Document:

2004 Annual Incentive Program Summary

Exhibit 10.1

2006 Annual Incentive Program Summary

Magellan's 2006 annual incentive program has been established to motivate individual activities that will improve the overall performance of the company.  Metrics have been identified and targets set in several performance categories, including financial, operational, environmental and safety categories.  In addition, a funding metric has been established that sets a floor of performance for the partnership below which no payout for any metric will be made.  This mechanism reflects the view of management that it is inappropriate to pay bonuses if the overall cash generation of Magellan drops very significantly for any reason.   

The 2006 program payout will be based on a combination of:

	Partnership performance

	Individual performance

Threshold, target and stretch levels of achievement have been set for each metric.  Payouts under the plan begin after the threshold level of performance is achieved. Target payout occurs when results reach targeted performance expectations and the maximum payout occurs if results reach the stretch targets.  

Payouts at the target performance level are based on a percentage of employee eligible earnings. Eligible earnings include regular base pay and eligible overtime pay for the period in which an employee is a participant in the program, including, but not limited to, hours worked during a normal workday, paid time off, short term disability, holiday pay, jury duty pay, bereavement pay and shift differentials.

If target performance is achieved, 100% of the calculated payout is eligible to be paid under the program.  If stretch performance is achieved, 200% of the calculated payout is eligible to be paid.   The calculated payout percentage for performance between threshold and target, or between target and stretch, will be prorated. 

Fifty percent (50%) of the calculated payout is subject to a personal performance adjustment.  The personal performance adjustment applied to that 50% of the calculated payment can range from 0% of that 50% to 200% of that 50%.

Eligible employees begin participating in the program on the first day of employment in the program year. To be eligible to receive an award, an employee must be employed during the program year including the last day of the program year and through the time the award is actually paid. Exceptions to this requirement will be made where a participant's employment is terminated as a result of retirement or death, or the participant becomes eligible for long-term disability after the first day of the program year but before the award is paid. Such employees will be eligible for a prorated award based on the portion of the year worked prior to the employment termination event. A participant whose employment is terminated anytime prior to the distribution of the award under any other circumstances is not eligible for an award.[PARTICIPANT]

Exhibit 10.2

FORM OF

2006 PHANTOM UNIT AGREEMENT

THIS PHANTOM UNIT AGREEMENT (this "Agreement") is by and between Magellan GP, LLC (the "Company") and the individual identified on the last page hereof (the "Participant").

1.Grant of Phantom Units.  The Company hereby grants to the Participant effective January 3, 2006 (the "Effective Date"), subject to the terms and conditions of the Magellan Midstream Partners Long-Term Incentive Plan, as amended and restated (the "Plan") and this Agreement, the right to be eligible to receive a target grant of ____ Phantom Units of Magellan Midstream Partners, L.P. (the "Partnership").  The number of Units received at the end of the Restricted Period will be determined based on Performance Criteria (as defined herein), employment status at that time and any other relevant provisions of the Plan. These Units are referred to in this Agreement as "Phantom Units" during the Restricted Period.  Until the Phantom Units vest and are paid, the Participant shall have no rights as a unitholder of the Partnership with respect to the Phantom Units.

2.Incorporation of Plan.  The Plan is hereby incorporated herein by reference and all capitalized terms used herein but not defined herein shall have the meaning set forth in the Plan.  The Participant acknowledges receipt of a copy of the Plan and hereby accepts the Phantom Units subject to all the terms and provisions of the Plan.

3.Compensation Committee of the Board Decisions and Interpretations.  The Participant hereby agrees to accept as binding, conclusive and final all decisions and interpretations of the Compensation Committee of the Board (the "Committee") of the Company upon any questions arising under the Plan and this Agreement.

4.Restricted Period of Phantom Units.  The Restricted Period begins with the Effective Date and ends with the first of the following events:
December 31, 2008, provided the Participant is employed by the Company or its Affiliates at such time, and performance relative to the metrics described below meets the requirements for a payout; or

Your termination of Affiliation (excluding any transfer to an Affiliate of the Company) with the Company, voluntarily for Good Reason, or involuntarily (other than due to Cause) within two years following a Change of Control as set forth in the Plan.

5.Payment of Phantom Units.   To be eligible to receive payment of the Phantom Units at the end of the Restricted Period, the Participant must be employed by the Company or its Affiliates at the end of the Restricted Period, or must have terminated employment during the Restricted Period due to Retirement, death, or Disability.  Subject to legal or contractual obligations, the Company will deliver to the Participant, or the Participant's legal representative, as soon as practicable after the final Determination of Payout Levels by the Committee, the value of the Phantom Units equal in value to the number of Phantom Units less the number of Phantom Units required to cover minimum tax withholding requirements. The number of Phantom Units required to cover minimum tax withholding will be based on the closing price of the Units at the end of the Restricted Period. 

6.Termination of Employment Due to Retirement, Death or Disability.  In the event a Participant's employment with the Company and its Affiliates terminates prior to the end of the Restricted Period due to Retirement, death or Disability, the initial Target Grant will be prorated based upon the Participant's months of employment between January 1, 2005 and December 31, 2007.  Such prorated amount will continue to be restricted and subject to the terms of this Agreement until the end of the Restricted Period.  All units in excess of the prorated amount shall be forfeited.  

7.Performance Criteria.  
Performance Metrics

Threshold  Target Stretch

       2008 Distributable Cash Flow per Unit(1)$X.XX$X.XX$X.XX

 

(1) Pro forma cash flow reflecting the full year impact of any payout projects completed and becoming operational during 2008.

8.Determination of Payout Level.
a.The number of Units awarded will be determined based on performance relative to Performance Metrics as follows:

Below ThresholdNo payout

Target Achieved100% of units are paid out

Stretch Achieved200% of units paid out

The payout for results between threshold, target and stretch will be interpolated. 

b.The number of Units awarded will be subject to an increase or reduction of up to 20% based upon personal performance.

9.Other Provisions.
a.The Participant understands and agrees that payments under this Agreement shall not be used for, or in the determination of, any other payment or benefit under any continuing agreement, plan, policy, practice or arrangement providing for the making of any payment or the provision of any benefits to or for the Participant or the Participant's beneficiaries or representatives, including, without limitation, any employment agreement, any change of control severance protection plan or any employee benefit plan as defined in Section 3(3) of ERISA, including, but not limited to qualified and non-qualified retirement plans.

b.Except as otherwise provided herein, and in the Plan documents, in the event that the Participant's employment with the Company and its Affiliates terminates prior to the vesting of the Phantom Units granted under this Agreement, such Phantom Units shall be forfeited. 

c.The Participant acknowledges that this award and similar awards are made on a selective basis and are, therefore, to be kept confidential.

d.Neither the Phantom Units, nor the Participant's interest in the Phantom Units, may be sold, assigned, transferred, pledged or otherwise disposed of or encumbered at any time prior to the vesting and payment of such Phantom Units under this Agreement.

e.If the Participant at any time forfeits any or all of the Phantom Units pursuant to this Agreement, the Participant agrees that all of the Participant's rights to and interest in the Phantom Units shall terminate upon forfeiture without payment of consideration.

f.The Committee shall make determination as to whether an event has occurred resulting in the forfeiture of the Phantom Units, in accordance with this Agreement, and all determinations of the Committee shall be final and conclusive.

g.With respect to the right to receive payment of the Phantom Units under this Agreement, nothing contained herein shall give the Participant any rights that are greater than those of a general creditor of the Company.

10.Notices.  All notices to the Company required hereunder shall be in writing and delivered by hand or by mail, addressed to Magellan Midstream Partners, L.P., One Williams Center, Mail Drop 28-4, Tulsa, Oklahoma 74172, Attention: Compensation Department.  Notices shall become effective upon their receipt by the Company if delivered in the forgoing manner.
Magellan GP, LLC

 

 

By:____________________________

Don R. Wellendorf

President and Chief Executive Officer

Magellan GP, LLC

 

 

Participant:

I acknowledge receipt of a copy of the Plan and hereby accept the terms and conditions of this Phantom Unit Agreement:

 

________________________________________                                                                

 

Dated this            day of                              , 2006.

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