) assist the Board in assessing any risks to the Company associated with the Company’s employee compensation practices and policies.
26
Our business is commodity-driven, with high volatility and risk where earnings are not only influenced by margins, but also by unique, innovative and aggressive actions and business practices on the part of the executive team. The compensation committee continually monitors current economic conditions and considers the petroleum and fertilizer markets along with other considerations in making compensation decisions. In addition, the compensation committee routinely reviews financial and operational performance compared to our business plan, positive and negative industry factors and the response of the senior management team in dealing with and maximizing operational and financial performance in the face of the challenges affecting our businesses. Due to the nature of our business, performance of an individual or the business as a whole may be outstanding; however, our financial performance may not depict this same level of achievement. The financial performance of the Company is not necessarily reflective of individual operational performance. In addition, specific performance levels or benchmarks are not necessarily used to establish compensation. The compensation committee takes into account all factors when determining compensation packages for the executive officers.
In 2015, no significant changes were made to the Company’s overall executive compensation philosophy and structure because the compensation committee believed that the compensation program was reasonable, balanced and designed to attract, retain and motivate talented executives.
Executive Compensation Philosophy and Objectives
The overarching philosophy of our executive compensation program is to closely align compensation paid to our executive officers with our operating and financial performance on both a short-term and long-term basis, in order to align our executive officers’ interests with those of the stockholders. In addition, we aim to provide a competitive compensation program in the form of salary, bonuses and other benefits with the goal of retaining and attracting talented and highly motivated executive officers and key employees, which we consider crucial to our long-term success and the long-term enhancement of stockholder value. We also strive to maintain a compensation program whereby the executive officers, through exceptional performance and equity-based incentive awards, will have the opportunity to realize economic rewards commensurate with our stockholders’ gains. The compensation committee believes that an important component of compensation is equity-based incentive awards in achieving these objectives because these incentives encourage our executive team to remain in our employ through the duration of the relevant vesting period in order to realize compensation as a result of increases in stockholder value. Following our 2015 Annual Meeting of Stockholders, the compensation committee considered the advisory vote of our stockholders approving our named executive officer compensation and determined to continue to apply the same principles in determining the nature and amount of executive compensation for 2015.
Setting Executive Compensation
Longnecker has been engaged by CVR Energy on behalf of its compensation committee to assist the committee with benchmarking of certain executive compensation levels, to generally assess the level of compensation increases from 2014 to 2015 and 2016 and to assess new and proposed rules in the compensation area. The compensation committee utilized this information, in addition to Longnecker’s 2013 study, to review and approve executive compensation levels. Longnecker’s 2013 study included an analysis regarding executive compensation levels and the mix of compensation as compared to peer companies, companies of similar size and other relevant market information. Management reviewed this compilation of information and then provided it to the compensation committee for its use in making decisions regarding the salary, bonus and other compensation amounts paid to named executive officers. The following companies were included in the 2013 report and analysis prepared by Longnecker as members of CVR Energy’s “peer group” - the independent refining companies of HollyFrontier Corporation and Tesoro Corporation, as well as PBF Energy, Inc. and Rentech, Inc. Although no specific target for total compensation or any particular element of compensation was set relative to CVR Energy’s peer group, the focus of Longnecker’s 2013 recommendations was centered on compensation levels between the 50th and 75th percentile of the peer group. Longnecker performed no work for the Company or for management except to provide consulting services related to executive compensation levels.
The chief executive officer, while not a member of the compensation committee, reviewed information provided by Longnecker as well as other relevant market information and actively provided guidance and recommendations to the compensation committee regarding the amount and form of the compensation of executive officers (other than himself) and certain key employees. For compensation decisions, including decisions regarding the grant of equity-based incentive awards relating to executive officers (other than our chief executive officer), the compensation committee typically considers the recommendations of our chief executive officer.
27
The compensation committee has not adopted any formal or informal policies or guidelines for allocating between long-term and current compensation, between cash and non-cash compensation. Decisions regarding such allocations are made strictly on a subjective and individual basis considering all relevant factors.
Elements of Our Executive Compensation Program
For 2015, the three primary components of our executive compensation program were base salary, an annual performance-based cash bonus and equity-based incentive awards. While these three components are related, they are viewed as separate and analyzed as such. The named executive officers are also provided with benefits that are generally available to CVR Energy’s salaried employees.
CVR Energy believes that equity-based incentive awards are the primary motivator in attracting and retaining executive officers. Salary and cash bonuses are viewed as secondary. However, the compensation committee views a competitive level of salary and cash bonus as critical to retaining talented individuals.
Base Salary
Each of the named executive officers has an employment agreement with CVR Energy (except for Ms. Ball and Mr. Walter) that sets forth their initial base salaries. Ms. Ball had an employment agreement that expired December 31, 2015, although, she continues to be employed by CVR Energy. Base salaries are set at a level intended to enable CVR Energy to hire and retain executive officers, to enhance the executive officer’s motivation in a highly competitive and dynamic environment, and to reward individual and company performance. In determining base salary levels, the compensation committee takes into account the following factors: (i) our financial and operational performance for the year; (ii) the previous years’ compensation level for each executive officer; (iii) peer or market survey information for comparable public companies; and (iv) recommendations of the chief executive officer, based on individual responsibilities and performance, including each executive’s commitment and ability to (A) strategically meet business challenges, (B) achieve financial results, (C) promote legal and ethical compliance, (D) lead their own business or business team for which they are responsible and (E) diligently and effectively respond to immediate needs of the volatile industry and business environment.
Rather than establishing compensation solely on a formula-driven basis, decisions by the compensation committee are made using an approach that considers several important factors in developing compensation levels. For example, the compensation committee considers whether individual base salaries reflect responsibility levels and are reasonable, competitive and fair. In addition, in setting base salaries, the compensation committee reviews published survey and peer group data prepared by Longnecker and considers the applicability of the salary data in view of the individual positions within the Company.
Salaries are reviewed annually by the compensation committee with periodic informal reviews throughout the year. Adjustments, if any, are usually made effective January 1 of the year immediately following the review. The compensation committee most recently reviewed the level of base salary and cash bonus for each of the named executive officers in 2015 in conjunction with their responsibilities and expectations for 2016. They concluded their review in November 2015, and set the following base salaries for the named executive officers as of January 1, 2016: $1,000,000 for Mr. Lipinski (which is not a change from his 2015 salary); $425,000 for Ms. Ball; $365,000 for Mr. Haugen; $330,000 for Mr. Power; and $290,000 for Mr. Walter. The salary increases, if applicable, were effective January 1, 2016. Individual performance, the practices of our peer group of companies as reflected in the analysis and report of Longnecker, and changes in the named executive officers’ positions and levels of responsibility were considered. Among these factors, slightly more weight was given to the report and findings of Longnecker.
Annual Bonus
The Company’s annual bonus program is designed to meet each of its compensation objectives. Specifically, the annual bonus programs rewards executives only for measured company performance, thereby aligning the executive’s interest with those of the Company’s equity holders and encouraging the executives to focus on targeted performance. Further, the program also provides the executive with the opportunity to earn additional compensation, thereby making our total compensation package more competitive.
Information about total cash compensation paid by members of our peer group is used in determining both the level of bonus award and the ratio of salary to bonus, as the compensation committee believes that maintaining a level of bonus and a ratio of fixed salary to bonus (which may fluctuate) that is in line with those of our competitors is an important factor in attracting and retaining executives. The compensation committee also believes that a
28
significant portion of executive’s compensation should be at risk, which means that a portion of the executive’s overall compensation is not guaranteed and is determined based on individual and company performance. Executives have greater potential bonus awards as their authority and responsibility increases. Each of the named executive officers is eligible to receive an annual cash bonus with a target bonus equal to a specified percentage of the relevant executive’s annual base salary. For 2015, the target bonuses for the named executive officers were: John J. Lipinski (250%); Susan M. Ball (110%); Robert W. Haugen (120%); Martin J. Power (108%); and John R. Walter (100%). These target percentages were the result of individual negotiations between the named executive officers and CVR Energy, and were in correlation with the findings and recommendations by Longnecker based upon review of CVR Energy’s peer group, companies of similar size and other relevant market information. Specific bonus measures were determined by the compensation committee, following discussions with CVR Energy management.
Each named executive officer had the opportunity to earn bonuses in respect of 2015 pursuant to the PIP. The payment of Mr. Lipinski's annual bonus for the 2015 performance year depended on the achievement of operational and safety measures which comprised 80% and 20% of his annual bonus, respectively. The payment of annual bonuses for the 2015 performance year depended on the achievement of financial, operational and safety measures, which comprised 30%, 50% and 20% of the annual bonuses, respectively, for Ms. Ball and Mr. Walter. The CVR Energy PIP has separate metrics specific to CVR Refining's financial, operational and safety measures, and Messrs. Haugen and Power's annual bonuses are evaluated primarily based on these metrics due to the substantial amount of their time that is devoted to CVR Refining. Specific bonus measures were determined by the compensation committee based on its review of peer group information provided by Longnecker and discussions with management, and were selected with the goals of optimizing operations, maintaining financial stability and providing a safe work environment intended to maximize our overall performance resulting in increased stockholder value. The compensation committee also approved the threshold, target and maximum performance goals with respect to each measure. No payments were made with respect to the measures unless the threshold of the relevant performance measure was achieved.
The 2015 financial measure was consolidated adjusted EBITDA for CVR Energy (or consolidated adjusted EBITDA of the petroleum business for Messrs. Haugen and Power), which was derived from earnings before interest, taxes, depreciation and amortization, and adjusted for certain non-cash share-based compensation expense, first-in, first-out (FIFO) accounting impacts, unrealized gains and losses on derivative transactions, turnaround expenses, and board-directed actions.
The 2015 operational measures included the following: petroleum reliability for the total Coffeyville and Wynnewood refineries, measured by crude throughput barrels per day; crude transportation production, measured by gathered barrels per day; and fertilizer reliability for the fertilizer plant, measured by adjusted equivalent tons of UAN production.
The 2015 safety measures included the aggregated Environmental Health and Safety ("EH&S") results for the petroleum segment pursuant to the CVR Energy PIP and the aggregated EH&S results pursuant to the Performance Incentive Plan for CVR Partners, which included the following: consolidated OSHA recordable injury statistics (based upon OSHA injuries and inclusive of petroleum and fertilizer); consolidated OSHA lost time injury statistics (based upon OSHA lost time injuries and inclusive of petroleum and fertilizer); consolidated EH&S severity statistics (based upon EH&S severity and inclusive of petroleum and fertilizer); consolidated air reportable releases (based upon EPA reportable quantity releases and inclusive of petroleum and fertilizer operations); consolidated air reportable release quantity (based upon EPA reportable quantity releases and inclusive of petroleum and fertilizer operations); consolidated tier 1 process safety events (based upon API process safety events of petroleum and fertilizer operations); and consolidated tier 2 process safety events (based upon API process safety events of petroleum and fertilizer operations).
29
The table below reflects: (i) the financial, operational and safety measures used to determine 2015 bonuses for the named executive officers; (ii) the threshold, target and maximum performance levels for each measure; (iii) the actual results with respect to each measure; and (iv) the portion of the 2015 bonus determined based on each such measure. The executives were entitled to 50% related to threshold levels, 100% for target levels, and 150% for maximum levels, respectively.
|
2015 Performance Measure
|
2015 Performance Goals
Threshold/Target/Maximum
|
2015 Actual Results
|
Percentage of Target Bonus Allocable to Measure
|
|||
|
Consolidated adjusted EBITDA
|
Threshold: $297.0 million
Target: $421.0 million
Maximum: $615.0 million
|
$729.3 million
|
30% of bonus for Ms. Ball and Mr. Walter
|
|||
|
Consolidated adjusted EBITDA - Petroleum business
|
Threshold: $244.0 million
Target: $348.0 million
Maximum: $522.0 million
|
$602.0 million
|
30% of bonus for Mr. Haugen and Mr. Power
|
|||
|
Consolidated Petroleum Reliability Measures
|
Threshold: 171,000 bpd
Target: 180,000 bpd
Maximum: 189,000 bpd
|
193,077 bpd
|
50% of bonus for Mr. Lipinski; 35% of bonus for Mr. Haugen and 30% of bonus for Ms. Ball and Messrs. Power and Walter
|
|||
|
Crude Transportation Production Measure
|
Threshold: 59,000 bpd
Target: 62,250 bpd
Maximum: 65,000 bpd
|
68,743 bpd
|
15% of bonus for Mr. Lipinski; 10% of bonus for Mr. Haugen; 20% of bonus for Mr. Power and 5% of bonus for Ms. Ball and Mr. Walter
|
|||
|
Fertilizer Reliability Measures
|
Threshold: 915,000 tons
Target: 963,000 tons
Maximum: 990,000 tons
|
1,041,594 tons
|
15% of bonus for Mr. Lipinski, Ms. Ball and Mr. Walter
|
|||
|
Coffeyville Refinery EH&S Measures
|
Threshold: 5% refining payout levels
Target: 10% refining payout levels
Maximum: 15% refining payout levels
|
14.25%
|
10% of bonus for all named executive officers
|
|||
|
Wynnewood Refinery EH&S Measures
|
Threshold: 2.5% refining payout levels
Target: 5% refining payout levels
Maximum: 7.5% refining payout levels
|
5.75%
|
5% of bonus for all named executive officers
|
|||
|
Fertilizer EH&S Measures
|
Threshold: 2.5% nitrogen payout levels
Target: 5% nitrogen payout levels
Maximum: 7.5% nitrogen payout levels
|
7.5%
|
5% of bonus for Mr. Lipinski, Ms. Ball and Messrs. Haugen and Walter
|
|||
|
Crude Transportation EH&S Measures
|
Threshold: 2.5% refining payout levels
Target: 5% refining payout levels
Maximum: 7.5% refining payout levels
|
5.5%
|
5% of bonus for Mr. Haugen and Mr. Power
|
|||
30
As a result of the level of performance achieved during 2015, Mr. Lipinski, Ms. Ball and Mr. Walter earned approximately 147.5% of their respective 2015 target annual bonuses, and Messrs. Haugen and Power earned approximately 145.5% of their 2015 target annual bonus. The amounts earned by the named executive officers as a result of their respective levels of performance during 2015 pursuant to the PIP are set forth in the Summary Compensation Table in the Non-Equity Incentive Plan Compensation column.
Equity-Based Incentive Awards
We use equity-based incentive awards to reward long-term performance by our named executive officers. The issuance of equity-based incentives to named executive officers is intended to satisfy our compensation program objectives by generating significant future value for each named executive officer if the Company’s performance is outstanding and the value of the Company’s equity increases for all of its stockholders. The compensation committee believes that its equity incentives promote long-term retention of executives.
We established a long term incentive plan (“LTIP”) in connection with our initial public offering in October 2007. In addition, we have historically issued incentive units outside of the LTIP, but based on the equity of CVR Refining and otherwise consistent with the terms of the LTIP. The compensation committee may elect to make grants of restricted stock, options, restricted stock units, performance units or other equity-based grants under the LTIP, or make grants of incentive units, in each case, in its discretion or may recommend grants to the Board for its approval, as determined by the committee in its discretion.
In 2015, Mr. Lipinski was granted an award of performance units pursuant to the LTIP. The award of performance units is payable based upon certain operational performance metrics for a performance cycle ending December 31, 2016, and is subject to transfer restrictions. In addition, in 2015, each of our named executive officers (except Mr. Lipinski) was granted awards of incentive units outside of the LTIP. The incentive unit awards are subject to transfer restrictions and vesting requirements that generally lapse in one-third annual increments beginning on the first anniversary of the date of grant, subject to immediate vesting under certain circumstances. The terms of the foregoing awards and provisions regarding immediate vesting are described in more detail in the section titled “Change-in-Control and Termination Payments” below.
Perquisites and Personal Benefits
The Company pays for the cost of supplemental life insurance for certain of its named executive officers. Except for the premiums associated with such supplemental life insurance, the total value of all perquisites and personal benefits provided to each named executive officer in 2015 was less than $10,000.
Other Forms of Compensation
Each of our named executive officers (other than Mr. Walter) has, and Ms. Ball previously had, provisions in his or her employment agreement that provides for certain severance benefits in the event of termination of employment under certain circumstances. These severance provisions are described in “Change-in-Control and Termination Payments” below. These severance provisions were negotiated between the executive officers and the Company.
CVR Partners and CVR Refining
A number of our executive officers, including certain of our named executive officers, also serve as executive officers of the general partners of CVR Partners and CVR Refining. These executive officers receive all of their compensation and benefits from us, including compensation related to services performed for CVR Partners and CVR Refining. In the future, our executive officers may receive equity-based awards pursuant to the CVR Partners, LP Long Term Incentive Plan or the CVR Refining, LP Long Term Incentive Plan for services provided to these businesses. Pursuant to services agreement entered into between the Company and CVR Partners and CVR Refining (and their respective general partners), CVR Partners and CVR Refining (or their respective general partners) reimburse us for the time our executive officers dedicate to operation of those businesses. With respect to CVR Refining, the services agreement was entered into in connection with CVR Refining’s initial public offering in January 2013. Prior to such time, compensation paid to our executive officers with respect to the time they spent working for CVR Refining following its formation in September 2012 was reimbursed by CVR Refining to the Company by virtue of our financial accounting process.
Under each of these services agreements, CVR Partners and CVR Refining (or their respective general partners) are required to pay us (a) all costs incurred by us in connection with the employment of our employees who provide services to CVR Partners or CVR Refining under the applicable agreement on a full-time basis, but excluding certain share-based compensation; (b) a prorated share of costs incurred by us in connection with the employment of
31
our employees who provide services to CVR Partners and CVR Refining under the applicable agreement on a part-time basis, but excluding certain share-based compensation and such prorated share must be determined by us on a commercially reasonable basis, based on the percent of total working time that such shared staff are engaged in performing services for CVR Partners or CVR Refining; (c) a prorated share of certain administrative costs; and (d) various other administrative costs in accordance with the terms of the agreement.
Tax Considerations
Section 162(m) of the Code generally limits deductions by publicly held corporations for compensation paid to its “covered employees” (i.e., its chief executive officer and the three next highest compensated officers other than the chief financial officer) to the extent that the employee’s compensation for the taxable year exceeds $1.0 million. This limit does not apply to “qualified performance-based compensation,” which requires, among other factors, satisfaction of a performance goal that is established by a committee of the Board consisting of two or more non-employee directors. We submitted the PIP to stockholders for approval at the 2011 annual meeting as we intend for amounts paid pursuant to such plan to fall within the qualified performance-based compensation exception from Section 162(m) of the Code. The PIP was approved by our stockholders at the 2011 annual meeting and is currently the primary program through which cash incentive compensation is paid to our executives. In addition, the Company submitted the LTIP to stockholders for approval at the 2014 annual meeting as we intend for certain awards granted under the LTIP, including options, stock appreciation rights, performance units, performance share units and performance-based restricted stock, to fall within the qualified performance-based compensation exception from Section 162(m) of the Code. The LTIP and certain awards made to our chief executive officer were approved by our stockholders at the 2014 annual meeting. Notwithstanding Section 162(m) of the Code, we believe that stockholder interests are best served by preserving the compensation committee’s discretion and flexibility to take into account factors other than tax deductibility in making compensation decisions. Furthermore, the rules and regulations promulgated under Section 162(m) are complicated and subject to change from time to time, sometimes with retroactive effect. In addition, a number of requirements must be met in order for particular compensation to so qualify. As such, there can be no assurance that any compensation awarded or paid by the Company will be fully deductible under any circumstances. Accordingly, the compensation committee retains the flexibility to approve compensation that may not be deductible if the committee believes that doing so is in the best interests of the Company and our stockholders.
32
COMPENSATION COMMITTEE REPORT
The compensation committee of the Board reviewed and discussed the Compensation Discussion and Analysis with management. Based on this review and discussion, the compensation committee recommended to the Board that the Compensation Discussion and Analysis be included in the Proxy Statement.
Compensation Committee
Andrew Langham (Chairman)
Jonathan Frates
33
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth certain information with respect to compensation earned by our named executive officers for the years ended December 31, 2015, 2014 and 2013.
|
Name and Principal Position
|
Year
|
Salary ($)
|
Stock Awards ($)(1)
|
Option Awards ($)(2)
|
Non-Equity Incentive Plan Compensation ($)(3)
|
All Other Compensation ($)(4)
|
Total ($)
|
||||||
|
John J. Lipinski
|
2015
|
1,000,000
|
—
|
—
|
7,187,500
|
32,214
|
8,219,714
|
||||||
|
Chief Executive Officer
|
2014
|
1,000,000
|
—
|
—
|
2,894,000
|
30,604
|
3,924,604
|
||||||
|
2013
|
950,000
|
2,889,236
|
—
|
9,442,250
|
29,933
|
13,311,419
|
|||||||
|
Susan M. Ball
|
2015
|
415,000
|
945,003
|
—
|
673,338
|
18,703
|
2,052,044
|
||||||
|
Chief Financial Officer
|
2014
|
390,000
|
930,002
|
—
|
451,464
|
18,230
|
1,789,696
|
||||||
|
2013
|
360,000
|
896,838
|
—
|
468,720
|
17,629
|
1,743,187
|
|||||||
|
Robert W. Haugen
|
2015
|
350,000
|
645,005
|
—
|
611,100
|
22,877
|
1,628,982
|
||||||
|
Executive Vice President,
|
2014
|
325,000
|
615,010
|
—
|
445,926
|
21,985
|
1,407,921
|
||||||
|
Refining Operations
|
2013
|
315,000
|
548,083
|
—
|
463,277
|
22,141
|
1,348,501
|
||||||
|
Martin J. Power
|
2015
|
325,000
|
650,012
|
—
|
510,705
|
18,078
|
1,503,795
|
||||||
|
Chief Commercial Officer
|
2014
|
27,603
|
704,207
|
1,334,464
|
—
|
—
|
2,066,274
|
||||||
|
John R. Walter
|
2015
|
275,000
|
431,018
|
—
|
405,625
|
16,330
|
1,127,973
|
||||||
|
General Counsel
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||
|
(1)
|
For 2015, the above table reflects the aggregate grant date fair value for the incentive units granted to Ms. Ball and Messrs. Haugen, Power and Walter by CVR Energy in December 2015 computed in accordance with FASB ASC 718, with the assumptions relied upon in such valuation set forth in Note 3 ("Share-Based Compensation") to our audited financial statements. For 2014, the above table reflects the aggregate grant date fair value for incentive units granted to Ms. Ball and Messrs. Haugen and Power by CVR Energy in December 2014 computed in accordance with FASB ASC 718, with the assumptions relied upon in such valuation set forth in Note 3 (“Share-Based Compensation”) to our audited financial statements. For 2013, the above table reflects the aggregate grant date fair value for certain performance units granted in December 2013 to Mr. Lipinski and for incentive units granted to Ms. Ball and Mr. Haugen by CVR Energy computed in accordance with FASB ASC 718.
|
|
(2)
|
The entry reflects the aggregate grant date fair value for incentive units granted to Mr. Power on December 1, 2014 and computed in accordance with FASB ASC 718, with the assumptions relied upon in such valuation set forth in Note 3 (“Share-Based Compensation”) to our audited financial statements. In April 2015, the incentive unit award granted to Mr. Power on December 1, 2014 by CVR Energy was cancelled and replaced by an award of notional units by CVR Refining pursuant to the CVR Refining, LP Long-Term Incentive Plan. The replacement award is structured on the same economic and other terms as the incentive unit award.
|
|
(3)
|
Amounts in this column for 2015, 2014 and 2013 reflect amounts earned pursuant to the PIP in respect of performance during 2015, 2014 and 2013, which were paid in 2016, 2015 and 2014, respectively. For Mr. Lipinski, the amount for 2015 and 2013 also reflects the aggregate grant date fair value for certain performance units granted in December 2015 and 2013 that are valued based on a performance factor that is tied to certain operational performance metrics.
|
|
(4)
|
Amounts in this column for 2015 include the following: (a) a company contribution under the CVR Energy 401(k) plan of $15,900 for each of the named executive officers; (b) $12,750 for Mr. Lipinski, $1,841 for Ms. Ball, $5,506 for Mr. Haugen and $237 for Mr. Walter in premiums paid by CVR Energy on behalf of the executive officer with respect to the Company’s executive life insurance program; and (c) $3,564 for Mr. Lipinski, $962 for Ms. Ball, $1,471 for Mr. Haugen, $2,178 for Mr. Power and $193 for Mr. Walter in taxable value (inclusive or associated premiums) provided by CVR Energy on behalf of the executive officer with respect to the Company’s basic life insurance program.
|
34
Grants of Plan-Based Awards in Fiscal Year 2015
The following table sets forth information concerning amounts that could have been earned by our named executive officers under the PIP during 2015, as well as certain equity-based awards made to our named executive officers.
|
Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1)
|
|||||||||||||||||
|
Name
|
Grant Date
|
Threshold ($)
|
Target ($)
|
Maximum ($)
|
All Other Stock Awards; Number of Shares of Stock or Units (#)
|
Grant Date Fair Value of Stock Awards ($)(2)
|
|||||||||||
|
John J. Lipinski
|
—
|
1,250,000
|
2,500,000
|
3,750,000
|
—
|
—
|
|||||||||||
|
12/31/2015
|
2,450,000
|
3,500,000
|
3,850,000
|
—
|
—
|
||||||||||||
|
Susan M. Ball
|
—
|
228,250
|
456,500
|
684,750
|
—
|
—
|
|||||||||||
|
12/18/2015
|
—
|
—
|
—
|
46,233
|
945,003
|
||||||||||||
|
Robert W. Haugen
|
—
|
210,000
|
420,000
|
630,000
|
—
|
—
|
|||||||||||
|
12/18/2015
|
—
|
—
|
—
|
31,556
|
645,005
|
||||||||||||
|
Martin J. Power
|
—
|
175,500
|
351,000
|
526,500
|
—
|
—
|
|||||||||||
|
12/18/2015
|
—
|
—
|
—
|
31,801
|
650,012
|
||||||||||||
|
John R. Walter
|
—
|
137,500
|
275,000
|
412,500
|
—
|
—
|
|||||||||||
|
12/18/2015
|
—
|
—
|
—
|
21,087
|
431,018
|
||||||||||||
|
(1)
|
Amounts in these columns reflect amounts that could have been earned by the named executive officers under the PIP in respect of 2015 performance at the threshold, target and maximum levels with respect to each performance measure. The performance measures and related goals for 2015 set by the compensation committee are described in the Compensation Discussion and Analysis. For Mr. Lipinski, amounts also reflect amounts that could be earned under certain performance units issued in December 2015 at threshold target and maximum based on performance factors tied to certain operational metrics.
|
|
(2)
|
Reflects the grant date fair value of certain incentive unit awards to Ms. Ball and Messrs. Haugen, Power and Walter computed in accordance with FASB ASC Topic 718.
|
Employment Agreements
John J. Lipinski.
On July 12, 2005, Coffeyville Resources, LLC entered into an employment agreement with Mr. Lipinski, as chief executive officer, which was subsequently assumed by CVR Energy and amended and restated effective as of January 1, 2008, January 1, 2010, January 1, 2011, January 1, 2014 and January 1, 2016. The agreement has a two-year term continuing through December 31, 2017, unless otherwise terminated by CVR Energy or Mr. Lipinski; provided CVR Energy may extend the agreement in one-year increments by providing 90 days' notice prior to the expiration of the initial term or then current renewal term. Mr. Lipinski receives an annual base salary of $1,000,000 effective as of January 1, 2016. Mr. Lipinski is also eligible to receive a performance-based annual cash bonus with a target payment equal to 250% of his annual base salary for 2016, to be based upon individual and/or company performance criteria as established by the compensation committee of the board of directors of CVR Energy for each fiscal year. In addition, Mr. Lipinski is entitled to participate in such health, insurance, retirement and other employee benefit plans and programs of CVR Energy as in effect from time to time on the same basis as other senior executives of CVR Energy. During the term of the agreement, Mr. Lipinski is eligible to receive annually (commencing December 31, 2015) on the anniversary of the agreement date a grant of performance units pursuant to the CVR Energy LTIP having an aggregate value of $3.5 million. The material terms of the performance units are described below. Mr. Lipinski is also eligible to receive an incentive payment of $5 million if (i) CVR Energy (or a subsidiary thereof) obtains an equity or management interest in a logistics master limited partnership (a “Logistics MLP”) in a transaction approved by CVR Energy’s (or such subsidiary’s) Board of Directors, provided such Logistics MLP results from an initial public offering, spin transaction, acquisition or joint venture, and (ii) such Logistics MLP is trading on a national securities exchange on or prior to December 31, 2017. Payment of the incentive payment is conditioned upon (x) the foregoing performance objectives being achieved, and (y) Mr. Lipinski remaining employed with CVR Energy through December 31, 2017 (unless, if an employment termination occurs earlier than December 31, 2017, such termination (A) occurs after achievement of such performance objectives and (B) is carried out by CVR Energy without cause or by Mr. Lipinski for good reason (as
35
such terms are defined in the employment agreement)). The employment agreement provides that any such incentive payment will be the obligation of the Logistics MLP and not of CVR Energy. The agreement requires Mr. Lipinski to abide by a perpetual restrictive covenant relating to non-disclosure and non-disparagement and also includes covenants relating to non-solicitation and non-competition that govern during his employment and thereafter for the period severance is paid and, if no severance is paid, for six months following termination of employment. In addition, Mr. Lipinski's agreement provides for certain severance payments that may be due following the termination of his employment under certain circumstances, which are described below under " — Change-in-Control and Termination Payments."
Susan M. Ball.
On October 23, 2007, CVR Energy entered into an employment agreement with Ms. Ball, which was amended on March 5, 2009 and October 9, 2009, and amended and restated on each of January 1, 2010 and January 1, 2011. This agreement was subsequently amended and restated effective as of on August 7, 2012 in connection with Ms. Ball's promotion to the role of chief financial officer and treasurer, and amended again on December 31, 2013. The agreement expired pursuant to its terms on December 31, 2015. Ms. Ball receives an annual base salary of $425,000 effective as of January 1, 2016. Ms. Ball is also eligible to receive a performance-based annual cash bonus with a target payment equal to 120% of her annual base salary for 2016, to be based upon individual and/or performance criteria as established by the compensation committee of the board of directors of CVR Energy for each fiscal year. In addition, Ms. Ball is entitled to participate in such health, insurance, retirement and other employee benefit plans and programs of CVR Energy as in effect from time to time on the same basis as other senior executives of CVR Energy. Ms. Ball's expired employment agreement included a perpetual restrictive covenant relating to non-disclosure and also includes covenants relating to non-solicitation and non-competition that govern during her employment and for one year following termination of employment. In addition, the agreement provided for certain severance payments that would have been due following the termination of employment under certain circumstances, which are described below under " — Change-in-Control and Termination Payments."
Robert W. Haugen.
On July 12, 2005, CRLLC entered into an employment agreement with Mr. Haugen, which was subsequently assumed by CVR Energy and amended and restated effective as of December 29, 2007. The agreement was amended and restated effective January 1, 2010 and on January 1, 2011, and amended on December 31, 2013 and December 18, 2014. The agreement with Mr. Haugen has a term extending through December 31, 2017, unless otherwise terminated earlier by CVR Energy or Mr. Haugen. The employment agreement provides Mr. Haugen is eligible to receive a performance-based annual cash bonus to be based upon individual and/or company performance criteria as established by the compensation committee of the board of directors of CVR Energy for each fiscal year. The annual salary in effect for Mr. Haugen effective as of January 1, 2016 was $365,000 and the target annual bonus percentage for Mr. Haugen is 120%. Mr. Haugen is also entitled to participate in such health, insurance, retirement and other employee benefit plans and programs of CVR Energy as in effect from time to time on the same basis as other senior executives of CVR Energy. The agreement requires Mr. Haugen to abide by a perpetual restrictive covenant relating to non-disclosure and also include covenants relating to non-solicitation and non-competition during their employment and for one year following termination of employment. In addition, the employment agreements provide for certain severance payments that may be due following the termination of employment under certain circumstances, which are described below under " — Change-in-Control and Termination Payments."
Martin J. Power.
Effective December 1, 2014, CVR Energy entered into an employment agreement with Mr. Power. The agreement with Mr. Power has a term extending through December 31, 2017, unless otherwise terminated earlier by CVR Energy or Mr. Power. The employment agreement provides Mr. Power is eligible to receive a performance-based annual cash bonus to be based upon individual and/or company performance criteria as established by the compensation committee of the board of directors of CVR Energy for each fiscal year. The annual salary in effect for Mr. Power effective as of January 1, 2016 was $330,000 and the target annual bonus percentage for Mr. Power is 115%. Mr. Power is also entitled to participate in such health, insurance, retirement and other employee benefit plans and programs of CVR Energy as in effect from time to time on the same basis as other senior executives of CVR Energy. The agreement requires Mr. Power to abide by a perpetual restrictive covenant relating to non-disclosure and non-disparagement, and also includes covenants relating to non-solicitation and non-competition during his employment and for a period of one year and six months, respectively, following termination of employment. In addition, the employment agreements provide for certain severance payments that may be due following the termination of employment under certain circumstances, which are described below under " — Change-in-Control and Termination Payments."
John R. Walter
. Mr. Walter does not have an employment agreement. Mr. Walter is entitled to participate in such health, insurance, retirement and other employee benefit plans and programs as in effect from time to time on the same basis as other senior executives.
36
Outstanding Equity Awards at 2015 Fiscal Year-End
This table reflects outstanding equity-based awards held by the named executive officers as of December 31, 2015.
|
Option Awards
|
Stock Awards
|
|||||||||||||
|
Name
|
Number of Securities Underlying Options (#) Unexercisable
|
Option Exercise Price ($)
|
Number of Shares or Units of Stock That Have Not Vested (#)
|
Market Value of Shares or Units of Stock That Have Not Vested ($)(1)
|
||||||||||
|
Susan M. Ball
|
—
|
|
—
|
|
13,216
|
|
(2
|
)
|
330,136
|
|
||||
|
—
|
|
—
|
|
34,949
|
|
(3
|
)
|
770,625
|
|
|||||
|
—
|
|
—
|
|
46,233
|
|
(4
|
)
|
875,191
|
|
|||||
|
Robert W. Haugen
|
—
|
|
—
|
|
8,076
|
|
(2
|
)
|
201,738
|
|
||||
|
—
|
|
—
|
|
23,112
|
|
(3
|
)
|
509,620
|
|
|||||
|
—
|
|
—
|
|
31,556
|
|
(4
|
)
|
597,355
|
|
|||||
|
Martin J. Power
|
227,927
|
|
23.39
|
|
(5
|
)
|
885,716
|
|
||||||
|
—
|
|
—
|
|
26,464
|
|
(3
|
)
|
583,531
|
|
|||||
|
—
|
|
—
|
|
31,801
|
|
(4
|
)
|
601,993
|
|
|||||
|
John R. Walter
|
—
|
|
—
|
|
2,937
|
|
(2
|
)
|
73,366
|
|
||||
|
—
|
|
—
|
|
15,502
|
|
(3
|
)
|
341,819
|
|
|||||
|
—
|
|
—
|
|
21,087
|
|
(4
|
)
|
399,177
|
|
|||||
|
(1)
|
This column represents the number of unvested units outstanding on such date, multiplied by the closing price of the units on December 31, 2015, which: (i) for purposes of the incentive units described in footnote (2) below was $24.98 (the closing price of $18.93 plus $6.05 in accrued distributions); (ii) for purposes of the incentive units described in footnote (3) below was $22.05 (the closing price of $18.93 plus $3.12 in accrued distributions); and (iii) for purposes of the incentive units described in footnote (4) below was $18.93. For purposes of the notional units described in footnote (5) below, this column represents the fair value of the outstanding units estimated using the Black-Scholes option-pricing model.
|
|
(2)
|
The incentive units reflected were issued on December 31, 2013. The remaining unvested units are scheduled to vest on December 27, 2016, provided the executive continues to serve as an employee of CVR Energy or one of its subsidiaries on such date, subject to accelerated vesting under certain circumstances as described in more detail in the section titled “Change-in-Control and Termination Payments” below.
|
|
(3)
|
The incentive units reflected were issued on December 26, 2014 and are scheduled to vest in one-half annual increments on December 31, 2016 and 2017, provided the executive continues to serve as an employee of CVR Energy or one of its subsidiaries on such date, subject to accelerated vesting under certain circumstances as described in more detail in the section titled “Change-in-Control and Termination Payments” below.
|
|
(4)
|
The incentive units reflected were issued on December 18, 2015 and are scheduled to vest in one-third increments on the first three anniversaries of the date of grant, provided the executive continues to serve as an employee of CVR Energy or one of its subsidiaries on such date, subject to accelerated vesting under certain circumstances as described in more detail in the section titled “Change-in-Control and Termination Payments” below.
|
|
(5)
|
The notional units reflected were issued on December 1, 2014 in the form of stock appreciation rights and are scheduled to vest on December 1, 2017, provided the executive continues to serve as an employee of CVR Energy or one of its subsidiaries on such date, subject to accelerated vesting under certain circumstances as described in more detail in the section titled “Change-in-Control and Termination Payments” below.
|
37
Equity Awards Vested During Fiscal Year 2015
This table reflects the portion of awards of restricted stock units, incentive units and performance units that vested during 2015 and were settled in accordance with the Transaction Agreement or the respective award agreements.
|
Equity Awards
|
|||
|
Named Executive Officer
|
Number of Shares or Units
Acquired on Vesting (#)
|
Value Realized
on Vesting($)(1)
|
|
|
Susan M. Ball
|
1,891
|
(2)
|
56,730
|
|
5,593
|
(3)
|
340,949
|
|
|
13,216
|
(4)
|
357,889
|
|
|
17,475
|
(5)
|
399,129
|
|
|
Robert W. Haugen
|
3,845
|
(3)
|
234,391
|
|
8,077
|
(4)
|
218,725
|
|
|
11,556
|
(5)
|
263,939
|
|
|
Martin J. Power
|
13,232
|
(5)
|
302,219
|
|
John R. Walter
|
1,048
|
(3)
|
63,886
|
|
2,937
|
(4)
|
79,534
|
|
|
7,751
|
(5)
|
177,033
|
|
|
(1)
|
Amounts reflected are calculated by multiplying: (a) the number of restricted stock units that became vested described in footnote (2) below by $30.00, which is the value paid in respect of each restricted stock unit pursuant to the Transaction Agreement; (b) the number of restricted stock units that became vested described in the footnote (3) below by the sum of the closing market price of our common stock on the NYSE on the vesting date of December 28, 2015 which was $39.71, and the accrued dividends payable pursuant to the award of $21.25, for a total of $60.96; (c) the number of incentive units that became vested described in footnote (4) below by a per unit value equal to the average closing price of CVR Refining's common units in accordance with the agreement which was $21.03, and the accrued distributions payable pursuant to the award of $6.05, for a total of $27.08; and (d) the number of incentive units that became vested described in footnote (5) below by the per unit value equal to the average closing price of CVR Refining's common units in accordance with the agreement which was $19.72, and the accrued distributions payable pursuant to the award of $3.12, for a total of $22.84.
|
|
(2)
|
Represents restricted stock units granted on August 7, 2012.
|
|
(3)
|
Represents restricted stock units and dividend equivalent rights granted on December 28, 2012.
|
|
(4)
|
Represents incentive units and distribution equivalent rights granted on December 31, 2013.
|
|
(5)
|
Represents incentive units and distribution equivalent rights granted on December 26, 2014.
|
Change-in-Control and Termination Payments
Under the terms of our named executive officers’ employment agreements, they may be entitled to severance and other benefits from the Company following the termination of their employment. Mr. Walter does not have an employment agreement and is not entitled to any severance and other benefits from us following the termination of his employment. The amounts of potential post-employment payments and benefits in the narrative and table below with respect to Mr. Lipinski, Ms. Ball and Messrs. Haugen and Power assume the triggering event took place on December 31, 2015, are based on salaries as of December 31, 2015, assume the payment of bonuses at 100% of target, and for purposes of retirement, assumes the individual is eligible for retirement.
John J. Lipinski.
If Mr. Lipinski’s employment is terminated either by CVR Energy without cause and other than for disability or by Mr. Lipinski for good reason (as these terms are defined in his employment agreement), then in addition to any accrued amounts, including any base salary earned but unpaid through the date of termination, any earned but unpaid annual bonus for completed fiscal years, any unused accrued paid time off and any unreimbursed expenses (“Accrued Amounts”), Mr. Lipinski is entitled to receive as severance: (a) salary continuation for the lesser of (A) 36 months and (B) the greater of (x) the remainder of the term of the employment agreement and (y) 12 months (such period, the “Post-Employment Period”); (b) a pro-rata bonus for the year in which termination occurs
38
based on actual results; and (c) and the continuation of medical, dental, vision and life insurance benefits (“Welfare Benefits”) during the Post-Employment Period, or if earlier, until he becomes eligible for such benefits from a subsequent employer. In addition, if Mr. Lipinski’s employment is terminated either by CVR Energy without cause and other than for disability or by Mr. Lipinski for good reason (as these terms are defined in his employment agreement) within one year following a change in control (as defined in his employment agreement) or in specified circumstances prior to and in connection with a change in control, Mr. Lipinski will receive 1/12 of his target bonus for the year of termination for each month of the Post-Employment Period.
If Mr. Lipinski’s employment is terminated as a result of his disability, then in addition to any Accrued Amounts and any payments to be made to Mr. Lipinski under disability plan(s), Mr. Lipinski is entitled to (a) disability payments during the Post-Employment Period equal to, in the aggregate, Mr. Lipinski’s base salary as in effect immediately before his disability (the estimated total amount of this payment is set forth in the relevant table below) and (b) a pro-rata bonus for the year in which termination occurs based on actual results. As a condition to receiving these severance payments and benefits, Mr. Lipinski must (a) execute, deliver and not revoke a general release of claims and (b) abide by restrictive covenants as detailed below. If Mr. Lipinski’s employment is terminated at any time by reason of his death, then in addition to any Accrued Amounts, Mr. Lipinski’s beneficiary (or his estate) will be paid (a) the base salary Mr. Lipinski would have received had he remained employed through the Post-Employment Period, and (b) a pro-rata bonus for the year in which termination occurs based on actual results. Notwithstanding the foregoing, CVR Energy may, at its option, purchase insurance to cover the obligations with respect to either Mr. Lipinski’s supplemental disability payments or the payments due to Mr. Lipinski’s beneficiary or estate by reason of his death. Mr. Lipinski will be required to cooperate in obtaining such insurance. Upon a termination by reason of Mr. Lipinski’s retirement after reaching age 62, in addition to any Accrued Amounts, Mr. Lipinski will receive (a) continuation of Welfare Benefits during the Post-Employment Period at active-employee rates or until such time as Mr. Lipinski becomes eligible for such benefits from a subsequent employer, (b) provision of an office at CVR Energy’s headquarters and use of CVR Energy’s facilities and administrative support during the Post-Employment Period at CVR Energy’s expense and, at Mr. Lipinski’s request, for two years following the Post-Employment Period at Mr. Lipinski’s expense, and (c) a pro-rata bonus for the year in which termination occurs based on actual results.
In the event that Mr. Lipinski is eligible to receive continuation of Welfare Benefits at active-employee rates but is not eligible to continue to receive benefits under CVR Energy’s plans pursuant to the terms of such plans or a determination by the insurance providers, CVR Energy will use reasonable efforts to obtain individual insurance policies providing Mr. Lipinski with such benefits at the same cost to CVR Energy as providing him with continued coverage under CVR Energy’s plans. If such coverage cannot be obtained, CVR Energy will pay Mr. Lipinski on a monthly basis during the relevant continuation period, an amount equal to the amount CVR Energy would have paid had he continued participation in CVR Energy’s plans.
If any payments or distributions due to Mr. Lipinski would be subject to the excise tax imposed under Section 4999 of the Code, then such payments or distributions will be “cut back” only if that reduction would be more beneficial to him on an after-tax basis than if there was no reduction. The estimated total amounts payable to Mr. Lipinski (or his beneficiary or estate in the event of death) in the event of termination of employment under the circumstances described above are set forth in the table below. Mr. Lipinski would solely be entitled to Accrued Amounts, if any, upon the termination of employment by CVR Energy for cause, or by him voluntarily without good reason and not by reason of his retirement. The agreement requires Mr. Lipinski to abide by a perpetual restrictive covenant relating to non-disclosure and non-disparagement. The agreement also includes covenants relating to non-solicitation and non-competition during Mr. Lipinski’s employment term, and thereafter during the period he receives severance payments or supplemental disability payments, as applicable, or for one year following the end of the term (if no severance or disability payments are payable).
Susan M. Ball
. Ms. Ball had an employment agreement that expired December 31, 2015, although, she continues to be employed by CVR Energy. If the employment of Ms. Ball had terminated on December 31, 2015 either by CVR Energy without cause and other than for disability or by Ms. Ball for good reason (as such terms are defined in her employment agreement), then Ms. Ball would have been entitled, in addition to any Accrued Amounts, to receive as severance (i) salary continuation for the lesser of 12 months or the remainder of the term of her employment agreement (her "Severance Period"), (ii) a pro-rata bonus for the year in which termination occurred, based on actual results and (iii) the continuation of Welfare Benefits during her Severance Period at active-employee rates or until such time as she became eligible for such benefits from a subsequent employer. In addition, if Ms. Ball's employment would have been terminated either by CVR Energy without cause and other than for disability or by Ms. Ball for good reason (as these terms are defined in her employment agreement) within one year following a change in control (as defined in her employment agreement) or in specified circumstances prior to and
39
in connection with a change in control, she would have been entitled to receive monthly payments equal to 1/12 of her target bonus for the year of termination during her Severance Period. Upon a termination of Ms. Ball's employment upon retirement after reaching age 65, in addition to any Accrued Amounts, she would have received (i) a pro-rata bonus for the year in which termination occurred, based on actual results and (ii) continuation of Welfare Benefits for 24 months at active-employee rates or until such time as she became eligible for such benefits from a subsequent employer.
In the event that Ms. Ball would have been eligible to receive continuation of Welfare Benefits at active-employee rates but was not eligible to continue to receive benefits under CVR Energy's plans pursuant to the terms of such plans or a determination by the insurance providers, CVR Energy would have used reasonable efforts to obtain individual insurance policies providing her with such benefits at the same cost to CVR Energy as providing them with continued coverage under CVR Energy's plans. If such coverage could not be obtained, CVR Energy would have paid Ms. Ball on a monthly basis during the relevant continuation period, an amount equal to the amount CVR Energy would have paid had they continued participation in its plans.
As a condition to receiving these severance payments and benefits, Ms. Ball would have been required to (i) execute, deliver and not revoke a general release of claims and (ii) abide by restrictive covenants as detailed below. The agreements provide that if any payments or distributions due to Ms. Ball would be subject to the excise tax imposed under Section 4999 of the Code, then such payments or distributions would be cut back only if that reduction would be more beneficial to Ms. Ball on an after-tax basis than if there were no reduction. Ms. Ball would solely be entitled to Accrued Amounts, if any, upon the termination of employment by CVR Energy for cause, or by Ms. Ball voluntarily without good reason and not by reason of retirement, death or disability. The agreement required Ms. Ball to abide by a perpetual restrictive covenant relating to non-disclosure. The agreement also included a covenant relating to non-solicitation and non-competition during her employment term and for one year following the end of the term.
Robert W. Haugen.
If the employment of Mr. Haugen is terminated either by CVR Energy without cause and other than for disability or by Mr. Haugen for good reason (as such terms are defined in his employment agreement), then he is entitled, in addition to any Accrued Amounts, to receive as severance (a) salary continuation for the lesser of 12 months or the remainder of the term of his employment agreement (his "Severance Period"), (b) a pro-rata bonus for the year in which termination occurs, based on actual results and (c) the continuation of Welfare Benefits during his Severance Period at active-employee rates or until such time as he becomes eligible for such benefits from a subsequent employer. In addition, if Mr. Haugen's employment is terminated either by CVR Energy without cause and other than for disability or by him for good reason (as these terms are defined in his employment agreement) within one year following a change in control (as defined in his employment agreement) or in specified circumstances prior to and in connection with a change in control, he is also entitled to receive monthly payments equal to 1/12 of his target bonus for the year of termination during his Severance Period. Upon a termination of his employment upon retirement after reaching age 65, in addition to any Accrued Amounts, he will receive (a) a pro-rata bonus for the year in which termination occurs, based on actual results and (b) continuation of Welfare Benefits for 24 months at active-employee rates or until such time as he becomes eligible for such benefits from a subsequent employer.
In the event that Mr. Haugen is eligible to receive continuation of Welfare Benefits at active-employee rates but is not eligible to continue to receive benefits under CVR Energy’s plans pursuant to the terms of such plans or a determination by the insurance providers, CVR Energy will use reasonable efforts to obtain individual insurance policies providing him with such benefits at the same cost to CVR Energy as providing them with continued coverage under CVR Energy’s plans. If such coverage cannot be obtained, CVR Energy will pay Mr. Haugen on a monthly basis during the relevant continuation period, an amount equal to the amount CVR Energy would have paid had he continued participation in its plans.
As a condition to receiving these severance payments and benefits, Mr. Haugen must (a) execute, deliver and not revoke a general release of claims and (b) abide by restrictive covenants as detailed below. The agreements provide that if any payments or distributions due to Mr. Haugen would be subject to the excise tax imposed under Section 4999 of the Code, then such payments or distributions will be cut back only if that reduction would be more beneficial to him on an after-tax basis than if there were no reduction. Mr. Haugen would solely be entitled to Accrued Amounts, if any, upon the termination of employment by CVR Energy for cause, or by him voluntarily without good reason and not by reason of retirement, death or disability. The agreement requires Mr. Haugen to abide by a perpetual restrictive covenant relating to non-disclosure. The agreement also includes a covenant relating to non-solicitation and non-competition during his employment terms and for one year following the end of the term.
40
Martin J. Power.
If the employment of Mr. Power is terminated either by CVR Energy without cause and other than for disability or by Mr. Power for good reason (as such terms are defined in his employment agreement), then Mr. Power is entitled, in addition to any Accrued Amounts, to receive as severance (a) salary continuation for the lesser of six months or the remainder of the term of the agreement, (b) a pro-rata bonus for the year in which termination occurs based on actual results and (c) subject to his timely election, and the availability thereof, continuation coverage under CVR Energy’s group health plan as provided under Part 6 of Title I of the Employment Retirement Income Security Act of 1974 (as amended) and Section 4980B of the Internal Revenue Code of 1986 (as amended) (collectively, “COBRA”) for the applicable continuation period under COBRA.
As a condition to receiving these severance payments and benefits, Mr. Power must (a) execute, deliver and not revoke a general release of claims and (b) abide by restrictive covenants as detailed below. The agreements provide that if any payments or distributions due to Mr. Power would be subject to the excise tax imposed under Section 4999 of the Code, then such payments or distributions will be cut back only if that reduction would be more beneficial to the executive officer on an after-tax basis than if there were no reduction. Mr. Power would solely be entitled to Accrued Amounts, if any, upon the termination of employment by CVR Energy for cause, or by Mr. Power voluntarily without good reason. The agreement requires Mr. Power to abide by a perpetual restrictive covenant relating to non-disclosure and non-disparagement. The agreement also includes covenants relating to non-solicitation and non-competition during the employment term and for six months and one year, respectively, following the end of the term.
|
|
Cash Severance ($)
|
Benefit Continuation ($)(3)
|
|||||||||||||||||
|
|
Death
|
Disability
|
Retirement
|
Termination without Cause or with Good Reason
|
Death
|
Disability
|
Retirement
|
Termination without Cause or with Good Reason
|
|||||||||||
|
|
|
|
|
(1)
|
(2)
|
|
|
|
(1)
|
(2)
|
|||||||||
|
John J. Lipinski
|
3,500,000
|
3,500,000
|
2,500,000
|
3,500,000
|
6,000,000
|
—
|
—
|
16,760
|
16,760
|
16,760
|
|||||||||
|
Susan M. Ball
|
—
|
—
|
465,500
|
456,500
|
456,500
|
—
|
—
|
6,098
|
—
|
—
|
|||||||||
|
Robert W. Haugen
|
—
|
—
|
420,000
|
770,000
|
1,190,000
|
—
|
—
|
14,846
|
7,423
|
7,423
|
|||||||||
|
Martin J. Power
|
—
|
—
|
—
|
513,500
|
513,500
|
—
|
—
|
—
|
—
|
—
|
|||||||||
|
(1)
|
Severance payments and benefits in the event of termination without cause or resignation for good reason
not
in connection with a change in control.
|
|
(2)
|
Severance payments and benefits in the event of termination without cause or resignation for good reason in connection with a change in control.
|
|
(3)
|
Beginning in 2014, CVR Energy switched to a self-insured medical plan, and premiums for the named executive officers are paid by the employee only.
|
The employment agreement for Ms. Ball expired on December 31, 2015 (although she continues to be employed by CVR Energy). In addition, the employment agreement for Mr. Lipinski was amended and restated effective January 1, 2016.
With respect to Mr. Lipinski, as of January 1, 2016: (i) in the event of Mr. Lipinski’s termination by CVR Energy other than (A) for cause or (B) due to death or disability (as defined in his employment agreement), or in the event of Mr. Lipinski’s resignation for good reason, Mr. Lipinski will receive salary continuation payments for the lesser of six months and the remainder of the term of the employment agreement (such period, as applicable, the “Amended Post-Employment Period”), and a pro-rata bonus for the year in which termination occurs based on actual results; provided, if the foregoing occurs within one year following a change in control (as defined in the employment agreement) or in specified circumstances prior to and in connection with a change in control, Mr. Lipinski will receive 1/6 of his target bonus for the year of termination for each month of the Amended Post-Employment Period; provided, in connection with any such termination, CVR Energy will not be required to cover the cost of any welfare benefits continuation coverage for Mr. Lipinski; (ii) in the event of Mr. Lipinski’s termination by CVR Energy due to his disability, Mr. Lipinski will receive supplemental disability payments during the Amended Post-Employment Period equal to the rate of Mr. Lipinski’s base salary as in effect immediately before his disability, plus a pro-rata bonus for the year in which termination occurs based on actual results; (iii) in the event of Mr. Lipinski’s termination due to his death, Mr. Lipinski’s estate will receive his base salary for the Amended Post-Employment Period, plus a pro-rata bonus for the year in which termination occurs based on actual results; and
41
(iv) Mr. Lipinski does not receive any payments or benefits in the event of retirement.
Each of the named executive officers (except for Mr. Lipinski) has been granted incentive units by CVR Energy.
In December 2013, CVR Energy granted Ms. Ball and Messrs. Haugen and Walter awards consisting of incentive units and distribution equivalent rights. Each incentive unit and distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (a) the average fair market value of one unit of the CVR Refining’s common units for the first ten trading days in the month of vesting, plus (b) the per unit cash value of all distributions declared and paid by CVR Refining from the grant date to and including the vesting date. The awards are subject to transfer restrictions and vesting requirements that lapse in one-third annual increments beginning on December 27, 2014. The awards become immediately vested with respect to Ms. Ball or Mr. Haugen in the event of any of the following: (i) such named executive officer’s employment is terminated other than for cause within the one-year period following a change in control; (ii) such named executive officer resigns from employment for good reason within the one year period following a change in control; or (iii) such named executive officer’s employment is terminated under certain circumstances prior to a change in control. If (A) Ms. Ball or Messrs. Haugen or Walter is terminated other than for cause or, (B) with respect to Ms. Ball or Mr. Haugen, such named executive officer resigns for good reason in the absence of a change in control, or (C) if Ms. Ball or Messrs. Haugen or Walter is terminated due to death or disability, then the portion of the award scheduled to vest in the year in which such event occurs becomes immediately vested and the remaining portion is forfeited.
In December 2014 and 2015, CVR Energy granted Ms. Ball and Messrs. Haugen, Power and Walter awards consisting of incentive units and distribution equivalent rights. Each incentive unit and distribution equivalent right represents the right to receive, upon vesting, a cash payment equal to (i) the average fair market value of one unit of CVR Refining's common units for the ten trading days preceding vesting, plus (ii) the per unit cash value of all distributions declared and paid by CVR Refining from the grant date to and including the vesting date. The awards are subject to transfer restrictions and vesting requirements that lapse in one-third annual increments beginning on the first anniversary of the date of grant, subject to immediate vesting under certain circumstances. With respect to Ms. Ball and Mr. Haugen, the awards become immediately vested in the event of any of the following: (i) such named executive officer's employment is terminated other than for cause within the one-year period following a change in control; (ii) such named executive officer resigns from employment for good reason within the one year period following a change in control; or (iii) such named executive officer's employment is terminated under certain circumstances prior to a change in control. If (A) any of Ms. Ball or Messrs. Haugen, Power and Walter is terminated other than for cause or, (B) with respect to Ms. Ball or Messrs. Haugen or Power, such named executive officer resigns for good reason in the absence of a change in control, or (C) if any of Ms. Ball or Messrs. Haugen, Power and Walter is terminated due to death or disability, then the portion of the award scheduled to vest in the year in which such event occurs becomes immediately vested and the remaining portion is forfeited.
In December 2015, CVR Energy granted Mr. Lipinski an award of performance units. The award represent the right to receive a cash payment equal to $1,000 multiplied by certain performance factors. The award is subject to transfer restrictions and carries a performance cycle ending on December 31, 2016. In the event of Mr. Lipinski’s termination of employment prior to the applicable payment date by reason of Mr. Lipinski’s death or disability, all performance units with respect to which a payment date has not yet occurred will remain outstanding, and amounts due to Mr. Lipinski, if any, with respect to such performance units will be paid in the ordinary course as if his employment had not terminated based on actual results. In the event prior to the applicable payment date Mr. Lipinski's employment is terminated by CVR Energy other than for cause or by reason of Mr. Lipinski’s resignation for good reason, a pro rata portion of the performance units with respect to which a payment date has not yet occurred will remain outstanding, and amounts due to Mr. Lipinski, if any, with respect to such performance units will be paid in the ordinary course as if his employment had not terminated based on actual results. In the event that Mr. Lipinski’s employment terminates for any other reason prior to the dates set forth above, all performance units with respect to which a payment date has not yet occurred will be forfeited immediately.
The following table reflects the value of accelerated vesting of the unvested restricted stock units and incentive units held by the named executive officers assuming the triggering event took place on December 31, 2015 and for purposes of retirement, assumes the individual is eligible for retirement. For purposes of: (a) for purposes of the December 2013 incentive unit awards, the value is based on the 10-day average closing price of CVR Refining common units for the first 10 trading days of December 2015, or $21.03 per unit plus accrued distributions of $6.05 per unit; (b) for purposes of the December 2014 incentive unit awards, the value is based on the 10-day average closing price for the 10 trading days preceding December 31, 2015, or $19.40 per unit plus accrued distributions of $3.12 per unit; and (c) for purposes of the 2015 incentive unit awards, the value is based on the 10-day average closing price for the 10 trading days preceding December 31, 2015, or $19.40. The table does not take into
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consideration the value of the performance units held by Mr. Lipinski (which were the only awards held by Mr. Lipinski) since such performance units would not accelerate, but instead pay out in the ordinary course as if his employment had not terminated. Mr. Power does not have any awards from CVR Energy that qualify for acceleration in the event of his termination as of December 31, 2015.
Value of Accelerated Vesting
|
|
Death ($)
|
Disability ($)
|
Retirement ($)
|
Termination without
Cause or
with Good Reason ($)
|
|
|
|
|
|
|
(1)
|
(2)
|
|
Susan M. Ball
|
—
|
—
|
—
|
—
|
2,041,861
|
|
Robert W. Haugen
|
—
|
—
|
—
|
—
|
1,351,367
|
|
(1)
|
Termination without cause or resignation for good reason not in connection with a change in control.
|
|
(2)
|
Termination without cause or resignation for good reason in connection with a change in control.
|
Mr. Power was awarded incentive units in the form of stock appreciation rights ("SARs") by CVR Energy in December 2014. In April 2015, the award was canceled and replaced by an award of notional units in the form of SARs by CVR Refining pursuant to the Long Term Incentive Plan of CVR Refining. The replacement award is structured on the same economic and other terms as the incentive unit award and did not result in a material impact. Each SAR vests over three years and entitles the executive to receive a cash payment in an amount equal to the excess of the fair market value of one unit of CVR Refining's common units for the first 10 trading days in the month prior to vesting over the grant price of the SAR. The fair value will be adjusted to include all distributions declared and paid by CVR Refining during the vesting period. The fair value of each SAR is estimated at the end of each reporting period using the Black-Scholes option-pricing model. In the event prior to December 1, 2017 Mr. Power's employment is terminated by CVR Refining or an affiliate due to death or disability, or in the event his employment is terminated other than for cause or by reason of Mr. Power's resignation for good reason (in each case in the absence of a change in control), a pro rata portion of the notional units based on the number of completed calendar months of service from December 1, 2014 would become immediately vested and the remaining portion is forfeited. Mr. Power's award would immediately vest in full in the event his employment is terminated by CVR Refining or an affiliate without cause or by reason of Mr. Power's resignation for good reason within the one year period following a change in control.
The following table reflects the value of accelerated vesting of the unvested notional units held by Mr. Power assuming the triggering event took place on December 31, 2015. The value is based on the 10-day average closing price of CVR Refining common units for the first 10 trading days of November 2015, or $21.01 per unit, plus accrued distributions of $3.12 per unit.
Value of Accelerated Vesting of Notional Unit Award
|
Death ($)
|
Disability ($)
|
Retirement ($)
|
Termination without
Cause or
with Good Reason ($)
|
|||||||||||
|
(1)
|
(2)
|
|||||||||||||
|
Martin J. Power
|
60,907
|
|
60,907
|
|
—
|
|
60,907
|
|
168,666
|
|
||||
_______________________________________
|
(1)
|
Termination without cause or resignation for good reason not in connection with a change in control.
|
|
(2)
|
Termination without cause or resignation for good reason in connection with a change in control.
|
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
This section describes related party transactions between the Company and its directors, executive officers and 5% stockholders (and entities controlled by such persons, including CVR Partners and CVR Refining) that occurred during the year ended December 31, 2015 and as otherwise described herein.
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Transactions with Affiliates of IEP
In May 2012, an affiliate of Icahn Enterprises L.P. (“IEP”) announced that it had acquired control of CVR pursuant to a tender offer to purchase all of the issued and outstanding shares of the Company’s common stock. As of December 31, 2015, IEP and its affiliates owned approximately 82% of all common shares outstanding.
Tax Allocation Agreement
On May 19, 2012, the Company became a member of the consolidated federal tax group of American Entertainment Properties Corporation (“AEPC”), a wholly-owned subsidiary of IEP, and subsequently entered into a tax allocation agreement with AEPC (the “Tax Allocation Agreement”). The Tax Allocation Agreement provides that AEPC pays all consolidated federal income taxes on behalf of the consolidated tax group. The Company is required to make payments to AEPC in an amount equal to the tax liability, if any, that it would have paid if it were to file as a consolidated group separate and apart from AEPC.
As of December 31, 2015, the Company recorded a receivable of $11.6 million for an overpayment of federal income taxes to AEPC under the Tax Allocation Agreement. The overpayment will be applied as a credit against the Company’s estimated tax to be paid during 2016. During the year ended December 31, 2015, the Company paid $57.5 million to AEPC under the Tax Allocation Agreement.
Insight Portfolio Group
Insight Portfolio Group LLC (“Insight Portfolio Group”) is an entity formed and controlled by Mr. Icahn in order to maximize the potential buying power of a group of entities with which Mr. Icahn has a relationship in negotiating with a wide range of suppliers of goods, services and tangible and intangible property at negotiated rates. In January 2013, CVR Energy acquired a minority equity interest in Insight Portfolio Group and agreed to pay a portion of Insight Portfolio Group’s operating expenses. The Company paid Insight Portfolio Group approximately $0.1 million during the year ended December 31, 2015. The Company may purchase a variety of goods and services as a member of the buying group at prices and terms that management believes would be more favorable than those which would be achieved on a stand-alone basis.
Credit Facility - CVR Partners
On April 1, 2016, in connection with the closing of CVR Partners’ acquisition of Rentech Nitrogen Partners, L.P. (now known as East Dubuque Nitrogen Partners, L.P.) and its general partner via merger (collectively, “East Dubuque”), AEPC, as lender, entered into a $320.0 million senior unsecured term loan facility with CVR Partners. The proceeds of the facility (i) may be used by CVR Partners to provide funds to East Dubuque to make a change of control offer and, if applicable, a “clean-up” redemption in accordance with the indenture governing its $320.0 million 6.5% second lien senior secured notes due 2021 (the “Second Lien Notes”) or (ii) may be used by CVR Partners or East Dubuque to make a tender offer for the Second Lien Notes and, in each case, pay fees and expenses related thereto. The AEPC facility is for a term of two years and bears interest at a rate of 12% per annum. Calculation of interest will be on the basis of the actual number of days elapsed over a 360-day year and payable quarterly. CVR Partners may voluntarily prepay in whole or in part the borrowings under the AEPC facility without premium or penalty. As of April 2016, CVR Partners has not borrowed under the facility.
The AEPC facility contains covenants that require CVR Partners to, among other things, notify AEPC of the occurrence of any default or event of default and provide AEPC with information in respect of the CVR Partners’ business and financial status as it may reasonably require, including, but not limited to, copies of CVR Partners’ unaudited quarterly financial statements and audited annual financial statements. In addition, the AEPC facility contains customary events of default, including, among others, failure to pay any sum payable when due and the occurrence of a default of other indebtedness in excess of $25.0 million.
Transactions with CVR Partners and CVR Refining
Background
In October 2007, prior to CVR Energy’s initial public offering, we created CVR Partners and transferred our nitrogen fertilizer business to CVR Partners.
In connection with the creation of CVR Partners in October 2007, CVR GP, LLC, as the managing general partner, CRLLC, as the limited partner and CVR Special GP, LLC, as a general partner, entered into a limited partnership agreement, which set forth the various rights and responsibilities of the partners in CVR Partners. In
44
addition, we entered into a number of intercompany agreements with CVR Partners and the managing general partner, which regulated certain business relations among us, CVR Partners and the managing general partner.
In April 2011, CVR Partners consummated its initial public offering. To effectuate CVR Partners’ initial public offering, we entered into a new limited partnership agreement, entered into a series of new agreements and amended and restated certain of our existing intercompany agreements with CVR Partners and Coffeyville Resources Nitrogen Fertilizer, LLC (“CRNF”) as set forth below. In connection with CVR Refining’s initial public offering in January 2013, certain of CVR Energy’s subsidiaries party to these agreements became subsidiaries of CVR Refining. In addition, we entered into several new agreements with CVR Refining and its subsidiaries to govern the relationship between CVR Refining and its subsidiaries and CVR Energy. These agreements were not the result of arm’s-length negotiations and the terms of these agreements are not necessarily at least as favorable to the parties to these agreements as terms, which could have been obtained from unaffiliated third parties.
Pet Coke Supply Agreement
Coffeyville Resources Refining & Marketing, LLC (“CRRM”), a wholly-owned subsidiary of CVR Refining, is a party to a pet coke supply agreement with CRNF, a wholly-owned subsidiary of CVR Partners, pursuant to which it supplies pet coke to CRNF. This agreement provides that CRRM must deliver to CRNF during each calendar year an annual required amount of pet coke equal to the lesser of (i) 100 percent of the pet coke produced at CVR Refining’s Coffeyville, Kansas petroleum refinery or (ii) 500,000 tons of pet coke. CRNF is obligated to purchase this annual required amount. If during a calendar month CRRM produces more than 41,667 tons of pet coke, then CRNF will have the option to purchase the excess at the purchase price provided for in the agreement. If CRNF declines to exercise this option, CRRM may sell the excess to a third party.
The price CRNF pays pursuant to the pet coke supply agreement is based on the lesser of a pet coke price derived from the price received for UAN, or the UAN-based price, and a pet coke price index. The UAN-based price begins with a pet coke price of $25 per ton based on a price per ton for UAN that excludes transportation cost, or "netback price", of $205 per ton, and adjusts up or down $0.50 per ton for every $1.00 change in the netback price. The UAN-based price has a ceiling of $40 per ton and a floor of $5 per ton.
CRNF also pays taxes associated with the sale, purchase, transportation, delivery, storage or consumption of the pet coke. CRNF may offset any amount payable for the pet coke against any amount due from CRRM under the feedstock and shared services agreement between the parties.
The terms of the pet coke supply agreement provide benefits to both parties. The cost of the pet coke supplied by CRRM to CRNF in most cases will be lower than the price that CRNF otherwise would pay to third parties. The cost to CRNF will be lower both because the actual price paid will be lower and because CRNF will pay significantly reduced transportation costs (since the pet coke is supplied by an adjacent facility, which will involve no freight or tariff costs). In addition, because the cost CRNF pays will be formulaically related to the price received for UAN (subject to a UAN based price floor and ceiling), CRNF will enjoy lower pet coke costs during periods of lower revenues regardless of the prevailing pet coke market.
In return for CRRM receiving a potentially lower price for pet coke in periods when the pet coke price is impacted by lower UAN prices, CRRM enjoys the following benefits associated with the disposition of a low value by-product of the refining process: avoiding the capital cost and operating expenses associated with handling pet coke; enjoying flexibility in its crude slate and operations as a result of not being required to meet a specific pet coke quality; and avoiding the administration, credit risk and marketing fees associated with selling pet coke.
The agreement has an initial term of 20 years, ending October 2027, which automatically extends for successive five-year renewal periods. Either party may terminate the agreement by giving notice no later than three years prior to a renewal date. The agreement is also terminable by mutual consent of the parties or if a party breaches the agreement and does not cure within applicable cure periods. Additionally, the agreement may be terminated in some circumstances if substantially all of the operations at the nitrogen fertilizer plant or CVR Refining’s Coffeyville, Kansas refinery are permanently terminated or if either party is subject to a bankruptcy proceeding or otherwise becomes insolvent.
CRNF’s pet coke cost per ton purchased from CRRM averaged $19.5 for the year ended December 31, 2015. Total CRNF purchases of pet coke from CRRM were approximately $6.6 million for the year ended December 31, 2015. Third-party pet coke prices averaged $40.0 for the year ended December 31, 2015. Total purchases of pet coke from third parties were approximately $5.4 million for the year ended December 31, 2015.
45
Feedstock and Shared Services Agreement
CRRM and CRNF entered into a feedstock and shared services agreement, pursuant to which CRRM and CRNF agreed to provide feedstock and other services to one another. These feedstocks and services are utilized in the respective production processes of CVR Refining’s Coffeyville, Kansas refinery and CVR Partners’ nitrogen fertilizer plant. Feedstocks provided under the agreement include, among others, hydrogen, high-pressure steam, nitrogen, instrument air, oxygen and natural gas.
Pursuant to the feedstock agreement, CRRM and CRNF, subject to certain conditions, transfer hydrogen to one another; provided neither party is required to sell hydrogen to the other if such hydrogen is required for operation of its facility, if such sale would adversely affect the classification of such party’s parent company as a partnership for federal income tax purposes, or if such sale would not be in such party’s best interest. The feedstock agreement provides hydrogen supply and pricing terms for sales of hydrogen by both parties. Pricing for sales of hydrogen from CRNF to CRRM is based on ammonia prices for sales of hydrogen up to a designated amount. For sales of hydrogen in excess of such amount, the pricing reverts to a UAN pricing structure to make CRNF whole as if CRNF had produced UAN for sale. Pricing for sales of hydrogen by CRRM to CRNF is based off of the price of natural gas. The hydrogen sales that CRRM and CRNF make to each other are netted on a monthly basis, and CRRM or CRNF will be paid to the extent that either party sells more hydrogen than purchased in any given month. For the year ended December 31, 2015, CRRM purchased approximately $11.8 million of hydrogen from CRNF. CRNF purchased approximately $8,200 of hydrogen from CRRM.
The agreement provides that both parties must deliver high-pressure steam to one another under certain circumstances. During the year ended December 31, 2015, CRRM purchases of high-pressure steam from CRNF were not material. CRNF is also obligated to make available to CRRM any nitrogen produced by the Linde air separation plant that is not required for the operation of the nitrogen fertilizer plant, as determined by CRNF in a commercially reasonable manner. The price for the nitrogen is based on a cost of $0.035 per kilowatt hour, as adjusted to reflect changes in CRNF’s electric bill. For the year ended December 31, 2015, amounts CRRM paid CRNF were nominal.
The agreement also provides that both CRRM and CRNF must deliver instrument air to one another in some circumstances. CRNF must make instrument air available for purchase by CRRM at a minimum flow rate, to the extent produced by the Linde air separation plant and available to it. The price for such instrument air is $18,000 per month, prorated according to the number of days of use per month, subject to certain adjustments, including adjustments to reflect changes in CRNF’s electric bill. To the extent that instrument air is not available from the Linde air separation plant and is available from CRRM, CRRM is required to make instrument air available to CRNF for purchase at a price of $18,000 per month, prorated according to the number of days of use per month, subject to certain adjustments, including adjustments to reflect changes in the electric bill.
The agreement provides a mechanism pursuant to which CRNF may transfer a tail gas stream (which is otherwise flared) to CRRM, which installed a pipe between CRRM’s refinery and CRNF’s nitrogen fertilizer plant to transfer the tail gas. CRNF agreed to pay CRRM the cost of installing the pipe over the first three years (commencing in 2011) and in the fourth year provides an additional 15% to cover the cost of capital.
With respect to oxygen requirements, CRNF is obligated to provide oxygen produced by the Linde air separation plant and made available to it to the extent that such oxygen is not required for operation of the nitrogen fertilizer plant. The oxygen is required to meet certain specifications and is to be sold at a fixed price.
The agreement also addresses the means by which CRRM and CRNF obtain natural gas. Currently, natural gas is delivered to both the nitrogen fertilizer plant and the Coffeyville refinery pursuant to a contract between CRRM and Atmos Energy Corp. (“Atmos”). Under the feedstock and shared services agreement, CRNF reimburses CRRM for natural gas transportation and natural gas supplies purchased on its behalf. At CRRM’s request, or at the request of CRNF, in order to supply CRNF with natural gas directly, both parties will be required to use their commercially reasonable efforts to (i) add CRNF as a party to the current contract with Atmos or reach some other mutually acceptable accommodation with Atmos, whereby both CRRM and CRNF would each be able to receive, on an individual basis, natural gas transportation service from Atmos on similar terms and conditions as set forth in the current contract, and (ii) purchase natural gas supplies on their own account.
The agreement also addresses the allocation of various other feedstocks, services and related costs between the parties. Sour water, water for use in fire emergencies, tank storage, costs associated with security services and costs associated with the removal of excess sulfur are all allocated between the two parties by the terms of the agreement. The agreement also requires CRNF to reimburse CRRM for utility costs related to a sulfur processing agreement
46
between CRRM and Tessenderlo Kerley, Inc. (“Tessenderlo Kerley”). CRNF has a similar agreement with Tessenderlo Kerley. Otherwise, costs relating to both CRRM’s and CRNF’s existing agreements with Tessenderlo Kerley are allocated equally between the two parties, except in certain circumstances.
The parties may temporarily suspend the provision of feedstocks or services pursuant to the terms of the agreement if repairs or maintenance are necessary on applicable facilities. Additionally, the agreement imposes minimum insurance requirements on the parties and their affiliates.
The agreement has an initial term of 20 years, ending in October 2027, which automatically extends for successive five-year renewal periods. Either party may terminate the agreement, effective upon the last day of a term, by giving notice no later than three years prior to a renewal date. The agreement is also terminable by mutual consent of the parties or if one party breaches the agreement and does not cure within applicable cure periods and the breach materially and adversely affects the ability of the terminating party to operate its facility. Additionally, the agreement may be terminated in some circumstances if substantially all of the operations at the nitrogen fertilizer plant or CRRM’s Coffeyville, Kansas refinery are permanently terminated, or if either party is subject to a bankruptcy proceeding, or otherwise becomes insolvent.
Raw Water and Facilities Sharing Agreement
CRRM entered into a raw water and facilities sharing agreement with CRNF, which (i) provides for the allocation of raw water resources between CRRM’s Coffeyville, Kansas refinery and CRNF’s nitrogen fertilizer plant and (ii) provides for the management of the water intake system (consisting primarily of a water intake structure, water pumps, meters and a short run of piping between the intake structure and the origin of the separate pipes that transport the water to each facility) that draws raw water from the Verdigris River for both CRRM’s Coffeyville, Kansas refinery and CRNF’s nitrogen fertilizer plant. This agreement provides that a water management team consisting of one representative from each party to the agreement will manage the Verdigris River water intake system. The water intake system is owned and operated by CRRM. The agreement provides that both companies have an undivided one-half interest in the water rights, which will allow the water to be removed from the Verdigris River for use at CRRM’s Coffeyville, Kansas refinery and CRNF’s nitrogen fertilizer plant.
The agreement provides that both CRRM’s Coffeyville, Kansas refinery and CRNF’s nitrogen fertilizer plant are entitled to receive sufficient amounts of water from the Verdigris River each day to enable them to conduct their businesses at their appropriate operational levels. However, if the amount of water available from the Verdigris River is insufficient to satisfy the operational requirements of both facilities, then such water shall be allocated between the two facilities on a prorated basis. This prorated basis will be determined by calculating the percentage of water used by each facility over the two calendar years prior to the shortage, making appropriate adjustments for any operational outages involving either of the two facilities.
Costs associated with operation of the water intake system and administration of water rights are also allocated on a prorated basis, calculated by CRRM based on the percentage of water used by each facility during the calendar year in which such costs are incurred. However, in certain circumstances, such as where one party bears direct responsibility for the modification or repair of the water pumps, one party will bear all costs associated with such activity. Additionally, CRNF must reimburse CRRM for electricity required to operate the water pumps on a prorated basis that is calculated monthly.
Either CRNF or CRRM is entitled to terminate the agreement by giving at least three years’ prior written notice. Between the time that notice is given and the termination date, CRRM must cooperate with CRNF to allow CRNF to build its own water intake system on the Verdigris River to be used for supplying water to the nitrogen fertilizer plant. CRRM is required to grant easements and access over its property so that CRNF can construct and utilize such new water intake system, provided that no such easements or access over CRRM’s property shall have a material adverse effect on its business or operations at the refinery. CRNF will bear all costs and expenses for such construction if it is the party that terminated the original water sharing agreement. If CRRM terminates the original water sharing agreement, CRNF may either install a new water intake system at its own expense or require CRRM to sell the existing water intake system to CRNF for a price equal to the depreciated book value of the water intake system as of the date of transfer.
Either party may assign its rights and obligations under the agreement to an affiliate of the assigning party, to a party’s lenders for collateral security purposes or to an entity that acquires all or substantially all of the equity or assets of the assigning party related to the refinery or fertilizer plant, as applicable, in each case subject to applicable consent requirements. The parties may obtain injunctive relief to enforce their rights under the agreement. The agreement contains an obligation to indemnify the other party and its affiliates against liability arising from breach
47
of the agreement, negligence or willful misconduct by the indemnifying party or its affiliates. The indemnification obligation will be reduced, as applicable, by amounts actually recovered by the indemnified party from third parties or insurance coverage. The agreement also contains a provision that prohibits recovery of lost profits or revenue, or special, incidental, exemplary, punitive or consequential damages from either party or certain affiliates.
The term of the agreement is perpetual unless (1) the agreement is terminated by either party upon three years’ prior written notice in the manner described above or (2) the agreement is otherwise terminated by the mutual written consent of the parties.
Cross-Easement Agreement
CRRM entered into a cross-easement agreement with CRNF to enable both CRRM and CRNF to access and utilize each other’s land in certain circumstances in order to operate their respective businesses. The agreement grants easements for the benefit of both parties and establishes easements for operational facilities, pipelines, equipment, access and water rights, among other easements. The intent of the agreement is to structure easements that provide flexibility for both parties to develop their respective properties, without depriving either party of the benefits associated with the continuous reasonable use of the other party’s property.
The agreement provides that facilities located on each party’s property will generally be owned and maintained by the property-owning party; provided, however, that in certain specified cases where a facility that benefits one party is located on the other party’s property, the benefited party will have the right to use, and will be responsible for operating and maintaining, the overlapping facility.
The easements granted under the agreement are non-exclusive to the extent that future grants of easements do not interfere with easements granted under the agreement. The duration of the easements granted under the agreement will vary, and some will be perpetual. Easements pertaining to certain facilities that are required to carry out the terms of CRNF’s other agreements with CRRM will terminate upon the termination of such related agreements.
The agreement contains an obligation to indemnify, defend and hold harmless the other party against liability arising from negligence or willful misconduct by the indemnifying party. The agreement also requires the parties to carry minimum amounts of employer’s liability insurance, commercial general liability insurance and other types of insurance. If either party transfers its fee simple ownership interest in the real property governed by the agreement, the new owner of the real property will be deemed to have assumed all of the obligations of the transferring party under the agreement, except that the transferring party will retain liability for all obligations under the agreement that arose prior to the date of transfer.
Environmental Agreement
CRRM entered into an environmental agreement with CRNF, which provides for certain indemnification and access rights in connection with environmental matters affecting CRRM’s Coffeyville, Kansas refinery and CRNF’s nitrogen fertilizer plant.
To the extent that one party’s property experiences environmental contamination due to the activities of the other party and the contamination is known at the time the agreement was entered into, the contaminating party is required to implement all government-mandated environmental activities relating to the contamination, or else indemnify the property-owning party for expenses incurred in connection with implementing such measures.
To the extent that liability arises from environmental contamination that is caused by CRRM but is also commingled with environmental contamination caused by CRNF, CRRM may elect in its sole discretion and at its own cost and expense to perform government-mandated environmental activities relating to such liability, subject to certain conditions and provided that CRRM will not waive any rights to indemnification or compensation otherwise provided for in the agreement.
The agreement also addresses situations in which a party’s responsibility to implement such government-mandated environmental activities as described above may be hindered by the property-owning party’s creation of capital improvements on the property. If a contaminating party bears such responsibility but the property-owning party desires to implement a planned and approved capital improvement project on its property, the parties must meet and attempt to develop a soil management plan together. If the parties are unable to agree on a soil management plan 30 days after receiving notice, the property-owning party may proceed with its own commercially reasonable soil management plan. The contaminating party is responsible for the costs of disposing of hazardous materials pursuant to such plan.
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If the property-owning party needs to do work that is not a planned and approved capital improvement project but is necessary to protect the environment, health, or the integrity of the property, other procedures will be implemented. If the contaminating party still bears responsibility to implement government-mandated environmental activities relating to the property and the property-owning party discovers contamination caused by the other party during work on the capital improvement project, the property-owning party will give the contaminating party prompt notice after discovery of the contamination and will allow the contaminating party to inspect the property. If the contaminating party accepts responsibility for the contamination, it may proceed with government-mandated environmental activities relating to the contamination and it will be responsible for the costs of disposing of hazardous materials relating to the contamination. If the contaminating party does not accept responsibility for such contamination or fails to diligently proceed with government-mandated environmental activities related to the contamination, then the contaminating party must indemnify and reimburse the property-owning party upon the property-owning party’s demand for costs and expenses incurred by the property-owning party in proceeding with such government-mandated environmental activities.
Either party is entitled to assign its rights and obligations under the agreement to an affiliate of the assigning party, to a party’s lenders for collateral security purposes or to an entity that acquires all or substantially all of the equity or assets of the assigning party related to the refinery or fertilizer plant, as applicable, in each case subject to applicable consent requirements. The agreement has a term of at least 20 years or for so long as the feedstock and shared services agreement is in force, whichever is longer. The agreement also contains a provision that prohibits recovery of lost profits or revenues, or special, incidental, exemplary, punitive or consequential damages, from either party or certain of its affiliates.
If one party causes such contamination or release on the other party’s property, the latter party must notify the contaminating party, and the contaminating party must take steps to implement all government-mandated environmental activities relating to the contamination or else indemnify the property-owning party for the costs associated with doing such work.
The agreement also grants each party reasonable access to the other party’s property for the purpose of carrying out obligations under the agreement. However, both parties must keep certain information relating to the environmental conditions on the properties confidential. Furthermore, both parties are prohibited from investigating soil or groundwater conditions, except as required for government-mandated environmental activities, in responding to an accidental or sudden contamination of certain hazardous materials or in connection with implementation of CRNF’s comprehensive pet coke management plan.
The agreement provided for the development of a comprehensive pet coke management plan that established procedures for the management of pet coke and the identification of significant pet coke-related contamination. Also, the parties agreed to indemnify and defend one another and each other’s affiliates against liabilities arising under the pet coke management plan or relating to a failure to comply with or implement the pet coke management plan.
Omnibus Agreement
CVR Energy entered into an omnibus agreement with CVR Partners and its general partner. Under the omnibus agreement, CVR Partners has agreed that CVR Energy will have a preferential right to acquire any assets or group of assets that do not constitute assets used in a fertilizer restricted business. In determining whether to exercise any preferential right under the omnibus agreement, CVR Energy will be permitted to act in its sole discretion, without any fiduciary obligation to CVR Partners or its unitholders whatsoever. These obligations will continue so long as CVR Energy owns the majority of the CVR Partners’ general partner directly or indirectly.
CVR Partners Services Agreement
CVR Energy entered into a services agreement with CVR Partners and its general partner pursuant to which CVR Energy provided certain management and other services to CVR Partners and the general partner of CVR Partners. Under this agreement, the general partner of CVR Partners engaged CVR Energy to conduct the day-to-day business operations of CVR Partners.
CVR Energy provides CVR Partners with the following services under the agreement, among others:
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services by its employees in capacities equivalent to the capacities of corporate executive officers, except that those who serve in such capacities under the agreement shall serve CVR Partners on a shared, part-time basis only, unless CVR Energy and CVR Partners agree otherwise;
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administrative and professional services, including legal, accounting services, human resources, insurance, tax, credit, finance, government affairs and regulatory affairs;
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management of the property of CVR Partners and the property of CVR Partners’ operating subsidiary in the ordinary course of business;
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recommendations on capital raising activities to the board of directors of the general partner of CVR Partners, including the issuance of debt or equity interests, the entry into credit facilities and other capital market transactions;
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managing or overseeing litigation and administrative or regulatory proceedings, and establishing appropriate insurance policies for CVR Partners and providing safety and environmental advice;
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recommending the payment of distributions; and
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managing or providing advice for other projects, including acquisitions, as may be agreed by CVR Energy and the general partner of CVR Partners from time to time.
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As payment for services provided under the agreement, CVR Partners, the general partner of CVR Partners, or CRNF, CVR Partners’ operating subsidiary, must pay CVR Energy (i) all costs incurred by CVR Energy in connection with the employment of its employees, other than administrative personnel, who provide services to CVR Partners under the agreement on a full-time basis, but excluding certain share-based compensation; (ii) a prorated share of costs incurred by CVR Energy in connection with the employment of its employees, including administrative personnel, who provide services to CVR Partners under the agreement on a part-time basis, but excluding certain share-based compensation, and such prorated share shall be determined by CVR Energy on a commercially reasonable basis, based on the percentage of total working time that such shared personnel are engaged in performing services for CVR Partners; (iii) a prorated share of certain administrative costs, including office costs, services by outside vendors, other sales, general and administrative costs and depreciation and amortization; and (iv) various other administrative costs in accordance with the terms of the agreement, including travel, insurance, legal and audit services, government and public relations and bank charges. CVR Partners must pay CVR Energy within 15 days for invoices CVR Energy submits under the agreement.
CVR Partners and its general partner are not required to pay any compensation, salaries, bonuses or benefits to any CVR Energy employees who provide services to CVR Partners or its general partner on a full-time or part-time basis; CVR Energy will continue to pay their compensation. However, personnel performing the actual day-to-day business and operations at the nitrogen fertilizer plant level will be employed directly by CVR Partners and its subsidiaries and CVR Partners will bear all personnel costs for these employees.
Either CVR Energy or CVR Partners’ general partner may temporarily or permanently exclude any particular service from the scope of the agreement upon 180 days’ notice. CVR Energy also has the right to delegate the performance of some or all of the services to be provided pursuant to the agreement to one of its affiliates or any other person or entity, though such delegation does not relieve CVR Energy from its obligations under the agreement. Either CVR Energy or CVR Partners’ general partner may terminate the agreement upon at least 180 days’ notice, but not more than one year’s notice. Furthermore, CVR Partners’ general partner may terminate the agreement immediately if CVR Energy becomes bankrupt, or dissolves and commences liquidation or winding-up.
In order to facilitate the carrying out of services under the agreement, CVR Energy and its affiliates, on the one hand, and CVR Partners, on the other, have granted one another certain royalty-free, non-exclusive and non-transferable rights to use one another’s intellectual property under certain circumstances.
For the year ended December 31, 2015, the total amount paid or payable to CVR Energy pursuant to the CVR Partners services agreement was approximately $14.2 million.
CVR Refining Services Agreement
CVR Energy entered into a services agreement with CVR Refining and its general partner. Under this agreement, CVR Refining and its general partner obtain certain management and other services from CVR Energy to conduct its day-to-day business operations. CVR Energy provides CVR Refining and its general partner with the following services under the agreement, among others:
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services from CVR Energy’s employees in capacities equivalent to the capacities of corporate executive officers, except that those who serve in such capacities under the agreement shall serve CVR Refining on a shared, part-time basis only, unless CVR Refining and CVR Energy agree otherwise;
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administrative and professional services, including legal, accounting services, human resources, insurance, tax, credit, finance, government affairs and regulatory affairs;
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management of CVR Refining’s property and the property of CVR Refining’s subsidiaries in the ordinary course of business;
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recommendations on capital raising activities to the board of directors of CVR Refining’s general partner, including the issuance of debt or equity interests, the entry into credit facilities and other capital market transactions;
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managing or overseeing litigation and administrative or regulatory proceedings, establishing appropriate insurance policies for CVR Refining and providing CVR Refining with safety and environmental advice;
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recommending the payment of distributions; and
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managing or providing advice for other projects, including acquisitions, as may be agreed by CVR Energy and CVR Refining’s general partner from time to time.
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As payment for services provided under the agreement, CVR Refining and its general partner and their subsidiaries must pay CVR Energy (i) all costs incurred by CVR Energy or its affiliates in connection with the employment of its employees, other than administrative personnel, who provide us services under the agreement on a full-time basis, but excluding certain share-based compensation; (ii) a prorated share of costs incurred by CVR Energy or its affiliates in connection with the employment of its employees, including administrative personnel, who provide us services under the agreement on a part-time basis, but excluding certain share-based compensation, and such prorated share shall be determined by CVR Energy on a commercially reasonable basis, based on the percent of total working time that such shared personnel are engaged in performing services for us; (iii) a prorated share of certain administrative costs, including office costs, services by outside vendors, other sales, general and administrative costs and depreciation and amortization; and (iv) various other administrative costs in accordance with the terms of the agreement, including travel, insurance, legal and audit services, government and public relations and bank charges. CVR Refining must pay CVR Energy within 15 days for invoices CVR Energy submits under the agreement.
CVR Refining and its general partner are not required to pay any compensation, salaries, bonuses or benefits to any of CVR Energy’s employees who provide services to CVR Refining and its general partner on a full-time or part-time basis; CVR Energy continues to pay their compensation. However, personnel performing the actual day-to-day business and operations at the petroleum refinery plant level are employed directly by CVR Refining and its general partner and their subsidiaries, and CVR Refining and its general partner bears all personnel costs for these employees.
Either CVR Energy or CVR Refining’s general partner is allowed to temporarily or permanently exclude any particular service from the scope of the agreement upon 180 days’ notice. CVR Energy also has the right to delegate the performance of some or all of the services to be provided pursuant to the agreement to one of its affiliates or any other person or entity, though such delegation does not relieve CVR Energy from its obligations under the agreement. Either CVR Energy or our general partner may terminate the agreement upon at least 180 days’ notice, but not more than one year’s notice. Furthermore, CVR Refining’s general partner may terminate the agreement immediately if CVR Energy becomes bankrupt, or dissolves and commences liquidation or winding-up.
In order to facilitate the carrying out of services under the agreement, we, on the one hand, and CVR Energy and its affiliates, on the other, have granted one another certain royalty-free, non-exclusive and non-transferable rights to use one another’s intellectual property under certain circumstances.
For the year ended December 31, 2015, the total amount paid or payable to CVR Energy pursuant to the CVR Refining services agreement was approximately $71.3 million.
GP Services Agreement
CVR Energy is party to a GP Services Agreement with CVR GP, LLC and CVR Partners. This agreement allows CVR Energy to engage CVR GP, LLC, in its capacity as CVR Partners’ general partner, to provide CVR Energy with (i) business development and related services and (ii) advice or recommendations for such other projects as may be agreed between CVR Energy and CVR Partners’ general partner from time to time. As payment for services provided under the agreement, CVR Energy must pay a prorated share of costs incurred by CVR Partners or CVR Partners’ general partner in connection with the employment of Partnership employees who provide CVR Energy services on a part-time basis, as determined by CVR Partners’ general partner on a commercially reasonable basis based on the percentage of total working time that such shared personnel are engaged in performing services for CVR Energy. CVR Energy is not required to directly pay any compensation, salaries, bonuses or benefits to any of CVR Partners’ or its general partner’s employees who provide services to CVR Energy on a full-time or part-time basis; CVR Partners will continue to pay their compensation.
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Either CVR Energy or CVR Partners’ general partner may temporarily or permanently exclude any particular service from the scope of the agreement upon 180 days’ notice. CVR Partners’ general partner also has the right to delegate the performance of some or all of the services to be provided pursuant to the agreement to one of its affiliates or any other person or entity, though such delegation does not relieve CVR Partners’ general partner from its obligations under the agreement. Either CVR Energy or CVR Partners’ general partner may terminate the agreement upon at least 180 days’ notice, but no more than one year’s notice. Furthermore, CVR Energy may terminate the agreement immediately if CVR Partners or its general partner becomes bankrupt or dissolve and commence liquidation or winding-up.
For the year ended December 31, 2015, no amounts were paid or payable to CVR Partners pursuant to the GP services agreement.
CVR Partners Trademark License Agreement
CVR Partners is party to a trademark license agreement with CVR Energy pursuant to which CVR Energy has granted CVR Partners a non-exclusive, non-transferrable license (without its prior written consent) to use the Coffeyville Resources word mark and the CVR Partners and Coffeyville Resources logos in connection with CVR Partners’ business. CVR Partners agreed to use the marks only in the form and manner and with appropriate legends as prescribed from time to time by CVR Energy, and CVR Energy agreed that the nature and quality of the business that uses the marks will conform to standards currently applied by CVR Partners. Either party can terminate the license with 60 days’ prior notice.
CVR Refining Trademark License Agreement
CVR Refining is party to a trademark license agreement with CVR Energy pursuant to which CVR Energy granted to CVR Refining a non-exclusive and non-transferrable (without its prior written consent) license to use the Coffeyville Resources word mark and the CVR Refining and Coffeyville Resources logos in connection with CVR Refining’s business. CVR Refining agreed to use the marks only in the form and manner and with appropriate legends as prescribed from time to time by CVR Energy, and CVR Energy agreed that the nature and quality of the business that uses the marks will conform to standards currently applied by CVR Refining. Either party can terminate the license with 60 days’ prior notice.
CVR Partners Amended and Restated Registration Rights Agreement
CVR Partners entered into an amended and restated registration rights agreement with CRLLC, pursuant to which CVR Partners may be required to register the sale of CVR Partners common units CRLLC holds. Under the registration rights agreement, CRLLC has the right to request that CVR Partners register the sale of common units held by CRLLC on six occasions, including requiring CVR Partners to make available shelf registration statements permitting sales of common units into the market from time to time over an extended period. In addition, CRLLC and its permitted transferees have the ability to exercise certain piggyback registration rights with respect to their securities if CVR Partners elects to register any of its equity interests. The registration rights agreement also includes provisions dealing with holdback agreements, indemnification and contribution, and allocation of expenses. All CVR Partners common units held by CRLLC and any permitted transferee will be entitled to these registration rights, except that the demand registration rights may only be transferred in whole and not in part.
As of December 31, 2015, public security holders held approximately 47% of CVR Partners’ common units, and CRLLC held approximately 53% of CVR Partners’ common units.
CVR Refining Registration Rights Agreement
In connection with CVR Refining’s initial public offering, on January 23, 2013, CVR Refining entered into a registration rights agreement with affiliates of IEP, CVR Refining Holdings, LLC (“CVR Refining Holdings”), a subsidiary of CRLLC, and CVR Refining Holdings Sub, LLC, a wholly-owned subsidiary of CVR Refining Holdings, pursuant to which CVR Refining may be required to register the sale of the common units held by affiliates of IEP, CVR Holdings and CVR Refining Holdings Sub, LLC. Under the registration rights agreement, affiliates of IEP, CVR Refining Holdings and CVR Refining Holdings Sub, LLC have the right to request that CVR Refining register the sale of common units held by them on their behalf on six occasions, including requiring CVR Refining to make available shelf registration statements permitting sales of common units into the market from time to time over an extended period, and may require CVR Refining to undertake a 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 them. In addition, affiliates of IEP, CVR Refining Holdings and CVR Refining
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Holdings Sub, LLC and their permitted transferees have the ability to exercise certain piggyback registration rights with respect to their securities if CVR Refining elects to register any of its equity interests. The registration rights agreement also includes provisions dealing with holdback agreements, indemnification and contribution, and allocation of expenses. All CVR Refining common units held by affiliates of IEP, CVR Refining Holdings and CVR Refining Holdings Sub, LLC and any permitted transferee are entitled to these registration rights.
On June 30, 2014, CVR Refining completed a second underwritten offering (the “Second Underwritten Offering”) by selling 6,500,000 common units to the public at a price of $26.07 per unit. CVR Refining paid approximately $5.3 million in underwriting fees and approximately $0.5 million in offering costs. CVR Refining utilized net proceeds of approximately $164.1 million from the Second Underwritten Offering to redeem 6,500,000 common units from CVR Refining Holdings. Subsequent to the closing of the Second Underwritten Offering, public security holders held approximately 33% of all outstanding common units, and CVR Refining Holdings held approximately 67% of all outstanding common units.
On July 24, 2014, CVR Refining sold an additional 589,100 common units to the public at a price of $26.07 per unit in connection with the underwriters’ exercise of their option to purchase additional common units. CVR Refining utilized net proceeds of approximately $14.9 million from the underwriters’ exercise of their option to purchase additional common units to redeem an equal amount of common units from CVR Refining Holdings. Additionally, on July 24, 2014, CVR Refining Holdings sold 385,900 common units to the public at a price of $26.07 per unit in connection with the underwriters’ exercise of their remaining option to purchase additional common units. CVR Refining Holdings received net proceeds of $9.7 million.
Subsequent to the closing of the Second Underwritten Offering and as of December 31, 2015, public security holders held approximately 34% of CVR Refining’s common units (including units owned by affiliates of IEP representing 4% of CVR Refining’s common units) and CVR Refining Holdings held approximately 66% of CVR Refining’s common units.
Contribution Agreement
On December 31, 2012, CVR Refining entered into a Contribution Agreement with CVR Refining Holdings and certain of its affiliates pursuant to which CVR Refining Holdings contributed its membership interest in CVR Refining, LLC to CVR Refining. In addition, CVR Refining Holdings contributed a 0.01% limited partner interest in CVR Refining to its wholly-owned subsidiary, CVR Refining Holdings Sub, LLC.
Reorganization Agreement
In connection with CVR Refining’s initial public offering, on January 16, 2013, CVR Refining entered into a Reorganization Agreement, whereby CVR Refining Holdings agreed, if necessary, to contribute to CVR Refining an amount of cash such that CVR Refining would have approximately $340.0 million of cash on hand at the closing of the initial public offering, excluding cash used to repurchase the Second Lien Notes issued by CRLLC and Coffeyville Finance. If such amount of cash on hand at the closing of CVR Refining’s initial public offering were to exceed $340.0 million, CVR Refining agreed to distribute the excess to CVR Refining Holdings. In addition, pursuant to the Reorganization Agreement, CVR Refining agreed to (i) issue 119,988,000 common units to CVR Refining Holdings and 12,000 common units to CVR Refining Holdings Sub, LLC, (ii) issue any common units not purchased by the underwriters in the initial public offering pursuant to their option to purchase additional common units, and distribute the net proceeds (after deducting discounts and commissions) from the exercise of such option, if any, to CVR Refining Holdings and (iii) undertake an offering of common units in the future upon request by CVR Refining Holdings and use the proceeds thereof (net of underwriting discounts and commissions) to redeem an equal number of common units from CVR Refining Holdings as a distribution to reimburse CVR Refining Holdings for certain capital expenditures incurred with respect to the assets contributed to CVR Refining.
Intercompany Credit Facility - CVR Refining
On January 23, 2013, CRLLC, as lender, entered into a $150.0 million senior unsecured revolving credit facility with CVR Refining, to be used to fund CVR Refining’s growth capital expenditures, which was subsequently expanded to $250.0 million on October 29, 2014. The intercompany credit facility is for a term of six years and bears interest at a rate of LIBOR plus 3% per annum.
The intercompany credit facility contains covenants that require CVR Refining to, among other things, notify CRLLC of the occurrence of any default or event of default and provide CRLLC with such information in respect of
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CVR Refining’s business and financial status as CRLLC may reasonably require, including, but not limited to, copies of CVR Refining’s unaudited quarterly financial statements and audited annual financial statements.
In addition, the intercompany credit facility contains customary events of default, including, among others, failure to pay any sum payable when due; the occurrence of a default of other indebtedness in excess of $25.0 million; and the occurrence of an event that results in either (i) CRLLC no longer directly or indirectly controlling CVR Refining’s general partner, or (ii) CRLLC and its affiliates no longer owning a majority of CVR Refining’s equity interests.
As of December 31, 2015, CVR Refining had borrowings of $31.5 million outstanding and availability of $218.5 million under the facility.
Intercompany Credit Facility - CVR Partners
On April 1, 2016, in connection with the closing of CVR Partners’ acquisition of East Dubuque via merger, CRLLC, as lender, entered into a $300.0 million senior unsecured term loan facility with CVR Partners. The proceeds of the facility were used by CVR Partners (i) to fund the repayment of amounts outstanding under East Dubuque’s revolving credit facility, (ii) to pay the cash consideration and to pay fees and expenses in connection with the mergers and related transactions and (iii) to repay all of the loans outstanding under CVR Partners’ term loan and revolving credit facility. The intercompany credit facility has a term of two years and bears an interest rate of 12.0% per annum. Interest is calculated on the basis of the actual number of days elapsed over a 360-day year and payable quarterly. CVR Partners may voluntarily prepay in whole or in part the borrowings under the facility without premium or penalty. In April 2016, CVR Partners borrowed $300.0 million under the facility.
The intercompany credit contains covenants that require CVR Partners to, among other things, notify CRLLC of the occurrence of any default or event of default and provide CRLLC with information in respect of CVR Partners’ business and financial status as it may reasonably require, including, but not limited to, copies of CVR Partners’ unaudited quarterly financial statements and audited annual financial statements. In addition, the intercompany credit facility contains customary events of default, including, among others, failure to pay any sum payable when due and the occurrence of a default of other indebtedness in excess of $25.0 million.
CVR Partners Limited Partnership Agreement
In connection with CVR Partners’ initial public offering, CVR GP, LLC and CRLLC entered into the second amended and restated agreement of limited partnership of CVR Partners. The following description of certain terms of the second amended and restated limited partnership agreement is qualified by reference to the terms of the actual partnership agreement, which has been filed with the SEC.
Description of Partnership Interests
The limited partnership agreement provides for two types of partnership interests: (1) common units representing limited partner interests and (2) a non-economic general partner interest, which is held by CVR GP, LLC, as CVR Partners’ general partner.
Common units.
The common units represent limited partner interests in CVR Partners and entitle holders to participate in partnership distributions and allocations and exercise the rights and privileges provided to limited partners under CVR Partners’ partnership agreement.
General partner interest.
The general partner interest, which is held solely by CVR Partners’ general partner, entitles the holder to manage the business and operations of CVR Partners, but does not entitle the holder to participate in distributions or allocations. CVR Partners’ general partner can be sold without the consent of any other partners.
Management of CVR Partners
CVR Partners’ general partner manages CVR Partners’ operations and activities as specified in CVR Partners’ partnership agreement. As of December 31, 2015, the board of directors of the general partner consisted of John J. Lipinski, SungHwan Cho, Donna R. Ecton, Andrew Langham, Frank M. Muller, Jr., Mark A. Pytosh and Peter K. Shea. Actions by the general partner that are made in its individual capacity will be made by CRLLC as the sole member of the general partner and not by its board of directors. The general partner is not elected by the unitholders
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and is not subject to re-election on a regular basis in the future. The officers of the general partner will manage the day-to-day affairs of CVR Partners’ business.
Cash Distributions by CVR Partners
CVR Partners will make cash distributions to holders of common units pursuant to CVR Partners’ general partner’s determination of the amount of available cash for the applicable quarter, which will then be distributed to holders of common units, pro rata; provided, however, that CVR Partners’ partnership agreement allows CVR Partners to issue an unlimited number of additional equity interests of equal or senior rank. CVR Partners’ partnership agreement permits CVR Partners to borrow to make distributions, but it is not required, and does not intend, to do so. CVR Partners does not have a legal obligation to pay distributions in any quarter, and the amount of distributions paid under CVR Partners’ cash distribution policy and the decision to make any distributions is determined by the board of directors of the general partner.
Voting Rights
CVR Partners’ partnership agreement provides that various matters require the approval of a “unit majority.” A unit majority requires the approval of a majority of the common units. In voting their units, CVR Partners’ general partner and its affiliates will have no fiduciary duty or obligation whatsoever to CVR Partners or the limited partners, including any duty to act in good faith or in the best interests of CVR Partners and its limited partners.
The following is a summary of the vote requirements specified for certain matters under CVR Partners’ partnership agreement:
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Issuance of additional units:
no approval right.
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Amendment of CVR Partners’ partnership agreement:
certain amendments may be made by the general partner without the approval of the unitholders. Other amendments generally require the approval of a unit majority.
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Merger of CVR Partners or the sale of all or substantially all of CVR Partners’ assets:
unit majority in certain circumstances.
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Dissolution of CVR Partners:
unit majority.
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Continuation of CVR Partners upon dissolution:
unit majority.
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Withdrawal of the general partner:
under most circumstances, a unit majority, excluding common units held by CVR Partners’ general partner and its affiliates, is required for the withdrawal of the general partner prior to March 31, 2021.
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Removal of the general partner:
not less than 66 2/3% of the outstanding units including units held by the general partner and its affiliates.
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Transfer of the general partner’s general partner interest:
the general partner may transfer all, but not less than all, of its general partner interest in CVR Partners without a vote of any unitholders to an affiliate or to another person (other than an individual) in connection with its merger or consolidation with or into, or sale of all or substantially all of its assets to, such person. The approval of a majority of the outstanding units, excluding units held by the general partner and its affiliates, voting as a class, is required in other circumstances for a transfer of the general partner interest to a third party prior to March 31, 2021.
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Transfer of ownership interests in the general partner:
no approval required at any time.
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Call Right
If at any time the general partner and its affiliates own more than 80% of the then-issued and outstanding limited partner interests of any class, the general partner will have the right, which it may assign in whole or in part to any of its affiliates or to CVR Partners, to acquire all, but not less than all, of the limited partner interests of the class held by unaffiliated persons, as of a record date to be selected by the general partner, on at least 10 but not more than 60 days’ notice. The purchase price in the event of such an acquisition will be the greater of (1) the highest price paid by the general partner or any of its affiliates for any limited partner interests of the class purchased within the 90 days preceding the date on which the general partner first mails notice of its election to purchase those limited partner interests and (2) the average of the daily closing prices of the limited partner interests over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed.
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Conflicts of Interest
The general partner will not be in breach of its obligations under CVR Partners partnership agreement or its duties to CVR Partners or its unitholders (including us) if the resolution of a conflict of interest is either (1) approved by the conflicts committee of the board of directors of the general partner, although the general partner is not obligated to seek such approval, (2) approved by the vote of a majority of the outstanding common units, excluding any common units owned by the general partner or any of its affiliates, although the general partner is not obligated to seek such approval, (3) on terms no less favorable to CVR Partners than those generally being provided to or available from unrelated third parties; or (4) fair and reasonable to CVR Partners, taking into account the totality of the relationships between the parties involved, including other transactions that may be particularly favorable or advantageous to CVR Partners.
In addition to the provisions described above, CVR Partners’ partnership agreement contains provisions that restrict the remedies available to CVR Partners’ unitholders for actions that might otherwise constitute breaches of fiduciary duty. For example:
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CVR Partners’ partnership agreement permits the general partner to make a number of decisions in its individual capacity, as opposed to its capacity as general partner, thereby entitling the general partner to consider only the interests and factors that it desires and imposes no duty or obligation on the general partner to give any consideration to any interest of, or factors affecting, CVR Partners, its affiliates, any limited partner or the common unitholders.
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CVR Partners’ partnership agreement provides that the general partner shall not have any liability to CVR Partners or its unitholders for decisions made in its capacity as general partner so long as it acted in good faith, meaning it believed that the decision was in the best interests of CVR Partners.
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CVR Partners’ partnership agreement generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of the board of directors of the general partner and not involving a vote of unitholders must be on terms no less favorable to CVR Partners than those generally being provided to or available from unrelated third parties or be “fair and reasonable” to CVR Partners, as determined by the general partner in good faith and that, in determining whether a transaction or resolution is “fair and reasonable,” the general partner may consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to CVR Partners.
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CVR Partners’ partnership agreement provides that the general partner and its officers and directors will not be liable for monetary damages to CVR Partners or its limited partners for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the general partner or its officers or directors acted in bad faith or engaged in fraud or willful misconduct, or, in the case of a criminal matter, acted with knowledge that the conduct was criminal.
|
|
•
|
CVR Partners’ partnership agreement provides that in resolving conflicts of interest, it will be presumed that in making its decision, the general partner or its conflicts committee acted in good faith and in any proceeding brought by or on behalf of any limited partner or CVR Partners, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.
|
CVR Partners’ partnership agreement contains various provisions modifying and restricting the fiduciary duties that might otherwise be owed by the general partner. CVR Partners has adopted these provisions to allow CVR Partners’ general partner or its affiliates to engage in transactions with CVR Partners that would otherwise be prohibited by state law fiduciary standards and to take into account the interests of other parties in addition to CVR Partners’ interests when resolving conflicts of interest. Without such modifications, such transactions could result in violations of CVR Partners’ general partner’s state law fiduciary duty standards.
|
•
|
Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in a partnership agreement providing otherwise, would generally require a general partner to act for CVR Partners in the same manner as a prudent person would act on his own behalf. The duty of loyalty, in the absence of a provision in a partnership agreement providing otherwise, would generally prohibit a general partner of a Delaware limited partnership from taking any action or engaging in any transaction where a conflict of interest is present.
|
|
•
|
CVR Partners’ partnership agreement contains provisions that waive or consent to conduct by CVR Partners’ general partner and its affiliates that might otherwise raise issues as to compliance with fiduciary
|
56
duties or applicable law. For example, CVR Partners’ partnership agreement provides that when the general partner is acting in its capacity as a general partner, as opposed to in its individual capacity, it must act in “good faith” and will not be subject to any other standard under applicable law. In addition, when the general partner is acting in its individual capacity, as opposed to in its capacity as a general partner, it may act without any fiduciary obligation to CVR Partners or the unitholders whatsoever. These contractual standards reduce the obligations to which CVR Partners’ general partner would otherwise be held.
|
•
|
CVR Partners’ partnership agreement generally provides that affiliated transactions and resolutions of conflicts of interest not involving a vote of unitholders and that are not approved by the conflicts committee of the board of directors of CVR Partners’ general partner must be (1) on terms no less favorable to CVR Partners than those generally being provided to or available from unrelated third parties or (2) “fair and reasonable” to CVR Partners, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to CVR Partners).
|
|
•
|
If CVR Partners’ general partner does not seek approval from the conflicts committee of its board of directors or the common unitholders and its board of directors determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the bullet point above, then it will be presumed that, in making its decision, the board of directors of the general partner, which may include board members affected by the conflict of interest, acted in good faith and in any proceeding brought by or on behalf of any limited partner or CVR Partners, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. These standards reduce the obligations to which CVR Partners’ general partner would otherwise be held.
|
|
•
|
Delaware law generally provides that a limited partner may institute legal action on behalf of CVR Partners to recover damages from a third party where a general partner has refused to institute the action or where an effort to cause a general partner to do so is not likely to succeed. These actions include actions against a general partner for breach of its fiduciary duties or of our partnership agreement. In addition, the statutory or case law of some jurisdictions may permit a limited partner to institute legal action on behalf of it and all other similarly situated limited partners to recover damages from a general partner for violations of its fiduciary duties to the limited partners.
|
|
•
|
In addition to the other more specific provisions limiting the obligations of CVR Partners’ general partner, CVR Partners’ partnership agreement further provides that CVR Partners’ general partner and its officers and directors will not be liable for monetary damages to CVR Partners or its limited partners for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that the general partner or its officers and directors acted in bad faith or engaged in fraud or willful misconduct, or, in the case of a criminal matter, acted with knowledge that such person’s conduct was unlawful.
|
CVR Partners’ partnership agreement provides that CVR Partners will reimburse its general partner for all direct or indirect expenses it incurs or payments that it makes on behalf of CVR Partners (including salary, bonus, incentive compensation and other amounts paid to any person who performs services for CVR Partners or for its general partner in connection with operating CVR Partners). For the year ended December 31, 2015, CVR Partners reimbursed its general partner approximately $3.9 million pursuant to its partnership agreement.
CVR Refining Limited Partnership Agreement
In connection with CVR Refining’s initial public offering, CVR Refining GP, LLC and CVR Refining Holdings, LLC entered into the first amended and restated agreement of limited partnership of CVR Refining. The following description of certain terms of the second amended and restated limited partnership agreement is qualified by reference to the terms of the actual partnership agreement, which has been filed with the SEC.
Description of Partnership Interests
The limited partnership agreement provides for two types of partnership interests: (1) common units representing limited partner interests and (2) a non-economic general partner interest, which is held by CVR Refining GP, LLC, as CVR Refining’s general partner.
Common units.
The common units represent limited partner interests in CVR Refining and entitle holders to participate in partnership distributions and allocations and exercise the rights and privileges provided to limited partners under CVR Refining’s partnership agreement.
57
General partner interest.
The general partner interest, which is held solely by CVR Refining’s general partner, entitles the holder to manage the business and operations of CVR Refining, but does not entitle the holder to participate in distributions or allocations. CVR Refining’s general partner can be sold without the consent of any other partners.
Management of CVR Refining
CVR Refining’s general partner manages CVR Refining’s operations and activities as specified in CVR Refining’s partnership agreement. As of December 31, 2015, the board of directors of the general partner consisted of John J. Lipinski, Carl C. Icahn, SungHwan Cho, Andrew Langham, Courtney Mather, Louis Pastor, Kenneth Shea, Jon R. Whitney and Glenn R. Zander. Actions by the general partner that are made in its individual capacity will be made by CVR Refining Holdings as the sole member of the general partner and not by its board of directors. The general partner is not elected by the unitholders and is not subject to re-election on a regular basis in the future. The officers of the general partner will manage the day-to-day affairs of CVR Refining’s business.
Cash Distributions by CVR Refining
CVR Refining intends to make cash distributions to holders of common units pursuant to CVR Refining’s general partner’s determination of the amount of available cash for the applicable quarter, which will then be distributed to holders of common units, pro rata; provided, however, that CVR Refining’s partnership agreement allows CVR Refining to issue an unlimited number of additional equity interests of equal or senior rank. CVR Refining’s partnership agreement permits CVR Refining to borrow to make distributions, but it is not required, and does not intend, to do so. CVR Refining does not have a legal obligation to pay distributions in any quarter, and the amount of distributions paid under CVR Refining’s cash distribution policy and the decision to make any distributions is determined by the board of directors of the general partner.
Voting Rights
CVR Refining’s partnership agreement provides that various matters require the approval of a “unit majority.” A unit majority requires the approval of a majority of the common units. In voting their units, CVR Refining’s general partner and its affiliates will have no fiduciary duty or obligation whatsoever to CVR Refining or the limited partners, including any duty to act in good faith or in the best interests of CVR Refining and its limited partners.
The following is a summary of the vote requirements specified for certain matters under CVR Refining’s partnership agreement:
|
•
|
Issuance of additional units:
no approval right.
|
|
•
|
Amendment of CVR Refining’s partnership agreement:
certain amendments may be made by the general partner without the approval of the unitholders. Other amendments generally require the approval of a unit majority.
|
|
•
|
Merger of CVR Refining or the sale of all or substantially all of CVR Refining’s assets:
unit majority in certain circumstances.
|
|
•
|
Dissolution of CVR Refining:
unit majority.
|
|
•
|
Continuation of CVR Refining upon dissolution:
unit majority.
|
|
•
|
Withdrawal of the general partner:
under most circumstances, a unit majority, excluding common units held by CVR Refining’s general partner and its affiliates, is required for the withdrawal of the general partner prior to December 31, 2022.
|
|
•
|
Removal of the general partner:
not less than 66 2/3% of the outstanding units including units held by the general partner and its affiliates.
|
|
•
|
Transfer of the general partner’s general partner interest:
the general partner may transfer all, but not less than all, of its general partner interest in CVR Refining without a vote of any unitholders to an affiliate or to another person (other than an individual) in connection with its merger or consolidation with or into, or sale of all or substantially all of its assets to, such person.
|
|
•
|
Transfer of ownership interests in the general partner:
no approval required at any time.
|
58
Call Right
If at any time CVR Refining’s general partner and its affiliates own more than 95% of the common units, it will have the right, which it may assign to any of its affiliates or to CVR Refining, but not the obligation, to acquire all, but not less than all, of the common units held by public unitholders as of a record date to be selected by the general partner, on at least 10 but not more than 60 days’ notice. The purchase price will be equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed; and (2) the highest per-unit price paid by the general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed, as calculated pursuant to the terms of CVR Refining’s partnership agreement. If CVR Refining’s general partner and its affiliates reduce their ownership percentage to below 70% of the outstanding units, the ownership threshold to exercise the call right will be permanently reduced to 80%.
Conflicts of Interest
The general partner will not be in breach of its obligations under CVR Refining’s partnership agreement or its duties to CVR Refining or its unitholders (including us) if the resolution of a conflict of interest is either (1) approved by the conflicts committee of the board of directors of the general partner, although the general partner is not obligated to seek such approval, or (2) approved by the vote of a majority of the outstanding common units, excluding any common units owned by the general partner or any of its affiliates, although the general partner is not obligated to seek such approval.
In addition to the provisions described above, CVR Refining’s partnership agreement contains provisions that restrict the remedies available to CVR Refining’s unitholders for actions that might otherwise constitute breaches of fiduciary duty. For example:
|
•
|
CVR Refining’s partnership agreement permits the general partner to make a number of decisions in its individual capacity, as opposed to its capacity as general partner, thereby entitling the general partner to consider only the interests and factors that it desires and imposes no duty or obligation on the general partner to give any consideration to any interest of, or factors affecting, CVR Refining, its affiliates, any limited partner or the common unitholders.
|
|
•
|
CVR Refining’s partnership agreement provides that the general partner shall not have any liability to CVR Refining or its unitholders for decisions made in its capacity as general partner so long as it acted in good faith, meaning it believed that the decision was in the best interests of CVR Refining.
|
|
•
|
CVR Refining’s partnership agreement provides that the general partner and its officers and directors will not be liable for monetary damages to CVR Refining or its limited partners for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the general partner or its officers or directors acted in bad faith or engaged in fraud or willful misconduct, or, in the case of a criminal matter, acted with knowledge that the conduct was criminal.
|
|
•
|
CVR Refining’s partnership agreement provides that in resolving conflicts of interest, if any resolution, course of action or transaction receives approval from the conflicts committee or receives approval of a majority of the common units (excluding common units owned by the general partner and its affiliates), then such resolution, course of action or transaction shall be conclusively deemed to be approved by CVR Refining, all the partners, each person who acquires an interest in CVR Refining and each other person who is bound by the partnership agreement, and shall not constitute a breach of any fiduciary or other duty or obligation.
|
CVR Refining’s partnership agreement contains various provisions modifying and restricting the fiduciary duties that might otherwise be owed by the general partner. CVR Refining has adopted these provisions to allow CVR Refining’s general partner or its affiliates to engage in transactions with CVR Refining that would otherwise be prohibited by state law fiduciary standards and to take into account the interests of other parties in addition to CVR Refining’s interests when resolving conflicts of interest. Without such modifications, such transactions could result in violations of CVR Refining’s general partner’s state law fiduciary duty standards.
|
•
|
Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in a partnership agreement providing otherwise, would generally require a general partner to act for CVR Refining in the same manner as a prudent person would act on his own behalf. The duty of loyalty, in the absence of a provision in a partnership agreement providing otherwise, would generally prohibit a general partner of a Delaware
|
59
limited partnership from taking any action or engaging in any transaction where a conflict of interest is present.
|
•
|
CVR Refining’s partnership agreement contains provisions that waive or consent to conduct by CVR Refining’s general partner and its affiliates that might otherwise raise issues as to compliance with fiduciary duties or applicable law. For example, CVR Refining’s partnership agreement provides that when the general partner is acting in its capacity as a general partner, as opposed to in its individual capacity, it must act in “good faith” and will not be subject to any other standard under applicable law. In addition, when the general partner is acting in its individual capacity, as opposed to in its capacity as a general partner, it may act without any fiduciary obligation to CVR Refining or the unitholders whatsoever. These contractual standards reduce the obligations to which CVR Refining’s general partner would otherwise be held.
|
|
•
|
CVR Refining’s partnership agreement provides that in resolving conflicts of interest, if any resolution, course of action or transaction receives approval from the conflicts committee or receives approval of a majority of the common units (excluding common units owned by the general partner and its affiliates), then such resolution, course of action or transaction shall be conclusively deemed to be approved by CVR Refining, all the partners, each person who acquires an interest in CVR Refining and each other person who is bound by the partnership agreement, and shall not constitute a breach of any fiduciary or other duty or obligation.
|
|
•
|
Delaware law generally provides that a limited partner may institute legal action on behalf of CVR Refining to recover damages from a third party where a general partner has refused to institute the action or where an effort to cause a general partner to do so is not likely to succeed. These actions include actions against a general partner for breach of its fiduciary duties or of our partnership agreement. In addition, the statutory or case law of some jurisdictions may permit a limited partner to institute legal action on behalf of it and all other similarly situated limited partners to recover damages from a general partner for violations of its fiduciary duties to the limited partners.
|
CVR Refining’s partnership agreement provides that CVR Refining will reimburse its general partner for all direct or indirect expenses it incurs or payments that it makes on behalf of CVR Refining (including salary, bonus, incentive compensation and other amounts paid to any person who performs services for CVR Refining or for its general partner in connection with operating CVR Refining). For the year ended December 31, 2015, CVR Refining’s general partner incurred approximately $9.1 million pursuant to its partnership agreement.
Related Party Transaction Policy
Our Board has adopted a Related Party Transaction Policy, which is designed to monitor and ensure the proper review, approval, ratification and disclosure of related party transactions involving us. This policy applies to any transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we were, are or will be a participant and the amount involved exceeds $120,000 and in which any related party had, has or will have a direct or indirect material interest. The audit committee of our Board must review, approve and ratify a related party transaction if such transaction is consistent with the Related Party Transaction Policy and is on terms, taken as a whole, which the audit committee believes are no less favorable to us than could be obtained in an arm’s-length transaction with an unrelated third party, unless the audit committee otherwise determines that the transaction is not in our best interests. Any related party transaction or modification of such transaction that our Board has approved or ratified by the affirmative vote of a majority of directors who do not have a direct or indirect material interest in such transaction does not need to be approved or ratified by our audit committee. In addition, related party transactions involving compensation will be approved by our compensation committee in lieu of our audit committee.
In addition, the charter for the audit committee of our Board provides that the audit committee will review, approve and ratify transactions in which a potential conflict of interest exists or arises between the Company or any of its subsidiaries (including the general partner of CVR Partners or CVR Refining acting on its own behalf and not on behalf of CVR Partners or CVR Refining), on the one hand, and CVR Partners or CVR Refining or any of their respective subsidiaries, on the other hand.
60
AUDIT COMMITTEE REPORT
As of December 31, 2015, the audit committee consisted of the following members of the Board: Messrs. Stephen Mongillo (chairman), Bob G. Alexander and James M. Strock. Our Board determined that Mr. Mongillo qualified as an “audit committee financial expert” and that each member of the audit committee, including Mr. Mongillo, was “financially literate” under the requirements of the NYSE. Our Board also determined that all three members of the audit committee were independent under current NYSE independence requirements and SEC rules. The audit committee operates under a written charter adopted by our Board. A copy of this charter is available at
www.cvrenergy.com and is available in print to any stockholder who requests it by writing to CVR Energy, Inc., at 2277 Plaza Drive, Suite 500, Sugar Land, Texas 77479, Attention: Senior Vice President, General Counsel and Secretary.
Management is responsible for the preparation, presentation and integrity of our financial statements, accounting and financial reporting principles and the establishment and effectiveness of internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. The Company’s independent registered public accounting firm, Grant Thornton LLP (“Grant Thornton”), is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States); expressing an opinion, based on their audit, as to whether the financial statements fairly present, in all material respects, the financial position, results of operations and cash flows of the Company in conformity with generally accepted accounting principles; and auditing the effectiveness of internal control over financial reporting of the Company. The audit committee’s responsibility is to monitor and oversee these processes. However, none of the members of the audit committee is professionally engaged in the practice of accounting or auditing nor are any of the members of the audit committee experts in those fields. The audit committee relies without independent verification on the information provided to
it and on the representations made by management and the independent auditors.
The audit committee of the Board met seven times during 2015. The audit committee meetings were designed, among other things, to facilitate and encourage communication among the audit committee, management, the internal auditors and Grant Thornton. The audit committee discussed with the Company’s internal auditors and Grant Thornton the overall scope and plans for their respective audits. The audit committee met with Grant Thornton to discuss the results of its examination and evaluation of the Company’s internal controls.
The audit committee reviewed and discussed the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and matters related to Section 404 of the Sarbanes-Oxley Act of 2002 with management and Grant Thornton. The audit committee also discussed with Grant Thornton matters required to be discussed with audit committees under generally accepted auditing standards in the United States of America, including, among other things, matters related to the conduct of the audit of the Company’s consolidated financial statements and the matters required to be discussed by Auditing Standard No. 16 (codified as Auditing Standard No. 1301). "Communication with Audit Committees", as amended, supplemented or superseded, as adopted by the Public Company Accounting Oversight Board. Grant Thornton gave us its opinion, and management represented, that the Company prepared its consolidated financial statements in accordance with generally accepted accounting principles.
The audit committee has received the written disclosures and the letter from the independent auditor required by applicable requirements of the Public Company Accounting Oversight Board Rule 3526 regarding the independent auditor’s communications with the audit committee concerning independence and has discussed with the independent auditor the independent auditor’s independence.
When determining Grant Thornton’ s independence, we considered whether its provision of services to the Company beyond those rendered in connection with its audit of the Company’s consolidated financial statements and reviews of the Company’s consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q was compatible with maintaining its independence. The audit committee also reviewed, among other things, the audit and non-audit services performed by and the amount of fees paid for such services to, Grant Thornton.
Based upon the review and discussions referred to above, we recommended to the Board and the Board has approved, that the Company’s audited financial statements be included in the 2015 Form 10-K. The audit committee also approved the engagement of Grant Thornton as the Company’s independent auditors for 2016.
61
The audit committee has been advised by Grant Thornton that neither it nor any of its members has any financial interest, direct or indirect, in any capacity in the Company or its subsidiaries.
This report is respectfully submitted by the audit committee.
Audit Committee
Stephen Mongillo, Chairman
Bob G. Alexander
James M. Strock
62
FEES PAID TO THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Grant Thornton has served as the Company’s independent public registered accounting firm since August of 2013. The following table presents fees billed by Grant Thornton to the Company and its subsidiaries for professional services and other services in the following categories and amounts for the fiscal years December 31, 2015 and 2014:
|
Type of Fees
|
2015
|
2014
|
||||
|
Audit Fees (1)
|
$
|
2,051,500
|
|
$
|
2,103,500
|
|
|
Audit-Related Fees (2)
|
35,000
|
|
24,000
|
|
||
|
Tax Fees
|
—
|
|
—
|
|
||
|
All Other Fees
|
—
|
|
—
|
|
||
|
Total Fees Billed
|
$
|
2,086,500
|
|
$
|
2,127,500
|
|
|
(1)
|
Audit Fees consist of fees for the audit of the Company’s consolidated annual financial statements filed with the SEC, quarterly reviews of the financial statements included in the Company’s quarterly reports on Form 10-Q, attestation of management’s assessment of internal control as required by Section 404 of the Sarbanes-Oxley Act, consents and consultations on financial accounting and reporting standards arising during the course of audits, reviews and filings. In addition, these amounts include fees for the annual audit and quarterly reviews of the Company’s affiliates, CVR Refining and CVR Partners. Fees for 2014 also include audit services related to CVR Refining’s Second Underwritten Offering.
|
|
(2)
|
Audit-Related Fees consist of fees for agreed upon procedures performed for statutory reporting and benefit plan audits.
|
The audit committee has considered whether the non-audit services provided by Grant Thornton were compatible with maintaining Grant Thornton’s independence and has determined that the nature and substance of the limited non-audit services did not impair the status of Grant Thornton as the Company’s independent registered public accounting firm during the firm's appointment as the Company’s independent auditor.
Audit Committee’s Pre-Approval Policies and Procedures
All
of the services performed by the independent auditor in 2015 were pre-approved in accordance with the pre-approval policy and procedures adopted by the audit committee. Our audit committee charter, among other things, requires the audit committee to approve in advance all audit and permitted non-audit services provided by our independent registered public accounting firm and also requires the audit committee to establish periodically and to approve in advance the fee levels for all services performed by the independent auditor. The audit committee has also authorized any audit committee member to pre-approve audit, audit-related, tax and other non-audit services up to $100,000, provided that the committee member shall timely report to the full committee each specific service pre-approved by them with copies of all
supporting documentation.
63
STOCKHOLDER PROPOSALS
You may submit proposals for consideration at future annual meetings. For a stockholder proposal to be considered for inclusion in our proxy statement for the annual meeting for 2017, in general, the Secretary must receive the written proposal at the address below no later than December 30, 2016. Such proposals must meet the requirements set forth in our by-laws. Such proposals also must comply with SEC regulations under Rule 14a-8 regarding the inclusion of stockholder proposals in company-sponsored proxy materials.
For a stockholder proposal that is intended to be presented at an annual meeting but not presented to us for inclusion in our proxy statement under Rule 14a-8, in general, the stockholder must give notice to the Secretary no earlier than February 8, 2017 and no later than March 10, 2017 and meet the requirements set forth in our by-laws. However, if the date of our annual meeting for 2017 is held more than 30 days before or after June 8 2017, then the stockholder’s notice, in order to be considered timely, must be received by the Secretary not later than the later of the close of business on the 90th day prior to such annual meeting or the tenth day following the day on which notice of the date of the 2017 Annual Meeting was mailed or public disclosure of such date was made.
Stockholders can suggest director candidates for consideration by writing to the attention of the General Counsel at the address below. Stockholders should provide the candidate’s name, biographical data, qualifications and the candidate’s written consent to being named as a nominee in our proxy statement and to serve as a director, if elected. Stockholders should also include the information that would be required to be disclosed in the solicitation of proxies for election of directors under the federal securities laws. The Board may require any nominee to furnish any other information, within reason, that may be needed to determine the eligibility of the candidate. See “Corporate Governance - Identifying and Evaluating Nominees for Directors” above.
To nominate an individual for election at our annual meeting for 2017, the stockholder must give timely notice to the Secretary in accordance with our by-laws, which, in general, require that the notice be received by the Secretary no earlier than February 8, 2017 and no later than March 10, 2017, unless the date of the stockholder meeting is moved more than 30 days before or after June 8, 2017, then the nomination must be must be received by the Secretary not later than the later of the close of business on the 90th day prior to such annual meeting or the tenth day following the day on which notice of the date of the 2017 Annual Meeting was mailed or public disclosure of such date was made.
If the number of directors to be elected at the 2017 Annual Meeting will be increased and there is no public announcement naming the nominees for the additional directorships prior to February 28, 2017, a stockholder’s notice will be considered timely with respect to the nominees for the additional directorships if it is received by the Secretary not later than the close of business on the tenth day after the day on which such public announcement is first made.
Proponents must submit stockholder proposals and recommendations for nomination as a director in writing to the following address:
CVR Energy, Inc.
2277 Plaza Drive, Suite 500
Sugar Land, Texas 77479
Attention: Senior Vice President, General Counsel and Secretary
The Senior Vice President, General Counsel and Secretary will forward the proposals and recommendations to the nominating and corporate governance committee for consideration.
We reserve the right to reject, rule out of order, or take other appropriate actions with respect to any proposal or nomination that does not comply with the procedures described above and other applicable requirements. In addition, a proxy may confer discretionary authority to vote on any matter at a meeting if we do not receive notice of the matter within the time frames described above.
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INCORPORATION BY REFERENCE
To the extent that this Proxy Statement is incorporated by reference into any other filing by CVR Energy, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, the sections of this Proxy Statement entitled “Compensation Committee Report” and “Audit Committee Report” (to the extent permitted by the rules of the SEC) will not be deemed incorporated unless specifically provided otherwise in such filing. Information contained on or connected to our website is not incorporated by reference into this Proxy Statement and should not be considered part of this Proxy Statement or any other filing that we make with the SEC.
65
OTHER MATTERS
We do not know of any other matters that will be considered at the Annual Meeting. However, if any other proper business should come before the meeting, the persons named in the proxy card will have discretionary authority to vote according to their best judgment to the extent permitted by applicable law.
For the Board of Directors,
John R. Walter
Senior Vice President, General Counsel and Secretary
April 29, 2016
66
Appendix A
AMENDED AND RESTATED CVR ENERGY, INC.
PERFORMANCE INCENTIVE PLAN
(effective March 30, 2011, as amended April 22, 2016)
1.
Purpose
The purpose of the Performance Incentive Plan is to enhance the Company’s ability to attract, motivate, reward and retain employees, to strengthen their commitment to the success of the Company and to align their interests with those of the Company’s stockholders by providing additional compensation to designated employees of the Company based on the achievement of performance objectives. To this end, the Performance Incentive Plan provides a means of annually rewarding participants primarily based on the performance of the Company and its Operating Units. The adoption of this Plan as it relates to Covered Officers is subject to the approval of the stockholders of the Company.
2.
Definitions
(a) “
Award
” shall mean the incentive award earned by a Participant under the Plan for any Performance Period.
(b) “
Base Salary
” shall mean the Participant’s annual base salary actually paid by the Company and received by the Participant during the applicable Performance Period. Annual base salary does not include (i) Awards under the Plan, (ii) long-term incentive awards, (iii) signing bonuses or any similar bonuses, (iv) cash payments received pursuant to the Company’s Retirement Savings Plan, (v) imputed income from such programs as executive life insurance, or (vi) nonrecurring earnings such as moving expenses, and is based on salary earnings before reductions for such items as contributions under Section 401(k) of the Internal Revenue Code of 1986, as amended.
(c) “
Board
” shall mean the Board of Directors of the Company.
(d) “
CEO
” shall mean the Chief Executive Officer of the Company.
(e) “
Code
” shall mean the Internal Revenue Code of 1986, as amended.
(f) “
Committee
” shall mean the Compensation Committee of the Board;
provided
,
however
, that with respect to Employees who are not Covered Officers, the Compensation Committee may delegate to the CEO the authority and responsibility to administer the Plan to the same extent as the Compensation Committee (or to such lesser extent as the Compensation Committee may provide) and if the Compensation Committee so delegates its authority and responsibility, references herein to the Committee shall be deemed to refer to the CEO to the extent such authority and responsibility has been so delegated.
(g) “
Company
” shall mean CVR Energy, Inc., its successors and assigns.
(h) “
Covered Officer
” shall mean, for any Performance Period,
an Employee who (i) as of the beginning of the Performance Period is an officer subject to Section 16 of the 1934 Act, and (ii) prior to determining Target Awards for the Performance Period pursuant to Section 5(a) of the Plan, the Committee designates as a Covered Officer for purposes of this Plan. If the Committee does not make the designation in clause (ii) for a Performance Period, all Employees described in clause (i) shall be deemed to be Covered Officers for purposes of this Plan.
(i) “
Disability
” shall mean permanent disability, as provided in the Company’s long-term disability plan.
(j) “
Effective Date
” shall mean March 30, 2011.
(k) “
Employee
” shall mean any person (including an officer) employed by the Company or any of its Subsidiaries on a full-time salaried basis.
(l) “
1934 Act
” shall mean the Securities Exchange Act of 1934, as amended.
(m) “
Operating Unit
”, for any Performance Period, shall mean a division, Subsidiary, group, product line or product line grouping for which an income statement reflecting sales and operating income is produced.
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(n) “
Other Performance Measures
” for any Performance Period, shall mean with respect to Participants (other than Covered Officers) any financial or non-financial performance measures, other than Performance Objectives, that the Committee may determine.
(o) “
Participant
”, for any Performance Period, shall mean an Employee selected to participate in the Plan for such Performance Period.
(p) “
Performance-Based Compensation
” shall mean any Award that is intended to constitute “performance based compensation” within the meaning of Section 162(m)(4)(C) of the Code and the regulations promulgated thereunder.
(q) “
Performance Objectives
” for any Performance Period, may be expressed in terms of (i) stock price, (ii) earnings per share, (iii) operating income, (iv) return on equity or assets, (v) operating cash flow, (vi) free cash flow (vii) EBITDA, (viii) revenues, (ix) overall revenue or sales growth, (x) expense reduction or management, (xi) market position, (xii) total shareholder return, (xiii) return on investment, (xiv) earnings before interest and taxes (EBIT), (xv) net income, (xvi) pre-tax income, (xvii) return on net assets, (xviii) economic value added, (xix) shareholder value added, (xx) cash flow return on investment, (xxi) net operating profit, (xxii) net operating profit after tax, (xxiii) return on capital, (xxiv) return on invested capital, (xxv) gross margin (per barrel), (xxvi) operational costs (per barrel), (xxvii) cost reductions; (xxviii) cost ratios; (xxix) reportable air emissions or spills to ground or water; (xxx) OSHA-recordable personal injuries or lost time accidents; (xxxi) facility reliability measured through the processing of crude oil, fertilizer components and/or other measures relating to the operation of facilities, (xxxii) process safety incidents, (xxxiii) trucking incidents, or (xxxiv) any combination, including one or more ratios, of the foregoing.
Performance Objectives may be expressed as a combination of Company and/or Operating Unit performance goals and may be absolute or relative (to prior performance or to the performance of one or more other entities or external indices), may be expressed in terms of a progression within a specified range and may be expressed subject to specified adjustments.
(r) “
Performance Period
” shall mean the fiscal year of the Company or such time period designated by the Committee at the time that Performance Objectives and/or Other Performance Measures are established and during which the performance of the Company and/or Operating Units will be measured.
(s) “
Person
” shall mean a person within the meaning of Sections 13(d) and 14(d) of the 1934 Act.
(t) “
Personal Performance Percentage
”, shall mean, with respect to Participants (other than Covered Officers) for any Performance Period, the percentage based on the Participant’s personal performance, as determined in accordance with Section 5(e) of the Plan.
(u) “
Plan
” shall mean this CVR Energy, Inc. Performance Incentive Plan, as from time to time amended and in effect.
(v) “
Schedules
” shall mean, for any Performance Period, the schedules described in Section 5(a) of the Plan.
(w) “
Subsidiary
” shall mean a corporation or other entity with respect to which the Company owns at least 50% of the outstanding equity or other ownership interest of the corporation or other entity.
(x) “
Target Award
”, for any Participant with respect to any Performance Period, shall mean the Participant’s Base Salary multiplied by his or her Target Award Percentage.
(y) “
Target Award Percentage
” for any Participant with respect to any Performance Period, shall mean the percentage of the Participant’s Base Salary that the Participant would earn as an Award for that Performance Period if each of the Performance Objectives for that Performance Period were attained at a 100% level, and shall be determined by the Committee.
3.
Eligibility
(a) Generally, all Employees who are at a level of Vice President or above are eligible to participate in the Plan for any Performance Period. However, participation may be limited to those Employees who, because of their significant impact on the current and future success of the Company, the Committee selects, in accordance with Section 5 of this Plan, to participate in the Plan for that Performance Period.
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(b) To be eligible to receive an Award in respect of any Performance Period an Employee shall have had at least three months active tenure during such Performance Period and be actively employed by the Company on the Award payment date. The Committee may approve, for Participants other than the Covered Officers and in accordance with Sections 7 and 8 of this Plan, exceptions for special circumstances.
(c) If an Employee other than a Covered Officer becomes a Participant during a Performance Period, such Participant may be granted an Award for that Performance Period which Award may be prorated based on the number of days that he or she is a Participant during that Performance Period.
4.
Administration
(a) The administration of the Plan shall be consistent with the purpose and the terms of the Plan. The Plan shall be administered by the Committee. Each member of the Committee shall be an “outside director” within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code;
provided
that if the Compensation Committee has delegated to the CEO any authority or responsibility to administer the Plan with respect to Employees who are not Covered Officers, the CEO shall not be required to be an “outside director.” For purposes of the preceding sentence, if one or more members of the Committee is not an “outside director” within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code but recuses himself or herself or abstains from voting with respect to a particular action taken by the Committee, then the Committee, with respect to that action, shall be deemed to consist only of the members of the Committee who have not recused themselves or abstained from voting. The Committee shall have full authority to establish the rules and regulations relating to the Plan, to interpret the Plan and those rules and regulations, to select Participants in the Plan, to determine the Company’s and, if applicable, each Operating Unit’s Performance Objectives and Other Performance Measures and each Participant’s Target Award Percentage for each Performance Period, to approve all the Awards, to decide the facts in any case arising under the Plan and to make all other determinations and to take all other actions necessary or appropriate for the proper administration of the Plan, including the delegation of such authority or power, where appropriate.
(b) The Committee may exercise its discretion under the Plan and the Awards granted hereunder, only to the extent permitted under Section 162(m) of the Code and the regulations thereunder without adversely affecting the treatment of any Covered Officer’s Award as Performance-Based Compensation. The Committee shall not be authorized to increase the amount of the Award payable to a Participant that is a Covered Officer that would otherwise be payable pursuant to the terms of the Plan. However, the Committee may, in its sole discretion and at any time prior to the payment of an Award, decrease the amount of an Award that would otherwise be payable to a Participant pursuant to the terms of the Plan.
(c) The Committee’s administration of the Plan, including all such rules and regulations, interpretations, selections, determinations, approvals, decisions, delegations, amendments, terminations and other actions, shall be final and binding on the Company, the Subsidiaries, their respective stockholders and all employees of the Company and the Subsidiaries, including the Participants and their respective beneficiaries.
5.
Determination of Awards
(a) For each Performance Period, the Committee shall determine the Employees who shall be Participants during that Performance Period and determine each Participant’s Target Award Percentage and may establish threshold and/or maximum Award percentages. The Committee shall also establish the Performance Objectives and/or Other Performance Measures for that Performance Period (which, with respect to Covered Officers for that Performance Period, (1) shall be established in writing by the earlier of (A) the date on which one-quarter of the Performance Period has elapsed or (B) the date which is 90 days after the commencement of the Performance Period, and in any event while the performance relating to the Performance Objectives remains substantially uncertain). The Participants, each Participant’s Target Award Percentage (and, if applicable threshold and/or maximum Award percentages) and the Performance Objectives and/or Other Performance Measures for each Performance Period shall be set forth on a Schedule. The Company shall notify each Participant of his or her Target Award Percentage (and, if applicable threshold and/or maximum Award percentages) and the applicable Performance Objectives and/or Other Performance Measures for the Performance Period.
(b) Generally, a Participant earns an Award for a Performance Period based on the Company’s and/or his or her Operating Unit’s achievement of the applicable Performance Objectives and/or Other Performance Measures. In addition, the Award for any Participant (other than a Covered Officer) may be adjusted based on the Participant’s Personal Performance Percentage. The Committee may determine that different Performance Objectives and/or Other Performance Measures are applicable to different Participants, groups of Participants, Operating Units or groups of
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Operating Units with respect to a specific Performance Period. The Committee may also establish a minimum threshold of Company or Operating Unit performance which must be achieved in order for any portion of an Award to be earned for that Performance Period;
provided
, that, with respect to Covered Officers for that Performance Period, such threshold is established by the earlier of (1) the date on which one-quarter of the Performance Period has elapsed or (2) the date which is 90 days after the commencement of the Performance Period, and in any event while the performance relating to the Performance Objectives remains substantially uncertain. Notwithstanding the foregoing, if in any Performance Period a minimum threshold of Company and/or Operating Unit performance is established and the Company’s and/or any Operating Unit’s actual performance as measured against that minimum threshold would otherwise preclude the earning of Awards for that Performance Period, the Committee may upon consideration of the events of the Performance Period, determine that Awards may be earned by Participants (other than Covered Officers) for that Performance Period.
(c) The maximum amount that a Covered Officer may receive for any fiscal year of the Company is $5 million.
(d) Awards shall be earned by Participants in accordance with such formula or formulas determined by the Committee consistent with the provisions of this Plan.
(e)
Personal Performance Percentage
.
Covered Officers are not eligible for an adjustment based on personal performance. The performance of each Participant who is not a Covered Officer for a Performance Period may be evaluated and a Personal Performance Percentage for such Participant may be recommended for approval by the Committee. If a Participant’s Personal Performance Percentage is approved, the Participant’s Award will be increased by such Personal Performance Percentage.
6.
Changes to the Target Award Percentage
(a) The Committee, with respect to any Participant who is not a Covered Officer, may at any time prior to the final determination of Awards change the Target Award Percentage of the Participant or assign a different Target Award Percentage to the Participant to reflect any change in the Participant’s responsibility level or position during the course of the Performance Period.
(b) The Committee may at the time Performance Objectives and/or Other Performance Measures are established for a Performance Period, or at any time prior to the final determination of Awards in respect of that Performance Period to the extent permitted under Section 162(m) of the Code and the regulations promulgated thereunder without adversely affecting the treatment of the Award as Performance-Based Compensation, (a) provide for the manner in which performance will be measured against the Performance Objectives and/or Other Performance Measures or (b) adjust the Performance Objectives to reflect the impact of (i) any stock dividend or split, recapitalization, combination or exchange of shares or other similar changes in the Company’s stock, (ii) specified corporate transactions (iii) special charges, (iv) foreign currency effects, (v) accounting or tax law changes and (vi) other extraordinary or nonrecurring events.
7.
Payment of Awards
As soon as practicable after the close of a Performance Period and prior to the payment of any Award that is intended to constitute Performance-Based Compensation, the Committee shall review each Participant’s Award and certify in writing that the applicable Performance Objectives have been satisfied. Subject to the provisions of Section 8 of the Plan, each Award to the extent earned shall be paid in a single lump sum cash payment. The Committee shall certify in writing the amount of the Covered Officer’s Award prior to payment thereof. Payment of the Award shall be made as soon as practicable following the Performance Period, but in no event later than two and one-half months following the end of the Performance Period.
8.
Limitations on Rights to Payment of Awards
No Participant shall have any right to receive payment of an Award under the Plan for a Performance Period unless the Participant remains in the employ of the Company through the payment date of the Award for such Performance Period. However, the Committee, in its sole discretion, may determine that a Participant whose employment terminates prior to the payment date of the Award for a Performance Period may receive a prorated portion of any earned Award, based on the number of days that the Participant was actively employed and performed services during such Performance Period;
provided
,
however
, that, with respect to a Covered Officer, a prorated portion of any earned Award shall be paid only (i) based on actual performance with respect to the applicable Performance Objectives for such Performance
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Period and (ii) if the Committee makes the determination at the time the Award is granted that such Covered Officer shall be entitled to a prorated portion of an Award (or such determination had previously been made or the right to a prorated portion is provided in an agreement between the Company and the Covered Officer) or, if permitted under Section 162(m) of the Code, at any time thereafter.
9.
Designation of Beneficiary
A Participant may designate a beneficiary or beneficiaries who, in the event of the Participant’s death prior to full payment of any Award hereunder, shall receive payment of any Award due under the Plan. Such designation shall be made by the Participant on a form prescribed by the Committee. The Participant may, at any time, change or revoke such designation. A beneficiary designation, or revocation of a prior beneficiary designation, will be effective only if it is made in writing on a form provided by the Company, signed by the Participant and received by the Secretary of the Company. If the Participant does not designate a beneficiary or the beneficiary dies prior to receiving any payment of an Award, Awards payable under the Plan shall be paid to the Participant’s estate.
10.
Amendment; Termination
The Committee may at any time amend (in whole or in part) or terminate this Plan;
provided
,
however
that no such amendment or termination shall adversely affect any Participant’s rights to or interest in an Award granted prior to the date of the amendment or termination unless the Participant shall have agreed thereto.
11.
Miscellaneous Provisions
(a) This Plan is not a contract between the Company and the Employees or the Participants. Neither the establishment of this Plan, nor any action taken hereunder, shall be construed as giving any Employee or any Participant any right to be retained in the employ of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is under any obligation to continue the Plan.
(b) A Participant’s right and interest under the Plan may not be assigned or transferred, except as provided in Section 9 of the Plan, and any attempted assignment or transfer shall be null and void and shall extinguish, in the Company’s sole discretion, the Company’s obligation under the Plan to pay Awards with respect to the Participant.
(c) The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund, or to make any other segregation of assets, to assure payment of Awards.
(d) The Company shall have the right to deduct from the payment of any Awards all taxes or other amounts required by law to be withheld.
(e) Nothing contained in the Plan shall limit or affect in any manner or degree the normal and usual powers of management, exercised by the officers and the Board or committees thereof, to change the duties or the character of employment of any employee of the Company or any of its Subsidiaries or to remove the individual from the employment of the Company or any of its Subsidiaries at any time, all of which rights and powers are expressly reserved.
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TABLE OF CONTENTS
Information About The Annual Meeting and VotingInformation About The Annual ReportProposal 1 - Election of DirectorsProposal 2 - Ratification of the Audit Committee's Selection of Grant Thornton LLP Public Accounting FirmProposal 3 - Non-binding, Advisory Vote on Compensation of the Named Executive Officers (Say-on-Pay)Proposal 4 - Re-approval of the Performance Incentive PlanMembers of and Nominees to our BoardCorporate GovernanceDirector Compensation for 2015Securities Ownership of Certain Beneficial Owners and Officers and DirectorsSection 16(a) Beneficial Ownership Reporting ComplianceEquity Compensation PlansExecutive OfficersInformation Concerning Executive Officers Who Are Not DirectorsCompensation Discussion and AnalysisCompensation Committee ReportCompensation of Executive OfficersCertain Relationships and Related Party TransactionsAudit Committee ReportFees Paid to the Independent Registered Public Accounting FirmStockholder ProposalsIncorporation by ReferenceOther MattersAppendix A A-1Proxy Card