Item 5.02. Departure of Directors
or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Departure of Scott W. Smith
On January 15, 2018, Scott W. Smith stepped
down as the President and Chief Executive Officer of Vanguard Natural Resources, Inc. (the “Company”), and also resigned
from his membership on the Company’s Board of Directors (the “Board”) and his officer and director positions
with the Company’s subsidiaries. Mr. Smith has agreed to assist the Company with the transition of his role, and is expected
to remain an employee of the Company at comparable compensation levels through February 16, 2018. The Company will honor Mr. Smith’s
existing employment agreement in connection with his departure.
Departure of Britt Pence
On January 17, 2018, Britt Pence agreed
with the Company that he would step down as the Company’s Executive Vice President of Operations, effective on or before
June 29, 2018 or such other time as mutually agreed with the Company (as applicable, the “Transition Period”). The
Company will honor Mr. Pence’s existing employment agreement in connection with his departure. During the Transition Period,
Mr. Pence will continue to receive his current annual base salary. In addition, unless Mr. Pence resigns from employment prior
to the end of the Transition Period, Mr. Pence will be eligible to receive a pro-rated portion of his target annual bonus for his
service during 2018. If the Company terminates Mr. Pence’s employment without cause (as such term is used in Mr. Pence’s
existing employment agreement) prior to the end of the Transition Period, then the Company will continue to pay Mr. Pence his annual
base salary and his pro-rated target annual bonus through the end of the Transition Period.
Appointment of Richard Scott Sloan
On January 17, 2018, the Board appointed
Richard Scott Sloan, age 53, as the Company’s President and Chief Executive Officer. Mr. Sloan also continues to serve as
a member of the Board.
Mr. Sloan brings significant financial,
strategic, and commercial industry experience to the Company. Prior to his appointment as the Company’s President and Chief
Executive Officer, Mr. Sloan served as the Executive Vice President and Chief Financial Officer of the Company since September
27, 2017. Prior to joining the Company, Mr. Sloan oversaw strategic planning, new business development, and oil and gas marketing
for Hess Corporation. Previously, Mr. Sloan held various senior leadership positions over his 25-year career at BP, including President
of BP Russia, Director of M&A, and Chief Financial Officer of several regional divisions. Mr. Sloan also held board positions
with TNK Holdings, Slavneft, Rusia Petroleum, In Salah Sales, and Medgaz. He received his B.A. in Economics from Colgate University
and his M.B.A. in Corporate Finance from the University of Chicago.
In connection with his appointment as President
and Chief Executive Officer, Mr. Sloan entered into an amended and restated employment agreement with the Company (the “Sloan
Employment Agreement”). The Sloan Employment Agreement is generally consistent with Mr. Sloan’s existing employment
agreement with the Company, except that the Sloan Employment Agreement is updated to reflect Mr. Sloan’s position of President
and Chief Executive Officer, as well as his annual base salary of $700,000 and his target annual performance-based bonus award
equal to 100% of his annual base salary.
The foregoing description of the Sloan
Employment Agreement is qualified in its entirety by reference to the full text of the Sloan Employment Agreement, which is filed
as Exhibit 10.1 to this report and incorporated herein by reference.
Appointment of Ryan Midgett
On January 17, 2018, the Board appointed
Ryan Midgett, age 33, as the Company’s Chief Financial Officer.
Mr. Midgett has over a decade of experience
in financial management, analysis and reporting roles in the oil and gas industry. Prior to his appointment as the Company’s
Chief Financial Officer, Mr. Midgett served as the Vice President, Finance and Treasurer of the Company since August 2016. In that
role, his responsibilities included strategic planning, budgeting and forecasting, economic analysis of the Company’s organic
opportunities and M&A transactions, overseeing and executing numerous capital markets transactions, negotiating credit agreements,
overseeing the Company’s insurance and risk management program, and overseeing other corporate treasury functions. Previously,
he was the Company’s Treasurer since 2013 and Assistant Treasurer since April 2011. Prior to joining the Company, Mr. Midgett
served in various financial analyst, investor relations, and business development roles at Linn Energy from 2006-2011. Mr. Midgett
received his B.A. in Economics, Managerial Studies and Political Science from Rice University.
In connection with his appointment as Chief
Financial Officer, Mr. Midgett entered into an employment agreement with the Company (the “Midgett Employment Agreement”).
The initial term of the Midgett Employment Agreement ends on December 31, 2020, with subsequent automatic 12-month extensions thereafter,
provided that neither party delivers a timely non-renewal notice prior to the applicable expiration date.
The Midgett Employment Agreement provides
that Mr. Midgett is entitled to an annual base salary of $300,000 and that he is eligible to receive an annual performance-based
bonus award in an amount to be determined by the Board or the Compensation Committee of the Board (the “Committee”).
With respect to calendar year 2018, Mr. Midgett’s target annual performance-based bonus opportunity will be equal to no less
than 60% of his annual base salary. Mr. Midgett is eligible to participate in the benefit programs generally available to senior
executives of the Company.
Mr. Midgett is eligible to receive certain
“Change of Control” (as defined in the Midgett Employment Agreement) severance payments and benefits under the Midgett
Employment Agreement. If, during the 12 months immediately following a Change of Control, Mr. Midgett’s employment is terminated
by the Company without “Cause” or he resigns for “Good Reason” (each as defined in the Midgett Employment
Agreement), Mr. Midgett would be entitled to receive a lump sum payment of an amount equal to two times his then-current annual
base-salary and his most recent annual bonus prior to the year of the Change of Control. However, if a Change of Control severance
occurs during 2018, the payment to Mr. Midgett would instead be two times the sum of his annual base salary and his target annual
bonus for 2018.
Under the Midgett Employment Agreement,
Mr. Midgett is entitled to severance payments and benefits upon certain qualifying terminations of his employment with the Company.
Upon a termination of his employment by the Company without Cause or resignation by Mr. Midgett for Good Reason (and except with
respect to a Change of Control, as described above), he is entitled to receive a lump sum payment of an amount equal to two times
his then-current annual base salary. As a condition to receiving any of the Change of Control or other severance payments and benefits
provided in the Midgett Employment Agreements, Mr. Midgett (or his legal representative, as applicable) must execute and not revoke
a customary severance and release agreement, including a waiver of all claims.
The Midgett Employment Agreement contains
customary non-competition, non-solicitation and confidentiality provisions.
The foregoing description of the Midgett
Employment Agreement is qualified in its entirety by reference to the full text of the Midgett Employment Agreement, which is filed
as Exhibit 10.2 to this report and incorporated herein by reference.
Appointment of Patty Avila-Eady
On January 17, 2018, the Board appointed
Patty Avila-Eady, age 54, as the Company’s Chief Accounting Officer.
Ms. Avila-Eady is a certified public accountant
with over 30 years of accounting and financial reporting experience. Since 2011, she served as the Company’s Controller and
managed an accounting team responsible for financial and revenue reporting and tax compliance. Previously, she was the Company’s
Director of Financial Reporting from 2007-2011. Ms. Avila-Eady received her B.B.A. in Accounting from the University of Houston.
In connection with her appointment as the
Company’s Chief Accounting Officer, Ms. Avila-Eady’s annual base salary was increased to $235,000.
Approval of Short-Term Incentive Program
On January 17, 2018, the Committee approved
the Company’s 2018 short-term incentive program (the “STIP”), as well as the annual cash bonus targets and performance
achievement metrics under the STIP for 2018. Pursuant to the STIP, participants are eligible for an annual cash bonus award with
respect to performance achievement during 2018. Individual awards are generally targeted at a percentage of the participant’s
annual base salary, and may generally range from 0% to 150% of that target amount. Performance metrics for 2018 under the STIP
include production and financial goals, as well as a participant’s individual performance.
Messrs. Sloan and Midgett are eligible
for 2018 STIP awards consistent with the terms of the Sloan Employment Agreement and the Midgett Employment Agreement, respectively.
Ms. Avila-Eady is eligible for a 2018 STIP award with a targeted amount equal 60% of her annual base salary.
Approval of Long-Term Incentive Program
Awards
On January 17, 2018, the Board approved
initial long-term incentive awards under the Company’s 2017 Management Incentive Plan (the “LTIP”). The Company
granted time-based and performance-based restricted stock unit awards under the LTIP to certain Company executives. The time-based
restricted stock unit awards under the LTIP (the “RSUs”) generally vest 1/3 on each of the first three anniversaries
of October 30, 2017. The performance-based restricted stock unit awards under the LTIP (the “PSUs”) are generally eligible
to vest based on the Company’s total shareholder return relative to an index of its peers during the period from January
1, 2018 through December 31, 2020, and may generally range from 0% to 200% of the target amount.
Mr. Sloan received 38,462 RSUs and 115,384
PSUs (assuming achievement at the target performance level). Mr. Midgett received 16,026 RSUs and 48,077 PSUs (assuming achievement
at the target performance level). Ms. Avila-Eady received 6,026 RSUs.
The foregoing descriptions of the RSUs
and the PSUs are qualified in their entirety by reference to the full text of the Company’s form of Restricted Stock Unit
Award Agreement and the Company’s form of Performance-Based Restricted Stock Unit Award Agreement, respectively, which are
filed as Exhibits 10.3 and 10.4 to this report, respectively, and incorporated herein by reference.