Item 5.02.
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On March 8, 2019, the Board of Directors (the Board) of EnLink Midstream Manager, LLC (the Manager), the managing member of EnLink Midstream, LLC (ENLC), approved new forms of (i) the performance-based restricted incentive unit agreement (the Performance-Based Award Agreement) and (ii) the time-based restricted incentive unit agreement (the Time-Based Award Agreement) for future awards of equity-based compensation to certain officers including the principal executive officer, principal financial officer, and other named executive officers of the Manager and of EnLink Midstream GP, LLC, the general partner of EnLink Midstream Partners, LP (collectively, the Named Executive Officers), under the EnLink Midstream, LLC 2014 Long-Term Incentive Plan (the Plan).
Performance-Based Award Agreement
The Performance-Based Award Agreement generally provides that the vesting of the restricted incentive units (the Restricted Units) granted thereunder is dependent on (a) the Named Executive Officers continued employment or service with ENLC or its affiliates for all relevant periods and (b) the achievement of a performance goal based on total shareholder return (TSR) and a performance goal based on cash flow (Cash Flow). At the time of grant, the Board will determine the relative weighting of the two performance goals by including in the relevant Performance-Based Award Agreement the number of Restricted Units that will be eligible for vesting depending on the achievement of the TSR performance goals (the Total TSR Units) versus the achievement of the Cash Flow performance goals (the Total CF Units).
The Performance-Based Award Agreement provides for four separate performance periods: (i) three performance periods are each of the first, second, and third calendar years that occur following the vesting commencement date of the Performance-Based Award Agreement and (ii) the fourth performance period is the cumulative three-year period from the vesting commencement date through the third anniversary thereof (the Cumulative Performance Period).
One-fourth of the Total TSR Units (the Tranche TSR Units) relates to each of the four performance periods described above. Following the end date of a given performance period, the Governance and Compensation Committee (the Committee) of the Board will measure and determine the TSR performance of ENLC (the ENLC TSR) relative to the TSR performance of a designated group of peer companies (the Peer Companies) to determine the Tranche TSR Units that are eligible to vest, subject to the Named Executive Officers continued employment or service with ENLC or its affiliates through the end date of the Cumulative Performance Period. In short, the Performance-Based Award Agreement defines TSR for a given performance period as (i)(A) the average closing price of a common equity security at the end of the relevant performance period
minus
(B) the average closing price of a common equity security at the beginning of the relevant performance period
plus
(C) reinvested dividends
divided by
(ii) the average closing price of a common equity security at the beginning of the relevant performance period.
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The following table sets out the levels at which the Tranche TSR Units may vest (using linear interpolation) based on the ENLC TSR percentile ranking for the applicable performance period relative to the TSR achievement of the Peer Companies:
Performance Level
|
|
Achieved ENLC TSR
Position Relative to Peer
Companies
|
|
Associated Vesting Level
(expressed as a percentage
of the Tranche TSR Units)
|
Below Threshold
|
|
Less than 25%
|
|
0%
|
Threshold
|
|
Equal to 25%
|
|
50%
|
Target
|
|
Equal to 50%
|
|
100%
|
Maximum
|
|
Greater than or Equal to 75%
|
|
200%
|
Approximately one-third of the Total CF Units (the Tranche CF Units) relates to each of the first three performance periods described above (i.e., the Cash Flow performance goal does not relate to the Cumulative Performance Period). The Board will establish the Cash Flow performance targets for purposes of the column in the table below titled ENLCs Achieved Cash Flow for each performance period no later than March 31 of the year in which the relevant performance period begins. Following the end date of a given performance period, the Committee will measure and determine the Cash Flow performance of ENLC to determine the Tranche CF Units that are eligible to vest, subject to the Named Executive Officers continued employment or service with ENLC or its affiliates through the end of the Cumulative Performance Period. In short, the Performance-Based Award Agreement defines Cash Flow for a given performance period as (A)(i) ENLCs adjusted EBITDA
minus
(ii) interest expense, current taxes and other, maintenance capital expenditures, and preferred unit accrued distributions
divided by
(B) the time-weighted average number of ENLCs common units outstanding during the relevant performance period. By way of example, the following table sets out the levels at which the Tranche CF Units will be eligible to vest (using linear interpolation) based on the Cash Flow performance of ENLC for the performance period ending December 31, 2019:
Performance Level
|
|
ENLCs Achieved Cash
Flow
|
|
Associated Vesting Level
(expressed as a percentage
of the Tranche CF Units)
|
Below Threshold
|
|
Less than $1.43
|
|
0%
|
Threshold
|
|
Equal to $1.43
|
|
50%
|
Target
|
|
Equal to $1.55
|
|
100%
|
Maximum
|
|
Greater than or Equal to $1.72
|
|
200%
|
Subject to the exceptions described below, the Performance-Based Award Agreement provides that the Tranche TSR Units and the Tranche CF Units (as applicable, the Tranche Units) will be forfeited if the Named Executive Officers employment or service with ENLC and its affiliates terminates prior to the end date of the Cumulative Performance Period. However, the Tranche Units may vest or remain eligible for vesting in full or on a pro-rated basis for certain terminations of employment or service. For instance, if the officers employment or service is terminated as a general matter (x) due to his or her retirement (as defined in the Performance-Based Award Agreement and the Time-Based Award Agreement, as applicable),
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(y) by ENLC or its affiliates without cause (as defined in the Performance-Based Award Agreement and the Time-Based Award Agreement, as applicable), or (z) by the officer for good reason (as defined in the Performance-Based Award Agreement and the Time-Based Award Agreement, as applicable) (each, a Covered Termination), the applicable Tranche Units (i.e., determined pursuant to the above tables) will vest in full or remain eligible for vesting on a pro-rated basis, depending on whether the applicable termination occurs prior to, on, or after the end date for the relevant performance period, whether the retirement is a normal retirement (as defined in the Performance-Based Award Agreement), and whether the Covered Termination occurs prior to, on, or after a change of control (as defined in the Plan) (if any).
If the Covered Termination occurs prior to the end date of the applicable performance period, the applicable Tranche Units will remain eligible for vesting, subject to achievement of the applicable performance goal (with vesting occurring as of the achievement of such performance goal). In such case, any such vesting will be on a pro-rated basis unless the Covered Termination is a normal retirement or a change of control occurs on or prior to such termination. If the Covered Termination occurs on or after the end date of the applicable performance period, the applicable Tranche Units will vest in full (assuming a threshold payout level is achieved for the relevant performance goal).
Similar vesting applies to the applicable Tranche Units in the case of death or a qualifying disability. If death or a qualifying disability occurs on or after the end date of the applicable performance period, the applicable Tranche Units will vest in full (assuming a threshold payout level is achieved for the relevant performance goal). If the death or qualifying disability occurs prior to the end date of the applicable performance period, vesting of the Tranche Units will be deemed to apply at the Target performance level.
Time-Based Award Agreement
The Time-Based Award Agreement generally provides that, subject to the satisfaction of the conditions set forth in the agreement, the Restricted Units granted thereunder (the Subject Units) will vest on the third anniversary of the vesting commencement date (the Regular Vesting Date). The Subject Units will be forfeited if the Named Executive Officers employment or service with ENLC and its affiliates terminates prior to the Regular Vesting Date except that the Subject Units will vest in full or on a pro-rated basis for certain terminations of employment or service prior to the Regular Vesting Date. For instance, the Subject Units will vest on a pro-rated basis for Covered Terminations except that the Subject Units will vest in full if the applicable Covered Termination is a normal retirement (as defined in the Time-Based Award Agreement) or the applicable Covered Termination occurs after a change of control (if any). The Subject Units will vest in full if death or a qualifying disability occurs prior to the Regular Vesting Date.
The foregoing description of the Performance-Based Award Agreement and the Time-Based Award Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the form of Performance-Based Award Agreement and the form of Time-Based Award Agreement, copies of which are attached as Exhibit 10.1 and Exhibit 10.2, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.
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