PBF Energy 2013 Annual Report Download - page 44

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based on assumptions that are subject to change due to various factors, including, among other factors, the timing
of exchanges of PBF LLC Series A Units for shares of PBF Energy’s Class A common stock as contemplated by
the tax receivable agreement, the price of PBF Energy’s Class A common stock at the time of such exchanges, the
extent to which such exchanges are taxable, and the amount and timing of PBF Energy’s income. The actual
payments could differ materially from the estimates above. It is possible that future transactions or events could
increase or decrease the actual tax benefits realized and the corresponding tax receivable agreement payments.
There may be a material negative effect on our liquidity if, as a result of timing discrepancies or otherwise, (i) the
payments under the tax receivable agreement exceed the actual benefits we realize in respect of the tax attributes
subject to the tax receivable agreement, and/or (ii) distributions to PBF Energy by PBF LLC are not sufficient to
permit PBF Energy, after it has paid its taxes and other obligations, to make payments under the tax receivable
agreement. The payments under the tax receivable agreement are not conditioned upon any recipient’s continued
ownership of us.
In certain cases, payments by us under the tax receivable agreement may be accelerated and/or significantly
exceed the actual benefits we realize in respect of the tax attributes subject to the tax receivable agreement.
These provisions may deter a change in control of our Company.
The tax receivable agreement provides that upon certain changes of control, or if, at any time, PBF Energy
elects an early termination of the tax receivable agreement, PBF Energy’s (or its successor’s) obligations with
respect to exchanged or acquired PBF LLC Series A Units (whether exchanged or acquired before or after such
transaction) would be based on certain assumptions, including (i) that PBF Energy would have sufficient taxable
income to fully utilize the deductions arising from the increased tax deductions and tax basis and other benefits
related to entering into the tax receivable agreement and (ii) that the subsidiaries of PBF LLC will sell certain
nonamortizable assets (and realize certain related tax benefits) no later than a specified date. Moreover, in each of
these instances, we would be required to make an immediate payment equal to the present value (at a discount rate
equal to LIBOR plus 100 basis points) of the anticipated future tax benefits (based on the foregoing assumptions).
Accordingly, payments under the tax receivable agreement may be made years in advance of the actual realization,
if any, of the anticipated future tax benefits and may be significantly greater than the actual benefits we realize in
respect of the tax attributes subject to the tax receivable agreement. Assuming that the market value of a share of
our Class A common stock equals $31.46 per share (the closing price on December 31, 2013) and that LIBOR
were to be 1.85%, we estimate that, as of December 31, 2013 the aggregate amount of these accelerated payments
would have been approximately $789.4 million if triggered immediately on such date. In these situations, our
obligations under the tax receivable agreement could have a substantial negative impact on our liquidity. We may
not be able to finance our obligations under the tax receivable agreement and our existing indebtedness may limit
our subsidiaries’ ability to make distributions to us to pay these obligations. These provisions may deter a potential
sale of our Company to a third party and may otherwise make it less likely that a third party would enter into a
change of control transaction with us.
Moreover, payments under the tax receivable agreement will be based on the tax reporting positions that
we determine in accordance with the tax receivable agreement. We will not be reimbursed for any payments
previously made under the tax receivable agreement if the Internal Revenue Service subsequently disallows part
or all of the tax benefits that gave rise to such prior payments. As a result, in certain circumstances, payments could
be made under the tax receivable agreement that are significantly in excess of the benefits that we actually realize
in respect of (i) the increases in tax basis resulting from our purchases or exchanges of PBF LLC Series A Units
and (ii) certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits
attributable to payments under the tax receivable agreement.
The requirements of being a public company may strain our resources and distract our management.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934,
as amended, and requirements of the Sarbanes-Oxley Act of 2002. These requirements may place a strain on our
systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect
to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure