Exhibit 10.1

 

COPANO ENERGY, L.L.C.

MANAGEMENT INCENTIVE COMPENSATION PLAN

 

I.                                         PURPOSE

 

The purpose of this Plan is to aid Copano Energy, L.L.C. (“Copano” or “the
Company”) and its Affiliates in retaining and motivating management employees of
high caliber and good potential to manage and operate Copano and to aid Copano
in meeting its performance objectives. It is the judgment of the Board that, in
order to achieve these objectives, Copano must provide incentive compensation to
those individuals who significantly contribute to the successful operation of
Copano.

 

II.                                     EFFECTIVE DATE

 

The Plan shall be and is hereby adopted effective as of January 1, 2005, and
Awards under the Plan may be made with respect to the 2005 Plan Year and each
subsequent Plan Year.

 

III.                                 DEFINITIONS

 

Unless the meaning is clearly different when used in context, these terms shall
have the following meanings when used either in this Plan document or in the
annual Administrative Guidelines:

 

A.                                   “Administrative Guidelines” shall mean the
guidelines approved annually by the Committee to provide for the administration
of the Plan, including the method by which incentive compensation payments will
be determined.

 

B.                                     “Affiliate” (i) shall mean with respect
to any Person, any other Person that directly or indirectly through one or more
intermediaries controls, is controlled by or is under common control with, the
Person in question and (ii) with respect to the Company, shall include Copano
Operations for so long as Copano Operations provides any general and
administrative functions or field operating personnel to the Company or its
subsidiaries.  As used herein, the term “control” means the possession, direct
or indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through ownership of voting securities, by
contract or otherwise.

 

C.                                     “Board” shall mean the Board of Directors
of Copano Energy, L.L.C.

 

D.                                    “CEO” shall mean the Chief Executive
Officer of Copano Energy, L.L.C.

 

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E.                                      “Change of Control” shall mean the
happening of any of the following events:

 

(i)                                     the acquisition by any “person,” as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), other than the Company or an Affiliate of the
Company (other than Copano Operations), of “beneficial ownership” (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than 50% of the combined voting power of the Company’s
then outstanding securities entitled to vote generally in the election of
directors; or

 

(ii)                                  the consummation of a reorganization,
merger, consolidation or other form of business transaction or series of
business transactions, in each case, with respect to which persons who were the
members of the Company immediately prior to such reorganization, merger or
consolidation or other transaction do not, immediately thereafter, own more than
50% of the combined voting power entitled to vote generally in the election of
directors of the reorganized, merged or consolidated company’s then outstanding
voting securities; or

 

(iii)                               the sale, lease or disposition (in one or a
series of related transactions) by the Company of all or substantially all the
Company’s assets to any Person or its Affiliates, other than the Company or its
Affiliates (other than Copano Operations); or

 

(iv)                              a change in the composition of the Board, as a
result of which fewer than a majority of the directors are Incumbent Directors. 
“Incumbent Directors” shall mean directors who either (A) are directors of the
Company as of the effective date of the initial public offering of the Company’s
equity interests, or (B) are elected, or nominated for election, thereafter to
the Board with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination or (C) are among the six
initial independent directors of the Company, but “Incumbent Director” shall not
include an individual whose election or nomination is in connection with (i) an
actual or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or an actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board or (ii) a plan or agreement to replace a majority of the then Incumbent
Directors; or

 

(v)                                 the approval by the Board or the members of
the Company of a complete or substantially complete liquidation or dissolution
of the Company.

 

F.                                      “Committee Chairman” shall mean the
Chairman of the Committee.

 

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G.                                     “Compensation Committee” or “Committee”
shall mean the compensation committee of the Board.

 

H.                                    “Copano Operations” shall mean
Copano/Operations, Inc., a Texas corporation.

 

I.                                         “Eligible Employee” shall mean a
person who is a management employee of the Company or a subsidiary thereof or an
employee of an Affiliate who performs services in a management capacity on
behalf of the Company or a subsidiary thereof.

 

J.                                        “Financial Objectives” shall mean such
financial criteria and objectives as the Committee and CEO may select and the
Board shall approve, and as reflected, from time to time, in the Administrative
Guidelines.

 

K.                                    “Good Reason” shall mean (a) a reduction,
regardless of amount or nature, in a Participant’s salary, bonus, benefits, or
any other compensation or employment-related benefits to which Participant does
not consent, (b) reassignment of Participant (without Participant consent) to
any office located more than 30 miles from where the office to which Participant
is assigned is located or (c) a material diminution in Participant’s job duties
or responsibilities to which Participant does not consent (other than
diminutions occasioned solely by reason of the Company having ceased to be a
publicly-held entity: for example, cessation of the public reporting
responsibilities of executive, legal and financial officers would not constitute
“Good Reason” diminutions).

 

L.                                      “Management Incentive Compensation
Award” or “Award” shall mean the amount of incentive compensation payable in
accordance with Article VIII to a Participant with respect to a Plan Year as
determined by considering such criteria as determined in accordance with the
Plan.

 

M.                                 “Operational Objectives” shall mean such
criteria and objectives with respect to the operations of the Company as the
Committee and CEO may select and the Board shall approve, from time to time, in
accordance with the Administrative Guidelines.

 

N.                                    “Participant” or “Participants” shall mean
an Eligible Employee(s) to whom an opportunity for incentive compensation
hereunder has been given under Article VI or VII.

 

O.                                    “Person” shall mean an individual or a
corporation, limited liability company, partnership, joint venture, trust,
unincorporated organization, association, government agency or political
subdivision thereof or other entity.

 

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P.                                      “Personal Objectives” shall mean those
personal objectives in effect from time to time for a Participant in accordance
with the Administrative Guidelines.

 

Q.                                    “Plan” or “MICP” shall mean this Copano
Energy, L.L.C. Management Incentive Compensation Plan.

 

R.                                     “Plan Year” shall mean each 12-month
period beginning on January 1 and ending on December 31.

 

S.                                      “Special Incentive Award” shall mean the
amount of special incentive compensation that a Participant may be awarded as
determined pursuant to Articles VII and VIII.

 

T.                                     “Target Award” shall mean for any Plan
Year the amount of incentive compensation expressed as a percentage of the
Participant’s actual base salary during such Plan Year that shall be payable if
the Participant’s Personal Objectives and Financial and Operational Objectives
are fully achieved.

 

U.                                    “Copano” shall mean Copano Energy, L.L.C.
and/or, when the context requires, its Affiliates.

 

IV.                                 ADMINISTRATIVE AND INTERPRETATION

 

A.                                   The Plan shall be administered by the
Committee or its designee. The Committee shall have sole and absolute discretion
to construe and interpret the Plan and any instrument or agreement related
thereto, including without limitation, the power to construe and interpret
doubtful or contested terms herein and therein, and, subject to the provisions
set forth, herein, to prescribe, amend and rescind rules and regulations and
make all other determinations necessary or desirable for the Plan’s
administration.

 

B.                                     Notwithstanding any provision of law, or
any explicit or implicit provision of this document, any action taken, or
finding, interpretation, ruling or decision made by the Committee in the
exercise of any of its rights, powers, authority or duties under this Plan shall
be final and conclusive as to all parties, including without limitation all
Participants and former Participants, regardless of whether the Committee or one
or more of its members may have an actual or potential conflict of interest with
respect to the subject matter of the action, finding, interpretation, ruling or
decision. No final action, finding, interpretation, ruling or decision of the
Committee shall be subject to de novo review in any judicial proceeding. No
final action, finding, interpretation, ruling or decision of the Committee may
be set aside unless it is held to have been arbitrary and capricious by a final
judgment of a court having jurisdiction with respect to the issue. Nothing in
the Plan shall be deemed to give any officer or

 

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employee of Copano, or his or her legal representatives or assigns, any right to
participate in the Plan, except to such extent, if any, as the Committee may
authorize pursuant to the provisions of the Plan.

 

C.                                     The Committee shall have the sole and
absolute discretion to determine an individual’s eligibility to participate,
whether the performance of a Participant warrants an Award pursuant to the Plan
and any instrument or agreement relating thereto, and the amount of any such
Award. However, with respect to employees other than the CEO, the CEO shall
recommend to the Committee whether each such employee is eligible to
participate, whether the performance of such employee warrants an Award and the
amount of such Award.

 

D.                                    This Plan shall be governed by, construed
and enforced in accordance with the internal laws of the State of Texas and,
where applicable, the laws of the United States.

 

E.                                      Notwithstanding anything herein to the
contrary, terms of participation in the Plan by Eligible Employees will be at
the absolute and sole discretion of the Committee and shall be a matter for
action by the Committee only.

 

V.                                     ELIGIBLE EMPLOYEES

 

A.                                   The CEO shall submit a list to the
Committee of those Eligible Employees whom he or she believes should be
participating in the Plan prior to the beginning of each Plan Year. The
Committee shall then determine which Eligible Employees shall be Participants
with respect to such Plan Year. Members of the Committee and any member of the
Board who is not an employee of Copano are ineligible to receive Awards under
this Plan.

 

B.                                     Employees who subsequently become
Eligible Employees during the Plan Year may become Participants, with the
approval of the CEO and the Committee Chairman, but, in the discretion of the
CEO and Committee Chairman may only be eligible for an Award calculated pro rata
based upon the period of actual service during the Plan Year.

 

VI.                                 TARGET AWARDS

 

A.                                   With the assistance of the CEO (See Article
IV), the Committee shall assign each Eligible Employee, who is designated a
Participant pursuant to Article V, a Target Award. Such Target Award will
determine the incentive compensation that may be paid to the Participant if all
Personal Objectives, Financial Objectives and Operational Objectives are fully
achieved. The Target Award shall be determined in accordance with the
Administrative Guidelines.

 

B.                                     Participants who receive a promotion
during a Plan Year to a position that is generally recognized to have a higher
Target Award, will be given a

 

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Target Award commensurate with their new position, which will be applicable to
the salary earned between the effective date of the promotion and the end of the
Plan Year.

 

C.                                     Pursuant to the Administrative
Guidelines, the CEO and the Committee each year shall designate what portions of
the Target Award will be earned if the Participant achieves his or her Personal
Objectives, Financial Objectives and Operational Objectives, respectively.

 

D.                                    At the beginning of a Plan year, all
Participants eligible for a Target Award may be required to establish Personal
Objectives, which will be stated in specific, measurable terms that will be
directly related to activities that will improve operating results. Personal
Objectives must be approved by the CEO and are subject to review by the
Committee. Such Personal Objectives provide the basis for evaluating individual
achievement at the end of the applicable Plan Year and the amount of the Award
earned under the Personal Objective component.  The CEO and the Committee may
make subjective adjustments to the evaluation of personal performance in
determining the amount of the Target Award that has been earned through personal
performance.

 

E.                                      At the beginning of the Plan Year the
CEO and the Committee shall establish Financial Objectives and Operational
Objectives for the Plan Year, which shall be approved by the Board. Such
Financial Objectives and Operational Objectives shall state the financial and
operational targets which must be achieved for individual Participants to
realize the full measure of that portion of Target Awards determined by
financial and/or operational performance.

 

F.                                      Target Awards will be rounded to the
nearest $100.

 

G.                                     The Personal Objectives, Financial
Objectives and/or Operational Objectives may be revised from time to time during
the Award determination period at the discretion of the Committee and the CEO,
and with respect to the Financial or Operational Objectives, the approval of the
Board.

 

VII.                             SPECIAL INCENTIVE AWARDS

 

When appropriate, and subject to the approval of the Committee, the CEO may
recommend a Special Incentive Award in recognition of exemplary performance on a
specific project or issue to any Eligible Employee. The amount of such Special
Incentive Award shall be determined pursuant to Article VIII.

 

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VIII.                         AMOUNT OF INCENTIVE COMPENSATION AWARDS

 

A.                                   At the close of each Plan Year, the CEO
shall recommend the amount of each Award to be paid to each Participant, other
than the CEO (if participating), and shall submit the recommendation to the
Committee. The recommendation with respect to an Award shall be based on the
following guidelines:

 

1.                                       A Participant shall be eligible for an
Award based upon accomplishment of Personal, Financial and Operational
Objectives as outlined in the Administrative Guidelines.

 

2.                                       A Participant whose employment ceases
by reason of death, disability (as determined by the Committee in its sole
discretion) or retirement on or after reaching age 65 or, if prior to age 65, if
approved by the Committee, and a Participant whose employment with the Company
or an Affiliate is terminated without “cause” shall be eligible for an Award
based on a pro rata portion of Participant’s Target Award through Participant’s
termination date.

 

3.                                       Notwithstanding anything to the
contrary herein, in the event of (i) the termination of a Participant’s
employment by the Company or an Affiliate without “cause” or (ii) the
termination of employment by the Participant for “Good Reason”, in either case
within one year of a Change of Control, such Participant shall be entitled to a
pro rata portion of his or her Target Award through Participant’s termination
date.

 

4.                                       If a Participant’s employment
terminates for any reason other than those set forth in Article VIII.A. 2 or 3
above, he or she will not be entitled to any portion of a Target Award.

 

5.                                       Recommendations with respect to Special
Incentive Awards shall be based upon such guidelines as the CEO shall deem
appropriate in his or her sole discretion.

 

B.                                     After the CEO makes his or her
recommendation, the Committee shall meet for the purpose of determining the
amounts and approving the payment of Awards. The Committee shall base its
determination on the amount of any Award for the CEO (providing the CEO is a
Participant) upon the guidelines set forth in Paragraph A above and such other
factors as the Committee, in its sole discretion, shall determine.

 

C.                                     In no event shall an Award exceed 200% of
the Participant’s actual base annual salary during the Plan Year, nor shall a
Special Incentive Award exceed 50% of the Participant’s actual base annual
salary during the Plan Year.

 

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D.                                    Awards are not to be considered
compensation of an employee for purposes of calculating pensions or any other
benefits unless the terms of a pension or other benefit plan, program or
agreement specifically provides that the Award shall be considered in the
calculation of such benefits.

 

IX.                                FORM AND SETTLEMENT OF INCENTIVE COMPENSATION
AWARDS

 

A.                                   Awards shall be paid in cash by Copano in a
single lump sum payment. The Committee shall have complete and absolute
authority to determine the settlement of each individual Award. Awards shall be
paid as soon as reasonably practicable following approval by the Committee or
its designee, but no later than March 15 following the close of such Plan Year,
subject to restrictions outlined in the Administrative Guidelines applicable to
such Plan Year.

 

B.                                     If a Participant dies before the payment
of an Award any rights to the payment of such Award shall be paid pursuant to a
designation of beneficiary form executed by a Participant and on file with the
Director of Personnel or if none, to his or her estate or legal representative.

 

C.                                     Should a Participant become incompetent
or payment otherwise becomes due to a person who is a minor or incompetent, the
Committee is authorized to pay the funds due to the parent of the minor or to
the guardian of the minor or incompetent or directly to the minor or to apply
those funds for the benefit of the minor or incompetent in any manner the
Committee determines in its sole discretion.

 

D.                                    Copano shall calculate the deductions from
the Award paid under the Plan for any taxes required to be withheld by federal,
state or local government and shall cause them to be withheld.

 

X.                                    LIMITATIONS

 

A.                                   No Participant or any other person shall
have any interest in Copano, or any other company affiliated with Copano, any
fund or in any specific asset or assets of Company or its affiliates by reason
of an Award that has been made, but has not been paid or distributed. No right
or benefit provided in this Plan shall be transferable by the Participant
except, upon his death, as provided in this Plan. No right or benefit under this
Plan shall be subject to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment, or garnishment by creditors of the Participant
or the Participant’s beneficiary. Any attempt to anticipate, alienate, sell,
assign, pledge, encumber, or charge the same shall be void. No right or benefit
under this Plan shall in any manner be liable for or subject to any debts,
contracts, liabilities or torts of the person entitled to such benefits. If any
Participant or any beneficiary becomes bankrupt or attempts to anticipate,
alienate, sell, assign, pledge, encumber or charge any right or

 

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benefit under this Plan, that right or benefit shall, in the discretion of the
Committee, cease. In that event, the Committee may have Copano hold or apply the
right or benefit or any part of it to the benefit of the Participant, his or her
spouse, children or other dependents or any of them in any manner and in any
proportion the Committee believes to be proper in its sole and absolute
discretion, but is no required to do so.

 

B.                                     Nothing in this Plan shall be construed:

 

1.                                       To give any employee of Copano or an
Affiliate any right to be designated a Participant in the Plan;

 

2.                                       To give a Participant any right to
receive an Award except in accordance with the terms of this Plan;

 

3.                                       To limit in any way the right of Copano
or an Affiliate to terminate a Participant’s employment at any time and for any
reason;

 

4.                                       To evidence any Copano agreement or
understanding, expressed or implied, that Copano will employ a Participant in
any particular position or for any particular remuneration or time; or

 

5.                                       To give a Participant or any other
person claiming through him any interest or right under this Plan other than
that of an unsecured general creditor or Copano.

 

C.                                     Participants shall forfeit without
payment all rights with respect to an Award in the following circumstances
(unless the Administrative Guidelines published by the Committee provide
otherwise):

 

1.                                       If a Participant’s employment is
terminated for any reason other than those set forth in Article VIII.A. 2 and 3
above;

 

2.                                       If the Participant engages in willful,
deliberate or gross misconduct; or

 

3.                                       If, in the sole determination of the
Committee, the Participant engages in competitive activities, or activities to
the detriment of Copano following the Participant’s termination of employment
and prior to payment of the Award.

 

XI.                                NATURE OF PLAN

 

It is also specifically recognized by both Copano and the Participants that this
Plan is only a general corporate commitment and that each Participant must rely
upon the general credit of Copano for the fulfillment of its obligations
hereunder. Under all circumstances the rights of Participants to any asset held
by Copano will be no greater than the rights expressed in this Plan. Nothing
contained in this Plan shall constitute a

 

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guarantee by Copano that the assets of Copano will be sufficient to pay any
benefits under this Plan or would place the Participant in a secured position
ahead of general creditors of Copano; the Participants are only unsecured
creditors of Copano with respect to their Plan benefits and the Plan constitutes
a mere contingent promise by Copano to make payments in the future if earned
pursuant to the terms of the Plan and the Administrative Guidelines. Although
Copano may establish a trust to accumulate assets to fulfill its obligations,
the Plan and the trust, if so established, will no create any lien, claim,
encumbrance, right, title or other interest of any kind whatsoever in any
Participant in any asset held by Copano, contributed to the trust or otherwise
designated to be used for payment of any of its obligations created in this
agreement. No specific assets of Copano have been or shall be set aside, or
shall in any way be transferred to the trust or shall be pledged in any way for
the performance of Copano’s obligation under this Plan which would remove such
assets from being subject to the general creditors of Copano.

 

XII.                            AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN

 

The Board may at any time amend, suspend or terminate the Plan, in whole or in
part, except that no amendment, suspension or termination shall reduce any
benefits payable to a Participant or his or her spouse, estate or legal
representative or shall reduce any benefit awarded to a Participant prior to the
date of such amendment, suspension or termination, except as provided in Section
X of this Plan.

 

XIII.                        SUCCESSORS AND ASSIGNS

 

The provisions of the Plan shall be binding upon Copano and its successors and
upon the Participants and their legal representatives.

 

IX.                                UNFUNDED ARRANGEMENT

 

It is intended that this Plan shall be unfunded for federal tax purposes and for
purposes of Title 1 of the Employee Retirement Income Security Act of 1974, as
amended.

 

X.                                    MISCELLANEOUS

 

Wherever applicable, the masculine pronoun as used herein shall be deemed to
means the feminine, the feminine pronoun the masculine, the singular the plural
and the plural the singular.

 

 

COPANO ENERGY, L.L.C.

 

 

 

 

 

/s/ John R. Eckel, Jr.

 

John R. Eckel, Jr.

 

Chairman and Chief Executive Officer

 

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