UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Date of Report (Date of earliest event reported):  August 17, 2007


Legacy Reserves LP
(Exact name of registrant as specified in its charter)



Delaware
1-33249
16-1751069
(State or other jurisdiction of
 (Commission
 (IRS Employer
incorporation)
 File Number)
Identification No.)
     




303 W. Wall, Suite 1400
 
Midland, Texas
79701
(Address of principal executive offices)
 (Zip Code)



Registrant’s telephone number, including area code: (432) 689-5200


NOT APPLICABLE
(Former name or former address, if changed since last report.)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[   ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[   ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[   ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[   ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


 
 
 

 


Item 5.02  Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Compensation of Named Executive Officers

On August 17, 2007, the Compensation Committee (the “Committee”) of Legacy Reserves GP, LLC, the general partner of the partnership, established the salary of and equity and non-equity incentive compensation applicable to our Chairman and Chief Executive Officer, Cary Brown, and recommended to the Board of Directors of our general partner (the “Board”) salaries and equity and non-equity incentive compensation with respect to our other named executive officers for the Board’s approval.

Salaries . On August 20, 2007, the Board approved the recommended salaries and equity and non-equity incentive compensation applicable to each of our named executive officers.  As part of these compensation determinations, Chief Executive Officer Cary Brown’s base salary was set at $250,000, Chief Operating Officer and Chief Financial Officer Steve Pruett’s base salary was set at $225,000, Vice President of Business Development and Land Kyle McGraw’s base salary was set at $195,000, Vice President of Operations Paul Horne’s base salary was set at $195,000, and Chief Accounting Officer William Morris’ base salary was set at $195,000.  These salary increases are to be effective on September 1, 2007.

Equity Incentive Compensation. The equity incentive compensation adopted by the Board and the Committee is designed to reward our named executive officers for their long-term performance by aligning grants of phantom units with associated distribution equivalent rights (“DERs”) with the growth of distributions to unitholders.  The DERs will entitle the recipient of the award with a payment equivalent to the amount of per unit distribution payable to unitholders.

The named executive officers may receive grants of phantom units with associated DERs of up to 42,000, 42,000, 35,000, 35,000 and 21,000, for each of Cary D. Brown, Steven H. Pruett, Paul T. Horne, Kyle A. McGraw and William M. Morris, respectively.  Upon attaining increased levels in our annualized distribution per unit to unitholders above our initial distribution rate of $1.64 per unit attributable to the fourth quarter of each year beginning in 2007, officers will receive correspondingly increasing percentages of their respective total potential award.  The table below demonstrates, on an example basis, what number of awards these officers would be entitled to assuming specified increases in annualized distribution.   For example, in the case of Mr. Brown, a $0.01 increase in the annualized distribution per unit would result in an additional award of 420 phantom units.

Illustration of Phantom Units to be Granted With Respect to Annualized Distribution Levels

   
$1.80
$1.98
$2.18
$2.40
$2.64
Assumed Percentage of Phantom Units Granted at Various Assumed Distribution Levels
16%
34%
54%
76%
100%
Name
Maximum Number of Phantom Units
         
Cary D. Brown
42,000
6,720
14,280
22,680
31,920
42,000
Steven H. Pruett
42,000
6,720
14,280
22,680
31,920
42,000
Paul T. Horne
35,000
5,600
11,900
18,900
26,600
35,000
Kyle A. McGraw
35,000
5,600
11,900
18,900
26,600
35,000
William M. Morris
21,000
3,360
7,140
11,340
15,960
21,000

The phantom units vest annually on the anniversary of the grant date over three years.  Grants of phantom units and DERs are made pursuant to the Amended and Restated Legacy Reserves, LP Long-Term Incentive Plan.

Non-Equity Incentive Compensation. The non-equity incentive compensation adopted by the Committee utilizes both objective and subjective measures to determine each named executive officer’s annual cash incentive payment.

Under the objective portion of this incentive structure each executive is awarded an amount up to 50% of his annual salary based on the annual growth of our distributions per unit to unitholders.  The objective portion is
 
 
structured to pay the executive increasing amounts of bonus depending on the annual growth in distributions as follows: (1) no cash incentive for up to 3% growth, (2) an increasing bonus of up to 25% of his salary for up to 10% growth, and (3) an increasing bonus of up to 50% of his salary for up to 20% growth in our annual distributions per unit.

Under the subjective portion of this incentive structure, each executive may receive an additional cash incentive payment ranging from 0% to 50% of his salary as determined by the Compensation Committee based on the recommendation of the Chief Executive Officer.  The subjective portion of the non-equity incentive payment for our Chief Executive Officer will be determined solely by the Committee.

In it discretion, the Compensation Committee may award additional grants or incentives, as applicable. This incentive structure will be applicable to our 2007 fiscal year.

Compensation of Directors

On August 17, 2007, the Committee evaluated the compensation for directors.  As a result of this evaluation, the Committee recommended to the Board annual retainer and meeting fees for non-employee directors.  The Board approved the recommendations on August 20, 2007 and established director compensation levels to be effective September 1, 2007.

Under the structure established by the Board, non-employee directors shall receive a fee for each meeting attended (in excess of the four quarterly meetings scheduled each year) of $1,000 if such meeting is under one hour and $1,500 if such meeting is in excess of one hour.  Additionally, each non-employee director will receive an annual grant of 1,750 units and an annual cash retainer of $25,000.  Furthermore, each director who serves as a chairman of one of the committees of the Board will receive an additional annual cash retainer with the Chairman of the Audit Committee receiving $25,000, the Chairman of the Compensation Committee receiving $15,000, the Chairman of the Nominating and Corporate Governance Committee receiving $5,000 and the Chairman of the Conflicts Committee receiving $3,000.

Amended and Restated Long-Term Incentive Plan

Effective August 17, 2007, our Board voted to modify certain definitions of the Legacy Reserves LP Long-Term Incentive Plan, as amended (the “Plan”), and to amend and restate the Plan to align the Plan with the provisions of new Section 409A of the Internal Revenue Code (the “Code”).

The Amended and Restated Legacy Reserves LP Long-Term Incentive Plan (the “Amended Plan”) reflects the identical language of the Plan, except as follows:

·  
the definition of “Affiliate” has been modified to encompass a larger number of individuals for purposes of Code Section 409A.  Specifically, to the extent that an award provides deferred compensation subject to Section 409A of the Code, solely for the purpose of applying Section 409A to such award, the term “Affiliate” shall mean all persons with whom the Participant’s employer would be considered a single employer under Section 414(b) or Section 414(c) of the Code.

·  
the definition of “Change of Control” has been modified to state that upon the consummation of a reorganization, merger, consolidation or other form of business transaction a change of control occurs unless the persons who were partners of the Partnership immediately prior to such transaction continue to own more than 50% of the combined voting power entitled to vote in the election of directors of the reorganized, merged or consolidated entity’s then outstanding voting securities.

·  
the definition of “Change of Control” has been modified for awards providing deferred compensation where such deferred compensation is subject to Section 409A of the Code and payment of the award is subject to a Change of Control.  In the case of such an award, and unless otherwise provided by the award, the definition of Change of Control included in the Amended Plan will be replaced by the definition of change of control under the regulations issued under Section 409A.
 
 
·  
 the general provisions provide that no payment or distribution subject to Section 409A of the Code will be made to persons who are “key employees” under Section 416(i) of the Code until the first day of the month that occurs six months after the employee’s separation from service.  At such time, the full amount of all payments or distributions owed will be made with interest.

The above description of the provisions of the Amended Plan is qualified in its entirety by reference to the full text of the plan, filed with this Form 8-K as Exhibit 10.1.
 
Item 9.01  Financial Statements and Exhibits.

(d)            Exhibits.

Exhibit Number
Description
Exhibit 10.1
Amended and Restated Legacy Reserves LP Long-Term Incentive Plan.




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
LEGACY RESERVES LP
 
By:  Legacy Reserves GP, LLC, its general partner
 
       
Date: August 23, 2007
By:
/s/ Cary D. Brown  
    Cary D. Brown  
    Chairman and Chief Executive Officer  
       


EXHIBIT INDEX

Exhibit Number
Description
Exhibit 10.1
Amended and Restated Legacy Reserves LP Long-Term Incentive Plan.



Exhibit 10.1
 
 
 
AMENDED AND RESTATED
 
LEGACY RESERVES LP
 
LONG-TERM INCENTIVE PLAN
 
Amended and Restated Effective as of August 17, 2007
 
1.
Purpose of the Plan.
 
The Legacy Reserves LP Long-Term Incentive Plan (the “ Plan ”) is intended to promote the interests of Legacy Reserves LP, a Delaware limited partnership (the “ Partnership ”), by providing to employees, consultants, and directors of Legacy Reserves GP LLC, a Delaware limited liability company and the sole general partner of the Partnership (the “ Company ”), the Partnership and its Affiliates incentive compensation awards for superior performance that are based on Units. The Plan is also contemplated to enhance the ability of the Company and its Affiliates to attract and retain the services of individuals who are essential for the growth and profitability of the Partnership and to encourage them to devote their best efforts to advancing the business of the Partnership and its subsidiaries.
 
2.
Definitions.
 
As used in the Plan, the following terms shall have the meanings set forth below:
 
“ Affiliate ” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question.  As used herein, the term “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. Notwithstanding the immediately preceding two sentences, except as otherwise provided in an Award, to the extent that an Award provides deferred compensation subject to Section 409A of the Code, solely for the purpose of applying Section 409A to such Award, the term “Affiliate” shall mean all persons with whom the Participant’s employer would be considered a single employer under Section 414(b) or Section 414(c) of the Code.
 
“ Award ” means an Option, Restricted Unit, Unit Grant, Phantom Unit or Unit Appreciation Right granted under the Plan, and shall include tandem DERs granted with respect to an Option, Phantom Unit or Unit Appreciation Right.
 
“ Award Agreement ” means the written agreement by which an Award shall be evidenced.
 
“ Board ” means the Board of Directors of the Company.
 
“ Change of Control ” means the occurrence of any of the following events:
 
(i)           the acquisition by any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), other than the Company or an Affiliate of the Company, of “beneficial ownership” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company or the Partnership representing more than 35% of the combined voting power of the Company’s or the Partnership’s then outstanding securities entitled to vote generally in the election of directors; provided, however, that any acquisition of securities from GP Members will be disregarded for purposes of determining whether a Change of Control has occurred; or
 
(ii)           the consummation of a reorganization, merger, consolidation or other form of business transaction or series of business transactions, in each case, with respect to which Persons who were the partners of the Partnership immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, own more than 50%
 
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of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated entity's then outstanding voting securities; or
 
(iii)           the sale, lease or disposition (in one or a series of related transactions) by the Partnership of all or substantially all of the Partnership’s assets to any Person other than the Partnership, the Company or any of their respective Affiliates; or
 
(iv)           a change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. “ Incumbent Directors ” shall mean directors who either (A) are directors of the Company as of the effective date of the initial offering of Units, or (B) are elected, or nominated for election, thereafter to the Board with the affirmative votes of at least a majority in interest of the members of the Company, or, if applicable, by the number of limited partners of the Partnership as set forth in the Partnership agreement, in each case at the time of such election or nomination, but “Incumbent Director” shall not include an individual whose election or nomination is in connection with (i) an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board or (ii) a plan or agreement to replace a majority of the then Incumbent Directors, other than, in either case, as a result of the Partnership’s failure to file a registration statement within 240 days of the effective date of the initial offering of Units; or
 
(v)           the approval by the Board or the members of the Company of a complete or substantially complete liquidation or dissolution of the Partnership.
 
Except as otherwise provided in an Award, solely with respect to any Award that provides deferred compensation that is subject to Section 409A of the Code and payment of such Award is contingent upon the occurrence of a Change of Control, the above definition shall be void and of no effect and is hereby replaced by the definition of such term set forth in regulations issued under Section 409A of the Code by the appropriate governmental authority, which definition set forth in regulations issued under Section 409A of the Code is hereby incorporated by reference into and shall form part of this Plan as fully as if set forth herein verbatim and the Plan insofar as it relates to such Award shall be operated in accordance with this modified definition of Change of Control.
 
“ Code ” means the Internal Revenue Code of 1986, as amended.
 
“ Committee ” means the Compensation Committee of the Board or such other committee of the Board as may be appointed by the Board to administer the Plan.
 
“ Consultant ” means an individual, other than an Employee or a Director, providing bona fide services to the Company or any of its Affiliates as a consultant or advisor, as applicable, provided that such individual is a natural person and that such services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for any securities of the Partnership.
 
“ DER ” or “ Distribution Equivalent Right ” means a contingent right, granted in tandem with a specific Option, Unit Appreciation Right or Phantom Unit, to receive an amount in cash equal to the cash distributions made by the Partnership with respect to a Unit during the period such tandem Award is outstanding.
 
“ Director ” means a member of the Board who is not an Employee.
 
“ Employee ” means any employee of the Company or an Affiliate who performs services for the Company and its Affiliates.
 
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“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.
 
“ Fair Market Value ” means the closing sales price of a Unit on the applicable date (or if there is no trading in the Units on such date, on the next preceding date on which there was trading) as reported in The Wall Street Journal (or other reporting service approved by the Committee). In the event Units are not publicly traded at the time a determination of fair market value is required to be made hereunder, the determination of fair market value shall be made in good faith by the Committee.
 
“ GP Members ” means the members of the Company.
 
“ Option ” means an option to purchase Units granted under the Plan.
 
“ Participant ” means any Employee, Consultant or Director granted an Award under the Plan.
 
“ Partnership Agreement ” means the Amended and Restated Limited Partnership Agreement of Legacy Reserves LP, as it may be subsequently amended or restated from time to time.
 
“ Person ” means an individual or a corporation, limited liability company, partnership, joint venture, trust, unincorporated organization, association, government agency or political subdivision thereof or other entity.
 
“ Phantom Unit ” means a phantom (notional) Unit granted under the Plan which upon vesting entitles the Participant to receive a Unit or an amount of cash equal to the Fair Market Value of a Unit.  Whether cash or Units are received for Phantom Units shall be determined in the sole discretion of the Committee and shall be set forth in the Award Agreement.
 
“ Restricted Period ” means the period established by the Committee with respect to an Award during which the Award remains subject to forfeiture or is either not exercisable by or payable to the Participant, as the case may be.
 
“ Restricted Unit ” means a Unit granted under the Plan that is subject to a Restricted Period.
 
“ Rule 16b-3 ” means Rule 16b-3 promulgated by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time.
 
“ SEC ” means the Securities and Exchange Commission, or any successor thereto.
 
“ UAR ” of “ Unit Appreciation Right ” means an Award that, upon exercise, entitles the holder to receive the excess of the Fair Market Value of a Unit on the exercise date over the exercise price established for such Unit Appreciation Right. Such excess may be paid in cash and/or in Units as determined in the sole discretion of the Committee and set forth in the Award Agreement.
 
“ UDR ” or “ Unit Distribution Right ” means a distribution made by the Partnership with respect to a Restricted Unit.
 
“ Unit ” means a Unit of the Partnership.
 
“ Unit Grant ” means an Award of an unrestricted Unit.
 
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3.
Administration.
 
The Plan shall be administered by the Committee. A majority of the Committee shall constitute a quorum, and the acts of the members of the Committee who are present at any meeting thereof at which a quorum is present, or acts unanimously approved by the members of the Committee in writing, shall be the acts of the Committee. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of Units to be covered by Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled, exercised, canceled, or forfeited; (vi) interpret and administer the Plan and any instrument or agreement relating to an Award made under the Plan; (vii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (viii) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons, including the Company, any Affiliate, any Participant, and any beneficiary of any Award.
 
4.
Units.
 
(a)            Limits on Units Deliverable . Subject to adjustment as provided in Section 4(c), the maximum number of Units that may be delivered or reserved for delivery or underlying any Award with respect to the Plan is 2,000,000.  If any Award expires, is canceled, exercised, paid or otherwise terminates without the delivery of Units, or if the maximum number of Units delivered is reduced for any reason other than tax withholding or payment of the exercise price, then the Units covered by such Award, to the extent of such expiration, cancellation, exercise, payment or termination, shall again be Units with respect to which Awards may be granted.  Units that cease to be subject to an Award because of the exercise of the Award, or the vesting of Restricted Units or similar Awards, shall no longer be subject to or available for any further grant under this Plan. Notwithstanding the foregoing, there shall not be any limitation on the number of Awards that may be granted under the Plan and paid in cash.
 
(b)            Sources of Units Deliverable Under Awards . Any Units delivered pursuant to an Award shall consist, in whole or in part, of Units acquired in the open market, from any Affiliate, the Partnership or any other Person, or any combination of the foregoing as determined by the Committee in its sole discretion.
 
(c)            Adjustments . In the event that the Committee determines that any distribution (whether in the form of cash, Units, other securities, or other property), recapitalization, split, reverse split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Units or other securities of the Partnership, issuance of warrants or other rights to purchase Units or other securities of the Partnership, or other similar transaction or event affects the Units such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Units (or other securities or property) with respect to which Awards may be granted, (ii) the number and type of Units (or other securities or property) subject to outstanding Awards, and (iii) the grant or exercise price with respect to any Award or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award; provided, that the number of Units subject to any Award shall always be a whole number and, provided further, that the Committee shall not take any action otherwise authorized under this subparagraph (c) to the extent that (i) such action would cause (A) the application of Section 409A of the Code to the Award or (B) create adverse tax consequences under Section 409A of the Code should that Code section apply to the Award or (ii) except as permitted in Section 7(c), materially reduce the benefit to the Participant without the consent of the Participant.
 
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5.
Eligibility.
 
Any Employee, Consultant or Director shall be eligible to be designated a Participant and receive an Award under the Plan.
 
6.
Awards.
 
(a)            Options . The Committee shall have the authority to determine the Employees, Consultants and Directors to whom Options shall be granted, the number of Units to be covered by each Option, whether DERs are granted with respect to such Option, the purchase price therefor and the conditions and limitations applicable to the exercise of the Option, including the following terms and conditions and such additional terms and conditions, as the Committee shall determine, that are not inconsistent with the provisions of the Plan.
 
(i)            Exercise Price . The purchase price per Unit purchasable under an Option shall be determined by the Committee at the time the Option is granted, provided such purchase price may not be less than 100% of its Fair Market Value as of the date of grant.
 
(ii)            Time and Method of Exercise . The Committee shall determine the time or times at which an Option may be exercised in whole or in part, which may include, without limitation, accelerated vesting upon the achievement of specified performance goals, and the method or methods by which payment of the exercise price with respect thereto may be made or deemed to have been made, which may include, without limitation, cash, check acceptable to the Company, a “cashless-broker” exercise through procedures approved by the Company, with the consent of the Committee, the withholding of Units that would otherwise be delivered to the Participant upon the exercise of the Option, other securities or other property, or any combination thereof, having a fair market value (as determined by the Committee) on the exercise date equal to the relevant exercise price.
 
(iii)            Forfeiture . Except as otherwise provided in the terms of the Award Agreement, upon termination of a Participant’s employment with or consulting services to the Company and its Affiliates or membership on the Board, whichever is applicable, for any reason prior to the date an Option becomes exercisable, all Options shall be forfeited by the Participant.  The Committee may in its discretion, waive in whole or in part such forfeiture with respect to a Participant’s Options.
 
(iv)            DERs . To the extent provided by the Committee, in its discretion, a grant of Options may include a tandem DER grant, which may provide that such DERs shall be credited to a bookkeeping account (with or without interest in the discretion of the Committee) subject to the same vesting restrictions as the tandem Award, or be subject to such other provisions or restrictions as determined by the Committee in its discretion.
 
(b)            Restricted Units and Unit Grants . The Committee shall have the authority to determine the Employees, Consultants and Directors to whom Restricted Units and Unit Grants shall be granted, the number of Restricted Units and/or Unit Grants to be granted to each such Participant, the Restricted Period, the conditions under which the Restricted Units may become vested or forfeited, and such other terms and conditions as the Committee may establish with respect to such Awards.
 
(i)            UDRs . To the extent provided by the Committee, in its discretion, a grant of Restricted Units may provide that distributions made by the Partnership with respect to the Restricted Units shall be subject to the same forfeiture and other restrictions as the Restricted Unit and, if restricted, such distributions shall be held, without interest, until the Restricted Unit vests or is forfeited with the UDR being paid or forfeited at the same time, as the case may be. Absent such a restriction on the UDRs in the grant agreement, UDRs shall be paid to the holder of the Restricted Unit without restriction.
 
 
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(ii)            Forfeitures . Except as otherwise provided in the terms of the Award Agreement, upon termination of a Participant’s employment with or consulting services to the Company and its Affiliates or membership on the Board, whichever is applicable, for any reason during the applicable Restricted Period, all outstanding Restricted Units awarded the Participant shall be automatically forfeited on such termination. The Committee may in its discretion, waive in whole or in part such forfeiture with respect to a Participant’s Restricted Units.
 
(iii)            Lapse of Restrictions . Upon or as soon as reasonably practical following the vesting of each Restricted Unit, subject to the provisions of Section 8(b) , the Participant shall be entitled to have the restrictions removed from his or her Unit certificate so that the Participant then holds an unrestricted Unit.
 
(c)            Phantom Units . The Committee shall have the authority to determine the Employees, Consultants and Directors to whom Phantom Units shall be granted, the number of Phantom Units to be granted to each such Participant, the Restricted Period, the time or conditions under which the Phantom Units may become vested or forfeited, which may include, without limitation, the accelerated vesting upon the achievement of specified performance goals, and such other terms and conditions as the Committee may establish with respect to such Awards, including whether DERs are granted with respect to such Phantom Units.
 
(i)            DERs .  To the extent provided by the Committee, in its discretion, a grant of Phantom Units may include a tandem DER grant, which may provide that such DERs shall be credited to a bookkeeping account (with or without interest in the discretion of the Committee) subject to the same vesting restrictions as the tandem Award, or be subject to such other provisions or restrictions as determined by the Committee in its discretion.
 
(ii)            Forfeitures .  Except as otherwise provided in the terms of the Award Agreement, upon termination of a Participant’s employment with or consulting services to the Company and its Affiliates or membership on the Board, whichever is applicable, for any reason during the applicable Restricted Period, all outstanding Phantom Units awarded the Participant shall be automatically forfeited on such termination.  The Committee may, in its discretion, waive in whole or in part such forfeiture with respect to a Participant’s Phantom Units.
 
(iii)            Lapse of Restrictions .  Upon or as soon as reasonably practical following the vesting of each Phantom Unit, subject to the provisions of Section 8(b), the Participant shall be entitled to receive from the Company one Unit or cash equal to the Fair Market Value of a Unit, as determined by the Committee in its discretion.
 
(d)            Unit Appreciation Rights . The Committee shall have the authority to determine the Employees, Consultants and Directors to whom Unit Appreciation Rights shall be granted, the number of Units to be covered by each grant and the conditions and limitations applicable to the exercise of the Unit Appreciation Right, including the following terms and conditions and such additional terms and conditions, as the Committee shall determine, that are not inconsistent with the provisions of the Plan.
 
(i)            Exercise Price . The exercise price per Unit Appreciation Right shall be not less than 100% of its Fair Market Value as of the date of grant.
 
(ii)            Vesting/Time of Payment . The Committee shall determine the time or times at which a Unit Appreciation Right shall become vested and exercisable and the time or times at which a Unit Appreciation Right shall be paid in whole or in part.
 
(iii)            Forfeitures . Except as otherwise provided in the terms of the Award Agreement, upon termination of a Participant’s employment with or services to the Company and its Affiliates or membership on the Board, whichever is applicable, for any reason prior to vesting, all unvested Unit Appreciation Rights awarded the Participant shall be automatically forfeited on such
 
 
-6-
 
 
termination. The Committee may, in its discretion, waive in whole or in part such forfeiture with respect to a Participant’s Unit Appreciation Rights, in which case, such Unit Appreciation Rights shall be deemed vested upon termination of employment or service and paid as soon as administratively practical thereafter.
 
(iv)            Unit Appreciation Right DERs .  To the extent provided by the Committee, in its discretion, a grant of Unit Appreciation Rights may include a tandem DER grant, which may provide that such DERs shall be credited to a bookkeeping account (with or without interest in the discretion of the Committee) subject to the same vesting restrictions as the tandem Unit Appreciation Rights Award, or be subject to such other provisions or restrictions as determined by the Committee in its discretion.
 
(e)            General .
 
(i)            Awards May Be Granted Separately or Together . Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for any other Award granted under the Plan or any award granted under any other plan of the Company or any Affiliate.  No Award shall be issued in tandem with another Award if the tandem Awards would result in adverse tax consequences under Section 409A of the Code.  Awards granted in addition to or in tandem with other Awards or awards granted under any other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards.
 
(ii)            Limits on Transfer of Awards .
 
(A)           Except as provided in Section 6(e)(ii)(C) below, each Award shall be exercisable or payable only to the Participant during the Participant’s lifetime, or to the person to whom the Participant’s rights shall pass by will or the laws of descent and distribution.
 
(B)           Except as provided in Section 6(e)(ii)(C) below, no Award and no right under any such Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company, the Partnership or any Affiliate.
 
(C)           To the extent specifically provided by the Committee with respect to an Award, an Award may be transferred by a Participant without consideration to immediate family members or related family trusts, limited partnerships or similar entities or on such terms and conditions as the Committee may from time to time establish.
 
(iii)            Term of Awards . The term of each Award shall be for such period as may be determined by the Committee, but shall not exceed 10 years.
 
(iv)            Unit Certificates . All certificates for Units or other securities of the Partnership delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the SEC, any stock exchange upon which such Units or other securities are then listed, and any applicable federal or state laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
 
(v)            Consideration for Grants . Awards may be granted for such consideration, including services, as the Committee determines.
 
 
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(vi)            Delivery of Units or other Securities and Payment by Participant of Consideration . Notwithstanding anything in the Plan or any grant agreement to the contrary, delivery of Units pursuant to the exercise or vesting of an Award may be deferred for any period during which, in the good faith determination of the Committee, the Company is not reasonably able to obtain Units to deliver pursuant to such Award without violating the rules or regulations of any applicable law or securities exchange. No Units or other securities shall be delivered pursuant to any Award until payment in full of any amount required to be paid pursuant to the Plan or the applicable Award grant agreement (including, without limitation, any exercise price or tax withholding) is received by the Company.
 
(vii)            Change of Control .  Unless specifically provided otherwise in the Award Agreement, upon a Change of Control or such time prior thereto as established by the Committee, all outstanding Awards shall automatically vest or become exercisable in full, as the case may be. In this regard, all Restricted Periods shall terminate and all performance criteria, if any, shall be deemed to have been achieved at the maximum level.  To the extent an Option or UAR is not exercised, or a Phantom Unit or Restricted Unit does not vest, upon the Change of Control, the Committee may, in its discretion, cancel such Award or provide for an assumption of such Award or a replacement grant on substantially the same terms; provided, however, upon any cancellation of an Option or UAR that has a positive “spread” or a Phantom Unit or Restricted Unit, the holder shall be paid an amount in cash and/or other property, as determined by the Committee, equal to such "spread" if an Option or UAR or equal to the Fair Market Value of a Unit, if a Phantom Unit or Restricted Unit.
 
(viii)            Section 409A of the Code .  Notwithstanding any other provision of the Plan to the contrary, any Award granted under the Plan shall contain terms that (i) are designed to avoid application of Section 409A of the Code to the Award or (ii) are designed to avoid adverse tax consequences under Section 409A should that Code section apply to the Award.
 
7.
Amendment and Termination.
 
Except to the extent prohibited by applicable law:
 
(a)            Amendments to the Plan . Except as required by the rules of the principal securities exchange on which the Units are traded and subject to Section 7(b) below, the Board or the Committee may amend, alter, suspend, discontinue, or terminate the Plan in any manner, including increasing the number of Units available for Awards under the Plan, without the consent of any partner, Participant, other holder or beneficiary of an Award, or other Person.
 
(b)            Amendments to Awards Subject to Section 7(a) . The Committee may waive any conditions or rights under, amend any terms of, or alter any Award theretofore granted, provided no change, other than pursuant to Section 7(c) , in any Award shall materially reduce the benefit to a Participant without the consent of such Participant.
 
(c)            Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events . The Committee is hereby authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4(c) of the Plan) affecting the Partnership or the financial statements of the Partnership, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available to Participants under the Plan or such Award.
 
 
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8.
General Provisions.
 
(a)            No Rights to Award . No Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Participants. The terms and conditions of Awards need not be the same with respect to each recipient.
 
(b)            Tax Withholding . The Company or any Affiliate is authorized to withhold from any Award, from any payment due or transfer made under any Award or from any compensation or other amount owing to a Participant the amount (in cash, Units, other securities, Units that would otherwise be issued pursuant to such Award or other property) of any applicable taxes payable in respect of the grant of an Award, its exercise, the lapse of restrictions thereon, or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy its withholding obligations for the payment of such taxes.
 
(c)            No Right to Employment or Services . The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate, to continue as a consultant, or to remain on the Board, as applicable. Further, the Company or an Affiliate may at any time dismiss a Participant from employment or terminate a consulting relationship, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan, any Award agreement or other agreement.
 
(d)            Governing Law . The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Texas without regard to its conflict of laws principles.
 
(e)            Section 409A of the Code . Notwithstanding anything in this Plan to the contrary, any Award granted under the Plan shall contain terms that (i) are designed to avoid application of Section 409A of the Code to the Award or (ii) are designed to avoid adverse tax consequences under Section 409A of the Code should that section apply to the Award.  If any Plan provision or Award under the Plan would result in the imposition of an applicable tax under Section 409A of the Code and related regulations and pronouncements, that Plan provision or Award will be reformed to the extent reformation would avoid imposition of the applicable tax and no action taken to comply with Section 409A of the Code shall be deemed to adversely affect the Participant's rights to an Award or to require the Participant's consent.
 
In addition, to the extent that at any time prescribed under Section 409A of the Code and regulations or other regulatory guidance issued thereunder, the Participant is a key employee, as defined in Section 416(i) of the Code without regard to paragraph 5 thereof, except to the extent permitted under Section 409A of the Code and regulations or other regulatory guidance issued thereunder, no distribution or payment that is subject to Section 409A of the Code shall be made under the Plan on account of the Participant’s separation from service, as defined in Section 409A of the Code and the regulations or other regulatory guidance issued thereunder, with the Participant’s employer (at any time when the Participant is deemed under Section 409A of the Code and regulations or other regulatory guidance issued thereunder to be a specified employee, as defined in Section 409A of the Code and regulations or other regulatory guidance issued thereunder) until the date that is the first day of the month that occurs six months after the date of the Participant’s separation from service (or, if earlier, the date of death of the Participant or any other date permitted under Section 409A of the Code and regulations or other regulatory guidance issued thereunder).  In furtherance of the immediately preceding sentence, any such distribution or payment otherwise payable in cash to the Participant pursuant to the terms of the Plan within the period described in the immediately preceding sentence following the Participant’s separation from service with the Company will accrue and will be payable in a lump sum payment, with interest at the short-term applicable federal rate compounded semi-annually from the date the payment would have been made but for application of this Section to the date of payment, on the payment date set forth in the immediately preceding sentence.
 
 
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(f)            Severability . If any provision of the Plan or any award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or award and the remainder of the Plan and any such Award shall remain in full force and effect.
 
(g)            Other Laws . The Committee may refuse to issue or transfer any Units or other consideration under an Award if, in its sole discretion, it determines that the issuance or transfer of such Units or such other consideration might violate any applicable law or regulation, the rules of the principal securities exchange on which the Units are then traded, or entitle the Partnership or an Affiliate to recover the same under Section 16(b) of the Exchange Act, and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the exercise of such Award shall be promptly refunded to the relevant Participant, holder or beneficiary.
 
(h)            No Trust or Fund Created . Neither the Plan nor any award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any participating Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any participating Affiliate pursuant to an Award, such right shall be no greater than the right of any general unsecured creditor of the Company or any participating Affiliate.
 
(i)            No Fractional Units . No fractional Units shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Units or whether such fractional Units or any rights thereto shall be canceled, terminated, or otherwise eliminated.
 
(j)            Headings . Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.
 
(k)            Facility Payment . Any amounts payable hereunder to any person under legal disability or who, in the judgment of the Committee, is unable to properly manage his financial affairs, may be paid to the legal representative of such person, or may be applied for the benefit of such person in any manner which the Committee may select, and the Company and its Affiliates shall be relieved of any further liability for payment of such amounts.
 
(l)            Participation by Affiliates . In making Awards to Consultants and Employees employed by an Affiliate, the Committee shall be acting on behalf of the Affiliate, and to the extent the Partnership has an obligation to reimburse the Company for compensation paid to Consultants and Employees for services rendered for the benefit of the Partnership, such payments or reimbursement payments may be made by the Partnership directly to the Affiliate, and, if made to the Company, shall be received by the Company as agent for the Affiliate.
 
(m)            Gender and Number . Words in the masculine gender shall include the feminine gender, the plural shall include the singular and the singular shall include the plural.
 
(n)            No Guarantee of Tax Consequences .  None of the Board, the Company, nor the Committee makes any commitment or guarantee that any federal, state or local tax treatment will apply or be available to any person participating or eligible to participate hereunder.
 
9.
Term of the Plan.
 
The Plan shall be effective on the date of its approval by the Board and shall continue until the date terminated by the Board. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award granted prior to such termination, and the authority of the Board
 
 
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or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to waive any conditions or rights under such Award, shall extend beyond such termination date.
 
 
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