Note 12. Equity-based Awards

Long-Term Incentive Plan

In December 2011, the board of directors of our general partner adopted the Memorial Production Partners GP LLC Long-Term Incentive Plan (“LTIP”) for employees, officers, consultants and directors of the general partner and any of its affiliates, who perform services for the Partnership. The LTIP authorizes the grant of restricted units, phantom units, unit options, unit appreciation rights, distribution equivalent rights (“DERs”), other unit-based awards and unit awards. The LTIP initially limits the number of common units that may be delivered pursuant to awards under the plan to 2,142,221 common units. Common units that are cancelled, forfeited or withheld to satisfy exercise prices or tax withholding obligations will be available for delivery pursuant to other awards. The LTIP is administered by the board of directors of our general partner or a committee thereof. During the years ended December 31, 2016, 2015 and 2014 there were multiple awards of restricted common units that were granted under the LTIP to executive officers and independent directors of our general partner and other Memorial Resource employees.

The restricted common units awarded are subject to restrictions on transferability, customary forfeiture provisions and typically graded vesting provisions in which one-third of each award vests on the first, second, and third anniversaries of the date of grant. Award recipients have all the rights of a unitholder in the partnership with respect to the restricted common units, including the right to receive distributions thereon if and when distributions are made by the Partnership to its unitholders. The term “restricted common unit” represents a time-vested unit. Such awards are non-vested until the required service period expires.

Based on the market price per unit on the date of grant, the aggregate fair value of the restricted common units awarded to our general partner’s executive officers and other employees during the years ended December 31, 2016, 2015 and 2014 was $0.1 million, $12.3 million and $15.0 million, respectively. The restricted common units granted are accounted for as equity-classified awards. The grant-date fair value net of estimated forfeitures is recognized as compensation cost on a straight-line basis over the requisite service period. The fair value of the restricted unit awards granted to the independent directors of our general partner are also recognized as compensation cost on a straight-line basis over the requisite service period. Compensation costs are recorded as direct general and administrative expenses.

The following table summarizes information regarding restricted common unit awards for the periods presented:

				Weighted-
				Average Grant
	Number of			Date Fair Value
	Units			per Unit (1)
Restricted common units outstanding at December 31, 2013		706,927		$	18.62
Granted (2)		684,954		$	22.39
Forfeited		(38,294	)	$	20.54
Vested		(260,067	)	$	18.56
Restricted common units outstanding at December 31, 2014		1,093,520		$	20.93
Granted (3)		827,704		$	14.90
Forfeited		(69,059	)	$	18.35
Vested		(483,627	)	$	20.37
Restricted common units outstanding at December 31, 2015		1,368,538		$	17.61
Granted (4)		50,000		$	2.41
Forfeited		(27,537	)	$	16.99
Vested		(958,841	)	$	18.01
Restricted common units outstanding at December 31, 2016		432,160		$	15.00

(1)

Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.

(2)

The aggregate grant date fair value of restricted common unit awards issued in 2014 was $15.3 million based on grant date market prices ranging from of $21.99 to $23.40 per unit.

(3)

The aggregate grant date fair value of restricted common unit awards issued in 2015 was $12.3 million based on grant date market prices ranging from of $6.20 to $15.45 per unit.

(4)

The aggregate grant date fair value of restricted common unit awards issued in 2016 was $0.1 million based on grant date market price of $2.41 per unit.

LTIP Modification

On June 1, 2016, in connection with the MEMP GP Acquisition, as discussed in Note 1, the board of directors of our general partner approved the acceleration of the vesting schedule of unvested awards under the LTIP for the employees that remained with Memorial Resource. The grant-date fair value compensation cost of approximately $0.1 million was reversed and the modified-date grant fair value compensation cost of $0.5 million was recognized.

On March 9, 2016, certain employees were impacted by an involuntary termination which, upon the approval of the board of directors of our general partner, accelerated the vesting schedule of unvested awards under the LTIP that otherwise would have been forfeited upon an involuntary termination. The acceleration of the LTIP vesting schedule represents an improbable-to-probable modification. The grant-date fair value compensation cost of approximately $0.5 million was reversed and the modified-date grant fair value compensation cost of approximately $0.3 million was recognized.

Phantom Units

The following table summarizes information regarding phantom unit awards granted under the LTIP:

	Number of
	Units
Phantom units outstanding at December 31, 2015		—
Granted		6,169,018
Forfeited		(188,325	)
Phantom units outstanding at December 31, 2016		5,980,693

Phantom units issued to non-employee directors in January 2016 will vest on the first anniversary of the date of grant. Phantom units issued to certain employees in June 2016 will vest in substantially equal one-third increments on the first, second, and third anniversaries of the date of grant. The awards included distribution equivalent rights (“DERs”) pursuant to which the recipient will receive a cash payment with respect to each phantom unit equal to any cash distributions that we pay to a holder of a common unit. DERs are treated as additional compensation expense. Upon vesting, the phantom units will be settled through an amount of cash in a single lump sum payment equal to the product of (y) the closing price of our common units on the vesting date and (z) the number of such vested phantom units. In lieu of a cash payment, the board of directors of our general partner, in its discretion, may elect for the recipient to receive either a number of common units equal to the number of such vested phantom units or a combination of cash and common units. For the year ended December 31, 2016, the phantom units issued are classified as liability awards due to the Partnership not having sufficient common units available under the LTIP to settle in common units upon vesting.

Compensation Expense

The following table summarizes the amount of recognized compensation expense associated with these awards that are reflected in the accompanying statements of operations for the periods presented (in thousands):

	For the Year Ended
	December 31,
	2016		2015		2014
Equity classified awards
Restricted common units	$	7,206	$	10,809	$	7,874
Liability classified awards
Phantom units		322		—		—
	$	7,528	$	10,809	$	7,874

The unrecognized compensation cost associated with restricted common unit awards was an aggregate $3.8 million at December 31, 2016. We expect to recognize the unrecognized compensation cost for these awards over a weighted-average period of 1.1 years.

Since the restricted common units are participating securities, any distributions received by the restricted common unitholders are included in distributions to partners as presented on our statements of consolidated and combined cash flows. During the years ended December 31, 2016, 2015 and 2014, the restricted common unitholders received a distribution of approximately $0.2 million, $2.8 million and $1.9 million, respectively.