Document:

exv10w3

Exhibit 10.3

PAA NATURAL GAS STORAGE, L.P.

2010 LONG TERM INCENTIVE PLAN

     SECTION 1. Purpose of the Plan.

     The PAA Natural Gas Storage, L.P. 2010 Long Term Incentive Plan (the “Plan”) has been
adopted by PNGS GP, LLC, a Delaware limited liability company (the “Company”), the general
partner of PAA Natural Gas Storage, L.P., a Delaware limited partnership (the
“Partnership”), and is intended to promote the interests of the Partnership and the Company
by providing to employees, consultants and directors of the Company and its Affiliates incentive
compensation awards for superior performance that are based on Common Units. The Plan is also
contemplated to enhance the ability of the Company, the Partnership and their Affiliates to attract
and retain the services of individuals who are essential for the growth and profitability of the
Company, the Partnership and their Affiliates and to encourage them to devote their best efforts to
advancing the business of the Company, the Partnership and their Affiliates.

     SECTION 2. Definitions.

     As used in the Plan, the following terms shall have the meanings set forth below:

     “Affiliate” means, 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. 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.

     “Award” means an Option, Restricted Unit, Phantom Unit, Unit Appreciation Right, or
Unit Award granted under the Plan, and may include any tandem DERs granted with respect to a
specific Option, Unit Appreciation Right or Phantom Unit.

     “Award Agreement” means the written or electronic agreement by which an Award shall
be evidenced, and which may describe any terms, conditions, criteria, restrictions or other
elements of such Award as determined by the Committee in its discretion.

     “Board” means the Board of Directors of the Company.

     “Code” means the Internal Revenue Code of 1986, as amended.

          “Committee” means the entity appointed to administer the Plan, which may be the Board,
the Compensation Committee of the Board, or such other committee as may be appointed by the Board.

     “Common Unit” means a Common Unit (as defined in the Partnership Agreement).

          “Consultant” means an individual who renders consulting services to the Company, the
Partnership or an Affiliate of either.

     “DER” means a contingent right, granted in tandem with a specific Option, Unit
Appreciation Right or Phantom Unit, to receive with respect to each Common Unit covered by the
Award, an amount in cash, Common Units and/or Phantom Units, as determined by the Committee in
its sole discretion, equal in value to the distributions made by the Partnership with respect to
a Common Unit during the period such Award is outstanding.

          “Director” means a member of the Board who is not an Employee or a Consultant (other
than in that individual’s capacity as a Director).

     “Employee” means any employee of the Company or an Affiliate of the Company.

 

 

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Fair Market Value” means the closing sales price of a Common Unit on the date
preceding the applicable date (or if there is no trading in the Common Units on such date, on
the next preceding date on which there was trading) or (other than with respect to establishing
the exercise price of an Option or Unit Appreciation Right) as defined in an Award Agreement. In
the event Common Units are not publicly traded at the time a determination of fair market value
is required to be made hereunder, the determination of fair market value shall be made in good
faith by the Committee.

     “Option” means an option to purchase Common Units granted under the Plan.

     “Participant” means any Employee, Consultant or Director granted an Award under the
Plan.

     “Partnership Agreement” means the Amended and Restated Agreement of Limited
Partnership of PAA Natural Gas Storage, L.P., as it may be amended or amended and restated from
time to time.

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

     “Phantom Unit” means a phantom (notional) Common Unit granted under the Plan that
entitles the Participant to receive, at the time of settlement, a Common Unit or an amount of
cash equal to the Fair Market Value of a Common Unit, as determined by the Committee in its
discretion.

     “Restricted Period” means the period established by the Committee with respect to
an Award during which the Award or Common Unit may remain subject to restrictions established by
the Committee, including without limitation a period during which such Award or Common Unit is
subject to forfeiture or restrictions on transfer, or is not yet exercisable by or payable to
the Participant, as the case may be. As the context requires the word “vest” and its derivatives
refers to the lapse of some or all, as the case may be, of the restrictions imposed during such
Restricted Period.

     “Restricted Unit” means a Common Unit delivered under the Plan that is subject to a
Restricted Period.

     “Rule 16b-3” means Rule 16b-3 promulgated by the SEC under the Exchange Act, or any
successor rule or regulation thereto as in effect from time to time.

     “SEC” means the Securities and Exchange Commission, or any successor thereto.

     “UDR” means a distribution made by the Partnership with respect to a Restricted
Unit.

     “Unit Appreciation Right” means an Award that, upon exercise, entitles the holder
to receive the excess of the Fair Market Value of a Common Unit on the exercise date over the
exercise price established for such Unit Appreciation Right. Such excess may be paid in cash
and/or in Common Units as determined by the Committee in its discretion.

     “Unit Award” means a grant of a Common Unit that is not subject to a Restricted
Period.

     SECTION 3. Administration.

     The Plan shall be administered by the Committee. A majority of the Committee shall constitute
a quorum, and the acts of the members of the Committee who are present at any meeting thereof at
which a quorum is present, or acts unanimously approved by the members of the Committee in writing,
shall be the acts of the Committee. Subject to the following and applicable law, the Committee, in
its sole discretion, may delegate any or all of its powers and duties under the Plan, including the
power to grant Awards under the Plan, to the Chief Executive Officer of the Company, subject to
such limitations on such delegated powers and duties as the Committee may impose, if any. Upon any
such delegation all references in the Plan to the “Committee”, other than in Section 7, shall be
deemed to include the Chief Executive Officer; provided, however, that such delegation shall not
limit the Chief Executive

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Officer’s right to receive Awards under the Plan. Notwithstanding the foregoing, the Chief
Executive Officer may not grant Awards to, or take any action with respect to any Award previously
granted to, a person who is an officer subject to Rule 16b-3 or who is a Director. Subject to the
terms of the Plan and applicable law, and in addition to other express powers and authorizations
conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Awards to be granted to a Participant;
(iii) determine the number of Common Units to be covered by Awards; (iv) determine the terms and
conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards
may be vested, settled (including settlement in cash), exercised, canceled, or forfeited; (vi)
interpret and administer the Plan and any instrument or agreement relating to an Award made under
the Plan; (vii) establish, amend, suspend, or waive such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration of the Plan; (viii) delegate its
duties under the Plan to such agents as it may appoint from time to time, provided that the
Committee may not delegate its duties where such delegation would violate state corporate law, or
with respect to making Awards to, or otherwise with respect to Awards granted to, Employees,
Consultants or Directors who are subject to section 16(b) of the Exchange Act, and (ix) make any
other determination and take any other action that the Committee deems necessary or desirable for
the administration of the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or an Award Agreement in such manner and to such extent as
the Committee deems necessary or appropriate. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and
shall be final, conclusive, and binding upon all Persons, including the Company, the Partnership,
any Affiliate, any Participant, and any beneficiary of any Award.

     SECTION 4. Units.

     (a) Limits on Units Deliverable. Subject to adjustment as provided in Section 4(c), the
number of Common Units that may be actually delivered with respect to Awards under the Plan is
3,000,000. If any Award is forfeited, cancelled, exercised, paid or otherwise terminates or
expires without the actual delivery of Common Units pursuant to such Award, including any Award
under which Common Units are withheld to cover the exercise price or tax withholding obligations
with respect to an Award, the Common Units subject to such Award shall be available to satisfy
future Awards under the Plan; provided, however, the issuance of a Restricted Unit will be an
“actual delivery” for purposes of the preceding; thus, any Restricted Unit used to cover an
exercise price or tax withholding obligation shall not become available to satisfy future Awards
under the Plan. There shall not be any limitation on the number of Awards that may be granted and
paid in cash.

     (b) Sources of Units Deliverable Under Awards. Any Common Units delivered pursuant to an
Award shall consist, in whole or in part, of Common Units acquired in the open market, from any
Affiliate, the Partnership or any other Person, or any combination of the foregoing, as determined
by the Committee in its discretion.

     (c) Adjustments. In the event that the Committee determines that any distribution (whether in
the form of cash, Common Units, other securities, or other property), recapitalization, split,
reverse split, reorganization, merger, change of control, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Common Units or other securities of the Partnership,
issuance of warrants or other rights to purchase Common Units or other securities of the
Partnership, or other similar transaction or event affects the Common Units such that an adjustment
is determined by the Committee to constitute an “equity restructuring” event that could result in
an additional compensation expense to the Company or the Partnership pursuant to the provisions of
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 718 if
adjustments to Awards with respect to such event were discretionary, or to otherwise be appropriate
in order to prevent dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall, as necessary to equitably reflect such
restructuring event in accordance with Topic 718, if applicable, or otherwise in such manner as it
may deem equitable, adjust any or all of (i) the number and type of Common Units (or other
securities or property) with respect to which Awards may be granted, (ii) the number and type of
Common Units (or other securities or property) subject to outstanding Awards, and (iii) the grant
or exercise price with respect to any Award or, if deemed appropriate, make provision for a cash
payment to the holder of an outstanding Award; provided, that the number of Common Units subject to
any Award shall always be a whole number.

     SECTION 5. Eligibility.

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     Any Employee, Consultant or Director shall be eligible to be designated a Participant and
receive an Award under the Plan.

     SECTION 6. Awards.

     (a) Options. The Committee shall have the authority to determine the Employees, Consultants
and Directors to whom Options shall be granted, the number of Common Units to be covered by each
Option, whether DERs are granted with respect to such Option, the exercise price therefor, the
Restricted Period, if any, and the other conditions and limitations applicable to the exercise of
the Option, including the following terms and conditions and such additional terms and conditions,
as the Committee shall determine, that are not inconsistent with the provisions of the Plan.

     (i) Exercise Price. The exercise price per Common Unit purchasable under an Option shall
be determined by the Committee at the time the Option is granted but may not be less than the
Fair Market Value of a Common Unit as of the date of grant of the Option.

     (ii) Time and Method of Exercise. The Committee shall determine the exercise terms and the
Restricted Period (i.e., the time or times at which an Option may be exercised in whole or in
part, including, without limitation, any provision for accelerated vesting upon the achievement
of specified performance goals or other events) and the method or methods by which payment of
the exercise price with respect to an Option may be made or deemed to have been made, which may
include, without limitation, cash, check acceptable to the Company, withholding Common Units
from the Award, a “cashless-broker” exercise through procedures approved by the Company, other
securities or other property, a note (in a form acceptable to the Company), or any combination
thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price.

     (iii) Forfeitures. Except as otherwise provided in the terms of the Option Award
Agreement, upon termination of a Participant’s employment with or consulting services to the
Company and its Affiliates or membership on the Board, whichever is applicable, for any reason
during the applicable Restricted Period, all unvested Options shall be forfeited by the
Participant. The Committee may, in its discretion, waive in whole or in part such forfeiture
with respect to a Participant’s Options.

     (iv) Option DERs. To the extent provided by the Committee, in its discretion, an Option
Award Agreement may include a tandem DER grant, which may provide that such DERs shall be paid
directly to the Participant, be credited to a bookkeeping account (with or without interest in
the discretion of the Committee) subject to the same vesting restrictions as the tandem Option
Award, or be subject to such other provisions or restrictions as determined by the Committee in
its discretion.

     (b) Restricted Units and Phantom Units. The Committee shall have the authority to determine
the Employees, Consultants and Directors to whom Restricted Units or Phantom Units shall be
granted, the number of Restricted Units or Phantom Units to be granted to each such Participant,
the Restricted Period, the conditions under which the Restricted Units or Phantom Units may become
vested or forfeited, and such other terms and conditions as the Committee may establish with
respect to such Awards, including whether DERs are granted with respect to the Phantom Units.

     (i) DERs. To the extent provided by the Committee, in its discretion, a Phantom Units
Award Agreement may include a tandem DER grant, which may provide that such DERs shall be paid
directly to the Participant, be credited to a bookkeeping account (with or without interest in
the discretion of the Committee), be “reinvested” in Restricted Units or additional Phantom
Units and be subject to the same or different vesting restrictions as the tandem Phantom Unit
Award, or be subject to such other provisions or restrictions as determined by the Committee in
its discretion. Absent a contrary provision in the Award Agreement, upon a distribution with
respect to a Common Unit, DERs equal in value to such distribution shall be paid promptly to the
Participant in cash without vesting restrictions.

     (ii) UDRs. To the extent provided by the Committee, in its discretion, a Restricted Units
Award Agreement may provide that distributions made by the Partnership with respect to the
Restricted Units shall be subject to the

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same forfeiture and other restrictions as the Restricted Unit and, if restricted, such
distributions shall be held, without interest, until the Restricted Unit vests or is forfeited
with the UDR being paid or forfeited at the same time, as the case may be. In addition, the
Committee may provide that such distributions be used to acquire additional Restricted Units for
the Participant. Such additional Restricted Units may be subject to such vesting and other terms
as the Committee may prescribe. Absent such a restriction on the UDRs in the Award Agreement,
UDRs shall be paid promptly to the holder of the Restricted Unit without restriction.

     (iii) Forfeitures. Except as otherwise provided in the terms of the applicable Restricted
Units or Phantom Units Award Agreement, upon termination of a Participant’s employment with or
consulting services to the Company and its Affiliates or membership on the Board, whichever is
applicable, for any reason during the applicable Restricted Period, all outstanding, unvested
Restricted Units and Phantom Units awarded the Participant shall be automatically forfeited on
such termination. The Committee may, in its discretion, waive in whole or in part such
forfeiture with respect to a Participant’s Restricted Units and/or Phantom Units.

     (iv) Lapse of Restrictions.

          (A) Phantom Units. Upon or as soon as reasonably practical following the vesting of each
Phantom Unit, subject to the provisions of Section 8(b), the Participant shall be entitled to
settlement of such Phantom Unit and shall receive from the Company either one Common Unit or an
amount in cash equal to the Fair Market Value of a Common Unit, as determined by the Committee
in its discretion.

          (B) Restricted Units. Upon or as soon as reasonably practical following the vesting of
each Restricted Unit, subject to the provisions of Section 8(b), the Participant shall be
entitled to have the relevant restrictions removed from his or her Award so that the Participant
then holds an unrestricted Common Unit certificate.

     (c) Unit Awards. Unit Awards may be granted under the Plan to such Employees, Consultants
and/or Directors and in such amounts as the Committee, in its discretion, may select.

     (d) Unit Appreciation Rights. The Committee shall have the authority to determine the
Employees, Consultants and Directors to whom Unit Appreciation Rights shall be granted, the number
of Common Units to be covered by each Unit Appreciation Right Award Agreement, whether DERs are
granted with respect to such Unit Appreciation Right, the exercise price therefor, the Restricted
Period, if any, and the other conditions and limitations applicable to the exercise of the Unit
Appreciation Right, including the following terms and conditions and such additional terms and
conditions, as the Committee shall determine, that are not inconsistent with the provisions of the
Plan.

     (i) Exercise Price. The exercise price per Unit Appreciation Right shall be determined by
the Committee at the time the Unit Appreciation Right is granted but may not be less than the
Fair Market Value of a Common Unit as of the date of grant of the Unit Appreciation Right.

     (ii) Time of Exercise. The Committee shall determine the exercise terms and the Restricted
Period (i.e., the time or times at which a Unit Appreciation Right may be exercised in whole or
in part, including, without limitation, a provision for accelerated vesting upon the achievement
of specified performance goals or other events).

     (iii) Forfeitures. Except as otherwise provided in the terms of the Unit Appreciation
Right Award Agreement, upon termination of a Participant’s employment with or consulting
services to the Company and its Affiliates or membership on the Board, whichever is applicable,
for any reason during the applicable Restricted Period, all outstanding, unvested Unit
Appreciation Rights awarded the Participant shall be automatically forfeited on such
termination. The Committee may, in its discretion, waive in whole or in part such forfeiture
with respect to a Participant’s Unit Appreciation Rights.

     (iv) Unit Appreciation Right DERs. To the extent provided by the Committee, in its
discretion, a Unit Appreciation Rights Award Agreement may include a tandem DER grant, which may
provide that such DERs shall be paid directly to the Participant, be credited to a bookkeeping
account (with or without interest in the discretion of the Committee) subject to the same
vesting restrictions as the tandem Unit Appreciation Rights Award, or be subject to such other
provisions or restrictions as determined by the Committee in its discretion.

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     (e) General.

     (i) Awards May Be Granted Separately or Together. Awards may, in the discretion of the
Committee, be granted either alone or in addition to, in tandem with, or in substitution for any
other Award granted under the Plan or any award granted under any other plan of the Company or
any Affiliate. Awards granted in addition to or in tandem with other Awards or awards granted
under any other plan of the Company or any Affiliate may be granted either at the same time as
or at a different time from the grant of such other Awards or awards.

     (ii) Limits on Transfer of Awards.

          (A) Except as provided in (C) below, each Option and Unit Appreciation Right shall be
exercisable only by the Participant during the Participant’s lifetime, or by the person to whom
the Participant’s rights shall pass by will or the laws of descent and distribution.

          (B) Except as provided in (C) below, no Award and no right under any such Award may be
assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Participant otherwise than by will or by the laws of descent and distribution and any such
purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be
void and unenforceable against the Company, the Partnership or any Affiliate.

          (C) To the extent specifically provided by the Committee with respect to an Option or Unit
Appreciation Right Award Agreement, an Option or Unit Appreciation Right may be transferred by a
Participant without consideration to immediate family members or related family trusts, limited
partnerships or similar entities or on such terms and conditions as the Committee may from time
to time establish.

     (iii) Term of Awards. The term of each Award shall be for such period as may be determined
by the Committee.

     (iv) Issuance of Units. The Common Units or other securities of the Partnership purchased
or delivered under the Plan pursuant to any Award or the exercise thereof may be evidenced in
any manner deemed appropriate by the Committee in its sole discretion, including but not limited
to, in the form of a certificate issued in the name of the Participant or by book entry,
electronic or otherwise, and shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and
other requirements of the SEC, any stock exchange upon which such Common Units or other
securities are then listed, and any applicable federal or state laws, and the Committee may
cause a legend or legends to be put on any such certificates to make appropriate reference to
such restrictions.

     (v) Consideration for Grants. Awards may be granted for such consideration, including
services, as the Committee determines.

     (vi) Delivery of Units or other Securities and Payment by Participant of Consideration.
Notwithstanding anything in the Plan or any Award Agreement to the contrary, delivery of Common
Units pursuant to the exercise, vesting and/or settlement of an Award may be deferred for any
period during which, in the good faith determination of the Committee, the Company is not
reasonably able to obtain Common Units to deliver pursuant to such Award without violating
applicable law or the applicable rules or regulations of any governmental agency or authority or
securities exchange. Unless other arrangements have been made that are acceptable to the
Company, no Common Units or other securities shall be delivered pursuant to any Award until
payment in full of any amount required to be paid pursuant to the Plan or the applicable Award
Agreement (including, without limitation, any exercise price or tax withholding) is received by
the Company. Such payment may be made by such method or methods and in such form or forms as the
Committee shall determine, including without limitation cash, other Awards, withholding of
Common Units, cashless broker exercises with simultaneous sale, or any combination thereof;
provided that the combined value, as determined by the Committee, of all cash and cash
equivalents and the Fair Market Value of any such Common Units or other property so tendered to
the Company, as of the date of such tender, is at least equal to the full amount required to be
paid to the Company pursuant to the Plan or the applicable Award Agreement.

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     (vii) Change of Control. If specifically provided in an Award Agreement, upon a change of
control (as defined in the Award Agreement) the Award may automatically vest and/or be payable
or become exercisable in full, as the case may be.

     (viii) Substitute Awards. Awards may be granted under the Plan in substitution for similar
awards held by individuals who become employees as a result of a merger, consolidation or
acquisition by the Company or an Affiliate of another entity or the assets of another entity. To
the extent permitted by section 409A of the Code and the regulations thereunder, such substitute
Awards may have exercise prices less than the Fair Market Value of a Common Unit on the date of
such substitution.

     SECTION 7. Amendment and Termination.

Except to the extent prohibited by applicable law:

     (a) Amendments to the Plan. Except as otherwise required by the rules of the principal
securities exchange on which the Common Units are traded, by the Code or by the Exchange Act,
and subject to Section 7(b) below, the Board or the Committee may amend, alter, suspend,
discontinue, or terminate the Plan in any manner, including increasing the number of Common
Units available for Awards under the Plan, without the consent of any partner, Participant,
other holder or beneficiary of an Award, or any other Person.

     (b) Amendments to Awards. Subject to Section 7(a), the Committee may waive any conditions
or rights under, amend any terms of, or alter any Award theretofore granted (including without
limitation requiring or allowing for an election to settle an Award in cash), provided no
change, other than pursuant to Section 7(c), in any Award shall (i) materially reduce the rights
or benefits of a Participant with respect to an Award without the consent of such Participant or
(ii) cause the Plan or such Award to fail to comply with the requirements of section 409A of the
Code.

     (c) Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The
Committee is hereby authorized, upon the occurrence of unusual or nonrecurring events
(including, without limitation, the events described in Section 4(c) of the Plan) affecting the
Partnership or the financial statements of the Partnership, or of changes in applicable laws,
regulations, or accounting principles, without the consent of any Participant or holder of the
Award, in its sole discretion and on such terms and conditions as it deems appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits intended to be made
available under the Plan or an outstanding Award, to take one or more of the following actions:

     (i) provide for either (A) the cancellation and termination of any Award in exchange for
an amount of cash, other property, or securities, if any, equal to the amount that would have
been attained upon the exercise of such Award or realization of the Participant’s rights or if
Participant were a unitholder as of the date of the occurrence of such event (and, for the
avoidance of doubt, if as of the date of the occurrence of such transaction or event the
Committee determines in good faith that no amount would have been attained upon the exercise
of such Award or realization of the Participant’s rights, then such Award may be terminated by
the Company without payment) or (B) the replacement of such Award with or the conversion of
such Award into cash or other securities, rights or other property selected by the Committee
in its sole discretion;

     (ii) provide that such Award be assumed by the successor or survivor entity, or a parent
or subsidiary thereof, or be exchanged for similar options, rights or awards covering the
equity of the successor or survivor, or a parent or subsidiary thereof, or cash or other
property with appropriate adjustments as to the number and kind of equity interests or cash or
other property and prices, provided, however, in the discretion of the Committee, the vesting
schedule applicable to such Award may be retained;

     (iii) make adjustments in the number and type of Common Units (or other securities or
property) subject to outstanding Awards, and in the number and kind of outstanding Awards or
in the terms and conditions of (including the exercise price), and the vesting and performance
criteria included in, outstanding Awards, or both;

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     (iv) provide that such Award shall be exercisable and payable, notwithstanding anything
to the contrary in the Plan or the applicable Award Agreement;

     (v) provide that such Award shall be fully vested and/or nonforfeitable; and

     (vi) provide that the Award cannot be exercised or become payable after such event (i.e.,
shall terminate upon such event).

     Notwithstanding the foregoing, (i) no adjustment may be made that would cause the Plan or such
Award to fail to comply with the requirements of section 409A of the Code, and (ii) with respect to
an above event that is an “equity restructuring” event that would be subject to compensation
expense pursuant to FASB Accounting Standards Codification Topic 718, the provisions in Section
4(c) shall control to the extent they are in conflict with the discretionary provisions of this
Section 7.

     SECTION 8. General Provisions.

     (a) No Rights to Award. No Person shall have any claim to be granted any Award under the
Plan, and there is no obligation for uniformity of treatment of Participants. The terms and
conditions of Awards need not be the same with respect to each recipient.

     (b) Tax Withholding. Unless other arrangements have been made that are acceptable to the
Company, the Company or any Affiliate is authorized to withhold from any Award, from any payment
due or transfer made under any Award or from any compensation or other amount owing to a
Participant the amount (in cash, Common Units, other securities, Common Units that would otherwise
be issued pursuant to such Award or other property) of any applicable taxes payable in respect of
the grant or settlement of an Award, its exercise, the lapse of restrictions thereon, or any other
payment or transfer under an Award or under the Plan and to take such other action as may be
necessary in the opinion of the Company to satisfy its withholding obligations for the payment of
such taxes.

     (c) No Right to Employment or Services. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the Company or any Affiliate, to
continue consulting services or to remain on the Board, as applicable. Further, the Company or an
Affiliate may at any time dismiss a Participant from employment or consulting services, free from
any liability or any claim under the Plan, unless otherwise expressly provided in the Plan, any
Award Agreement or other agreement.

     (d) Governing Law. The validity, construction, and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in accordance with the laws of the State of
Delaware without regard to its conflict of laws principles.

     (e) Severability. If any provision of the Plan or any Award is or becomes or is deemed to be
invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would
disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended to conform to the applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person
or Award and the remainder of the Plan and any such Award shall remain in full force and effect.

     (f) Other Laws. The Committee may refuse to issue or transfer any Common Units or other
consideration under an Award if, in its sole discretion, it determines that the issuance or
transfer of such Common Units or such other consideration might violate any applicable law or
regulation, the rules of the principal securities exchange on which the Common Units are then
traded, or entitle the Partnership or an Affiliate to recover the same under Section 16(b) of the
Exchange Act, and any payment tendered to the Company by a Participant, other holder or beneficiary
in connection with the exercise of such Award shall be promptly refunded to the relevant
Participant, holder or beneficiary.

     (g) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to
create a trust or separate fund of any kind or a fiduciary relationship between the Company or any
participating Affiliate and a Participant or any other Person. To the extent that any Person
acquires a right to receive payments from the

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Company or any participating Affiliate pursuant to an Award, such right shall be no greater
than the right of any general unsecured creditor of the Company or any participating Affiliate.

     (h) No Fractional Units. No fractional Common Units shall be issued or delivered pursuant to
the Plan or any Award, and the Committee shall determine in its sole discretion whether cash, other
securities, or other property shall be paid or transferred in lieu of any fractional Common Units
or whether such fractional Common Units or any rights thereto shall be canceled, terminated, or
otherwise eliminated with or without consideration.

     (i) Headings. Headings are given to the Sections and subsections of the Plan solely as a
convenience to facilitate reference. Such headings shall not be deemed in any way material or
relevant to the construction or interpretation of the Plan or any provision thereof.

     (j) Facility Payment. Any amounts payable hereunder to any individual under legal disability
or who, in the judgment of the Committee, is unable to properly manage his financial affairs, may
be paid to the legal representative of such individual, or may be applied for the benefit of such
individual in any manner that the Committee may select, and the Company shall be relieved of any
further liability for payment of such amounts.

     (k) Participation by Affiliates. To the extent necessary so that an Award hereunder will not
constitute a “deferral of compensation” within the meaning of section 409A of the Code, any
compensation paid or provided pursuant to this Plan to compensate any Employee, Consultant or
Director will be paid or provided as compensation for such individual’s direct services to the
Partnership.

     (l) Gender and Number. Words in the masculine gender shall include the feminine gender, the
plural shall include the singular and the singular shall include the plural.

     (m) Compliance with Section 409A. Nothing in the Plan or any Award Agreement shall operate or
be construed to cause the Plan or an Award to fail to comply with the requirements of section 409A
of the Code. The applicable provisions of section 409A of the Code and the regulations thereunder
are hereby incorporated by reference into and shall control over any Plan or Award Agreement
provision in conflict therewith or that would cause a failure of compliance thereunder, to the
extent necessary to resolve such conflict or obviate such failure.

     (n) Deferrals. The Committee may, to the extent permitted by applicable law, permit
Participants to defer Awards under the Plan. Any such deferrals shall be subject to such terms,
conditions and procedures that the Committee may establish from time to time in its sole discretion
and consistent with the advance and subsequent deferral requirements of Code section 409A.

     SECTION 9. Term of the Plan.

     The Plan shall be effective on the date immediately preceding the close of the initial public
offering of Common Units and shall continue until the earliest of (i) the date terminated by the
Board or the Committee, or (ii) all available Common Units under the Plan have been paid to
Participants, whichever occurs first. However, unless otherwise expressly provided in the Plan or
in an applicable Award Agreement, any Award granted prior to such termination, and the authority of
the Board or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such
Award or to waive any conditions or rights under such Award, shall extend beyond such termination
date.

9exv10w4

Exhibit 10.4

, 2010

Grantee Name

Grantee Address

City, State Zip

     Re:     Grant of Phantom Units

Dear Grantee:

     I am pleased to inform you that you have been granted [No. of Units] Phantom Units as of the
above date pursuant to the Company’s 2010 Long-Term Incentive Plan (the “Plan”). In addition, in
tandem with each Phantom Unit you have been granted a distribution equivalent right (a “DER”). The
terms and conditions of this grant are as set forth below.

	 	1.	 	Subject to the further provisions of this Agreement, your Phantom Units shall
vest (become payable in the form of one Common Unit of PAA Natural Gas Storage, L.P.
for each Phantom Unit) as follows: (i) one-third shall vest upon the later to occur of
the May 2012 Distribution Date and the date on which the Partnership pays a quarterly
distribution of at least $0.3875, (ii) one-third shall vest upon the later to occur of
the May 2013 distribution date and the date the Partnership pays a quarterly
distribution of at least $0.450, and (iii) one-third shall vest upon the later to occur
of the May 2014 distribution date and the date the Partnership pays a quarterly
distribution of at least $0.475. Any remaining Phantom Units that are not vested by
the May 2015 Distribution Date, and any tandem DERs (regardless of vesting) associated
with such Phantom Units, shall expire on such date.
	 
	 	2.	 	Subject to the further provisions of this Agreement, your DERs shall vest
(become payable in cash) as follows: (i) 25% shall vest upon and effective with the
date on which the partnership pays a quarterly distribution of at least $0.370 per
unit, (ii) 25% shall vest upon and effective with the date on which the partnership
pays a quarterly distribution of at least $0.390 per unit, (iii) 25% shall vest upon
and effective with the date on which the partnership pays a quarterly distribution of
at least $0.440 per unit, and (iv) 25% shall vest upon and effective with the date on
which the partnership pays a quarterly distribution of at least $0.475.
	 
	 	3.	 	Your DERs shall not accrue payments prior to vesting.
	 
	 	4.	 	Any distribution level required for vesting under paragraphs 1 or 2 above shall
be proportionately reduced or increased for any split or reverse split, respectively,
of the Units, or any event or transaction having similar effect.

333
Clay Street, Suite 1500 n
Houston, Texas 77002 n 713/646-4100 or 800-564-3036

 

 

					
	 	 	 	 	 
	Grantee Name
	 	-2-
	 	Month Day, Year

	 	5.	 	Upon vesting of any Phantom Units, an equivalent number of DERs will expire.
Any such DERs that are vested prior to, or that would vest as of, the Distribution Date
on which the Phantom Units vest, shall be payable on such Distribution Date prior to
their expiration.
	 
	 	6.	 	In the event of the termination of your employment with the Company and its
Affiliates (other than in connection with a Change in Status or by reason of your death
or “disability,” as defined in paragraph 7 below), all of your then outstanding DERs
(regardless of vesting) and Phantom Units shall automatically be forfeited as of the
date of termination; provided, however, that if the Company or its Affiliates
terminate your employment other than a Termination for Cause: (i) any unvested Phantom
Units that have satisfied all vesting criteria as of the date of termination but for
the passage of time shall be deemed nonforfeitable on the date of termination, and
shall vest on the next following Distribution Date; (ii) any DERs associated with the
unvested, nonforfeitable Phantom Units described in clause (i) shall not be forfeited
on the date of termination, but shall be payable and shall expire in accordance with
paragraph 5 above; and (iii) any unvested Phantom Units that have satisfied none of the
vesting criteria as of the date of termination, and any tandem DERs (regardless of
vesting) associated with such Phantom Units, shall automatically be forfeited as of the
date of termination.
	 
	 	7.	 	In the event of termination of your employment with the Company and its
Affiliates by reason of your death or your “disability” (a physical or mental infirmity
that impairs your ability substantially to perform your duties for a period of eighteen
months or that the Company otherwise determines constitutes a “disability”), your then
outstanding Phantom Units and tandem DERs shall not be forfeited on such date, and (i)
such DERs shall vest in accordance with paragraph 2 above and expire in accordance with
paragraph 1 or paragraph 5 above, as applicable, and (ii) such Phantom Units shall
vest or expire in accordance with paragraph 1 above; provided, however, that such
vesting of Phantom Units shall occur either (x) on the date the Partnership pays the
quarterly distribution specified in clause (i), (ii) or (iii) of paragraph 1 (and in
the proportion indicated therein) without regard to any requirement for further passage
of time or (y) if the relevant quarterly distribution has been paid prior to the date
of termination, on the next following Distribution Date. As soon as administratively
practicable after the vesting of any Phantom Units pursuant to this paragraph 7,
payment will be made in cash in an amount equal to the Market Value of the number of
Phantom Units vesting.
	 
	 	8.	 	In the event of a Change of Status, all of your then outstanding Phantom Units
and tandem DERs shall be deemed 100% nonforfeitable on such date, and such Phantom
Units shall vest in full upon the next Distribution Date.
	 
	 	9.	 	Upon payment pursuant to a DER, you agree that the Company may withhold any
taxes due from your compensation as required by law. Upon vesting of a Phantom Unit,
you agree that the Company may withhold any taxes due from your

 

 

					
	 	 	 	 	 
	Grantee Name
	 	-3-
	 	Month Day, Year

	 	 	 	compensation as required by law, which (in the sole discretion of the Company) may
include withholding a number of Common Units otherwise payable to you.

     As used herein, the phrase “Distribution Date” means the day in February, May, August or
November in any year (as context dictates) that is 45 days after the end of the most recently
completed calendar quarter (or, if not a business day, the closest previous business day). “Market
Value” means the average of the closing sales prices for a Common Unit on the New York Stock
Exchange for the five trading days preceding the then most recent “ex dividend” date for payment of
a distribution by the Partnership.

     The phrase “Change in Status” means (A) the termination of your employment by the Company
other than a Termination for Cause, within two and a half months prior to or one year following a
Change of Control (the “Protected Period”), or (B) the termination of your employment by you due to
the occurrence during the Protected Period, without your written consent, of (i) any material
diminution in your authority, duties or responsibilities, (ii) any material reduction in your base
salary or (iii) any other action or inaction that constitutes a material breach of this agreement
by the Company. A termination by you shall not be a Change in Status unless (1) you provide
written notice to the Company of the condition in (B)(i),(ii) or (iii) that would constitute a
Change in Status within 90 days of the initial existence of the condition and (2) the Company fails
to remedy the condition within the 30-day period following such notice. As used herein, a
termination of the Employee’s employment means a “separation from service,” for purposes of Section
409A of the Internal Revenue Code of 1986, as amended (the “Code”).

     The phrase “Change of Control” means, and shall be deemed to have occurred upon the occurrence
of, one or more of the following events: (i) any transaction or other occurrence as a result of
which Plains All American Pipeline, L.P. retains neither direct nor indirect control of the Company
(or successor general partner of the Partnership, if applicable), (ii) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all or substantially all
of the assets of the Partnership or the Company to any Person and/or its Affiliates, other than to
the Partnership (or any of its subsidiaries), the Company or Plains All American Pipeline, L.P.,
including any employee benefit plan thereof; (iii) a consolidation, reorganization, merger or any
other similar transaction involving (a) a Person other than the Partnership (or any of its
subsidiaries), the Company, or Plains All American Pipeline, L.P. (or its Affiliates) and (b) the
Partnership, the Company or both, or (iv) any Person, including any partnership, limited
partnership, syndicate or other group deemed a “person” for purposes of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, as amended, becoming after the date hereof the beneficial
owner, directly or indirectly, of more than 49.9% of the membership interest in the Company.
Notwithstanding the foregoing, no Change of Control shall be deemed to have occurred in connection
with a restructuring or reorganization related to a securitization and sale to the public of direct
or indirect equity interests in the general partner interest of the Partnership if Plains All
American Pipeline, L.P. continues to have the power to elect, directly or indirectly, the majority
of the Board of Directors (or equivalent governing body) of the general partner of the Partnership.

 

 

					
	 	 	 	 	 
	Grantee Name
	 	-4-
	 	Month Day, Year

     The phrase “Termination for Cause” shall mean severance of your employment with the Company or
its Affiliates based on your (i) failure to perform your job function in accordance with standards
described to you in writing, or (ii) violation of the Company’s Code of Business Conduct (unless
waived in accordance with the terms thereof), in each case, with the specific failure or violation
described to you in writing.

     The “Company” refers to PNGS GP LLC. The “Partnership” refers to PAA Natural Gas Storage,
L.P.

     Terms used herein that are not defined herein shall have the meanings set forth in the Plan
or, if not defined in the Plan, in the Amended and Restated Agreement of Limited Partnership of PAA
Natural Gas Storage, L.P., as amended (the “Partnership Agreement”). By signing below, you agree
that the Phantom Units and DERs granted hereunder are governed by the terms of the Plan. Copies of
the Plan and the Partnership Agreement are available upon request.

     In order for this grant to be effective you must designate a beneficiary that will be entitled
to receive any benefits payable under this grant in the event of your death. Unless you indicate
otherwise by checking the appropriate box the named beneficiaries on this form will serve as your
beneficiaries for all previous LTIP grants. Please execute and return a copy of this grant letter
to me and retain a copy for your records.

	 	 	 	 	 
	 	PAA NATURAL GAS STORAGE, L.P.

By: PNGS GP LLC

 	 
	 	By:  	[PLAINS ALL AMERICAN GP LLC]
 	 
	 	 	(pursuant to Omnibus Agreement) 	 
	 	 	 	 
	 
	 	 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

Beneficiary Designation

	 	 	 	 	 
	Primary Beneficiary Name	 	Relationship	 	Percent (Must total 100%)
	 
	 	 	 	 

	 	 	 	 	 
	Secondary Beneficiary Name	 	Relationship	 	Percent (Must total 100%)
	 
	 	 	 	 

 

 

					
	 	 	 	 	 
	Grantee Name
	 	-5-
	 	Month Day, Year

o Check this box only if designation does not apply to prior grants

	 	 	 

	 
	 	 
	 

	 	 
	Grantee Name
	 	 
	 
	 	 
	No. of Units:
	 	 
	 

	 	 
	 
	 	 
	Dated:

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