12. |
LONG-TERM INCENTIVE AND
RETIREMENT PLANS |
Long Term Incentive
Plan
Overview
On
November 8, 2006, the General Partner’s board of
directors adopted the StoneMor Partners L.P. Long-Term Incentive
Plan, as amended (“LTIP”) for its employees,
consultants and directors, who perform services for the Company.
The LTIP permits the grant of awards covering an aggregate of
1,124,000 common units in the form of unit options, unit
appreciation rights (“UARs”), restricted units and
phantom units. The compensation committee of the Company’s
General Partner’s board of directors administers the plan.
The plan will continue in effect until the earliest of (i) the
date determined by the General Partner’s board of directors;
(ii) the date that common units are no longer available for
payment of awards under the plan; or (iii) the tenth
anniversary of the plan.
The General
Partner’s board of directors or compensation committee may,
in their discretion, terminate, suspend or discontinue the LTIP at
any time with respect to any units for which a grant has not yet
been made. The General Partner’s board of directors also has
the right to alter or amend the LTIP or any part of the plan from
time to time, including increasing the number of units that may be
delivered in accordance with awards under the plan, subject to any
approvals if required by the exchange upon which the common units
are listed at that time. No change in any outstanding grant may be
made, however, that would materially impair the rights of the
participant without the consent of the participant.
Awards Made Under the
LTIP
Phantom Unit
Awards
On
November 8, 2006, the General Partner, acting on behalf of the
Company, entered into a Key Employee Restricted Phantom Unit
Agreement (the “Key Employee Agreement”) with certain
of its employees (“Key Employees”).
Under the terms
of the Key Employee Agreement, Key Employees received Restricted
Phantom Units (“Employee Phantom Units”). Employee
Phantom Units are the economic equivalent of one common unit
representing limited partner interests of the Company. Employee
Phantom Units become payable, in cash or common units, at the
Company’s election, upon the full vesting of the Employee
Phantom Units. Employee Phantom Units contained no distribution
equivalent rights during the vesting period.
A total of
360,500 Employee Phantom Units were granted under the Key Employee
Agreement. Half of these units were converted into common units
prior to 2009 and half were converted into common units in
2010.
On
November 8, 2006, the General Partner, acting on behalf of the
Company, entered into a Director Restricted Phantom Unit Agreement
(the “Director Agreement”) with certain of its outside
directors (the “Directors”).
Under the terms
of the Director Agreement, each of five directors was awarded 3,000
Restricted Phantom Units (“Director Phantom Units”).
Director Phantom Units become payable, in cash or common units, at
the Company’s election, upon the separation of the Director
from service as a director or upon the occurrence of certain other
events specified in the Director Agreement. Each Director Phantom
Unit contains a distribution equivalent right which entitles each
Director to additional Director Phantom Units upon each
distribution made to common unit holders. The calculation of
additional Director Phantom Units granted upon each distribution to
common unit holders is equal to a Directors total cumulative
Director Phantom Units at the time of a distribution multiplied by
the per unit monetary distribution divided by the fair value of a
common unit at the time of the distribution. Each Director also
receives a portion of their annual retainer in deferred restricted
phantom units. There were approximately 71,767, 60,395 and 51,662
Director Phantom Units outstanding at December 31, 2012, 2011
and 2010, respectively.
On
December 16, 2009, the General Partner, acting on behalf of
the Company, entered into an Executive Restricted Phantom Unit
Agreement (the “Executive Agreement”) with certain of
the Company’s executives (the “Executives”).
Under the terms of the Executive Agreement, 20,000 Restricted
Phantom Units (“Executive Phantom Units”) were issued.
These units were vested upon issuance.
On
November 7, 2012, the General Partner, acting on behalf of the
Company, entered into an Executive Restricted Phantom Unit
Agreement (the “2012 Executive Agreement”) with an
executive of the Company (the “Executive”). Under the
terms of the 2012 Executive Agreement, the Executive was awarded
45,000 Restricted Phantom Units (“Executive Phantom
Units”) that vest over 3 years as follows; 15,000 Phantom
Units vest one year after the Grant Date, 15,000 Phantom Units vest
two years after the Grant Date, and 15,000 Phantom Units vest three
years after the Grant Date.
Executive
Phantom Units become payable, in cash or common units, at the
Company’s election, upon the separation of the Executive from
service as an executive or upon the occurrence of certain other
events specified in the Executive Agreement. The exercise of
Executive Phantom Units may be subject to approval by the
Company’s limited partners as required by the NYSE listing
rules. Each Executive Phantom Unit contains a distribution
equivalent right which entitles each Executive to additional
Executive Phantom Units upon each distribution made to common unit
holders. The calculation of additional Executive Phantom Units
granted upon each distribution to common unit holders is equal to
an Executives total cumulative Executive Phantom Units at the time
of a distribution multiplied by the per unit monetary distribution
divided by the fair value of a common unit at the time of the
distribution. There were approximately 71,446, 23,982 and 22,072
Executive Phantom Units outstanding at December 31, 2012, 2011
and 2010, respectively. Effective April 1, 2012, one of the
Executives retired from the Company, and simultaneously entered
into a two year consulting agreement where the Executive also
agreed to become the Vice Chairman of the Company’s Board of
Directors. This individual owned approximately 13,223 of the
Executive Phantom Units outstanding at December 31,
2012.
The table below
reflects the LTIP activity for the years ended December 31,
2012, 2011 and 2010, respectively:
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Years ended
December 31, |
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|
|
2012 |
|
|
2011 |
|
|
2010 |
|
|
|
(in
thousands) |
|
Outstanding, beginning of
period
|
|
|
84,377 |
|
|
|
73,734 |
|
|
|
63,693 |
|
Granted (1)
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|
58,836 |
|
|
|
10,643 |
|
|
|
10,041 |
|
Matured
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of
period
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|
143,213 |
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|
84,377 |
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|
73,734 |
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(1) |
The weighted-average price
for unit awards on the date of grant was $23.84, $27.79, and $22.52
for the years ended December 31 2012, 2011, and 2010,
respectively. |
As of
December 31, 2012, there was approximately $1.0 million of
unrecognized compensation cost related to the units issued in the
2012 Executive Agreement. Total compensation expense for unit
awards was approximately $0.4 million, $0.3 million and $0.2
million for the years ended December 31, 2012, 2011 and 2010,
respectively.
There were no
modifications made to any existing unit awards in 2012. No unit
awards were capitalized during the years ended December 31,
2012, 2011 or 2010.
Unit Appreciation
Rights Awards
On
November 27, 2006, the General Partner, acting on behalf of
the Company, entered into a Key Employee Unit Appreciation Rights
Agreement (the “2006 UAR Agreement”) with certain of
the Company’s key employees (the “2006 Key Employees).
Under the terms of the 2006 UAR Agreement, 2006 Key Employees
received Unit Appreciation Rights (“UARs”) wherein 2006
Key Employees became entitled to compensation in the form of units
in an amount equal to the fair value of the Company’s common
units upon exercise less $24.14 per unit multiplied by the
total number of UARs exercised. Units to be issued should be equal
to this amount divided by the fair value of common units upon
exercise. A total of 120,000 UARs were granted under the 2006 UAR
Agreement, all of which had vested at December 31, 2009 and
were exercised by December 31, 2011.
On
December 16, 2009, the General Partner, acting on behalf of
the Company, entered into a Key Employee Unit Appreciation Rights
Agreement (the “2009 UAR Agreement”) with certain of
the Company’s key employees (the “2009 Key Employees)
and non-employee directors.
Under the terms
of the 2009 UAR Agreement, 2009 Key Employees and non-employee
directors received UARs and became entitled to compensation in the
form of units, in an amount equal to the fair value of the
Company’s common units upon exercise less $18.80 per unit
multiplied by the total number of UARs exercised. Units to be
issued should be equal to this amount divided by the fair value of
common units upon exercise.
UARs granted
under the 2009 UAR Agreement vest at a percentage rate which is
equal to a fraction the numerator of which is the number of
calendar months which have elapsed since December 16, 2009 and
the denominator of which is 48, subject to forfeiture upon certain
conditions set forth in the UAR Agreement. The exercise of such
UARs may be subject to approval by the Company’s limited
partners as required by the NYSE listing rules. A total of 814,000
UARs were granted under the 2009 UAR Agreement and 694,098 of these
units remained outstanding at December 31, 2012.
In the second
quarter of 2012, the General Partner, acting on behalf of the
Company, entered into a Key Employee Unit Appreciation Rights
Agreement (the “2012 UAR Agreement”) with certain of
the Company’s key employees (the “2012 Key
Employees).
Under the terms
of the 2012 UAR Agreements, 2012 Key Employees received UARs
wherein 2012 Key Employees became entitled to compensation in the
form of units in an amount equal to the fair value of the
Company’s common units upon exercise less $24.36 per unit
multiplied by the total number of UARs exercised. Units to be
issued should be equal to this amount divided by the fair value of
common units upon exercise.
UARs granted
under the 2012 UAR Agreements vest at a percentage rate which is
equal to a fraction the numerator of which is the number of
calendar months which have elapsed since the date of issuance and
the denominator of which is 48, subject to forfeiture upon certain
conditions set forth in the UAR Agreement. The exercise of such
UARs may be subject to approval by the Company’s limited
partners as required by the NYSE listing rules. A total of 80,500
UARs were granted under the 2012 UAR Agreements and 80,500 of these
units remain outstanding at December 31, 2012.
The fair value
of UARs granted under both the 2012 UAR Agreements and the 2009 UAR
Agreements was estimated on the date of grant using the
Black-Scholes-Merton option pricing model with the following
weighted-average assumptions:
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2012 UAR
Agreement |
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|
2009 UAR
Agreement |
|
Expected dividend
yield
|
|
|
9.60 |
% |
|
|
10.70 |
% |
Risk-free interest
rate
|
|
|
0.63 |
% |
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|
2.73 |
% |
Expected
volatility
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|
42.60 |
% |
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|
38.70 |
% |
Expected life (in
years)
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|
3.52 |
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6.02 |
|
The fair value
of UARs granted under the 2009 UAR Agreements was $2.39 per UAR and
approximately $1.9 million in aggregate.
The fair value
of UARs granted under the 2012 UAR Agreements was approximately
$3.70 per UAR and approximately $0.3 million in
aggregate.
A summary of
UAR activity for the years ended December 31, 2012, 2011 and
2010 follows:
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Years ended
December 31, |
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2012 |
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2011 |
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|
2010 |
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|
(in
thousands) |
|
Outstanding, beginning of
period
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|
759,857 |
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|
874,835 |
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|
934,000 |
|
Granted
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|
80,500 |
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|
— |
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— |
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Exercised
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|
(65,759 |
) |
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(112,373 |
) |
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(47,602 |
) |
Forfeited
|
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|
— |
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|
(2,605 |
) |
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(11,563 |
) |
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Outstanding, end of period
(1)
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|
774,598 |
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759,857 |
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|
874,835 |
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|
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|
Exercisable, end of
period
|
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|
514,993 |
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|
358,639 |
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|
281,366 |
|
(1) |
694,098 of UARs outstanding
at December 31, 2012 were granted under 2009 UAR Agreements
and 80,500 of the UARs outstanding at December 31, 2012 were
granted under 2012 UAR Agreements. |
As of
December 31, 2012, there was approximately $0.7 million of
unrecognized compensation cost related to non-vested UARs. $0.5
million of this cost is expected to be recognized within 1 year,
with the remainder being recognized through 2016. Total
compensation expense for UARs was approximately $0.5 million for
the years ended December 31, 2012, 2011 and 2010. The Company
issued 19,452, 24,682 and 10,936 common units as a result of
exercised UARs in 2012, 2011 and 2010, respectively.
During the
years ended December 31, 2012, 2011 and 2010, the
Company:
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• |
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Made no modifications to any existing UAR awards;
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• |
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Did not capitalize any UAR awards;
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• |
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Did not receive any cash due to the exercise of
UARs;
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• |
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Did not recognize any tax benefits due to exercised
UARs.
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Retirement
Plan
The Company has
a 401(k) retirement savings plan for employees who may defer up to
15% of their compensation. The Company does not currently match any
of the employee contributions.