Management has mgt. fee rights in 16 million preferred units which are convertible
The preferred units are convertible into regular units and management does not pay for those units they are earned as part of a management fee when the earnings are 15% over budget. So, the beat earnings for the year, this is still not justification for receiving units equal about $100 million dollars. If cash flow in 2013 beats the budget they get the same in 2013. What all of you posters do not seem to realize is that oil and gas production in the first year after drilling is one thing. It falls drastically after that. But the units given to management are forever. Most oil and gas production falls 50% on most wells after 1-2-3 years, but those units given to management are forever and they will dilute all investors forever.
I understand your frustration, but I think you are (justifiably) confused. They did not receive preferred units for their fee, it was not when earnings are 15% over budget, and the units are not worth $100M, they are worth nothing (now). All they did was swap fees for distributions, and gain a future profits interest that will benefit them only if the company is sold at a gain. That's my present understanding, with a point or two remaining to be confirmed by IR, and yes, this was communicated poorly.
The release says the units received will be converted into common units or the same units purchased by all investors before the end of the year. When that happens they have the ability to sell those units in the open market like any unit holder. This entity is only a $700 million market cap oil and gas producer. Receiving units for meeting one year income performance and beating them by 15% is in the long term giving away a large piece of the equity for nothing. It is one thing to receive a salary like the CEO at LInn Energy receives each 12 months and the incentive here which equal to a large piece of the entity.