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):     February 21, 2017
 
Legacy Reserves LP
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
 
Delaware
 
1-33249
 
16-1751069
(State or other jurisdiction of
incorporation)
 
(Commission File Number)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
303 West Wall Street, Suite 1800
Midland, Texas  
(Address of principal executive offices)
 
79701  
(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.

On February 21, 2017, the Compensation Committee (the “ Committee ”) of the Board of Directors (the “ Board ”) of Legacy Reserves GP, LLC, the general partner (the “ General Partner ”) of Legacy Reserves LP (the “ Partnership ”), approved certain amendments to the Legacy Reserves LP Compensation Policy, as previously adopted on March 7, 2013 and subsequently amended, applicable to the General Partner’s executive officers (as amended, the “ Compensation Policy ”). Except as otherwise noted, the amendments to the Compensation Policy apply to incentive awards granted commencing in fiscal year 2018 in accordance with the Compensation Policy with respect to the Partnership’s and the executive officers’ performance during fiscal year 2017. The amendments to the Compensation Policy are highlighted below.
Cash Incentive Compensation (Cash Bonus) . The objective component pertaining to growth in cash distributions has been deleted and replaced by a measure of ratio of Total Debt (as defined in the Partnership’s Third Amended and Restated Credit Agreement, as amended) to EBITDA (as defined as Adjusted EBITDA in the Partnership’s annual report on Form 10-K) at the last day of the given period.
The percentage levels that may be earned each year are based on the ranges of performance levels with respect to the target as set forth in the following table, as determined by straight-line interpolation. In addition, such levels pertaining to the EBITDA target have been amended as set forth in the table below.
The General Partner’s executive officers will not receive a cash bonus (with respect to either of the two performance measures) under this objective component unless the Partnership achieves a Total Debt to EBITDA ratio that is less than 125% of the target Total Debt to EBITDA ratio or achieves EBITDA that is greater than 75% of the target EBITDA for the year.
Measure
Weight
Performance Level/Percent Earned
EBITDA
50%
75% of Target
100% of Target
125% of Target
 
 
0%
100%
200%
Ratio of Total Debt to EBITDA
50%
125% of Target
Target
75% of Target
 
 
0%
100%
200%

The target levels and the related tiers of percent earned relative to performance level, for purposes of the annual cash bonus determination only, will be set by the Committee at the beginning of each year after considering management’s recommendation.
All other components of the Cash Incentive Compensation (Cash Bonus) remain in effect.
Equity-Based Incentive Compensation .
Subjective or Service-Based Component . Phantom units granted pursuant to the subjective or service-based component, including those granted in 2017 with respect to 2016 performance, will be settled two thirds in cash and one third in Partnership units. The phantom units to be settled in cash will not be subject to a cap on the maximum amount payable per phantom unit. The grants of phantom units pursuant to the subjective or service-based component of the equity-based incentive compensation terms of the Compensation Policy, including those granted in 2017 with respect to 2016 performance, will be made pursuant to grant agreements between the Partnership and the applicable executive officers in substantially the forms attached hereto as Exhibit 10.1 and 10.2, as applicable.




Objective or Performance-Based Component . The matrix used to evaluate the Partnership’s total unitholder return for determining the percentage of equity grants made under the objective component that will vest has been amended to the following:
Legacy TUR Ranking
vs
Peer Group/Adjusted Alerian Index (as defined in the Compensation Policy)
>=90 th  %ile
 
100%
125%
150%
175%
200%
    75 th  %ile
 
75%
100%
125%
150%
175%
     50 th  %ile
 
50%
75%
100%
125%
150%
      25 th  %ile
 
0%
50%
75%
100%
125%
<=10 th  %ile
 
0%
25%
50%
75%
100%
 
 
 
 
 
 
 
 
 
 
 
 
 
<=0%
8.0%
12.0%
20.0%
>=25%
 
 
 
 
Three-Year Average Annual Legacy TUR

Phantom units granted pursuant to the objective component, including those granted in 2017 with respect to 2016 performance, will be settled in cash and will not be subject to a cap on the maximum amount payable per phantom unit. The grants of phantom units pursuant to the objective component of the equity-based incentive compensation terms of the Compensation Policy, including those granted in 2017 with respect to 2016 performance, will be made pursuant to grant agreements between the Partnership and the applicable executive officers in substantially the form attached hereto as Exhibit 10.3.
All other components of the Equity-Based Incentive Compensation remain in effect.
Quarterly Cash Retention Bonuses
On February 21, 2017, the Committee approved the payment of quarterly cash retention bonuses to the General Partner’s executive officers for each quarter of the fiscal year ending December 31, 2017. The quarterly cash retention bonuses shall be paid with respect to quarters ending March 31, June 30, September 30 and December 31, 2017 in the event that the executive officer remains continuously employed with the Partnership through the end of such quarter. The quarterly cash retention bonuses will be paid pursuant to retention bonus agreements between an affiliate of the Partnership and the applicable executive officers in substantially the form attached hereto as Exhibit 10.4. The amounts of the quarterly cash retention bonuses will not offset any award of phantom units to the executive officers that are payable in cash. The quarterly cash retention bonuses with respect to each of the quarters ended March 31, June 30, September 30 and December 31, 2016 to the following executive officers are as follows:
Executive Officer
Amount
Paul T. Horne
$
125,000

James Daniel Westcott
$
100,000

Kyle M. Hammond
$
100,000

Kyle A. McGraw
$
50,000

Dan G. LeRoy
$
25,000















Item 9.01  Financial Statements and Exhibits.
 
(d)              Exhibits
Exhibit Number
 
Description
10.1
 
Form of Grant of Phantom Units (Units) Under Subjective Component of Long-Term Equity Incentive Compensation.

10.2
 
Form of Grant of Phantom Units (Cash) Under Subjective Component of Long-Term Equity Incentive Compensation.
10.3
 
Form of Grant of Phantom Units Under Objective Component of Long-Term Equity Incentive Compensation.
10.4
 
Form of Retention Bonus Agreement.





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: February 22, 2017
/s/ Dan G. LeRoy
 
 
Dan G. LeRoy
 
 
Vice President, General Counsel and Secretary
 







Legacy Reserves LP
Long-Term Incentive Plan
Grant of Phantom Units (Units) Under Subjective Component of Long-Term Equity Incentive Compensation
Grantee:
Grant Date:
1.
Grant of Phantom Units .  Legacy Reserves LP (the “ Partnership ”) hereby grants to you             Phantom Units under the Amended and Restated Legacy Reserves LP Long-Term Incentive Plan (the “ Plan ”) on the terms and conditions set forth under this Grant of Phantom Units (Units) Under Subjective Component of Long-Term Equity Incentive Compensation Agreement (this “ Agreement ”) and in the Plan, which is attached hereto as Appendix A and is incorporated herein by reference as a part of this Agreement.  A Phantom Unit is a notional Unit of the Partnership that is subject to the forfeiture and non-transferability provisions set forth below in this Agreement.  Each Phantom Unit granted to you also includes a tandem Distribution Equivalent Right (“ DER ”), which provides that when the Partnership makes a cash distribution with respect to a Unit, an amount of cash with respect to each of your Phantom Units equal to the amount of the quarterly distribution paid on such Unit will be accrued and on the vesting date, such accrued amounts will be payable to you with respect to the number of your Phantom Units actually vested.  No accrued distribution amounts will be payable with respect to unvested or forfeited Phantom Units. The terms of this Agreement are set forth below.  In the event of any conflict between the terms of this Agreement and the Plan, the Plan shall control. Capitalized terms used in this Agreement but not defined herein shall have the meanings ascribed to such terms in the Plan, unless the context requires otherwise.
2.
Regular Vesting .  Except as otherwise provided in Section 3 below, the Phantom Units granted pursuant to this Agreement shall vest on               .
Your “employment with the Partnership” (as defined in Section 3), or any of its Affiliates, as the case may be (the “ Employer ”), must be continuous from the Grant Date through the applicable vesting date in order for the Phantom Units to become vested under the provisions of this Agreement.
3.
Events Occurring Prior to Regular Vesting .
(a)
Death or Disability .  If your “employment with the Employer” (as defined below in this Section 3) terminates as a result of your death or you become disabled (within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended and in effect from time to time (the “ Code ”)), the Phantom Units automatically will become fully vested.
(b)
Termination by the Employer other than for Cause .  If your “employment with the Employer” (as defined below in this Section 3) is terminated by the Employer for any reason other than “Cause” (as defined below in this Section 3), as determined by the Employer, the Phantom Units then held by you automatically will become fully vested.
(c)
Other Terminations .  If your “employment with the Employer” (as defined below in this Section 3) should terminate for any reason other than as provided in Sections 3(a) and (b) above, all unvested Phantom Units then held by you automatically shall be forfeited and cancelled without payment upon such termination.  Upon forfeiture of a Phantom Unit, the tandem DER, along with any associated accrued distribution of cash with respect to the tandem DER, shall automatically be cancelled without payment.
(d)
Change of Control .  All outstanding Phantom Units held by you automatically shall become fully vested upon a Change of Control.



For purposes of this Section 3, “employment with the Employer” or “employment with the Partnership” shall include being an employee of or a director (or equivalent) or consultant to the Partnership or an Affiliate.
For purposes of this Section 3, “ Cause ” means any of the following:
(i)    the Grantee’s conviction of, or plea of nolo contendere to, any felony or to any crime or offense causing substantial harm to any of the Partnership or its direct or indirect subsidiaries (whether or not for personal gain) or involving acts of theft, fraud, embezzlement, moral turpitude or similar conduct;
(ii)    the Grantee’s repeated intoxication by alcohol or drugs during the performance of his duties;
(iii)    malfeasance in the conduct of Grantee’s duties, including, but not limited to, (A) willful and intentional misuse or diversion of any of the Partnerships’ or its subsidiaries’ funds, (B) embezzlement or (C) fraudulent or willful and material misrepresentations or concealments on any written reports submitted to any of the Partnership or its subsidiaries;
(iv)    the Grantee’s material failure to perform the duties of the Grantee’s employment consistent with his position, or material failure to follow or comply with the reasonable and lawful written directives of the Board;
(v)    a material breach of the Grantee’s employment agreement; or
(vi)    a material breach by the Grantee of written policies of the Partnership concerning employee discrimination or harassment.
(e)
Notice and Cure Opportunity in Certain Circumstances . The Grantee may be afforded a reasonable opportunity to cure any act or omission that would otherwise constitute “Cause” under Section 3 hereof according to the following terms: The Board will cause the Partnership to give the Grantee written notice stating with reasonable specificity the nature of the circumstances determined by the Board in good faith to constitute “Cause.” If, in the good faith judgment of the Board, the alleged breach is reasonably susceptible to cure, the Grantee will have fifteen (15) days from his receipt of such notice to effect the cure of such circumstances or such breach to the good faith satisfaction of the Board. The Board will state whether the Grantee will have such an opportunity to cure in the initial notice of “Cause” referred to above. If, in the good faith judgment of the Board the alleged breach is not reasonably susceptible to cure, or such circumstances or breach have not been satisfactorily cured within such fifteen (15) day cure period, such breach will thereupon constitute “Cause” hereunder.
4.
Payment Upon Vesting of Phantom Units and Payment of Amounts Due Under DERs .
(a)
Subject to the tax withholding requirements of Section 5 below, not later than seventy-four (74) days following the date on which a Phantom Unit vests hereunder, the Partnership shall issue and deliver to you, in book-entry form, a Unit in respect of each Phantom Unit then vested.  Subject to any tax withholding requirements of Section 5 below, not later than seventy-four (74) days following any date on which a Phantom Unit vests hereunder, the Partnership shall mail or otherwise deliver to you, in a single lump sum in cash in respect of each DER granted in tandem with a Phantom Unit, an amount of cash equal to all accrued cash distributions on such Unit.  Upon vesting of a Phantom Unit, the related DER shall automatically terminate and be forfeited; provided, however, that all accrued cash distributions through such date shall remain payable in accordance with the immediately preceding sentence.



(b)
Notwithstanding the preceding provisions of Section 4(a), to the extent that (i) the limitations (set forth in Code Section 409A and regulations or other regulatory guidance issued thereunder) on payments to specified employees, as defined in Code Section 409A and regulations or other regulatory guidance issued thereunder, apply to you and (ii) at any time prescribed under Code Section 409A and regulations or other regulatory guidance issued thereunder, you are a key employee, as defined in Code Section 416(i) without regard to paragraph 5 thereof, except to the extent permitted under Code Section 409A and regulations or other regulatory guidance issued thereunder, no distribution or payment that is subject to Code Section 409A shall be made under this Agreement on account of your separation from service, as defined in Code Section 409A and the regulations or other regulatory guidance issued thereunder, with the Employer (at any time when you are deemed under Code Section 409A and regulations or other regulatory guidance issued thereunder to be a specified employee, as defined in Code Section 409A and regulations or other regulatory guidance issued thereunder, and any equity interest of the Employer is publicly traded on an established securities market or otherwise) before the date that is the first day of the month that occurs six (6) months after the date of your separation from service (or, if earlier, your date of death or any other date permitted under Code Section 409A and regulations or other regulatory guidance issued thereunder).
5.
Withholding of Tax .  Any amount payable pursuant to Section 4 shall be subject to collection by the Partnership or an Affiliate, as applicable, of all applicable federal, state and local income and employment taxes required to be withheld in respect of such amount.
6.
No Rights as a Unitholder .  You shall not be, or have any of the rights or privileges of, a unitholder of the Partnership with respect to any Phantom Unit.
7.
Limitations Upon Transfer .  All rights under this Agreement shall belong to you alone and may not be transferred, assigned, pledged, or hypothecated by you in any way (whether by operation of law or otherwise), other than by will or the laws of descent and distribution and shall not be subject to execution, attachment, or similar process.  Upon any attempt by you to transfer, assign, pledge, hypothecate, or otherwise dispose of such rights contrary to the provisions in this Agreement or the Plan, or upon the levy of any attachment or similar process upon such rights, such rights shall immediately become null and void.
8.
Binding Effect .  This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Partnership and upon any person lawfully claiming under you.
9.
Rights of Grantee.  Any benefits payable under Section 4 of this Agreement shall be provided from the general assets of the Partnership or an Affiliate, as applicable.  The Grantee’s rights hereunder shall not rise above those of a general creditor of the Partnership or an Affiliate, as applicable.
10.
Entire Agreement and Amendment .  This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the Phantom Units and DERs, and any associated accrued distributions of cash with respect to the DERs, granted hereby.  Without limiting the scope of the preceding sentence, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect.  Any modification of this Agreement shall be effective only if it is in writing and signed by both you and an authorized officer of the Company.
11.
Notices .  Any notices given in connection with this Agreement shall, if issued to Grantee, be delivered to Grantee’s current address on file with the Partnership, or if issued to the Partnership, be delivered to the Partnership’s principal offices.
12.
Execution of Receipts and Releases .  Any payment of cash or property to Grantee, or to Grantee’s legal representatives, heirs, legatees or distributees, in accordance with the provisions hereof, shall, to the extent thereof, be in full satisfaction of all claims of such persons hereunder.  The Partnership may require Grantee



or Grantee’s legal representatives, heirs, legatees or distributees, as a condition precedent to such payment or issuance, to execute a release and receipt therefor in such form as it shall determine.
13.
Governing Law .  This grant shall be governed by, and construed in accordance with, the laws of the State of Texas, without regard to conflicts of laws principles thereof.




Legacy Reserves LP
Grantee
 
 
By: Legacy Reserves GP, LLC, its General Partner
 
 
 
By:                                                                        
By:                                                                        
 
 
Name:
Name:
 
 
Title:
Title:





APPENDIX A
AMENDED AND RESTATED
LEGACY RESERVES LP
LONG-TERM INCENTIVE PLAN





Legacy Reserves LP
Long-Term Incentive Plan
Grant of Phantom Units (Cash) Under Subjective Component of Long-Term Equity Incentive Compensation
Grantee:
Grant Date:
1.
Grant of Phantom Units .  Legacy Reserves LP (the “ Partnership ”) hereby grants to you             Phantom Units under the Amended and Restated Legacy Reserves LP Long-Term Incentive Plan (the “ Plan ”) on the terms and conditions set forth under this Grant of Phantom Units (Cash) Under Subjective Component of Long-Term Equity Incentive Compensation Agreement (this “ Agreement ”) and in the Plan, which is attached hereto as Appendix A and is incorporated herein by reference as a part of this Agreement.  A Phantom Unit is a notional Unit of the Partnership that is subject to the forfeiture and non-transferability provisions set forth below in this Agreement.  Each Phantom Unit granted to you also includes a tandem Distribution Equivalent Right (“ DER ”), which provides that when the Partnership makes a cash distribution with respect to a Unit, an amount of cash with respect to each of your Phantom Units equal to the amount of the quarterly distribution paid on such Unit will be accrued and on the vesting date, such accrued amounts will be payable to you with respect to the number of your Phantom Units actually vested.  No accrued distribution amounts will be payable with respect to unvested or forfeited Phantom Units. The terms of this Agreement are set forth below.  In the event of any conflict between the terms of this Agreement and the Plan, the Plan shall control. Capitalized terms used in this Agreement but not defined herein shall have the meanings ascribed to such terms in the Plan, unless the context requires otherwise.
2.
Regular Vesting .  Except as otherwise provided in Section 3 below, the Phantom Units granted pursuant to this Agreement shall vest on               .
Your “employment with the Partnership” (as defined in Section 3), or any of its Affiliates, as the case may be (the “ Employer ”), must be continuous from the Grant Date through the applicable vesting date in order for the Phantom Units to become vested under the provisions of this Agreement.
3.
Events Occurring Prior to Regular Vesting .
(a)
Death or Disability .  If your “employment with the Employer” (as defined below in this Section 3) terminates as a result of your death or you become disabled (within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended and in effect from time to time (the “ Code ”)), the Phantom Units automatically will become fully vested.
(b)
Termination by the Employer other than for Cause .  If your “employment with the Employer” (as defined below in this Section 3) is terminated by the Employer for any reason other than “Cause” (as defined below in this Section 3), as determined by the Employer, the Phantom Units then held by you automatically will become fully vested.
(c)
Other Terminations .  If your “employment with the Employer” (as defined below in this Section 3) should terminate for any reason other than as provided in Sections 3(a) and (b) above, all unvested Phantom Units then held by you automatically shall be forfeited and cancelled without payment upon such termination.  Upon forfeiture of a Phantom Unit, the tandem DER, along with any associated accrued distribution of cash with respect to the tandem DER, shall automatically be cancelled without payment.
(d)
Change of Control .  All outstanding Phantom Units held by you automatically shall become fully vested upon a Change of Control.




For purposes of this Section 3, “ employment with the Employer ” or “ employment with the Partnership ” shall include being an employee of or a director (or equivalent) or consultant to the Partnership or an Affiliate.
For purposes of this Section 3, “ Cause ” means any of the following:
(i)    the Grantee’s conviction of, or plea of nolo contendere to, any felony or to any crime or offense causing substantial harm to any of the Partnership or its direct or indirect subsidiaries (whether or not for personal gain) or involving acts of theft, fraud, embezzlement, moral turpitude or similar conduct;
(ii)    the Grantee’s repeated intoxication by alcohol or drugs during the performance of his duties;
(iii)    malfeasance in the conduct of Grantee’s duties, including, but not limited to, (A) willful and intentional misuse or diversion of any of the Partnerships’ or its subsidiaries’ funds, (B) embezzlement or (C) fraudulent or willful and material misrepresentations or concealments on any written reports submitted to any of the Partnership or its subsidiaries;
(iv)    the Grantee’s material failure to perform the duties of the Grantee’s employment consistent with his position, or material failure to follow or comply with the reasonable and lawful written directives of the Board;
(v)    a material breach of the Grantee’s employment agreement; or
(vi)    a material breach by the Grantee of written policies of the Partnership concerning employee discrimination or harassment.
(e)
Notice and Cure Opportunity in Certain Circumstances . The Grantee may be afforded a reasonable opportunity to cure any act or omission that would otherwise constitute “Cause” under Section 3 hereof according to the following terms: The Board will cause the Partnership to give the Grantee written notice stating with reasonable specificity the nature of the circumstances determined by the Board in good faith to constitute “Cause.” If, in the good faith judgment of the Board, the alleged breach is reasonably susceptible to cure, the Grantee will have fifteen (15) days from his receipt of such notice to effect the cure of such circumstances or such breach to the good faith satisfaction of the Board. The Board will state whether the Grantee will have such an opportunity to cure in the initial notice of “Cause” referred to above. If, in the good faith judgment of the Board the alleged breach is not reasonably susceptible to cure, or such circumstances or breach have not been satisfactorily cured within such fifteen (15) day cure period, such breach will thereupon constitute “Cause” hereunder.
4.
Payment Upon Vesting of Phantom Units and Payment of Amounts Due Under DERs .
(a)
Subject to the tax withholding requirements of Section 5 below, not later than seventy-four (74) days following the date on which a Phantom Unit vests hereunder, the Partnership shall pay to you in a single lump sum in cash in respect of each Phantom Unit an amount equal to the Fair Market Value of a Unit (determined as of the vesting date of the Phantom Unit).  Subject to any tax withholding requirements of Section 5 below, not later than seventy-four (74) days following any date on which a Phantom Unit vests hereunder, the Partnership shall mail or otherwise deliver to you, in a single lump sum in cash in respect of each DER granted in tandem with a Phantom Unit, an amount of cash equal to all accrued cash distributions on such Unit.  Upon vesting of a Phantom Unit, the related DER shall automatically terminate and be forfeited; provided, however, that all accrued cash distributions through such date shall remain payable in accordance with the immediately preceding sentence. 




(b)
Notwithstanding the preceding provisions of Section 4(a), to the extent that (i) the limitations (set forth in Code Section 409A and regulations or other regulatory guidance issued thereunder) on payments to specified employees, as defined in Code Section 409A and regulations or other regulatory guidance issued thereunder, apply to you and (ii) at any time prescribed under Code Section 409A and regulations or other regulatory guidance issued thereunder, you are a key employee, as defined in Code Section 416(i) without regard to paragraph 5 thereof, except to the extent permitted under Code Section 409A and regulations or other regulatory guidance issued thereunder, no distribution or payment that is subject to Code Section 409A shall be made under this Agreement on account of your separation from service, as defined in Code Section 409A and the regulations or other regulatory guidance issued thereunder, with the Employer (at any time when you are deemed under Code Section 409A and regulations or other regulatory guidance issued thereunder to be a specified employee, as defined in Code Section 409A and regulations or other regulatory guidance issued thereunder, and any equity interest of the Employer is publicly traded on an established securities market or otherwise) before the date that is the first day of the month that occurs six (6) months after the date of your separation from service (or, if earlier, your date of death or any other date permitted under Code Section 409A and regulations or other regulatory guidance issued thereunder).
5.
Withholding of Tax .  Any amount payable pursuant to Section 4 shall be subject to collection by the Partnership or an Affiliate, as applicable, of all applicable federal, state and local income and employment taxes required to be withheld in respect of such amount.
6.
No Rights as a Unitholder .  You shall not be, or have any of the rights or privileges of, a unitholder of the Partnership with respect to any Phantom Unit.
7.
Limitations Upon Transfer .  All rights under this Agreement shall belong to you alone and may not be transferred, assigned, pledged, or hypothecated by you in any way (whether by operation of law or otherwise), other than by will or the laws of descent and distribution and shall not be subject to execution, attachment, or similar process.  Upon any attempt by you to transfer, assign, pledge, hypothecate, or otherwise dispose of such rights contrary to the provisions in this Agreement or the Plan, or upon the levy of any attachment or similar process upon such rights, such rights shall immediately become null and void.
8.
Binding Effect .  This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Partnership and upon any person lawfully claiming under you.
9.
Rights of Grantee .   Any benefits payable under Section 4 of this Agreement shall be provided from the general assets of the Partnership or an Affiliate, as applicable.  The Grantee’s rights hereunder shall not rise above those of a general creditor of the Partnership or an Affiliate, as applicable.
10.
Entire Agreement and Amendment .  This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the Phantom Units and DERs, and any associated accrued distributions of cash with respect to the DERs, granted hereby.  Without limiting the scope of the preceding sentence, all prior understandings and agreements, if any, among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect.  Any modification of this Agreement shall be effective only if it is in writing and signed by both you and an authorized officer of the Company.
11.
Notices .  Any notices given in connection with this Agreement shall, if issued to Grantee, be delivered to Grantee’s current address on file with the Partnership, or if issued to the Partnership, be delivered to the Partnership’s principal offices.
12.
Execution of Receipts and Releases .  Any payment of cash or property to Grantee, or to Grantee’s legal representatives, heirs, legatees or distributees, in accordance with the provisions hereof, shall, to the extent thereof, be in full satisfaction of all claims of such persons hereunder.  The Partnership may require Grantee




or Grantee’s legal representatives, heirs, legatees or distributees, as a condition precedent to such payment or issuance, to execute a release and receipt therefor in such form as it shall determine.
13.
Governing Law .  This grant shall be governed by, and construed in accordance with, the laws of the State of Texas, without regard to conflicts of laws principles thereof.
Legacy Reserves LP
Grantee
 
 
By: Legacy Reserves GP, LLC, its General Partner
 
 
 
By:                                                                        
By:                                                                        
 
 
Name:
Name:
 
 
Title:
Title:






APPENDIX A
AMENDED AND RESTATED
LEGACY RESERVES LP
LONG-TERM INCENTIVE PLAN





Legacy Reserves LP
Long-Term Incentive Plan
Grant of Phantom Units Under Objective Component of Long-Term Equity Incentive Compensation
Grantee:
Grant Date:
1.
Grant of Phantom Units .  Legacy Reserves LP (the “ Partnership ”) hereby grants to you            Phantom Units under the Amended and Restated Legacy Reserves LP Long-Term Incentive Plan (the “ Plan ”) on the terms and conditions set forth under this Grant of Phantom Units Under Objective Component of Long‑Term Equity Incentive Compensation Agreement (this “ Agreement ”) and in the Plan, which is attached hereto as Appendix A and is incorporated herein by reference as a part of this Agreement.  A Phantom Unit is a notional Unit of the Partnership that is subject to the forfeiture and non-transferability provisions set forth below in this Agreement.  Each Phantom Unit granted to you also includes a tandem Distribution Equivalent Right (“ DER ”), which provides that when the Partnership makes a cash distribution with respect to a Unit, an amount of cash with respect to each of your Phantom Units equal to the amount of the quarterly distribution paid on such Unit will be accrued and on the vesting date, such accrued amounts will be payable to you with respect to the number of your Phantom Units actually vested. No accrued distribution amounts will be payable with respect to unvested or forfeited Phantom Units. The terms of this Agreement are set forth below.  In the event of any conflict between the terms of this Agreement and the Plan, the Plan shall control. Capitalized terms used in this Agreement but not defined herein shall have the meanings ascribed to such terms in the Plan, unless the context requires otherwise.
2.
Conditions to Vesting .  Except as otherwise provided in Section 3 below, the Phantom Units granted pursuant to this Agreement are subject to vesting, as described below in this Section 2, on                 in accordance with the criteria set forth under the Legacy Reserves LP Compensation Policy (Effective March 7, 2013), as amended, (the “ Compensation Policy ”) (attached hereto as Appendix B ). The number of Phantom Units that actually vest on               is subject to the achievement by the Partnership of certain objective, performance-based criteria (as determined by the “Employer” (as defined below)) during the cumulative three-year measurement period prior to the vesting date, in accordance with the Compensation Policy. If none or only a portion of the Phantom Units of a particular tranche vest as a result of target performance levels not being met, such number of Phantom Units that fail to vest will be forfeited and cancelled. Upon any such forfeiture of a Phantom Unit, the tandem DERs, along with any associated accrued distribution of cash with respect to the tandem DERs, shall automatically be cancelled without payment.
Additionally, your “employment with the Partnership” (as defined in Section 3), or any of its Affiliates, as the case may be (the “ Employer ”), must be continuous from the Grant Date through the applicable vesting date in order for the Phantom Units to become vested under the provisions of this Agreement.
3.
Events Occurring Prior to Vesting .
(a)
Death or Disability .  If your “employment with the Employer” (as defined below in this Section 3) terminates as a result of your death or you become disabled (within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended and in effect from time to time (the “ Code ”)), 50% of the Phantom Units granted to you pursuant to this Agreement and then held by you automatically will become fully vested.
(b)
Termination by the Employer other than for Cause .  If your “employment with the Employer” (as defined below in this Section 3) is terminated by the Employer for any reason other than “Cause” (as defined below in this Section 3), as determined by the Employer, 50% of the Phantom Units granted to you pursuant to this Agreement and then held by you automatically will become fully vested.




(c)
Other Terminations .  If your “employment with the Employer” (as defined below in this Section 3) should terminate for any reason other than as provided in Sections 3(a) and (b) above prior to the applicable vesting date, all unvested Phantom Units granted to you pursuant to this Agreement and then held by you automatically shall be forfeited and cancelled without payment upon such termination.  Upon forfeiture of a Phantom Unit, the tandem DER, along with any associated accrued distribution of cash with respect to the tandem DER, shall automatically be cancelled without payment.
(d)
Change of Control .  50% of the Phantom Units granted to you pursuant to this Agreement then outstanding and then held by you automatically shall become fully vested upon a Change of Control.
For purposes of this Section 3, “ employment with the Employer ” or “ employment with the Partnership ” shall include being an employee of or a director (or equivalent) or consultant to the Partnership or an Affiliate.
For purposes of this Section 3, “ Cause ” means any of the following:
(i)    the Grantee’s conviction of, or plea of nolo contendere to, any felony or to any crime or offense causing substantial harm to any of the Partnership or its direct or indirect subsidiaries (whether or not for personal gain) or involving acts of theft, fraud, embezzlement, moral turpitude or similar conduct;
(ii)    the Grantee’s repeated intoxication by alcohol or drugs during the performance of his duties;
(iii)    malfeasance in the conduct of Grantee’s duties, including, but not limited to, (A) willful and intentional misuse or diversion of any of the Partnerships’ or its subsidiaries’ funds, (B) embezzlement or (C) fraudulent or willful and material misrepresentations or concealments on any written reports submitted to any of the Partnership or its subsidiaries;
(iv)    the Grantee’s material failure to perform the duties of the Grantee’s employment consistent with his position, or material failure to follow or comply with the reasonable and lawful written directives of the Board;
(v)    a material breach of the Grantee’s employment agreement; or
(vi)    a material breach by the Grantee of written policies of the Partnership concerning employee discrimination or harassment.
(e)
Notice and Cure Opportunity in Certain Circumstances . The Grantee may be afforded a reasonable opportunity to cure any act or omission that would otherwise constitute “Cause” under Section 3 hereof according to the following terms: The Board will cause the Partnership to give the Grantee written notice stating with reasonable specificity the nature of the circumstances determined by the Board in good faith to constitute “Cause.” If, in the good faith judgment of the Board, the alleged breach is reasonably susceptible to cure, the Grantee will have fifteen (15) days from his receipt of such notice to effect the cure of such circumstances or such breach to the good faith satisfaction of the Board. The Board will state whether the Grantee will have such an opportunity to cure in the initial notice of “Cause” referred to above. If, in the good faith judgment of the Board the alleged breach is not reasonably susceptible to cure, or such circumstances or breach have not been satisfactorily cured within such fifteen (15) day cure period, such breach will thereupon constitute “Cause” hereunder.
4.
Payment Upon Vesting of Phantom Units and Payment of Amounts Due Under DERs .
(a)
Subject to the tax withholding requirements of Section 5 below, not later than seventy-four (74) days following the date on which a Phantom Unit vests hereunder, the Partnership shall pay to you in a




single lump sum in cash in respect of each Phantom Unit an amount equal to the Fair Market Value of a Unit (determined as of the vesting date of the Phantom Unit).  Subject to any tax withholding requirements of Section 5 below, not later than seventy-four (74) days following any date on which a Phantom Unit vests hereunder, the Partnership shall mail or otherwise deliver to you, in a single lump sum in cash in respect of each DER granted in tandem with a Phantom Unit, an amount of cash equal to all accrued cash distributions on such Unit.  Upon vesting of a Phantom Unit, the related DER shall automatically terminate and be forfeited; provided, however, that all accrued cash distributions through such date shall remain payable in accordance with the immediately preceding sentence. 
(b)
Notwithstanding the preceding provisions of Section 4(a), to the extent that (i) the limitations (set forth in Code Section 409A and regulations or other regulatory guidance issued thereunder) on payments to specified employees, as defined in Code Section 409A and regulations or other regulatory guidance issued thereunder, apply to you and (ii) at any time prescribed under Code Section 409A and regulations or other regulatory guidance issued thereunder, you are a key employee, as defined in Code Section 416(i) without regard to paragraph 5 thereof, except to the extent permitted under Code Section 409A and regulations or other regulatory guidance issued thereunder, no distribution or payment that is subject to Code Section 409A shall be made under this Agreement on account of your separation from service, as defined in Code Section 409A and the regulations or other regulatory guidance issued thereunder, with the Employer (at any time when you are deemed under Code Section 409A and regulations or other regulatory guidance issued thereunder to be a specified employee, as defined in Code Section 409A and regulations or other regulatory guidance issued thereunder, and any equity interest of the Employer is publicly traded on an established securities market or otherwise) before the date that is the first day of the month that occurs six (6) months after the date of your separation from service (or, if earlier, your date of death or any other date permitted under Code Section 409A and regulations or other regulatory guidance issued thereunder).
5.
Withholding of Tax .  Any amount payable pursuant to Section 4 shall be subject to collection by the Partnership or an Affiliate, as applicable, of all applicable federal, state and local income and employment taxes required to be withheld in respect of such amount.
6.
No Rights as a Unitholder .  You shall not be, or have any of the rights or privileges of, a unitholder of the Partnership with respect to any Phantom Unit.
7.
Limitations Upon Transfer .  All rights under this Agreement shall belong to you alone and may not be transferred, assigned, pledged, or hypothecated by you in any way (whether by operation of law or otherwise), other than by will or the laws of descent and distribution and shall not be subject to execution, attachment, or similar process.  Upon any attempt by you to transfer, assign, pledge, hypothecate, or otherwise dispose of such rights contrary to the provisions in this Agreement or the Plan, or upon the levy of any attachment or similar process upon such rights, such rights shall immediately become null and void.
8.
Binding Effect .  This Agreement shall be binding upon and inure to the benefit of any successor or successors of the Partnership and upon any person lawfully claiming under you.
9.
Rights of Grantee.  Any benefits payable under Section 4 of this Agreement shall be provided from the general assets of the Partnership or an Affiliate, as applicable.  The Grantee’s rights hereunder shall not rise above those of a general creditor of the Partnership or an Affiliate, as applicable.
10.
Entire Agreement and Amendment .  This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the Phantom Units and DERs, and any associated accrued distributions of cash with respect to the DERs, granted hereby.  Without limiting the scope of the preceding sentence, all prior understandings and agreements, if any, among the parties hereto relating to the subject




matter hereof are hereby null and void and of no further force and effect.  Any modification of this Agreement shall be effective only if it is in writing and signed by both you and an authorized officer of the Company.
11.
Notices .  Any notices given in connection with this Agreement shall, if issued to Grantee, be delivered to Grantee’s current address on file with the Partnership, or if issued to the Partnership, be delivered to the Partnership’s principal offices.
12.
Execution of Receipts and Releases .  Any payment of cash or property to Grantee, or to Grantee’s legal representatives, heirs, legatees or distributees, in accordance with the provisions hereof, shall, to the extent thereof, be in full satisfaction of all claims of such persons hereunder.  The Partnership may require Grantee or Grantee’s legal representatives, heirs, legatees or distributees, as a condition precedent to such payment or issuance, to execute a release and receipt therefor in such form as it shall determine.
13.
Governing Law .  This grant shall be governed by, and construed in accordance with, the laws of the State of Texas, without regard to conflicts of laws principles thereof.





Legacy Reserves LP
Grantee
 
 
By: Legacy Reserves GP, LLC, its General Partner
 
 
 
By:                                                                        
By:                                                                        
 
 
Name:
Name:
 
 
Title:
Title:






APPENDIX A
AMENDED AND RESTATED
LEGACY RESERVES LP
LONG TERM INCENTIVE PLAN





APPENDIX B
LEGACY RESERVES LP
COMPENSATION POLICY
(Effective March 7, 2013, as amended)





LEGACY RESERVES SERVICES, INC.
RETENTION BONUS AGREEMENT
This Retention Bonus Agreement (“ Agreement ”) is made and entered into effective as of [               ], 2017 (the “ Effective Date ”) by and between Legacy Reserves Services, Inc. (the “ Company ”) and [NAME] (“ Employee ”).
WHEREAS, Employee is currently an employee of the Company; and
WHEREAS, the Company desires to promote the interests of the Company, Legacy Reserves LP (the “ Partnership ”) and its equityholders by encouraging Employee to continue his employment with the Company during the 2016 calendar year.
NOW, THEREFORE, in consideration of the mutual agreements and other matters set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Employee hereby agree as follows:
1. Retention Bonuses .
(a)      If Employee remains continuously employed with the Company from the Effective Date through March 31, 2017, Employee shall be entitled to receive a cash payment in the amount equal to $[           ].
(b)      If Employee remains continuously employed with the Company from the Effective Date through June 30, 2017, Employee shall be entitled to receive a cash payment in the amount equal to $[           ].
(c)      If Employee remains continuously employed with the Company from the Effective Date through September 30, 2017, Employee shall be entitled to receive a cash payment in the amount equal to $[           ].
(d)      If Employee remains continuously employed with the Company from the Effective Date through December 31, 2016 (each of March 31, 2017, June 30, 2017, September 30, 2017 and December 31, 2017, a “ Bonus Date ”), Employee shall be entitled to receive a cash payment in the amount equal to $[           ] (each amount payable with respect to a Bonus Date, a “ Retention Bonus ”).
(e)      In the event Employee’s employment with the Company is terminated for any reason prior to a Bonus Date, this Agreement and Employee’s right to any Retention Bonuses shall automatically terminate; provided, however, that any Retention Bonuses that are earned but unpaid as of the date of termination shall be paid in accordance with Section 2.
2.      Payment of Retention Bonuses .  Subject to Employee’s satisfaction of the requirements of Section 1 above, the applicable Retention Bonus shall be paid to Employee in a single lump sum amount in cash, net of applicable withholding, within fifteen (15) days following March 31, 2017, June 30, 2017, September 30, 2017 or December 31, 2017, as applicable.
3.      General Provisions .
(a)      Taxes and Other Amounts . The Company is authorized to withhold or deduct from any payments made hereunder amounts of taxes due or potentially payable in connection therewith and to deduct other amounts as authorized by Employee, and to take such other action as the Company may deem advisable to enable the Company and Employee to satisfy obligations for the payment of tax obligations relating to any payments made under this Agreement.
(b)      No Impact on Employment .  This Agreement is not an employment contract for any definite period of time and shall have no effect on any employment contract between the Company or its affiliates and Employee or on the at-will employment or other service relationship between Employee and the Company, the Partnership and their




respective affiliates or, except as otherwise governed by the terms of employment contract between the Company or its affiliates and Employee, on the Company’s ability to terminate such employment or other service relationship at any time for any reason or for no reason.
(c)      Term of the Agreement; Amendment .
(i)      Except as otherwise terminated earlier as provided in Section 1, this Agreement will automatically terminate on January 1, 2018, provided that any Retention Bonuses that are earned but unpaid as of such date shall remain payable in accordance with Section 2.
(ii)      No modification, amendment or waiver of any provision of this Agreement will be effective against any party hereto unless such modification, amendment or waiver is approved in writing by such party.
(d)      Successors . The Agreement shall bind and inure to the benefit of and be enforceable by the parties hereto and their respective successors, permitted assigns, heirs and personal representatives and estates, as the case may be.  Neither this Agreement nor any right or obligation hereunder of any party may be assigned or delegated without the prior written consent of the other party hereto; provided, however, that the Company may assign this Agreement to any of its affiliates.
(e)      Unfunded Obligation . All benefits due Employee (or a person claiming through or on behalf of Employee) under this Agreement are unfunded and unsecured and are payable out of the general funds of the Company.
(f)      Waiver .   The failure of any party to this Agreement to enforce any provision or provisions of this Agreement shall not in any way be construed as a waiver of any such provision or provisions, nor prevent any such party from thereafter enforcing each and every other provision of this Agreement.  The rights granted the parties to this Agreement herein are cumulative and shall not constitute a waiver of any such party’s right to assert all other legal remedies available to it under the circumstances.
(g)      Severability . If any provision of the Agreement is held to be illegal or invalid for any reason, the illegality or invalidity will not affect the remaining provisions of the Agreement, but such provision will be fully severable and the Agreement will be construed and enforced as if the illegal or invalid provision had never been included herein.
(h)      Application of Section 409A .  The amounts payable pursuant to this Agreement are intended to be exempt from or to otherwise comply with Section 409A of the Code, and this Agreement shall be administered, construed and interpreted in such manner.  For purposes of Section 409A of the Code, each installment payment provided under this Agreement shall be treated as a separate payment.
(i)      No Guarantee of Tax Consequences .  None of the Board of Directors of the Company, the Company, the Partnership or any agent or affiliate of any of the foregoing provides or has provided any tax advice to Employee or any other person who may claim through or on behalf of Employee or makes or has made any assurance, commitment or guarantee that any federal, state, local or other tax treatment will (or will not) apply or be available to Employee or other person who may claim through or on behalf of Employee with respect to this Agreement, including with respect to Section 3 hereof, or assumes any obligation or liability or responsibility with respect to any tax or associated liabilities (including penalties and interest) to which the Employee or any other person who may claim through or on behalf of Employee may be subject.
(j)      Counterparts; Facsimile Signatures .   This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original copy of this Agreement, and all of which, when taken together, shall be deemed to constitute one and the same agreement.  The parties may sign and deliver this Agreement by facsimile transmission or by electronic mail in “portable document format.”  Each party agrees that the delivery of this Agreement by facsimile or by electronic mail in “portable document format” shall have the same force and effect as delivery of original signatures, and that each party may use such facsimile or electronic mail signatures as evidence of the execution and delivery of this Agreement by all parties to the same extent that an original signature could be used.

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(k)      Captions .  Captions and headings of the sections and paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the caption or heading of any section or paragraph.
(l)      Entire Agreement; Survival .  This Agreement contains all of the understandings and representations between Employee and the Company pertaining to the subject matter hereof and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter. The parties mutually agree that this Agreement can be specifically enforced in court and can be cited as evidence in legal proceedings alleging breach of the Agreement.  Upon the termination of this Agreement, the respective rights and obligations of the parties hereto shall survive such expiration or other termination to the extent necessary to carry out the intentions of the parties under this Agreement.
(m)      Governing Law . All questions arising with respect to the provisions of the Agreement and payments due hereunder will be determined by application of the laws of the State of Texas, without giving effect to any conflict of law provisions thereof, except to the extent Texas law is preempted by federal law.
[Signature Page Follows]



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IN WITNESS WHEREOF , the Company and Employee have executed this Agreement in one or more counterparts effective for all purposes as of the Effective Date.
LEGACY RESERVES SERVICES, INC.
By:    
Name:    
Title:    
EMPLOYEE
                                                                       

Name: