Partners’ Capital

Classes of Unitholders

The Company has three classes of unitholders which include general partner, limited partner and incentive distribution rights. The Company's partnership agreement requires that, within 45 days after the end of each quarter, beginning with the quarter ending December 31, 2011, the Company will distribute all available cash (as defined in the Company's partnership agreement) to common unitholders of record on the applicable record date. The general partner will not be entitled to distributions on its non-economic general partner interest. The incentive distribution rights are entitled to receive 50% of the cash distributed from operating surplus (as defined in the Company's partnership agreement) in excess of the initial quarterly distribution of $0.37.

Inergy, as the initial holder of the Company's incentive distribution rights, has the right under its partnership agreement to elect to relinquish the right to receive incentive distribution payments based on the initial quarterly distribution and to reset, at a higher level, the quarterly distribution amount (upon which the incentive distribution payments to Inergy would be set). If Inergy elects to reset the quarterly distribution, it will be entitled to receive a number of newly issued Inergy Midstream common units. The number of common units to be issued to Inergy will equal the number of common units that would have entitled the holder to the quarterly cash distribution in the prior quarter equal to the distribution to Inergy on the IDRs in such prior quarter. As the reset election has not been made, no additional units have been issued. For accounting purposes, diluted earnings per unit can be impacted, (even if the reset election has not been made), if the combined impact of issuing the additional units and resetting the cash target distribution is dilutive. Currently, diluted earnings per unit has not been impacted because the combined impact is antidilutive.

Common Unit Offerings

On December 21, 2011, the Company closed its initial public offering of 18,400,000 common units, which included 2,400,000 common units issued as a result of the underwriters exercising their overallotment provision. The common units began trading on the NYSE on December 16, 2011 under the symbol “NRGM.”

On May 14, 2012, the Company issued 473,707 shares to Inergy for partial consideration of US Salt. See Note 10 for additional information regarding the acquisition of US Salt.

Quarterly Distributions of Available Cash

The Company is required to make quarterly cash distributions of all of its Available Cash, generally defined as income (loss) before income taxes plus depreciation and amortization, less maintenance capital expenditures and net changes in reserves established by the General Partner for future requirements. These reserves are retained to provide for the proper conduct of the Company's business, or to provide funds for distributions with respect to any one or more of the next four fiscal quarters.

The Company is expected to make distributions of its Available Cash within 45 days after the end of each fiscal quarter ending December, March, June and September to holders of record on the applicable record date. A summary of the Company's quarterly distributions for the year ended September 30, 2012, is presented below:



Year Ended
September 30, 2012
Record Date	Payment Date	Per Unit Rate^(a)	Distribution Amount (in millions)
February 7, 2012	February 14, 2012	$0.04	$3.0
May 8, 2012	May 15, 2012	0.37	27.6
August 7, 2012	August 14, 2012	0.38	29.3
			$59.9


(a)	The $0.04 cash distribution per limited partner unit corresponds to an initial quarterly cash distribution of $0.37 per quarter ($1.48 annually) and represents the prorated distribution for the period of time from December 21, 2011, the closing of the Company's initial public offering, through December 31, 2011, the end of the first fiscal quarter.

On November 14, 2012, a quarterly distribution of $0.385 per limited partner unit was paid to unitholders of record on November 7, 2012, with respect to the fourth fiscal quarter of 2012.

Long-Term Incentive Plan

Inergy Midstream's general partner sponsors the long-term incentive plan for its employees, consultants and directors and the employees of its affiliates that perform services for the Company. The long-term incentive plan currently permits the grant of awards covering an aggregate of 7,432,500 common units, which can be granted in the form of unit options, phantom units and/or restricted units. As of September 30, 2012, all long-term incentive plan activity has been issued in the form of restricted units.

Restricted Units

A restricted unit is a common unit that participates in distributions and vests over a period of time yet during such time is subject to forfeiture. The compensation committee may make grants of restricted units to employees, directors and consultants containing such terms as the compensation committee determines. The compensation committee will determine the period over which restricted units granted to participants will vest. The compensation committee, in its discretion, may base its determination upon the achievement of specified financial objectives or other events. In addition, the restricted units will vest upon a change in control as defined in the long-term incentive plan. If a grantee's employment, consulting arrangement or membership on the board of directors terminates for any reason, the grantee's restricted units will be automatically forfeited unless, and to the extent, the compensation committee or the terms of the award agreement provide otherwise.

The Company intends the restricted units to serve as a means of incentive compensation for performance and as an opportunity to participate in the equity appreciation of the common units. Therefore, plan participants will not pay any consideration for the common units they receive, and the Company will receive no cash remuneration for the units.

The Company granted 383,223 restricted units during the year ended September 30, 2012. Some of the restricted units are 100% vested on the fifth anniversary of the grant date, subject to the provisions as outlined in the restricted unit award agreement. Some of the restricted units vest 25% after the third year, 25% after the fourth year and 50% after the fifth year. The Company recognizes expense on these units each quarter by multiplying the closing price of the Company's common units on the date of grant by the number of units granted, and expensing that amount over the vesting period on a straight-line basis.

A summary of the Company's weighted-average grant date fair value for restricted units for the year ended September 30, 2012, is as follows:



	Weighted-Average Grant Date Fair Value		Number of Units
Non-vested at October 1, 2011	$	—	—
Granted during the period ended September 30, 2012	$	21.62	383,223
Vested during the period ended September 30, 2012	$	—	—
Forfeited during the period ended September 30, 2012	$	—	—
Non-vested at September 30, 2012	$	21.62	383,223

The compensation expense recorded by the Company related to these restricted unit awards was $0.7 million for the year ended September 30, 2012.

As of September 30, 2012, there was $7.6 million of total unrecognized compensation cost related to unvested share-based compensation awards granted to employees under the restricted unit plan. That cost is expected to be recognized over a five-year period.