Document:

exv10w2

 

Exhibit 10.2

Execution Copy

AMENDED AND RESTATED

ADMINISTRATIVE SERVICES AGREEMENT

AMONG

ENCORE ENERGY PARTNERS GP LLC,

ENCORE ENERGY PARTNERS LP,

ENCORE ENERGY PARTNERS OPERATING LLC,

ENCORE OPERATING, L.P.

AND

ENCORE ACQUISITION COMPANY

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	ARTICLE I DEFINITIONS	 	 	1	 
	 
	 	 	 	 	 	 
	Section 1.1

	 	Definitions
	 	 	1	 
	Section 1.2

	 	Construction
	 	 	4	 
	 
	 	 	 	 	 	 
	ARTICLE II RETENTION OF ENCORE OPERATING; SCOPE OF SERVICES	 	 	5	 
	 
	 	 	 	 	 	 
	Section 2.1

	 	Retention of Encore Operating
	 	 	5	 
	Section 2.2

	 	Scope of Services
	 	 	5	 
	Section 2.3

	 	Exclusion of Services
	 	 	5	 
	Section 2.4

	 	Performance of Services by Affiliates and Third Parties
	 	 	5	 
	Section 2.5

	 	Intellectual Property
	 	 	5	 
	Section 2.6

	 	Appointment of Independent Accounting Firm and Independent Petroleum Engineer
	 	 	6	 
	 
	 	 	 	 	 	 
	ARTICLE III BOOKS, RECORDS AND REPORTING	 	 	6	 
	 
	 	 	 	 	 	 
	Section 3.1

	 	Books and Records
	 	 	6	 
	Section 3.2

	 	Audits
	 	 	6	 
	Section 3.3

	 	Reports
	 	 	6	 
	 
	 	 	 	 	 	 
	ARTICLE IV PAYMENT AMOUNT	 	 	6	 
	 
	 	 	 	 	 	 
	Section 4.1

	 	Payment Amount
	 	 	6	 
	Section 4.2

	 	Payment of Payment Amount
	 	 	7	 
	Section 4.3

	 	Disputed Charges
	 	 	7	 
	Section 4.4

	 	Set Off
	 	 	8	 
	Section 4.5

	 	Encore Operating’s Employees
	 	 	8	 
	Section 4.6

	 	Approval of Expenses
	 	 	8	 
	Section 4.7

	 	Tax Reimbursement
	 	 	8	 
	 
	 	 	 	 	 	 
	ARTICLE V FORCE MAJEURE	 	 	9	 
	 
	 	 	 	 	 	 
	ARTICLE VI ASSIGNMENTS AND SUBCONTRACTS	 	 	9	 
	 
	 	 	 	 	 	 
	Section 6.1

	 	Assignments
	 	 	9	 
	Section 6.2

	 	Other Requirements
	 	 	9	 
	 
	 	 	 	 	 	 
	ARTICLE VII TERMINATION	 	 	10	 
	 
	 	 	 	 	 	 
	Section 7.1

	 	Termination by the Partnership on behalf of the Partnership Group
	 	 	10	 
	Section 7.2

	 	Termination by Encore Operating
	 	 	10	 
	Section 7.3

	 	Effect of Termination
	 	 	11	 
	 
	 	 	 	 	 	 
	ARTICLE VIII CONFIDENTIAL INFORMATION	 	 	11	 
	 
	 	 	 	 	 	 
	Section 8.1

	 	Nondisclosure
	 	 	11	 
	Section 8.2

	 	Permitted Disclosure
	 	 	11	 

i

 

	 	 	 	 	 	 	 
	ARTICLE IX LIMITATION OF LIABILITY; INDEMNIFICATION	 	 	11	 
	 
	 	 	 	 	 	 
	Section 9.1

	 	Limitation of Encore Operating’s Liability
	 	 	11	 
	Section 9.2

	 	Partnership’s Indemnity
	 	 	12	 
	Section 9.3

	 	Limitation of Damages
	 	 	12	 
	Section 9.4

	 	Affiliate; Third Parties
	 	 	12	 
	 
	 	 	 	 	 	 
	ARTICLE X DISPUTE RESOLUTION	 	 	12	 
	 
	 	 	 	 	 	 
	ARTICLE XI GENERAL PROVISIONS	 	 	13	 
	 
	 	 	 	 	 	 
	Section 11.1

	 	Notices
	 	 	13	 
	Section 11.2

	 	Further Action
	 	 	13	 
	Section 11.3

	 	Binding Effect
	 	 	13	 
	Section 11.4

	 	Integration
	 	 	14	 
	Section 11.5

	 	Creditors
	 	 	14	 
	Section 11.6

	 	Waiver
	 	 	14	 
	Section 11.7

	 	Counterparts
	 	 	14	 
	Section 11.8

	 	Applicable Law
	 	 	14	 
	Section 11.9

	 	Invalidity of Provisions
	 	 	14	 
	Section 11.10

	 	Amendment or Restatement
	 	 	14	 
	Section 11.11

	 	Directly or Indirectly
	 	 	14	 
	Section 11.12

	 	Power of Attorney
	 	 	14	 

ii

 

AMENDED AND RESTATED

ADMINISTRATIVE SERVICES AGREEMENT

     THIS AMENDED AND RESTATED ADMINISTRATIVE SERVICES AGREEMENT is entered into on September 17,
2007, and effective as of March 7, 2007 (the “Effective Date”), among Encore Energy Partners GP
LLC, a Delaware limited liability company (the “General Partner”), Encore Energy Partners LP, a
Delaware limited partnership (the “Partnership”), Encore Energy Partners Operating LLC, a Delaware
limited liability company (the “Operating Company”), Encore Operating, L.P., a Texas limited
partnership (“Encore Operating”), and Encore Acquisition Company, a Delaware corporation (“EAC” and
collectively with the General Partner, the Partnership, the Operating Company and Encore Operating,
the “Parties” and each, a “Party”), and amends and restates in its entirety the Administrative
Services Agreement dated as of March 7, 2007.

RECITALS

     A. The Partnership is the owner, directly or indirectly, of interests in the Business (as
hereinafter defined);

     B. The Partnership Group (as hereinafter defined) requires certain services to operate the
Business and to fulfill other general and administrative functions relating to the Business; and

     C. The Partnership Group desires that Encore Operating provide such services, and Encore
Operating is willing to undertake such engagement, subject to the terms and conditions of this
Agreement;

     NOW, THEREFORE, the General Partner, the Partnership, the Operating Company and Encore
Operating agree as follows:

ARTICLE I

DEFINITIONS

     Section 1.1 Definitions. The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.

     “Administrative Fee” is defined in Section 4.1.

     “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.

     “Agreement” means this Amended and Restated Administrative Services Agreement, as it may be
amended, supplemented or restated from time to time.

 

 

     “Bankrupt” with respect to any Person means such Person shall generally be unable to pay its
debts as such debts become due, or shall so admit in writing or shall make a general assignment for
the benefit of creditors; or any proceeding shall be instituted by or against such Person seeking
to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver, trustee, or other similar official for it or
for any substantial part of its property and, in the case of any such proceeding instituted against
it (but not instituted by it), shall remain undismissed or unstayed for a period of 30 days; or
such Person shall take any action to authorize any of the actions set forth above.

     “BOE” means one barrel of oil equivalent, calculated by converting natural gas to oil
equivalent barrels at a ratio of six thousand cubic feet of natural gas to one stock tank barrel,
or 42 U.S. gallons liquid volume, of oil.

     “Business” means the business of the Partnership Group.

     “Confidential Information” means non-public information about the disclosing Party’s or any of
its Affiliates’ business or activities that is proprietary and confidential, which shall include,
without limitation, all business, financial, technical and other information, including software
(source and object code) and programming code, of a Party or its Affiliates marked or designated
“confidential” or “proprietary” or by its nature or the circumstances surrounding its disclosure it
should reasonably be regarded as confidential. Confidential Information includes not only written
or other tangible information, but also information transferred orally, visually, electronically or
by any other means. Confidential Information does not include information that (i) is in or enters
the public domain without breach of this Agreement, or (ii) the receiving Party lawfully receives
from a third party without restriction on disclosure and to the receiving Party’s knowledge without
breach of a nondisclosure obligation.

     “COPAS” means the Council of Petroleum Accountants Societies.

     “Damages” is defined in Section 9.1.

     “Default Rate” means an interest rate (which shall in no event be higher than the rate
permitted by applicable law) equal to the prime interest rate of the Operating Company’s principal
lender.

     “EAC” is defined in the introductory paragraph.

     “Effective Date” is defined in the introductory paragraph.

     “Encore Group” means EAC and is Affiliates (other than any member of the Partnership Group).

     “Encore Operating” is defined in the introductory paragraph.

     “Encore Operating Party” is defined in Section 9.1.

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     “Environmental Law” means current local, county, state, federal, and/or foreign law (including
common law), statute, code, ordinance, rule, order, judgment, decree, regulation or other legal
obligation relating to the protection of health, safety or the environment or natural resources,
including, without limitation, the Comprehensive Environmental Response Compensation and Liability
Act (42 U.S.C. section 9601 et seq.), as amended, the Resource Conservation and Recovery Act (42
U.S.C. section 6901 et seq.), as amended, the Federal Water Pollution Control Act (33 U.S.C.
section 1251 et seq.), as amended, the Clean Air Act (42 U.S.C. section 7401 et seq.), as amended,
the Toxic Substances Control Act (15 U.S.C. section 2601 et seq.), as amended, the Occupational
Safety and Health Act (29 U.S.C. section 651 et seq.), as amended, the Safe Drinking Water Act (42
U.S.C. section 300(f) et seq.), as amended, analogous state, tribal or local laws, and any similar,
implementing or successor law, and any amendment, rule, regulation, or directive issued thereunder,
including any determination by, or interpretation of any of the foregoing by any Governmental
Authority that has the force of law.

     “Force Majeure” means any cause beyond the reasonable control of a Party, including the
following causes (unless they are within such Party’s reasonable control): acts of God, strikes,
lockouts, acts of the public enemy, wars or warlike action (whether actual or impending), arrests
and other restraints of government (civil or military), blockades, embargoes, insurrections, riots,
epidemics, landslides, lightning, earthquakes, fires, sabotage, tornadoes, named tropical storms
and hurricanes, floods, civil disturbances, terrorism, mechanical breakdown of machinery or
equipment, explosions, confiscation or seizure by any government or other public authority and any
order of any court of competent jurisdiction, regulatory agency or governmental body having
jurisdiction.

     “G&A Services” means those general and administrative services necessary or useful for the
conduct of the business of the Partnership Group, including, but not limited to, accounting,
corporate development, finance, land, marketing, legal and engineering.

     “General Partner” is defined in the introductory paragraph.

     “Governmental Approval” means any material consent, authorization, certificate, permit,
right-of-way grant or approval of any Governmental Authority that is necessary for the
construction, ownership and operation of the Business in accordance with applicable Laws.

     “Governmental Authority” means any court or tribunal in any jurisdiction or any federal,
state, tribal, municipal or local government or other governmental body, agency, authority,
department, commission, board, bureau, instrumentality, arbitrator or arbitral body or any
quasi-governmental or private body lawfully exercising any regulatory or taxing authority.

     “Laws” means any applicable statute, Environmental Law, common law, rule, regulation,
judgment, order, ordinance, writ, injunction or decree issued or promulgated by any Governmental
Authority.

     “Operating Company” is defined in the introductory paragraph.

     “Parties” is defined in the introductory paragraph.

     “Partnership” is defined in the introductory paragraph.

3

 

     “Partnership Agreement” means the Second Amended and Restated Agreement of Limited Partnership
of the Partnership, as may be amended or restated from time to time.

     “Partnership Group” means the General Partner, the Partnership, the Operating Company and all
of their respective Subsidiaries.

     “Partnership Group Party” is defined in Section 9.1.

     “Payment Amount” is defined in Section 4.1.

     “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.

     “Services” is defined in Section 2.2.

     “Subsidiary” means, with respect to any Person, (a) a corporation of which more than 50% of
the voting power of shares entitled (without regard to the occurrence of any contingency) to vote
in the election of directors or other governing body of such corporation is owned, directly or
indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such
Person or a combination thereof, (b) a partnership (whether general or limited) in which such
Person or a Subsidiary of such Person is, at the date of determination, a general or limited
partner of such partnership, but only if more than 50% of the partnership interests of such
partnership (considering all of the partnership interests of the partnership as a single class) is
owned, directly or indirectly, at the date of determination, by such Person, by one or more
Subsidiaries of such Person, or a combination thereof, or (c) any other Person (other than a
corporation or a partnership) in which such Person, one or more Subsidiaries of such Person, or a
combination thereof, directly or indirectly, at the date of determination, has (i) at least a
majority ownership interest or (ii) the power to elect or direct the election of a majority of the
directors or other governing body of such Person.

Other terms defined herein have the meanings so given them.

      Section 1.2 Construction.

     Unless the context requires otherwise: (a) any pronoun used in this Agreement shall include
the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and
verbs shall include the plural and vice versa; (b) references to Articles and Sections refer to
Articles and Sections of this Agreement; (c) references to Exhibits refer to the Exhibits attached
to this Agreement, each of which is made a part hereof for all purposes; (d) the terms “include”,
“includes”, “including” and words of like import shall be deemed to be followed by the words
“without limitation”; (e) the terms “hereof,” “herein” and “hereunder” refer to this Agreement as a
whole and not to any particular provision of this Agreement; and (f) references to money refer to
legal currency of the United States of America. The table of contents and headings contained in
this Agreement are for reference purposes only, and shall not affect in any way the meaning or
interpretation of this Agreement.

4

 

ARTICLE II

RETENTION OF ENCORE OPERATING; SCOPE OF SERVICES

     Section 2.1 Retention of Encore Operating. The Partnership hereby engages Encore Operating to
perform the Services, as directed by the General Partner, and to provide all personnel and any
facilities, goods and equipment not otherwise provided by the Partnership Group necessary to
perform the Services. Encore Operating hereby accepts such engagement and agrees to perform the
Services requested by the General Partner and to provide any personnel, facilities, goods and
equipment not otherwise provided by the Partnership Group, and to provide all employees as may be
reasonable and necessary to perform the Services.

     Section 2.2 Scope of Services. The “Services” shall consist of such services the General Partner
determines may be reasonable and necessary to operate the Business, including, without limitation,
any G&A Services and those services described on Schedule I hereto. Encore Operating hereby
covenants and agrees that the Services will be performed in accordance with (i) applicable material
Governmental Approvals and Laws and (ii) industry standards.

     Section 2.3 Exclusion of Services. The General Partner may temporarily or permanently exclude any
particular service from the scope of the Services upon 90 days’ notice to Encore Operating.

     Section 2.4 Performance of Services by Affiliates and Third Parties. The Parties hereby agree that
in discharging its obligations hereunder, Encore Operating may engage any of its Affiliates or any
qualified third party to perform the Services (or any part of the Services) on its behalf and that
the performance of the Services (or any part of the Services) by any such Affiliate or third party
shall be treated as if Encore Operating performed such Services itself. Notwithstanding the
foregoing, nothing contained herein shall relieve Encore Operating of its obligations hereunder.

     Section 2.5 Intellectual Property.

     (a) Any (i) inventions, whether patentable or not, developed or invented, or (ii)
copyrightable material (and the intangible rights of copyright therein) developed, by Encore
Operating, its Affiliates or its or their employees in connection with the performance of
the Services shall be the property of Encore Operating; provided, however, that the
Partnership Group shall be granted an irrevocable, royalty-free, non-exclusive and
non-transferable right and license to use such inventions or material; and further provided,
however, that the Partnership Group shall only be granted such a right and license to the
extent such grant does not conflict with, or result in a breach, default,
or violation of a right or license to use such inventions or material granted to Encore
Operating by any Person other than an Affiliate of Encore Operating. Notwithstanding the
foregoing, Encore Operating will use all commercially reasonable efforts to grant such right
and license to the Partnership Group.

     (b) The General Partner, the Partnership and the Operating Company hereby grant to
Encore Operating and its Affiliates an irrevocable, royalty-free, non-exclusive

5

 

and non-transferable right and license to use, during the term of this Agreement, any
intellectual property provided by the Partnership Group to Encore Operating or its
Affiliates, but only to the extent such use is necessary for the performance of the
Services. Encore Operating agrees that it and its Affiliates will utilize such intellectual
property solely in connection with the performance of the Services.

     Section 2.6 Appointment of Independent Accounting Firm and Independent Petroleum Engineer.
Notwithstanding anything to the contrary in this Agreement, the Parties hereby acknowledge and
agree that the General Partner shall have the exclusive authority to appoint an independent
registered public accounting firm to audit the financial statements of the Partnership and an
independent petroleum engineer to provide reports to the Partnership relating to estimates of
proved reserves for Securities and Exchange Commission and other reporting purposes.

ARTICLE III

BOOKS, RECORDS AND REPORTING

     Section 3.1 Books and Records. Encore Operating shall maintain accurate books and records
regarding the performance of the Services and its calculation of the Payment Amount, and shall
maintain such books and records for the period required by applicable accounting practices or Law.

     Section 3.2 Audits. The Partnership shall have the right, upon reasonable notice, and at all
reasonable times during usual business hours, to audit, examine and make copies of the books and
records referred to in Section 3.1. Such right may be exercised through any agent or employee of
the Partnership Group designated in writing by it or by an independent public accountant, engineer,
attorney or other agent so designated. The Partnership shall bear all costs and expenses incurred
in any inspection, examination or audit. Encore Operating shall review and respond in a timely
manner to any claims or inquiries made by the Partnership regarding matters revealed by any such
inspection, examination or audit.

     Section 3.3 Reports. Encore Operating shall prepare and deliver to the Partnership any reports
provided for in this Agreement and such other reports as the Partnership may reasonably request
from time to time regarding the performance of the Services.

ARTICLE IV

PAYMENT AMOUNT

     Section 4.1 Payment Amount.

     (a) The Partnership shall on a quarterly basis (i) pay Encore Operating a fixed fee of
$1.75 per BOE of the Partnership Group’s total net oil and gas production for the then
completed quarter (the “Administrative Fee”) and (ii) reimburse Encore Operating for all
third-party expenses that Encore Operating incurs on behalf of the Partnership Group
(collectively with the Administrative Fee, the “Payment Amount”). In addition to the
Payment Amount, Encore Operating shall be entitled to retain any COPAS overhead charges
associated with drilling and operating wells that would otherwise be paid by third

6

 

parties to the operator of a well. For the avoidance of doubt, the Partnership will pay all
expenses that are directly chargeable to wells under their respective joint operating
agreements.

     (b) The Administrative Fee shall increase in the following circumstances:

     (i) Beginning on the first day of April in each year beginning with April 1,
2008, the Administrative Fee shall increase by an amount equal to the product of the
then-current Administrative Fee multiplied by COPAS Wage Index Adjustment for the
current year.

     (ii) If the Partnership or any other member of the Partnership Group acquires
additional assets, then Encore Operating may propose a revised Administrative Fee
that covers the provision of Services for such additional assets. If the General
Partner, on behalf of the Partnership Group and with the concurrence of the
conflicts committee of the board of directors of the General Partner, agrees to such
revised Administrative Fee, Encore Operating shall provide Services for the
additional assets pursuant to the terms set forth herein.

     (iii) If the Partnership and Encore Operating otherwise agree to increase the
Administrative Fee; provided, however, that any such increase shall be approved by
the board of directors of the General Partner with the concurrence of the conflicts
committee of such board.

     Section 4.2 Payment of Payment Amount. Encore Operating shall invoice the Partnership within 25
days after the close of each quarter for the estimated Payment Amount, plus or minus any adjustment
necessary to correct prior estimated billings to actual billings. Subject to Section 4.3, all
invoices shall be due and payable, in immediately available funds, within thirty days after receipt
of each invoice. Upon the request of the Partnership, Encore Operating shall furnish a reasonable
detail of the Services provided and charges assessed during any quarter.

     Section 4.3 Disputed Charges. THE PARTNERSHIP MAY, WITHIN 120 DAYS AFTER RECEIPT OF A CHARGE FROM
ENCORE OPERATING, TAKE WRITTEN EXCEPTION TO SUCH CHARGE, ON THE GROUND THAT THE SAME WAS NOT A
CORRECT CALCULATION OF THE ADMINISTRATIVE FEE AND/OR A REASONABLE COST INCURRED BY ENCORE OPERATING
OR ITS AFFILIATES IN CONNECTION WITH THE SERVICES. THE PARTNERSHIP SHALL NEVERTHELESS PAY ENCORE
OPERATING IN FULL WHEN DUE THE FULL PAYMENT AMOUNT OWED TO ENCORE OPERATING. SUCH PAYMENT SHALL
NOT BE DEEMED A WAIVER OF THE RIGHT OF THE PARTNERSHIP TO RECOUP ANY CONTESTED PORTION OF ANY
AMOUNT SO PAID. HOWEVER, IF THE AMOUNT AS TO WHICH SUCH WRITTEN EXCEPTION IS TAKEN, OR ANY PART
THEREOF, IS ULTIMATELY DETERMINED NOT TO BE A CORRECT CALCULATION OF THE ADMINISTRATIVE FEE AND/OR
A REASONABLE COST INCURRED BY ENCORE OPERATING OR ITS AFFILIATES IN CONNECTION WITH ITS PROVIDING
THE SERVICES HEREUNDER, SUCH AMOUNT OR PORTION THEREOF (AS THE CASE MAY BE) SHALL BE REFUNDED BY
ENCORE

7

 

OPERATING TO THE PARTNERSHIP TOGETHER WITH INTEREST THEREON AT THE DEFAULT RATE DURING THE
PERIOD FROM THE DATE OF PAYMENT BY THE PARTNERSHIP TO THE DATE OF REFUND BY ENCORE OPERATING.

     Section 4.4 Set Off. In the event that Encore Operating owes the Partnership a sum certain in an
uncontested amount under any other agreement, then any such amounts may be aggregated and the
Partnership and Encore Operating may discharge their obligations by netting those amounts against
any amounts owed by the Partnership to Encore Operating under this Agreement. If the Partnership or
Encore Operating owes the other party a greater aggregate amount, that Party may pay to the other
Party the difference between the amounts owed.

     Section 4.5 Encore Operating’s Employees. The obligations under Sections 4.1 and 4.2, to the
extent they relate to Services provided by employees of Encore Operating or its Affiliates, shall
be limited to payment to Encore Operating for expenses in connection with its or its Affiliates’
employees engaged in the provision of Services hereunder, and the Partnership shall not be
obligated to pay to Encore Operating’s or its Affiliates’ employees directly any compensation,
salaries, wages, bonuses, benefits, social security taxes, workers’ compensation insurance,
retirement and insurance benefits, training and other such expenses; provided, however, that the
Partnership may, at its option, compensate such employees under one or more equity-based incentive
compensation plans for the provision of Services hereunder; and provided further, however, that if
Encore Operating fails to pay any employee, with the exception of employee claims for amounts owed
that Encore Operating disputes in good faith, within 30 days of the date such employee’s payment is
due:

     (a) The Partnership may (i) pay such employee directly, (ii) employ such employee
directly, (iii) notify Encore Operating and begin to pay all employees providing
service to the Partnership directly, or (iv) notify Encore Operating that this
Agreement is terminated and employ all employees directly; and

     (b) Encore Operating shall reimburse the Partnership, as the case may be, the amount
the Partnership paid to Encore Operating for employee services that Encore Operating did not
pay to any such employee.

     Section 4.6 Approval of Expenses. Encore Operating acknowledges that all charges for Services
assessed by Encore Operating and included in the Payment Amount must be approved by the persons
authorized to approve such Payment Amount pursuant to the Partnership’s governance and
delegation-of-authority process. Additionally, Encore Operating acknowledges that the Audit
Committee of the Board of Directors of the General Partner, or if there is no Audit Committee, the
entire Board of Directors of the General Partner, may at any time review the Payment Amounts and
the levels of Services and, as a result, may direct the Partnership to decrease the level of
Services or to dispute a prior invoice pursuant to Section 4.3. In addition to the information
Encore Operating is obligated to provide pursuant to Section 4.2, Encore Operating shall provide
such other information as reasonably necessary to determine the veracity or appropriateness of any
Payment Amount hereunder.

     Section 4.7 Tax Reimbursement. The Partnership shall reimburse EAC for any additional state
income, franchise or similar tax paid by EAC resulting from EAC’s inclusion of

8

 

one or more members of the Partnership Group with EAC in a combined state income, franchise or similar tax report.
With respect to any such combined state income, franchise or other tax report, the amount of the
Partnership’s reimbursement to EAC shall be equal to the tax that those Partnership Group members
included with EAC on such tax report would have paid had such Partnership Group members not been
included on such report. Any reimbursement payment required under this provision will be due
within 45 days after EAC makes the tax payment giving rise to such reimbursement.

ARTICLE V

FORCE MAJEURE

     A Party’s obligation under this Agreement shall be excused when and to the extent its
performance of that obligation is prevented due to Force Majeure; provided, however, that a Party
shall not be excused by Force Majeure from any obligation to pay money. The Party that is prevented
from performing its obligation by reason of Force Majeure shall promptly notify the other Parties
of that fact and shall exercise due diligence to end its inability to perform as promptly as
practicable. Notwithstanding the foregoing, a Party is not required to settle any strike, lockout
or other labor dispute in which it may be involved; provided, however, that, in the event of a
strike, lockout or other labor dispute affecting Encore Operating, Encore Operating shall use
reasonable efforts to continue to perform all obligations hereunder by utilizing its management
personnel and that of its Affiliates.

ARTICLE VI

ASSIGNMENTS AND SUBCONTRACTS

      Section 6.1 Assignments.

     (a) Without the prior consent of Encore Operating, none of the Partnership or the other
members or the Partnership Group may sell, assign, transfer or convey any of its rights, or
delegate any of its obligations, under this Agreement to any Person.

     (b) Without the prior consent of the Partnership, Encore Operating may not sell,
assign, transfer or convey any of its rights, or delegate any of its obligations, under this
Agreement to any Person, other than the delegation of performance of Services to an
Affiliate of Encore Operating or a qualified third party as permitted by Section 2.4 and the
sale, assignment, transfer or conveyance of its rights hereunder to any such Affiliate.

     Section 6.2 Other Requirements. Subject to the other provisions hereof:

     (a) All materials and workmanship used or provided in performing the Services shall be
in accordance with applicable specifications and standards.

     (b) Encore Operating shall exercise reasonable diligence to obtain the most favorable
terms or warranties available from vendors, suppliers and other third parties, and where
appropriate, Encore Operating shall assign such warranties to the Partnership.

9

 

     (c) In rendering the Services, Encore Operating shall not discriminate against any
employee or applicant for employment because of race, creed, color, religion, sex, national
origin, age or handicap, and shall comply with all applicable provisions of Executive Order
11246 of September 24, 1965, and any successor order thereto. Subject to the above, Encore
Operating shall, to the extent practicable, engage employees who reside in or whose
businesses are located in the local area or state where the Services are performed.

     (d) Encore Operating agrees to exercise reasonable diligence to ensure that, during the
term of this Agreement, it shall not employ unauthorized aliens as defined in the
Immigration Reform and Control Act of 1986, or any successor law.

ARTICLE VII

TERMINATION

      Section 7.1 Termination by the Partnership on behalf of the Partnership Group.

     (a) Upon the occurrence of any of the following events, the Partnership, on behalf of
the Partnership Group, may terminate this Agreement by giving written notice of such
termination to Encore Operating:

     (i) EAC and its Affiliates cease to maintain a direct or indirect controlling
interest in the General Partner or Encore Operating; or

     (ii) Encore Operating’s failure to pay any employee within thirty (30) days of
the date such employee’s payment is due, subject to the limitations described in
Section 4.5.

Any termination under this Section 7.1(a) shall become effective immediately upon delivery
of the notice first described in this Section 7.1(a), or such later time (not to exceed the
first anniversary of the delivery of such notice) as may be specified by the Partnership.

     (b) In addition to its rights under Section 7.1(a), the Partnership may terminate this
Agreement at any time by giving notice of such termination to Encore Operating. Any
termination under this Section 7.1(b) shall become effective 90 days after delivery of such
notice, or such later time (not to exceed the first anniversary of the delivery of such
notice) as may be specified by the Partnership.

     (c) In the event that Encore Operating becomes Bankrupt or dissolves and commences
liquidation or winding-up, this Agreement shall automatically terminate without notice to
Encore Operating.

     Section 7.2 Termination by Encore Operating.

     (a) Encore Operating may terminate this Agreement by giving written notice of such
termination to the Partnership in the event that EAC and its Affiliates cease to

10

 

maintain a direct or indirect controlling interest in the General Partner or Encore Operating.

Any termination under this Section 7.2(a) shall become effective immediately upon delivery
of the notice first described in this Section 7.2(a).

     (b) In addition to its rights under Section 7.2(a), Encore Operating may terminate this
Agreement at any time by giving notice of such termination to the Partnership. Any
termination under this Section 7.2(b) shall become effective 90 days after delivery of such
notice, or such later time (not to exceed the first anniversary of the delivery of such
notice) as may be specified by Encore Operating.

     Section 7.3 Effect of Termination. If this Agreement is terminated in accordance with Section 7.1
or 7.2, all rights and obligations under this Agreement shall cease except for (a) obligations that
expressly survive termination of this Agreement; (b) liabilities and obligations that have accrued prior to such termination,
including the obligation to pay any amounts that have become due and payable prior to such
termination, and (c) the obligation to pay any portion of the Payment Amount that has accrued prior
to such termination, even if such portion has not become due and payable at that time.

ARTICLE VIII

CONFIDENTIAL INFORMATION

     Section 8.1 Nondisclosure. Each of Encore Operating and the Partnership Group agrees that (i) it
will not disclose to any third party or use any Confidential Information disclosed to it by the
other except as expressly permitted in this Agreement, and (ii) it will take all reasonable
measures to maintain the confidentiality of all Confidential Information of the other Party in its
possession or control, which will in no event be less than the measures it uses to maintain the
confidentiality of its own information of similar type and importance.

     Section 8.2 Permitted Disclosure. Notwithstanding the foregoing, each Party may disclose
Confidential Information (i) to the extent required by a court of competent jurisdiction or other
governmental authority or otherwise as required by law, including without limitation disclosure
obligations imposed under the federal securities laws, provided that such Party has given the other
Party prior notice of such requirement when legally permissible to permit the other Party to take
such legal action to prevent the disclosure as it deems reasonable, appropriate or necessary, or
(ii) to its consultants, legal counsel, Affiliates, accountants, banks and other financing sources
and their advisors.

ARTICLE IX

LIMITATION OF LIABILITY; INDEMNIFICATION

     Section 9.1 Limitation of Encore Operating’s Liability. Neither Encore Operating nor any of its
controlling persons, directors, officers, employees, agents and permitted assigns (each, an “Encore
Operating Party”) shall have any liability to the Partnership Group for any losses, damages
(including, but not limited to, special, indirect, punitive and/or consequential damages),

11

 

claims, injury, liability, cost or expense (“Damages”) arising out of this Agreement, whether such Damages
arise on account of the furnishing of Services hereunder, the failure to furnish Services
hereunder, or otherwise, and whether or not such Damages were caused by the negligence of the
Encore Operating Party, including the Encore Operating Party’s sole negligence; provided, however,
that the foregoing limitation shall not apply to Damages caused by the Encore Operating Party’s
gross negligence or willful, intentional misconduct.

     Section 9.2 Partnership’s Indemnity. The Partnership agrees to indemnify, defend and hold harmless each Encore Operating Party from
and against any and all Damages arising out of this Agreement, whether such Damages arise on
account of the furnishing of Services hereunder, the failure to furnish Services hereunder, or
otherwise, and whether or not such Damages were caused by the negligence of any Encore Operating
Party, including the Encore Operating Party’s sole negligence; provided, however, that the
foregoing limitation shall not apply to Damages caused by the Encore Operating Party’s gross
negligence or willful, intentional misconduct.

     Section 9.3 Limitation of Damages. If the Partnership Group suffers Damages arising out of this
Agreement, which Damages were caused by the gross negligence or willful, intentional misconduct of
Encore Operating, Encore Operating’s sole liability to the Partnership Group shall be to properly
perform the Services in question at no additional cost to the Partnership Group and to pay the
Partnership Group for any and all direct damages suffered by the Partnership Group.
Notwithstanding anything to the contrary contained herein or at Law and in equity, in no event
shall Encore Operating be liable for punitive, special, indirect, incidental or consequential
damages (including, without limitation, damages for loss of business profits, business interruption
or any other loss) arising from or relating to any claim made under this Agreement or regarding the
provision of or the failure to provide Services, even if Encore Operating had been advised or was
aware of the possibility of such damages.

     Section 9.4 Affiliate; Third Parties. If Encore Operating uses the personnel of its Affiliates or
third parties to provide Services, Encore Operating shall be responsible for the acts and omissions
of such personnel and third parties to the extent provided in this Agreement, and no Affiliate of
Encore Operating or third party shall have any liability to the Partnership Group on account of any
Damages suffered by the Partnership Group arising out of this Agreement, whether or not such
Damages were caused by their negligence and/or gross negligence, including their sole negligence
and/or sole gross negligence, or their willful, intentional misconduct.

ARTICLE X

DISPUTE RESOLUTION

     If the Parties are unable to resolve any dispute regarding the validity or terms of this
Agreement or its termination, service or performance issues, there is a material breach of this
Agreement that has not been corrected within thirty (30) days of receipt of notice of such breach
or any other dispute between the parties related to this Agreement, either party hereto may refer
the matter to an arbitrator selected in accordance with the rules of JAMS in Tarrant County, Texas
as the exclusive remedy for any such dispute, and in lieu of any court action, which is hereby
waived. The only exception shall be a claim by either Party for injunctive relief pending
arbitration.

12

 

ARTICLE XI

GENERAL PROVISIONS

     Section 11.1 Notices. All notices or other communications required or permitted under, or
otherwise in connection with, this Agreement must be in writing and must be given by (1) depositing
same in the mail, addressed to the Person to be notified, postpaid and registered or certified with
return receipt requested, (2) transmitting by national overnight courier, (3) delivery in person or
(4) facsimile to such Party. Notice given by mail, national overnight courier or personal delivery
shall be effective upon actual receipt. Notice given by facsimile shall be effective upon
confirmation of a successful transmission. All notices to be sent to a Party pursuant to this
Agreement shall be sent to or made at the address, in each case as follows:

if to the General Partner or the Partnership:

Encore Energy Partners GP LLC

777 Main Street, Suite 1400

Fort Worth, TX 76102

Attention: President

Fax: (817) 877-1655

if to the Operating Company:

Encore Energy Partners Operating LLC

777 Main Street, Suite 1400

Fort Worth, TX 76102

Attention: President

Fax: (817) 877-1655

if to Encore Operating:

EAP Operating, Inc., its general partner

777 Main Street, Suite 1400

Fort Worth, TX 76102

Attention: President

Fax: (817) 877-1655

     Section 11.2 Further Action. The Parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or appropriate to achieve
the purposes of this Agreement.

     Section 11.3 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the
Parties hereto and their heirs, executors, administrators, successors, legal representatives and
permitted assigns.

13

 

     Section 11.4 Integration. This Agreement constitutes the entire Agreement among the Parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements and understandings
pertaining thereto.

     Section 11.5 Creditors. None of the provisions of this Agreement shall be for the benefit of, or
shall be enforceable by, any creditor of the Partnership.

     Section 11.6 Waiver. No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy
consequent upon a breach thereof shall constitute waiver of any such breach of any other covenant,
duty, agreement or condition.

     Section 11.7 Counterparts. This Agreement may be executed in counterparts, all of which together
shall constitute an agreement binding on all the Parties hereto, notwithstanding that all such
Parties are not signatories to the original or the same counterpart. Each Party shall become bound
by this Agreement immediately upon affixing its signature hereto.

     Section 11.8 Applicable Law. This Agreement shall be construed in accordance with and governed by
the laws of the State of Texas, without regard to the principles of conflicts of law.

     Section 11.9 Invalidity of Provisions. If any provision of this Agreement is or becomes invalid,
illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not be affected thereby.

     Section 11.10 Amendment or Restatement. This Agreement may be amended or restated only by a
written instrument executed by each of the Parties; provided, however, that after the completion of
the Partnership’s initial public offering of common units representing limited partner interests,
the Partnership may not, without the prior approval of the conflicts committee of the board of
directors of the General Partner or, if there is no such committee, the independent members of such
board of directors, agree to any amendment or modification of this Agreement that the General
Partner determines will adversely affect the holders of such common units. The Parties hereto
agree that, for purposes of this Section 11.10, any material change in the nature, quantity or
duration of the Services to be provided under this Agreement shall constitute a modification of
this Agreement.

     Section 11.11 Directly or Indirectly. Where any provision of this Agreement refers to action to be taken by any Party, or which such
Party is prohibited from taking, such provision shall be applicable whether such action is taken
directly or indirectly by such Party, including actions taken by or on behalf of any Affiliate of
such Party.

     Section 11.12 Power of Attorney. EAC hereby appoints Encore Operating to act on its behalf under
this Agreement.

14

 

     IN WITNESS WHEREOF, the Parties have executed this Agreement on, and effective as of, the
Effective Date.

	 	 	 	 	 
	 	ENCORE ENERGY PARTNERS GP LLC

 	 
	 	By:  	/s/ Robert C. Reeves
 	 
	 	 	Name:  	Robert C. Reeves 	 
	 	 	Title:  	Senior Vice President, Chief Financial Officer
and Treasurer 	 
	 

	 	 	 	 	 
	 	ENCORE ENERGY PARTNERS LP

 	 
	 	By:  	Encore Energy Partners GP LLC, its General Partner
 	 
	 	 	 
	 	By:  	                           /s/ Robert C. Reeves
 	 
	 	 	Name:  	Robert C. Reeves 	 
	 	 	Title:  	Senior Vice President, Chief Financial

Officer and Treasurer 	 
	 

	 	 	 	 	 
	 	ENCORE ENERGY PARTNERS OPERATING LLC

 	 
	 	By:  	/s/ Robert C. Reeves
 	 
	 	 	Name:  	Robert C. Reeves 	 
	 	 	Title:  	Vice President, Chief Financial Officer,

Treasurer and Secretary 	 
	 

	 	 	 	 	 
	 	ENCORE OPERATING, L.P.

 	 
	 	By:  	EAP Operating, Inc., its General Partner
 	 
	 	 	 
	 	By:  	               /s/ Robert C. Reeves
 	 
	 	 	Name:  	Robert C. Reeves 	 
	 	 	Title:  	Senior Vice President, Chief Financial Officer
and Treasurer 	 
	 

	 	 	 	 	 
	 	ENCORE ACQUISITION COMPANY

 	 
	 	By:  	/s/ Robert C. Reeves
 	 
	 	 	Name:  	Robert C. Reeves 	 
	 	 	Title:  	Senior Vice President, Chief Financial Officer
and Treasurer 	 

15

 

	 	 	 	 	 

SCHEDULE I

SERVICES PROVIDED BY ENCORE OPERATING

TO THE PARTNERSHIP GROUP

	1.	 	Accounting
	 
	2.	 	Information Technology
	 
	3.	 	Real Property
	 
	4.	 	Legal
	 
	5.	 	Securities and Exchange Commission Reporting
	 
	6.	 	Operations/Reservoir Engineering/Geology/Geophysics
	 
	7.	 	Administrative Services
	 
	8.	 	Financial Services
	 
	9.	 	Insurance Services
	 
	10.	 	Risk Management
	 
	11.	 	Corporate Development
	 
	12.	 	Commercial and Marketing
	 
	13.	 	Treasury
	 
	14.	 	Tax
	 
	15.	 	Audit
	 
	16.	 	Sarbanes-Oxley Compliance
	 
	17.	 	Investor Relations

I-1exv10w3

 

Exhibit 10.3

ENCORE ENERGY PARTNERS GP LLC

LONG-TERM INCENTIVE PLAN

1. Purpose of the Plan.

     The Encore Energy Partners GP LLC Long-Term Incentive Plan (the “Plan”) has been adopted by
Encore Energy Partners GP LLC, a Delaware limited liability company (the “Company”), the general
partner of Encore Energy Partners LP, a Delaware limited partnership (the “Partnership”), and is
intended to promote the interests of the Partnership and the Company and their Affiliates (as
defined below) by providing to employees, consultants, and directors of the Company and its
Affiliates who perform services for or on behalf of the Partnership and its subsidiaries incentive
compensation awards for superior performance that are based on Units (as defined below). The Plan
is also contemplated to enhance the ability of the Company and its Affiliates to attract and retain
the services of individuals who are essential for the growth and profitability of the Partnership
and its subsidiaries and to encourage them to devote their best efforts to advancing the business
of the Partnership and its subsidiaries.

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 Unit, Restricted Unit, Phantom Unit, Option, Unit Appreciation Right or
DER granted under the Plan.

     “Award Agreement” means the written agreement or other instrument by which an Award
shall be evidenced.

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

     “Change of Control” means, and shall be deemed to have occurred upon the occurrence of
one or more of the following events: (i) any Person or group, other than Encore Acquisition
Company (“Parent”) or its Affiliates, becomes the beneficial owner, by way of merger,
consolidation, recapitalization, reorganization or otherwise, of 50% or more of the combined
voting power of the equity interests in the Company or the Partnership, (ii) the limited
partners of the Partnership approve, in one or a series of transactions, a plan of complete
liquidation of the Partnership, (iii) the sale or other disposition by either the Company or the Partnership of all or substantially all of its
assets in one or more transactions to any person other than the Company or an Affiliate of the

 

 

Company, (iv) a transaction resulting in a Person other than the Company or one of its
Affiliates being the general partner of the Partnership, (v) a transaction resulting in the
general partner of the Partnership ceasing to be an Affiliate of Parent, or (vi) a “Change
in Control” as defined in Parent’s 2000 Incentive Stock Plan, as such plan may be amended,
supplemented or restated from time to time.

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

     “Committee” means the Audit and Conflicts Committee of the Board or, if none, the Board
or such committee of the Board, if any, as may be appointed by the Board to administer the
Plan.

     “Consultant” means an individual, other than an Employee or a Director, providing bona
fide services to the Partnership or any of its subsidiaries as a consultant or advisor, as
applicable, provided that such individual is a natural person.

     “DER” or “Distribution Equivalent Right” means a right to receive an amount in cash or
additional Awards equal to the cash distributions made by the Partnership with respect to a
Unit during a specified period.

     “Director” means a member of the Board who is not an Employee.

     “Employee” means any employee of the Company or an Affiliate who performs services for
the Partnership or its Affiliates.

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

     “Fair Market Value” of a Unit means the closing sales price of a Unit on the principal
national securities exchange or other market in which trading in Units occurs on the
applicable date (or if there is no trading in the Units on such date, on the next preceding
date on which there was trading) as reported in The Wall Street Journal (or other reporting
service approved by the Committee). In the event Units are not traded on a national
securities exchange or other market 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. Notwithstanding the foregoing, with respect to an Award granted on
the effective date of the initial public offering of Units, Fair Market Value on such date
shall mean the initial offering price per Unit as stated on the cover page of the prospectus
which is part of the registration statement on Form S-1 for such offering.

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

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

     “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.

-2-

 

     “Phantom Unit” means a phantom (notional) Unit granted under the Plan which entitles
the Participant to receive, in the discretion of the Committee, a Unit or an amount of cash
equal to the Fair Market Value of a Unit.

     “Restricted Period” means the period established by the Committee with respect to an
Award during which the Award remains nontransferable and subject to forfeiture or is either
not exercisable by or payable to the Participant, as the case may be.

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

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

     “UAR” of “Unit Appreciation Right” means an Award that, upon exercise, entitles the
holder to receive, in cash or Units in the discretion of the Committee, the excess of the
Fair Market Value of a Unit on the exercise date over the exercise price established for
such Unit Appreciation Right.

     “Unit” means a common unit of the Partnership.

3. Administration.

     (a) General. The Plan shall be administered by the Committee. 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 Units to be covered by Awards; (iv) determine the terms and conditions of
any Award (including but not limited to performance requirements for such Award); (v) determine
whether, to what extent, and under what circumstances Awards may be settled, 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; and
(viii) 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, in its discretion, provide for the
extension of the exercisability of an Award, accelerate the vesting or exercisability of an Award,
eliminate or make less restrictive any restrictions applicable to an Award, waive any restriction
or other provision of this Plan or an Award or otherwise amend or modify an Award in any manner
that is either (i) not adverse to the Participant to whom such Award was granted or (ii) consented
to by such Participant. 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. No member of the Committee or officer of the
Company to whom the Committee has delegated authority in accordance with the provisions of Section 3(b) of this
Plan shall be liable for anything done or omitted to be done by him or her, by any member of the

-3-

 

Committee or by any officer of the Company in connection with the performance of any duties under
this Plan, except for his or her own willful misconduct or as expressly provided by statute.

     (b) Delegation. Following the authorization of a pool of Units to be available for Awards, the
Board or the Committee may authorize a committee of one or more members of the Board to grant
individual Awards from such pool pursuant to such conditions or limitations as the Board or the
Committee may establish. The Committee may delegate to the Chief Executive Officer and to other
employees of the Company its administrative duties under this Plan (excluding its granting
authority) pursuant to such conditions or limitations as the Committee may establish. The Committee
may engage or authorize the engagement of a third party administrator to carry out administrative
functions under the Plan.

4. Units.

     (a) Limits on Units Deliverable. Subject to adjustment as provided in Section 4(c), the
maximum number of Units that may be delivered or reserved for delivery or underlying Awards in the
aggregate issued under the Plan is                     . If any Award expires, is canceled, exercised, paid
or otherwise terminates without the delivery of Units, then the Units covered by such Award, to the
extent of such expiration, cancellation, exercise, payment or termination, shall again be Units
with respect to which Awards may be granted. Units that are delivered by a Participant in
satisfaction of the exercise or other purchase price of an Award or the tax withholding obligations
associated with an Award or are withheld to satisfy the Company’s tax withholding obligations are
available for delivery pursuant to other Awards. The Committee may from time to time adopt and
observe such rules and procedures concerning the counting of Units against the Plan maximum or any
sublimit as it may deem appropriate, including rules more restrictive than those set forth above to
the extent necessary to satisfy the requirements of any national stock exchange on which the Units
are listed or any applicable regulatory requirement. The Board and the appropriate officers of the
Company are authorized to take from time to time whatever actions are necessary, and to file any
required documents with governmental authorities, stock exchanges and transaction reporting systems
to ensure that Units are available for issuance pursuant to Awards.

     (b) Sources of Units Deliverable Under Awards. Any Units delivered pursuant to an Award shall
consist, in whole or in part, of Units acquired in the open market, common units already owned by
the Company, common units acquired by the Company directly from the Partnership or any other person
or any combination of the foregoing.

     (c) Adjustments. In the event that any distribution (whether in the form of cash, Units, other
securities, or other property), recapitalization, split, reverse split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of Units or other
securities of the Partnership, issuance of warrants or other rights to purchase Units or other
securities of the Partnership, or other similar transaction or event affects the Units, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and
type of Units (or other securities or property) with respect to which Awards may be granted, (ii)
the number and type of Units (or other securities or property) subject to outstanding Awards,
and (iii) the grant or exercise price with respect to any Award or, make provision for a cash

-4-

 

payment to the holder of an outstanding Award; provided, that the number of Units subject to any
Award shall always be a whole number.

5. Eligibility.

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

6. Awards.

     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.

     (a) Units. The Committee shall have the discretion to determine the Employees, Consultants and
Directors to whom Units shall be granted and the number of Units to be granted. All Units granted
shall be fully vested upon grant and shall not be subject to forfeiture.

     (b) Restricted Units. The Committee shall have the authority to determine the Employees,
Consultants and Directors to whom Restricted Units shall be granted, the number of Restricted Units
to be granted to each such Participant, the Restricted Period, the conditions under which the
Restricted Units may become vested or forfeited, and such other terms and conditions as the
Committee may establish with respect to such Awards. To the extent provided by the Committee, in
its discretion, a grant of Restricted Units may provide that distributions made by the Partnership
with respect to the Restricted Units shall be subject to the 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 accumulated distributions being paid or
forfeited at the same time, as the case may be. Absent such a restriction on the distributions in
the Award Agreement, distributions during the Restricted Period shall be paid to the holder of the
Restricted Unit without restriction.

     (c) Phantom Units. The Committee shall have the authority to determine the Employees,
Consultants and Directors to whom Phantom Units shall be granted, the number of Phantom Units to be
granted to each such Participant, the Restricted Period, the time or conditions under which the
Phantom Units may become vested or forfeited, which may include, without limitation, the
accelerated vesting upon the achievement of specified performance goals, and such other terms and
conditions as the Committee may establish with respect to such Awards, including whether DERs are
granted with respect to such Phantom Units.

     (d) Options. The Committee shall have the authority to determine the Employees, Consultants
and Directors to whom Options shall be granted, the number of Units to be covered by each Option,
whether DERs are granted with respect to such Option, the purchase price therefor and the
conditions and limitations applicable to the exercise of the Option as the Committee shall
determine, that are not inconsistent with the provisions of the Plan. The term of an Option may not exceed 10 years. The purchase price per Unit purchasable under an Option

-5-

 

shall be determined by the Committee at the time the Option is granted, provided such purchase
price may not be less than 100% of its Fair Market Value as of the date of grant. The Committee
shall determine the time or times at which an Option may be exercised in whole or in part, which
may include, without limitation, accelerated vesting upon the achievement of specified performance
goals, and the method or methods by which payment of the exercise price with respect thereto may be
made or deemed to have been made, which may include, without limitation, cash, check acceptable to
the Company, a broker-assisted cashless exercise through procedures approved by the Committee,
delivery of previously owned Units having a Fair Market Value on the exercise date equal to the
relevant exercise, or any combination thereof.

     (e) 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 Units to be covered by each grant and the conditions and limitations applicable to the exercise
of the Unit Appreciation Right as the Committee shall determine, that are not inconsistent with the
provisions of the Plan. The exercise price per Unit Appreciation Right shall be not less than 100%
of its Fair Market Value as of the date of grant. The term of a Unit Appreciation Right may not
exceed 10 years.

     (f) Distribution Equivalent Rights. The Committee shall have the authority to determine the
Employees, Consultants and Directors to whom DERs are granted, whether such DERs are tandem or
separate Awards, whether the DERs shall be paid directly to the Participant, be credited to a
bookkeeping account (with or without interest in the discretion of the Committee) the vesting
restrictions and payment provisions applicable to the Award, and such other provisions or
restrictions as determined by the Committee in its discretion all of which shall be specified in
the Award Agreements.

7. Limits on Transfer of Awards.

     Each Award shall be exercisable or payable only to the Participant during the Participant’s
lifetime, or to the person to whom the Participant’s rights shall pass by will or the laws of
descent and distribution. No Award and no right under any such Award may be assigned, alienated,
pledged, attached, sold or otherwise transferred or encumbered by a Participant and any such
purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void
and unenforceable against the Company or any Affiliate. Notwithstanding the foregoing, to the
extent specifically provided by the Committee with respect to an Award, an Award 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.

8. Securities Restrictions.

     (a) All certificates for Units or other securities of the Partnership delivered under the Plan
pursuant to any Award or the exercise thereof 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 Units or other securities are
then listed, and any applicable federal or state laws, and the Committee may

-6-

 

cause a legend or legends to be put on any such certificates to make appropriate reference to
such restrictions.

     (b) Notwithstanding anything in the Plan or any Award Agreement to the contrary, delivery of
Units pursuant to the exercise or vesting 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
Units to deliver pursuant to such Award without violating the rules or regulations of any
applicable law or securities exchange. No 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.

9. Change of Control.

     Unless specifically provided otherwise in the Award Agreement, upon a Change of Control or
such time prior thereto as established by the Committee, all outstanding Awards shall automatically
vest or become exercisable in full, as the case may be. In this regard, all Restricted Periods
shall terminate.

     Except as otherwise provided in the Award Agreement, the difference between the Fair Market
Value of Units on the payment date and the exercise price of an Option or UAR that is or becomes
fully vested and exercisable as of the date of a Change of Control (or any earlier date related to
the Change of Control and established by the Committee) shall be paid in a single payment in Units,
or cash and/or other property, or any combination of Units and cash and/or other property, as
determined by the Committee. Except as otherwise provided in the Award Agreement, any Award of
Phantom Units or Restricted Units that pursuant to this Section 9 are deemed to have the applicable
Restriction Period lapse (and to have all applicable performance criteria achieved at the maximum
level, if any) as of the date of a Change of Control (or any earlier date related to the Change of
Control and established by the Committee), shall be settled by (i) issuance of unrestricted Units
based on the number of Units that were subject to the Award on the date of grant of the Award or
(ii) payment of cash and/or other property equal to the Fair Market Value of a Unit on the payout
date for each Phantom Unit or Restricted Unit or (iii) any combination of payouts under clauses (i)
and (ii) of this sentence, as determined by the Committee. Any accelerated payout pursuant to this
Section 9 shall be made in a single payment within 30 days after the date of the Change of Control.

     To the extent an Option or UAR is not vested or exercisable, or a Phantom Unit or Restricted
Unit does not vest, pursuant to the preceding provisions of this Section 9 or the Award Agreement
upon the Change of Control, the Committee may, in its discretion, cancel such Award or provide for
an assumption of such Award or a replacement grant on substantially the same terms; provided,
however, upon any cancellation of an Option or UAR that has an exercise price less than the Fair
Market Value of a Unit as of the date of cancellation or a Phantom Unit or Restricted Unit, the
holder shall be paid an amount in Units or cash and/or other property or any combination of cash
and/or other property, as determined by the Committee, equal to the difference between the Fair
Market Value of a Unit and the exercise price if an Option or UAR or equal to the Fair Market Value
of a Unit, if a Phantom Unit or Restricted Unit.

-7-

 

10. Amendment and Termination.

     Except as required by applicable law or the rules of the principal securities exchange on
which the Units are traded, the Board may amend, alter, suspend, discontinue, or terminate the Plan
in any manner, including increasing the number of Units available for Awards under the Plan,
without the consent of any Participant, any other holder or beneficiary of an Award or any other
Person.

11. 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. 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, Units, other securities, or other property) of any
applicable taxes payable at the minimum statutory rate in respect of the grant of an Award, its
exercise, the lapse of restrictions thereon, or any 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 as an Employee, Consultant or Director, as applicable.
Further, the Company or an Affiliate may at any time dismiss a Participant from employment or
service at any time.

     (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 Units or other consideration
under an Award if, in its sole discretion, it determines that the issuance or transfer of such
Units or such other consideration might violate any applicable law or regulation, the rules of the
principal securities exchange on which the 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.

-8-

 

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

     (h) No Fractional Units. No fractional Units shall be issued or delivered pursuant to the Plan
or any Award, and the Committee shall determine whether cash, other securities, or other property
shall be paid or transferred in lieu of any fractional Units or whether such fractional Units or
any rights thereto shall be canceled, terminated, or otherwise eliminated.

     (i) Facility of Payment. Any amounts payable hereunder to any person 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 person, or may be applied for the benefit of such person
in any manner which the Committee may select, and the Partnership, Company and its Affiliates shall
be relieved of any further liability for payment of such amounts.

     (k) Participation by Affiliates. In making Awards to Employees employed by an Affiliate of the
Company, the Committee shall be acting on behalf of the Affiliate, and to the extent the
Partnership has an obligation to reimburse the Affiliate for compensation paid to Employees for
services rendered for the benefit of the Partnership, such payments or reimbursement payments may
be made by the Partnership directly to the Affiliate, and, if made to the Company, shall be
received by the Company as agent for the Affiliate.

     (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) No Guarantee of Tax Consequences. None of the Board, the Partnership, the Company, any
Affiliate nor the Committee makes any commitment or guarantee that any federal, state or local tax
treatment will apply or be available to any person participating or eligible to participate
hereunder.

12. Term of the Plan.

     The Plan has been approved by the limited partners of the Partnership and shall become
effective on the later of the date of its approval by the Board or the initial public offering of
Units and shall terminate on, and no Awards may be granted after, the earliest of the date
established by the Board or the Committee, the 10th anniversary of the date the Plan was approved
by the limited partners of the Partnership (or such earlier anniversary, if any, required by the
rules of the exchange on which Units are traded) or the date Units are no longer available for
delivery pursuant to Awards under the Plan. 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 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.

-9-

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