17. Equity-Based Incentive Compensation

In connection with the IPO, the General Partner adopted the Lehigh Gas Partners LP 2012 Incentive Award Plan (the “Plan”), a long-term incentive plan for employees, officers, consultants and directors of the General Partner and any of its affiliates, including DMI, who perform services for the Partnership. The maximum number of common units that may be delivered with respect to awards under the Plan is 1,505,000. Generally, the Plan provides for grants of restricted units, unit options, performance awards, phantom units, unit awards, unit appreciation rights, distribution equivalent rights, and other unit-based awards, with various limits and restrictions attached to these awards on a grant-by-grant basis. The Plan is administered by the board of directors of the Partnership’s General Partner or a committee thereof, which is referred to as the Plan Administrator.

The Plan Administrator may terminate or amend the Plan at any time with respect to any common units for which a grant has not yet been made. The Plan Administrator also has the right to alter or amend the Plan or any part of the Plan from time to time, including increasing the number of common units that may be granted, subject to unitholder approval as required by the exchange upon which common units are listed at that time; however, no change in any outstanding grant may be made that would adversely affect the rights of a participant with respect to awards granted to a participant prior to the effective date of such amendment or termination, except that the board of directors of our General Partner may amend any award to satisfy the requirements of Section 409A of the Internal Revenue Code. The Plan will expire on the tenth anniversary of its approval, when common units are no longer available under the Plan for grants or upon its termination by the Plan Administrator, whichever occurs first.

In March 2014, the Partnership contributed its investments in its operating subsidiaries and certain other assets and liabilities to LGP Operations LLC (“LGP Operations”), a wholly-owned subsidiary of the Partnership. Also in March 2014, LGP Operations granted profits interests to certain employees of DMI, which are represented by Class B Units in LGP Operations. Upon vesting, Class B Unitholders will be entitled to receive cash distributions proportionate to those received by common unitholders. Class B Units are redeemable two years after they were granted, subject to certain limitations, for cash or common units at the discretion of the board of directors of the General Partner.

Because the Class B Units are an interest in the equity of LGP Operations, they represent a noncontrolling interest from the perspective of the Partnership. As such, the Class B Units are presented as a noncontrolling interest on the balance sheet and the Class B Unitholders’ interest in the net income of LGP Operations is presented as net income attributable to noncontrolling interests on the statement of operations.

Awards to Employees of Affiliates

The following is a summary of the award activity for 2014:


	Phantom Units			Profits Interests
Non-vested at beginning of period		433,373			—
Granted		132,180			18,689
Forfeited		(4,829	)		—
Vested on March 14, 2014 (a)		(143,954	)		—
Vested on October 1, 2014 (b)		(167,535	)		(9,622	)

Non-vested at end of period		249,235			9,067

(a)	Of the phantom units that vested on March 14, 2014, 51,271 common units were withheld for taxes.

(b)	Of the phantom units that vested on October 1, 2014, 66,079 common units were withheld for taxes.

Awards generally vest 33.0% on March 15 of the year following the year of grant, 33.0% on March 15 of the second year following the year of grant, and 34.0% on March 15 of the third year following the year of grant.

In connection with the October 1, 2014 GP purchase, as specified in the Lehigh Gas Partners LP Executive Income Continuity Plan, all unvested awards held by covered persons vested on October 1, 2014. As a result, 167,535 phantom units and 9,622 profits interests granted to employees of DMI vested. The incremental charge recorded in 2014 associated with the accelerated vesting of these awards was approximately $4.5 million, included in selling, general and administrative expenses.

The fair value of the non-vested awards outstanding at December 31, 2014 was $10.4 million. Compensation expense for 2014 and 2013 was $9.4 million and $3.1 million, respectively. Unrecognized compensation expense related to the non-vested awards is expected to be recognized over a weighted average period of 1.7 years.

It is the intent of the Partnership to settle the phantom units upon vesting by issuing common units and to settle the profits interests upon conversion by the grantee by issuing common units, as permitted under the Plan. However, the awards may be settled in cash at the discretion of the board of directors of the General Partner.

Since the Partnership grants awards to employees of DMI, and since the grants may be settled in cash, unvested phantom units and vested and unvested profits interests are measured at fair value at each balance sheet reporting date and the cumulative compensation cost recognized is classified as a liability, which is included in accrued expenses and other current liabilities on the balance sheet.

Termination Benefits Payable under Executive Income Continuity Plan

In addition to the incremental charge associated with the accelerated vesting of awards discussed above, the Partnership accrued $2.4 million of severance and benefit costs in 2014 related to certain covered persons under the Executive Income Continuity Plan who have terminated their employment. Such costs are included in selling, general and administrative expenses.

Awards to Members of the Board of Directors

During 2014, the Partnership also granted the following awards to members of the board of directors of the General Partner as a portion of director compensation:


	Phantom Units			Profits Interests
Non-vested at beginning of period		—			—
Granted		12,358			15,429
Vested on March 14, 2014		(4,172	)		—
Vested on October 1, 2014		(2,045	)		(15,429	)

Non-vested at end of period		6,141			—

In connection with the October 1, 2014 GP Purchase, all unvested awards held by members of the former board of directors of the General Partner vested on October 1, 2014. As a result, 2,045 phantom units and 15,429 profits interests vested. The incremental charge recorded in 2014 associated with the accelerated vesting of these awards was approximately $0.1 million, included in selling, general and administrative expenses.

On November 10, 2014, 6,141 phantom units were granted to the non-employee members of the current board of directors as a part of director compensation. Such grants will vest November 10, 2015. The fair value of these awards at December 31, 2014, was $0.2 million. Unrecognized compensation expense related to the non-vested awards is expected to be recognized through November 10, 2015.