Document:

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Exhibit 10.4

EL PASO PIPELINE GP COMPANY, L.L.C.

LONG-TERM INCENTIVE PLAN

1. Purpose of the Plan.

     The El Paso Pipeline GP Company, L.L.C. Long-Term Incentive Plan (the “Plan”) has been
adopted by El Paso Pipeline GP Company, L.L.C., a Delaware limited liability company (the
“Company”), the general partner of El Paso Pipeline Partners, L.P., a Delaware limited
partnership (the “Partnership”), and is intended to promote the interests of the
Partnership by providing to employees, consultants, and directors of the Company and employees and
consultants of 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. 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 an Option, Unit Grant, Restricted Unit, Phantom Unit or Unit Appreciation
Right granted under the Plan, and shall include tandem DERs granted with respect to an
Option, Phantom Unit or Unit Appreciation Right.

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

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

     “Change in 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 El Paso Corporation
(“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 2005 Omnibus Incentive Compensation Plan, as such plan may be amended,
supplemented or restated from time to time.

     Except as otherwise provided in an Award, solely with respect to any Award that
provides deferred compensation that is subject to Section 409A of the Code and payment of
such Award is contingent upon the occurrence of a Change of Control, the above definition
shall be void and of no effect and is hereby replaced by the definition of such term set
forth in regulations issued under Section 409A of the Code by the appropriate governmental
authority, which definition set forth in regulations issued under Section 409A of the Code
is hereby incorporated by reference into and shall form part of this Plan as fully as if set
forth herein verbatim and the Plan insofar as it relates to such Award shall be operated in
accordance with this modified definition of Change of Control.

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

     “Committee” means the Board or such committee of the Board 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 (i) such individual is a natural person, and (ii) the grant of an
Award to such Person could not reasonably be expected to result in adverse federal income
tax consequences under Section 409A of the Code; provided that for purposes of issuing
Options or Unit Appreciation Rights, “subsidiary” means any entity in a chain of entities in
which the Partnership has a “controlling interest” within the meaning of Treas. Reg. Section
1.414(c)-2(b)(2)(i), but using the threshold of 50 percent ownership wherever 80 percent
appears.

     “DER” or “Distribution Equivalent Right” means a contingent right, granted in tandem
with a specific Option, Unit Appreciation Right or Phantom Unit, to receive an amount in
cash equal to the cash distributions made by the Partnership with respect to a Unit during
the period such tandem Award is outstanding.

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

     “Disability” means either (i) an inability of the Participant to engage in any
substantial gainful activity by reason of any medically determinable physical mental
impairment that can be expected to result in death or can be expected to last for a
continuous period of not less than 12 months or (ii) the receipt of income replacements by
the Participant, by reason of any medically determinable physical or mental impairment that
can be expected to result in death or can be expected to last for a continuous period of not
less than 12 months, for a period of not less than 3 months under the Company’s accident and
health plan.

     “Employee” means any employee of the Company or an Affiliate who performs services for
the Partnership or its subsidiaries; provided that for purposes of issuing Options or Unit
Appreciation Rights, “subsidiary” means any entity in a chain of entities

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in which the Partnership has a “controlling interest” within the meaning of Treas. Reg.
Section 1.414(c)-2(b)(2)(i), but using the threshold of 50 percent ownership wherever 80
percent appears.

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

     “Fair Market Value” means the closing sales price of a Unit 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 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 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.

     “Phantom Unit” means a phantom (notional) Unit granted under the Plan which upon
vesting entitles the Participant to receive a Unit or an amount of cash equal to the Fair
Market Value of a Unit. Whether cash or Units are received for Phantom Units shall be
determined in the sole discretion of the Committee and shall be set forth in the Award
Agreement.

     “Restricted Period” means the period established by the Committee with respect to an
Award during which the Award remains 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.

     “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.

     “UAR” of “Unit Appreciation Right” means an Award that, upon exercise, entitles the
holder to receive the excess of the Fair Market Value of a 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 Units as determined in the sole discretion of the Committee and set forth in
the Award Agreement.

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

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     “Unit” means a common unit of the Partnership.

     “Unit Grant” means and Award of an unrestricted Unit.

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 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. 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.

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 any Award
with respect to the Plan is 1,250,000. 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 cease to be subject to an Award because of
the exercise of the Award, or the vesting of Restricted Units or similar Awards, shall no longer be
subject to or available for any further grant under this Plan. Notwithstanding the foregoing,
there shall not be any limitation on the number of Awards that may be granted under the Plan and
paid in cash.

     (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, from any Affiliate, the
Partnership or any other Person, or any combination of the foregoing as determined by the Committee
in its sole discretion.

     (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,

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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
payment to the holder of an outstanding Award; provided, that the number of Units subject to any
Award shall always be a whole number and, provided further, that the Committee shall not take any
action otherwise authorized under this subparagraph (c) to the extent that such action would cause
(A) the application of Section 409A of the Code to the Award or (B) create adverse tax consequences
under Section 409A of the Code should that Code section apply to the Award.

5. Eligibility.

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

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 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, 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 purchase price per Unit purchasable under an Option
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.

     (ii) Time and Method of Exercise. 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 “cashless-broker” exercise through procedures approved by the Company, with
the consent of the Committee, the withholding of Units that would otherwise be delivered to
the Participant upon the exercise of the Option, other securities or other property, or any
combination thereof, having a fair market value (as determined by the Committee) on the
exercise date equal to the relevant exercise price.

     (iii) Forfeiture. Except as otherwise provided in the terms of the Award
Agreement, upon termination of a Participant’s employment with or services to the Company
and its Affiliates or membership on the Board, whichever is applicable, for any

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reason prior to the date an Option becomes vested, all unvested Options shall be
forfeited by the Participant.

     (iv) DERs. To the extent provided by the Committee, in its discretion, a grant
of Options may include a tandem DER grant, which may provide that such DERs shall 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 Award, or be subject to
such other provisions or restrictions as determined by the Committee in its discretion.

     (b) Restricted Units and Unit Grants. The Committee shall have the authority to determine the
Employees, Consultants and Directors to whom Restricted Units and Unit Grants shall be granted, the
number of Restricted Units and/or Unit Grants 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.

     (i) UDRs. 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 UDR being paid or forfeited at the
same time, as the case may be. Absent such a restriction on the UDRs in the Award
Agreement, UDRs shall be paid to the holder of the Restricted Unit without restriction.

     (ii) Forfeitures. Except as otherwise provided in the terms of the Award
Agreement, upon termination of a Participant’s employment with or 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 Restricted 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.

     (iii) Lapse of Restrictions. 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 restrictions removed from his or her Unit
certificate so that the Participant then holds an unrestricted Unit.

     (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.

     (i) DERs. To the extent provided by the Committee, in its discretion, a grant
of Phantom Units may include a tandem DER grant, which may provide that such DERs

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shall 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 Award, or be
subject to such other provisions or restrictions as determined by the Committee in its
discretion.

     (ii) Forfeitures. Except as otherwise provided in the terms of the Award
Agreement, upon termination of a Participant’s employment with or 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 outstanding 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
Phantom Units.

     (iii) Lapse of Restrictions. 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 receive from the Company one Unit or cash equal to the Fair
Market Value of a Unit, as determined by the Committee in its discretion. Such distribution
shall occur in a single lump sum no later than the fifteenth (15th) day of the
third (3rd) month following the date on which vesting occurs and the restrictions
lapse. Should the Participant die before receiving all amounts payable hereunder, the
balance shall be paid to the Participant’s estate by this date.

     (iv) Unsecured General Creditor. Participant’s rights to any amounts described
in this Section 8(c) shall not rise above those of a general unsecured creditor of
the Company.

     (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 Units to be covered by each grant and the 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
not less than 100% of its Fair Market Value as of the date of grant.

     (ii) Vesting/Time of Payment. The Committee shall determine the time or times
at which a Unit Appreciation Right shall become vested and exercisable and the time or times
at which a Unit Appreciation Right shall be paid in whole or in part (and any payments shall
be subject to the provisions of Section 8(b).

     (iii) Forfeitures. Except as otherwise provided in the terms of the Award
Agreement, upon termination of a Participant’s employment with or services to the Company
and its Affiliates or membership on the Board, whichever is applicable, for any reason prior
to vesting, all unvested Unit Appreciation Rights awarded the Participant shall be
automatically forfeited on such termination. The Committee may, in its

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discretion, waive in whole or in part such forfeiture with respect to a Participant’s
Unit Appreciation Rights, in which case, such Unit Appreciation Rights shall be deemed
vested upon termination of employment or service and paid as soon as administratively
practical thereafter.

     (iv) Unit Appreciation Right DERs. To the extent provided by the Committee, in
its discretion, a grant of Unit Appreciation Rights may include a tandem DER grant, which
may provide that such DERs shall 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.

     (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. No Award shall be issued in tandem with another
Award if the tandem Awards would result in adverse tax consequences under Section 409A of
the Code. 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 Section 6(e)(ii)(C) below, 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.

     (B) Except as provided in Section 6(e)(ii)(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 and any such purported
assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be
void and unenforceable against the Company or any Affiliate.

     (C) 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.

     (iii) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee, but shall not exceed 10 years.

     (iv) Unit Certificates. All certificates for Units or other securities of the
Partnership delivered under the Plan pursuant to any Award or the exercise thereof shall

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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 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 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 grant agreement (including,
without limitation, any exercise price or tax withholding) is received by the Company.

     (vii) Change in Control. Unless specifically provided otherwise in the Award
Agreement, upon a Change in 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 and all performance
criteria, if any, shall be deemed to have been achieved at the maximum level.

     Except as otherwise provided in the Award Agreement, any positive “spread” (determined
based on the Fair Market Value of Units on the payment date) on an Option or UAR that is or
becomes fully vested and exercisable as of the date of a Change in Control (or any earlier
date related to the Change in 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 6(e)(vii) 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 in Control (or any earlier date related to the Change in 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 6(e)(vii) shall be made in a single
payment within 30 days after the date of the Change in Control.

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     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
6(e)(vii) or the Award Agreement upon the Change in 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 a positive “spread” 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 such “spread” if an Option or UAR
or equal to the Fair Market Value of a Unit, if a Phantom Unit or Restricted Unit, with such
payment made within 30 days after the date of the Change in Control.

     (viii) Section 409A of the Code. Notwithstanding any other provision of the
Plan to the contrary, any Award granted under the Plan shall contain terms that (i) are
designed to avoid application of Section 409A of the Code to the Award or (ii) are designed
to avoid adverse tax consequences under Section 409A should that Code section apply to the
Award.

     (ix) Payment of DER’s and UDR’s. DER’s and UDR’s that are not subject to any
restrictions shall be currently paid to the Participant at the time that the Partnership
makes distributions to the Unit holders. To the extent DER’s or UDR’s are subject to any
restrictions, such amounts shall be paid to the Participant at the time they vest and are no
longer subject to any restrictions under the Plan. Such amounts shall be distributed in a
single lump sum no later than the fifteenth (15th) day of the third (3rd) month following
the date on which vesting occurs and the restrictions lapse. Should the Participant die
before receiving all amounts payable hereunder, the balance shall be paid to the
Participant’s estate by this date.

7. Amendment and Termination.

     Except to the extent prohibited by applicable law:

     (a) Amendments to the Plan. Except as required by the rules of the principal securities
exchange on which the Units are traded and subject to Section 7(b) below, the Committee 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 other
holder or beneficiary of an Award, or 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, provided no
change in any Award shall materially reduce the benefit to a Participant without the consent of
such Participant.

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.

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     (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 in the employ of the Company or any Affiliate, to
continue as a consultant, or to remain on the Board, as applicable. Further, the Company or an
Affiliate may at any time dismiss a Participant from employment or terminate a consulting
relationship, 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) Section 409A of the Code. Notwithstanding anything in this Plan to the contrary, any
Award granted under the Plan shall contain terms that (i) are designed to avoid application of
Section 409A of the Code to the Award or (ii) are designed to avoid adverse tax consequences under
Section 409A of the Code should that section apply to the Award. If any Plan provision or Award
under the Plan would result in the imposition of an applicable tax under Section 409A of the Code
and related regulations and pronouncements, that Plan provision or Award will be reformed to the
extent reformation would avoid imposition of the applicable tax and no action taken to comply with
Section 409A of the Code shall be deemed to adversely affect the Participant’s rights to an Award
or to require the Participant’s consent.

     (f) 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.

     (g) 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.

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     (h) 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 participating
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.

     (i) 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.

     (j) 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.

     (k) Facility 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.

     (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.

     (n) Specified Employee Limitation. Notwithstanding any provisions in the Plan to the
contrary, to the extent that the Participant is a “specified employee” (as defined in Section 409A
of the Code and applicable regulatory guidance), and any stock or units of the Company (or of any
entity that together with the Company is treated as a single employer under Section 414(b) or (c)
of the Code) is publicly traded on an established securities market or otherwise, no distribution
or payment that is subject to Section 409A of the Code shall be made hereunder on account of a
Participant’s “separation from service” (as defined in Section 409A of the Code and applicable
regulatory guidance) before the date that is the first day of the month that occurs six months
after the date of the Participant’s separation from service (or, if earlier, the date of death of
the Participant or any other date permitted under Section 409A of the Code and applicable
regulatory guidance). Any such amount that is otherwise payable within the 6 month period
following the Participant’s separation from service with the Company will be paid in a lump sum
without interest.

9. Term of the Plan.

     The Plan shall be effective on the date of its approval by the Board and shall continue until
the date terminated by the Committee. However, unless otherwise expressly provided in

-12-

 

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.

-13-exv10w1

 

Exhibit 10.1

GAS PURCHASE AGREEMENT

          This Agreement is made and entered into as of November 21, 2007, by and between WTG Benedum
Joint Venture (as “Buyer”) and Approach Oil & Gas Inc. and Approach Operating, LLC (as “Seller”).

          WHEREAS, Seller owns or controls natural gas produced from the properties outlined in yellow
on Exhibit “A” attached hereto and made a part hereof (the “Area of Interest”); and

          WHEREAS, for any section of land in the Area of Interest that is partially outlined in yellow,
the entirety of such section shall be considered to be part of the Area of Interest for purposes of
this Agreement; and

          WHEREAS, Seller desires to sell and Buyer desires to purchase natural gas produced from
present and future wells located in the Area of Interest; and

          WHEREAS, Buyer agrees to install or has in place certain facilities (“Facilities”) to effect
receipt and purchase of natural gas production owned or marketed by Seller as a source of supply
for Buyer’s facilities, and for other purposes.

          NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, Buyer
and Seller hereby agree as follows:

	1.	 	Commitment. Buyer agrees to accept and purchase, and Seller agrees to deliver and
sell and hereby dedicates to the performance of this Agreement all natural gas produced from
the present and future well(s) located on the acreage described or depicted in the Area of
Interest on Exhibit “A”, attached hereto and made a part hereof, which Seller owns, controls,
or represents with respect to any and all interests, now or hereafter acquired (“Dedicated
Gas”). Title to the gas shall pass at the Receipt Point(s) from Seller and shall vest in
Buyer without regard to the purpose for which said gas may thereafter be used by Buyer.
Seller reserves the following rights with respect to all of said natural gas and said well(s)
and the lease(s) covering said well(s).

(a) to operate said well(s) and  lease(s)  free from any control by Buyer and in such manner
as Seller, in Seller’s sole discretion, may deem advisable, including without limitation the
right to determine the maximum efficient rate of flow for any well(s), the right to drill new
well(s), to repair and rework old well(s), and to abandon any well or terminate or surrender
any  lease(s) when it no longer is deemed by Seller to be capable of producing gas in paying
quantities under normal methods of operation.

(b) to pool or unitize Seller’s lease(s) with other lease(s).

(c) to use gas produced from said well(s) and lease(s) for developing and operating said
lease(s) and for fulfilling obligations to the lessors in Seller’s lease(s) or for delivery in
kind to lessors as required under said lease(s); provided, that gas so used is to be taken
upstream from any of Buyer’s facilities.

(d)  to retain oil and liquid hydrocarbons separated from the gas, prior to delivery to Buyer
at the Receipt Point(s), by the use of conventional mechanical gas/liquid separators.

	2.	 	Facilities. Buyer shall own, operate, and maintain all pipeline and other
facilities located downstream from the Receipt Point defined herein, including Buyer’s
Measuring Station. Seller shall own, operate, and maintain all equipment and other property
located upstream from the Receipt Point defined herein. Except in the event of (a)
termination or cancellation by Buyer (which termination or cancellation is not caused by the
default of Seller), or (b) force majeure as set forth in Section 5 of Exhibit “C” hereto, if
Seller fails to deliver one million four hundred and sixty thousand (1,460,000) Mcf to Buyer
hereunder prior to February 1, 2010 or if Seller should cancel or terminate this Agreement on
any earlier date (unless such cancellation or termination is caused by the default of Buyer),
then Seller shall pay to Buyer within thirty days of any such date an amount computed in
accordance with the following formula:

 

 

	 	 	$932,000.00 X (1,460,000 Mcf minus Actual Mcf Volume Delivered to Buyer Hereunder Prior to
February 1, 2010)
                                                                                     1,460,000 Mcf

	3.	 	Pressure. Seller’s gas shall be delivered at pressures sufficient to overcome the
pressure maintained from time to time on Buyer’s Facilities at the Receipt Point(s) defined
hereinbelow. The pressure at the Receipt Point shall be derived solely from the data provided
by Buyer, provided that such pressure shall not exceed 1,100 psig.

	4.	 	Primary Term. This Agreement shall become effective on the date first written above
and shall continue in effect for a Primary Term of five (5) years from the first day of the
month following the date of first delivery hereunder. Thereafter, this Agreement shall
continue in effect on a year-to-year basis; however, either party shall have the right to
terminate this Agreement at the expiration of the Primary Term or any anniversary date
thereafter by giving to the other party at least 90 days prior written notice.

	5.	 	Pricing and Financial Terms. The consideration and terms of payment for Seller’s gas
and all of its components received by Buyer at each Receipt Point hereunder shall be as set
forth in Exhibits “B” and “B-1” of this Agreement.

	6.	 	Profitability. In the event the gathering and/or processing of Seller’s gas becomes
unprofitable (as demonstrated by the books and records of Buyer) due to compliance with rules,
regulations or orders of any local, state or federal governmental authority, or a material
change in the volume and/or content of said natural gas, Buyer may terminate the Agreement in
its entirety following ninety (90) days prior written notice. In no event shall Buyer
exercise this provision before February 1, 2010. In the event that Buyer should terminate
this Agreement pursuant to this Section 6, then Buyer will transport Seller’s gas for a
mutually agreeable fee throughout the remainder of the term of this Agreement (as if this
Agreement had not been cancelled or terminated), provided, however, such fee shall not exceed
twenty-five cents ($0.25) per MMBtu.

	7.	 	Buyer’s Reservations. The receipt and delivery of gas by Buyer shall comply with the
General Terms and Conditions attached hereto as Exhibit “C” and made a part hereof. The
performance of Buyer under this Agreement is further subject to laws and regulations, either
State or Federal, and shall comply with all valid present and future orders, rules, and
regulations of duly constituted authorities having jurisdiction. With regards to the quality
specifications contained therein, if any gas hereunder does not meet said specifications, then
Seller shall promptly bring the gas into compliance prior to its delivery to Buyer at the
Receipt Point(s). Acceptance of non-conforming gas shall not constitute any waiver of
Buyer’s rights to accept or reject all or part of any gas under this Agreement not meeting the
quality specifications.

	8.	 	Modifications. Modifications to this Agreement will only be allowed through express
written agreement executed by authorized officers or representatives of both Buyer and Seller.

	9.	 	Taxes and Royalties. Seller shall bear all production, severance, excise, and
similar taxes imposed or levied by the state or any other governmental agency on the gas and
all of its components until they are produced, sold, or delivered hereunder, as applicable.
The price payable shall be inclusive of all such taxes, and Seller shall remit such taxes to
the proper governmental agency. Buyer shall bear all taxes that may be imposed on Buyer at
and after title and possession of the gas and all of its components delivered hereunder passes
to Buyer. Furthermore, Seller shall be responsible for all royalties, bonus payments,
production payments, and the like accruing from the production and sale of gas and all of its
components hereunder.

	10.	 	Indemnification. EACH PARTY AGREES TO PROTECT, DEFEND, INDEMNIFY AND HOLD HARMLESS
THE OTHER PARTY, ITS AFFILIATES, SUBSIDIARIES, AND THEIR RESPECTIVE DIRECTORS, STOCKHOLDERS,
OFFICERS, EMPLOYEES, SUCCESSORS, TRANSFEREES AND ASSIGNS (THE “INDEMNIFIED PARTIES”) AGAINST
ANY AND ALL CLAIMS, SUITS, LIABILITIES, COST, AND EXPENSE ON ACCOUNT OF INJURY OR DEATH OF
PERSONS, DAMAGE TO PROPERTY, OR ENVIRONMENTAL DEGRADATION, WITHOUT LIMIT, RESULTING FROM,
ARISING FROM, OR GROWING OUT OF THE INDEMNIFYING PARTIES’ INSTALLATION, OPERATION, AND
MAINTENANCE OF THE FACILITIES, APPURTENANCES, OR PROPERTY; OR NEGLIGENT ACTS 

2

 

	 	 	OR OMISSIONS OF
THE INDEMNIFYING PARTY IN THE POSSESSION AND HANDLING OF GAS OR CONDENSATE WHICH OCCUR WHILE
SAME IS IN THE POSSESSION AND CONTROL OF THE INDEMNIFYING PARTY, REGARDLESS OF THE CAUSE OR
CAUSES THEREOF, OR BREACH OF THIS AGREEMENT; PROVIDED, THAT IN NO EVENT WILL A PARTY BE LIABLE TO THE OTHER PARTY FOR
PUNITIVE, EXEMPLARY, OR INDIRECT DAMAGES OR LOSSES. HOWEVER, NEITHER PARTY TO THIS AGREEMENT
SHALL BE INDEMNIFIED FOR ITS OWN WILLFUL MISCONDUCT. THE ABOVE INDEMNITY OBLIGATIONS SHALL
SURVIVE THE COMPLETION OF THE TERMINATION OF THIS AGREEMENT.

	11.	 	Execution and Assignment. This Agreement shall not become a binding contract between
the parties unless and until it has been executed by duly authorized officers or
representatives of both Seller and Buyer. Upon full execution, this Agreement shall be
binding upon the parties hereto and their representatives, heirs, successors, and assigns.
Either party may assign all, but not part, of its rights under this Agreement only with the
prior written consent of the other party, such consent not to be unreasonably withheld. The
assigning party shall furnish the other party with a copy of the fully executed instrument(s)
effecting such assignment, and any change in ownership shall not become effective or binding
upon such other party until it receives said document(s), and (ii) the assigning party shall
continue to be liable for all of its obligations under this Agreement that occur during or are
related to that period of time prior to the receipt by the other party of all instrument(s)
effecting such assignment.
	 
	 	 	Notwithstanding anything to the contrary in this Agreement, Seller may, without Buyer’s consent,
assign this Agreement to any Affiliate or Successor (as such terms are defined below). For
purposes of this Agreement, the following terms shall have the following meanings:
	 
	 	 	“Affiliate” means any corporation or other business entity that controls, is controlled by or is
under common control with Seller. For purposes of the preceding sentence, “control” means
either (i) ownership or voting control, directly or indirectly, of 50% or more of the voting
stock, partnership interests or other beneficial ownership interests of the entity in question
or (ii) the power to direct the management and policies of such entity.
	 
	 	 	“Successor” means any one of the following: (i) an entity resulting from a merger,
consolidation, reorganization or recapitalization of or with Seller or (ii) a purchaser (or
other transferee) of all or substantially all of Seller’s assets and all or substantially all of
such Seller’s liabilities (including the liabilities of Seller hereunder).
	 
	 	 	Notwithstanding any such transfer, Seller shall remain liable for all of Seller’s obligations
under this Agreement prior to such transfer.

	12.	 	Notices. Written notification as provided for in this Agreement shall be deemed
given when delivered: (a) by U.S. mail or other nationally recognized commercial carrier of
mail, postage prepaid, to the following addresses, (b) by hand delivery to the following
addresses, or (c) by facsimile transmission, electronically confirmed to the number below:

	 	 	 	 	 	 	 	 	 	 	 
	 	 	Approach Oil & Gas Inc.	 	 	 	WTG Benedum Joint Venture
	 	 	Approach Operating, LLC	 	 	 	4000 N. Big Spring Ste. 114
	 	 	One Ridgmar Centre	 	 	 	Midland, TX 79705
	 	 	6500 W. Freeway, Suite 800	 	 	 	 	 	 
	 	 	Fort Worth, Texas 76116	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Attn:
	 	Mr. Bob Howell
	 	 	 	Attn:
	 	Contract Administration
	 

	 	Tel:
	 	817-989-9000
	 	 	 	Tel:
	 	(432) 620-6105
	 

	 	Fax:
	 	817-989-9001
	 	 	 	Fax:
	 	(432) 570-4246

	13.	 	General Terms and Conditions. The General Terms and Conditions attached hereto as
Exhibit “C” are hereby made a part of this Agreement.

3

 

	14.	 	Termination of Prior Agreements. Upon execution by both parties of this Agreement,
and except as otherwise agreed by the parties hereto in writing, all previous contracts and
agreements between the
parties pertaining to the purchase and sale of Seller’s gas from the Area of Interest shall
terminate and be displaced and superseded hereby, except for any audit and/or payment
obligations under any such agreements..

	15.	 	Statements and Payment. On or before the 20th day of the month following
the month of production, Buyer shall render to Seller a statement reflecting the actual
volumes and supporting detail for the payment that will be rendered to Seller on or before the
last day of the month following the month of production. If a payment is not rendered within
ten (10) days of the date due, interest shall accrue from the due date until the date of
payment at a rate equal to the lower of (i) the then-effective prime rate of interest
published under “Money Rates” by the Wall Street Journal, plus two percent per annum; or (ii)
the maximum applicable lawful interest rate.

     IN WITNESS WHEREOF, the undersigned authorized officers or representatives of Buyer Joint
Venture and Seller have executed this Agreement by signature below.

	 	 	 	 	 	 	 	 	 
	“Seller”	 	 	 	“Seller”
	 
	 	 	 	 	 	 	 	 
	Approach Oil & Gas Inc.	 	 	 	Approach Operating, LLC
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ Robert B. Howell
	 	 	 	By:
	 	/s/ Robert B. Howell
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	“Buyer”	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	WTG BENEDUM JOINT VENTURE, a Texas Joint	 	 	 	 	 	 
	 

	 	Venture by Benedum Gas
Partners,
L.P., its Managing
Venturer, and Upton
Gas GP, Inc., 

its General
Partner	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	By:

	 	/s/ J. L. Davis	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	J. L. Davis	 	 	 	 	 	 
	 

	 	President	 	 	 	 	 	 

4

 

STATE OF Texas

COUNTY OF Tarrant

     BEFORE ME, the undersigned authority, a notary public in and for the State of Texas
, Robert B. Howell, personally appeared and is known to me to be the person whose name
is subscribed to the foregoing instrument, and acknowledged to me that he/she is the proper
authority and having the proper capacity to execute the foregoing instrument and has executed the
same for the purposes and consideration therein expressed.

GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the 21st day of November, 2007.

Print of Stamp Notary’s Name

and Date Commission Expires:

	 	 	 	 	 
	 	 	 
	 	                                                /s/ Pam M. Wilson
 	 
	 	Notary Public in and for the State of Texas 	 
	 	 	 
	 

STATE OF TEXAS

COUNTY OF MIDLAND

     BEFORE ME, the undersigned authority, a notary public in and for the State of Texas, J. L.
Davis, an officer of , WTG BENEDUM JOINT VENTURE, a Texas Joint Venture by Benedum Gas Partners,
L.P., its Managing Venturer, and Upton Gas GP, Inc., its General Partner Inc., personally appeared
and is known to me to be the person whose name is subscribed to the foregoing instrument, and
acknowledged to me that he executed the same for the purposes and consideration therein expressed,
in the capacity therein stated.

GIVEN UNDER MY HAND AND SEAL OF OFFICE,
this the 26th day
 of November, 2007.

Print of Stamp Notary’s Name

and Date Commission Expires:

	 	 	 	 	 
	 	 	 
	 	/s/ Dana Johnson
 	 
	 	Notary Public in and for the State of Texas 	 
	 	 	 
	 

5

 

EXHIBIT “A”

     This Exhibit “A” is for all purposes attached to and made a part of that certain Agreement
dated November 21, 2007, by and between WTG Benedum Joint Venture (“Buyer”) and Approach Oil & Gas
Inc. and Approach Operating, LLC (“Seller”) covering the properties described below.

6

 

EXHIBIT “B”

RESIDUE AND PLANT PRODUCT PRICING CALCULATIONS

     This Exhibit “B” is for all purposes attached to and made a part of that certain Agreement
dated November 21, 2007, by and between WTG Benedum Joint Venture (“Buyer”) and Approach Oil & Gas
Inc. and Approach Operating, LLC (“Seller”). Said price and consideration payable to Seller
hereunder shall be based on and determined from a percentage of the value of Plant Products and
Surplus Residue Gas attributable to Seller’s gas hereunder as defined below:

	1.	 	Settlement Percentage of the Value of Plant Product Due Seller: Eighty-eight Percent (88%)
	 
	2.	 	Settlement Percentage of the Value of Surplus Residue Gas Due Seller: Eighty-eight Percent
(88%)
	 
	3.	 	Field Fuel & Loss Allowance: 6.0% of the volume delivered at the Receipt Point hereunder by
Seller
	 
	4.	 	Component Plant Product Recovery Rates:

	 	 	 	 	 
	Ethane
	 	 	75	%
	Propane
	 	 	85	%
	Iso-Butane
	 	 	97	%
	Normal Butane
	 	 	97	%
	Pentanes and Heavier
	 	 	97	%

	5.	 	Plant Fuel & Loss Allowance: 1.82% of the volume delivered at the Receipt Point hereunder by
Seller.
	 
	6.	 	Plant Product Price: The Plant Product Price for each component product shall be the average
component price per gallon published during the month in which deliveries are made hereunder
by the “Oil Price Information Service” or “OPIS” publication for Mt. Belvieu, (“Purity Ethane”
for ethane and “Non-TET” for propane and heavier hydrocarbons), less a “T&F Fee” of $0.058 per
gallon for product transportation, fractionation, handling, and marketing charges. Said T&F
Fee shall be adjusted simultaneously and proportionately to reflect actual transportation and
fractionation fee changes incurred after October 31, 2007 by Buyer for gas purchased from
Seller. Should the above mentioned OPIS publication or the referenced prices no longer be
available, a mutually acceptable replacement listing component prices at Mt. Belvieu shall be
used.
	 
	7.	 	Monthly Index Price: The Monthly Index Price shall mean the index price posted for “West
Texas WAHA” on or about the first of each production month by McGraw-Hill’s “Inside
F.E.R.C.’s-Gas Market Report” publication under the table entitled “Delivered Spot-Gas
Prices” less $0.08. A mutually agreeable successor index shall be used in the event that the
above referenced index is no longer published or available.
	 
	8.	 	Plant Product MMBtu Conversion Factors (Gallons to MMBtu Volumes): The factors to be used to
convert the component gallons of plant products attributable to Seller’s gas hereunder shall
be as follows:

	 	 	 	 	 
	Ethane
	 	 	0.066320	 
	Propane
	 	 	0.091523	 
	Iso-Butane
	 	 	0.099692	 
	Normal Butane
	 	 	0.103732	 
	Pentanes and Heavier
	 	 	0.119000	 

	9.	 	Monthly Settlement Computatin Method: The monthly compensation due Seller for gas purchased
by Buyer hereunder shall be made in accordance with the illustration attached hereto as Exhbit
“B-1”

10. Notwithstanding anything to the contrary herein, effective the first day of the month following
the date on which Seller delivers one million four hundred and sixty thousand (1,460,000) Mcf to
Buyer hereunder, the payment percentages referenced above in 1. and 2. of this Exhibit “B” shall be
increased to ninety percent (90%) for the duration of this Agreement.

7

 

EXHIBIT “B-1”

FINANCIAL TERMS FOR PRICING CALCULATIONS

     This Exhibit “B-1” is for all purposes attached to and made a part of that certain Agreement
dated November 21, 2007, by and between WTG Benedum Joint Venture (“Buyer”) and Approach Oil & Gas
Inc. and Approach Operating, LLC (“Seller”). As full consideration for Seller’s gas and all
components thereof purchased by Buyer hereunder, Buyer shall pay to Seller a value computed in
accordance with the method used in the following illustration:

8

 

Exhibit “C”

     This Exhibit “C” is for all purposes attached to and made a part of that certain Agreement
dated November 21, 2007, by and between WTG Benedum Joint Venture (“Buyer”) and Approach Oil & Gas
Inc. and Approach Operating, LLC (“Seller”).

GENERAL TERMS AND CONDITIONS

	1.	 	Definitions. Except in those certain instances where the context states another
meaning, the following terms, when used in these General Terms and Conditions or in the
Agreement into which these General Terms and Conditions are incorporated, shall have the
following meanings:

	 	A.	 	The terms “gas” and “natural gas” shall mean natural gas as produced in its
natural state, whether or not stored or processed prior to receipt or delivery, and
that meets the respective quality standards for receipt and delivery contained in
Article 2 below.
	 
	 	B.	 	The term “Btu” shall mean British thermal unit and, where appropriate, shall
mean the plural thereof. A British thermal unit is the amount of heat required to
raise the temperature of one (1) pound of water one (1) degree Fahrenheit at a starting
point of sixty (60) degrees Fahrenheit. The term “MMBtu” shall mean one million
(1,000,000) Btu.
	 
	 	C.	 	The term “thermal content” shall mean the aggregate number of Btu contained in
that volume, when applied to any volume of gas.
	 
	 	D.	 	The term “psig” shall mean pounds per square inch gauge. The term “psia” shall
mean pounds per square inch absolute.
	 
	 	E.	 	The term “cubic foot” shall mean the amount of gas required to fill a cubic
foot of space at a base pressure of 14.65 psia and at a base temperature of 60 degrees
Fahrenheit. The term “MCF/D” shall mean one thousand (1,000) cubic feet of gas per
day.
	 
	 	F.	 	The term “heating value” shall mean, when applied to a cubic foot of gas, the
number of Btu produced by the combustion, at a constant pressure, of the amount of gas
which would occupy a volume of one (1) cubic foot at a temperature of sixty (60)
degrees Fahrenheit if saturated with water vapor and at a constant pressure of fourteen
and sixty-five hundredths pounds per square inch absolute (14.65 psia) and under
standard gravitational force (acceleration 980.655 centimeters per second2),
with air of the same temperature and pressure as the gas, when the products of
combustion are cooled to the initial temperature of the gas and air and when the water
formed by combustion is condensed to the liquid state; provided, however, if the gas as
received and/or delivered contains seven (7) pounds of water vapor or less per one
million (1,000,000) cubic feet, such gas shall be assumed to be dry.
	 
	 	G.	 	The term “day” shall mean a period of time beginning at 9:00 a.m. local time
and ending 9:00 a.m. local time the following day.
	 
	 	H.	 	The term “month” shall mean a period of time beginning at 9:00 a.m. local time
on the first (1st) day of a calendar month and extending to 9:00 a.m. local time on the
first (1st) day of the following calendar month.
	 
	 	I.	 	The terms “Receipt Point”, “receipt”, “receive”, or “received” shall refer to
Buyer taking physical possession of gas from Seller or Seller’s designee from
Seller-owned or Seller’s designee-owned facilities located in the vicinity of Section
8, Block AB, GC&SF RR Co Survey, Crockett County, Texas.
	 
	 	J.	 	The terms “Delivery Point”, “delivery”, “deliver”, or “delivered” shall refer
to the physical transfer of possession of gas from Buyer to any downstream pipeline.

9

 

	 	K.	 	The term “GPM” shall mean the sum of equivalent liquid gallons of contained
ethane, propane, butane and natural gasoline (pentanes plus heavier hydrocarbons
components) per Mcf as measured by chromatograph analysis.
	 
	 	L.	 	The term “Plant” shall mean the equipment, gathering system and/or processing
facilities constructed for the purpose of removing liquefiable hydrocarbons from
natural gas streams and to which Buyer has the right to deliver Seller’s gas for
processing.
	 
	 	M.	 	The term “Plant Products” or “NGLs” shall mean the natural gas liquids,
including ethane, propane, butane and natural gasoline and mixtures thereof which may
be extracted from the Receipt Point gas stream by Buyer in the liquid extraction
process at the Plant as contemplated in Exhibits “B” and “B-1” hereto.
	 
	 	N.	 	The term “Residue Gas” or “Residue” shall mean the natural gas remaining after
liquefiable hydrocarbons are extracted by Buyer at the Plant and the term
“Surplus Residue Gas” shall mean that portion of the Residue Gas remaining after Field
Fuel and Loss Allowance and Plant Fuel and Loss Allowance as contemplated in Exhibits
“B” and “B-1” hereto.
	 
	 	O.	 	The term “Plant Product Conversion Factor” as used in the calculations in
Exhibit “B-1” hereto shall mean the conversion factor, by component, under the volume
heading “Btu/gal. fuel as ideal gas” as published in the Gas Processors Association
Publication Standard 2145, as amended from time to time.

	2.	 	Quality

	 	2.1	 	Gas delivered by Seller under this Agreement shall meet the minimum quality
specifications below:

	 	A.	 	No free water or liquid is to be delivered to Buyer hereunder and
the gas shall not contain more than seven (7) pounds of water vapor per million
cubic feet of gas.
	 
	 	B.	 	The gas shall be free of objectionable or deleterious substances
and other potentially harmful matter and shall be commercially free from dust or
other solids, gum, gum-forming constituents, chemicals or hazardous substances
other than hydrocarbon gases.
	 
	 	C.	 	The gas shall not contain any oxygen.
	 
	 	D.	 	The gas shall not contain more than one-fourth (1/4) grain of
hydrogen sulphide per one hundred (100) cubic feet.
	 
	 	E.	 	The gas shall not contain more than five (5) grains of total
sulphur (including the sulphur in any hydrogen sulphide and mercaptans) per one
hundred (100) cubic feet.
	 
	 	F.	 	The gas shall not contain mercaptans in excess of five (5) parts
per million by volume.
	 
	 	G.	 	The gas shall not have a carbon dioxide content in excess of two
(2) percent by volume.
	 
	 	H.	 	The gas shall not contain more than four (4) percent inert gases
by volume; provided, however, that Buyer may, on a commercially reasonable
efforts basis accept gas having a nitrogen content in excess of (3) three
percent if such does not adversely affect Buyer.
	 
	 	I.	 	The gas shall have a total heating value per cubic foot of not
less than eleven hundred (1100) Btu.
	 
	 	J.	 	The gas shall be received at a temperature not in excess of one
hundred (120) degrees Fahrenheit.

10

 

	 	K.	 	The gas shall not be processed prior to receipt by Buyer except
through conventional separators and other conventional field devices.

	 	2.2	 	If, at any time, gas tendered for receipt shall fail to conform to any of the
quality specifications set forth above, Buyer may, at its option, refuse to accept
receipt of such gas without incurring any liability to Seller.
	 
	 	2.3	 	Gas tendered to Buyer at the Receipt Point(s) must meet or exceed the quality
specifications in Paragraph 2.1 above or such higher standards as may be required at
the Delivery Point(s).

	3.	 	Measurement and Tests. The measurement of gas at the Receipt Point(s) shall be
in accordance with the following provisions:

	 	3.1	 	For all of the purposes of this Agreement, a cubic foot of gas shall be that
quantity as defined in Section 1(E) of these General Terms and Conditions. For
measurement purposes, the atmospheric pressure shall be the greater of (a) thirteen and
two-tenths (13.2) pounds per square inch absolute or (b) the actual atmospheric
pressure at which the gas is measured. The volumes of gas received and delivered
hereunder shall be computed in accordance with methods prescribed in the Gas
Measurement Committee Report No. 3 of the American Gas Association as reprinted and
revised September 1992, together with all subsequent revisions, supplements and
appendices to said Report.
	 
	 	3.2	 	A representative sample of the gas from each delivery point hereunder shall be
taken Buyer for use in settlement computations, quality conformance, or other purpose
contemplated by this Agreement. Buyer shall capture samples of Seller’s gas hereunder
on either a spot basis, by means continuous sampling device, or by other mutually
acceptable method for analysis by chromatography analysis or other instrument or
equipment generally accepted in the industry. Spot samples of Seller’s gas hereunder
shall be obtained by Buyer (i) at least monthly for delivery points where the volume of
Seller’s gas averages one thousand (1,000) Mcf or more per day, (ii) at least quarterly
for delivery points where the volume of Seller’s gas averages five hundred (500) Mcf or
more per day, (iii) at least semi-annually for delivery points where the volume of
Seller’s gas averages more than one hundred (100) but less than five hundred (500) Mcf
or more per day or (iv) at least annually for delivery points where the volume of
Seller’s gas averages less than one (100) Mcf per day. Such samples shall be analyzed
at no cost to Seller. The component analyses of each routine set of samples shall
become effective commencing with the first of the month following the month in which
samples were taken. Buyer will notify Seller reasonably in advance of the time of any
sampling so that Seller may conveniently have its representative present to witness the
sampling procedure.
	 
	 	3.3	 	The gas shall be measured with orifice meters using flange taps and whose
computations of volume are made in accordance with provisions of Gas Measurement
Committee Report No. 3 of the American Gas Association (1985 edition).
	 
	 	3.4	 	The flowing temperature of gas shall be determined by means of a recording
thermometer, and the arithmetical average of hourly temperatures recorded while gas is
flowing during each day shall be used in computing the volume of gas received and
delivered during the day.
	 
	 	3.5	 	If, at any time during the term hereof, a new method or technique is developed
with respect to gas measurement or determination of factors used in such gas
measurement, such new method or technique may be substituted for the gas measurement
set forth herein upon notice by Buyer to Seller.
	 
	 	3.6	 	Buyer may, at its sole option, install computers, transducers, and other
associated sensing devices to accomplish the accurate measurement of gas received
and/or delivered.

11

 

	 	3.7	 	It is recognized that all facilities necessary to measure gas at Receipt Point
(s) have been or will be installed and in operation as of the date of first delivery of
gas to Buyer hereunder. Unless otherwise agreed, Buyer shall install, maintain, and
operate all facilities and equipment for the accurate measurement of the gas received,
processed, transported, and delivered hereunder. Seller shall have access to the
measuring equipment at all reasonable times, including Level 1 electronic data
retrieval, but readings, calibrations, and adjustments thereof, and changing of charts,
if applicable, shall be done by Buyer unless otherwise agreed.
	 
	 	3.8	 	Seller shall have the right, at its option, to install, maintain, and operate
such check measuring equipment at the Receipt Point(s) as it may desire. Each party
shall have the right of access, at all reasonable times when gas is being received or
delivered, to the measuring equipment installed by the other party. The calibrating
and adjusting of Buyer’s measuring equipment and changing of meter charts on Buyer’s
meters shall be done only by Buyer, and the calibrating and adjusting of Seller’s
measuring equipment and changing of meter charts on its check meters shall be performed
only by Seller. Buyer, upon request by Seller, or Seller, upon request by Buyer, shall
mail or deliver to the other all meter charts and/or records used in measurement of gas
received and delivered hereunder during any specified period for which charts and/or
records are required to be retained as hereinafter provided, but such charts and/or
records shall be mailed or returned to Buyer or Seller, as the case may be, within
thirty (30) days after their receipt.
	 
	 	3.9	 	Each party shall have the right to be present at the time of any installation,
testing, cleaning, changing, repairing, inspection, calibration, or adjusting of
measuring equipment of another party used in measurement of gas received and delivered
hereunder. Each party shall notify the other, with at least a 24 hour notice, to
witness any such activity.
	 
	 	3.10	 	The accuracy of the measuring equipment at each Receipt Point shall be verified at
intervals not exceeding 180 days and at such other times as may be requested by Seller
or Buyer; and if any such verification shall be requested by Seller or Buyer and the
measuring equipment is found to be not more than two percent (2%) inaccurate, the
expense of such verification shall be borne by the party requesting verification.
	 
	 	3.11	 	If, upon test, the measuring equipment at any Receipt Point is found to be not
more than two percent (2%) inaccurate or amounts to less than 100 MCF, previous
readings of such equipment after the last preceding test shall be considered correct,
but the equipment shall be adjusted to record accurately. If, at the Receipt Point, on
any test, the measuring equipment is found to be inaccurate by an amount exceeding two
percent (2%) and amounts to more than 100 MCF, or if at any time the measuring
equipment should be out of service or not registering, gas received or delivered
through the period during which the measuring equipment was registering inaccurately or
was out of service or not registering shall be estimated and agreed upon by use of the
first of the following methods which may be applicable:

	 	A.	 	By using the registration of any check measuring equipment installed by
either party if registering accurately; or
	 
	 	B.	 	By computing the error if the percentage of error is ascertainable by
calibration, test, or mathematical calculation; or
	 
	 	C.	 	By estimating the quantity received or delivered and/or its thermal
content by reference to actual receipts or deliveries during preceding periods
under similar conditions when the measuring equipment was registering
accurately. If the period during which the measuring equipment at the Receipt
Point had been registering inaccurately or had been out of service or not
registering is not definitely known or agreed upon, correction shall be made for
the last half of the time elapsed since the measuring equipment was previously
tested and found to be registering within two

12

 

	 	 	 	percent (2%) of accurate or was adjusted to register accurately. All
corrections made as above provided shall be made to zero error.

	 	3.12	 	The charts and/or records from the measuring equipment shall remain the
property of the party owning the measuring equipment and shall be kept on file for a
period of not less than two (2) years.

	4.	 	Governmental Rules, Regulations and Authorizations

	 	4.1	 	This Agreement is subject to all valid orders, laws, rules, and regulations of
duly constituted governmental authorities having jurisdiction or control over the
parties, their facilities or gas supplies, this Agreement, or any provisions hereof. If
at any time during term of this Agreement such governmental authority shall take or
threaten to take any action, directly or indirectly, whereby the receipt, sale, purchase
or delivery of gas as contemplated hereunder shall be proscribed or possibly subjected
to terms, conditions, restraints, or regulations, including without limitation by
enumeration, rate or price controls or ceilings that, in the reasonable judgment of the
party affected, would make performance unprofitable (as demonstrated by the books and
records of the affected party) to that party, such party may, upon ninety (90) days
written notice, cancel and terminate this Agreement without further liability hereunder
except for payment for services or products provided hereunder prior to such
cancellation and termination.
	 
	 	4.2	 	The parties agree to timely file and prosecute all applications, statements, and
notices with any governmental regulatory authority having appropriate and applicable
jurisdiction.

	5.	 	Force Majeure. Either party shall not be liable for the breach of any express or
implied obligation under this Agreement, except for the payment of money due and owing, to the
extent such breach is the result of any cause beyond the reasonable control of such party,
including, but not limited to, (i) any action by a governmental entity, (ii) storms, floods,
earthquakes, acts of terrorism or insurrection, and other acts of God, (iii) sabotage, (iv)
war, riot, strike, (v) explosions, breakage or accident to machinery or lines of pipe,
freezing of wells or pipelines, (vi) the making of repairs or alterations to pipelines or
facilities, or (vii) the inability to secure rights-of-way, leases and/or easements at prices
deemed reasonable and necessary in the performing party’s reasonable judgment. The parties’
time for performance of any obligation hereunder (except for payment of amounts due and owing
to Buyer or Seller hereunder) shall be tolled during any period of force majeure hereunder,
provided however, the tolling period shall not extend past the term of the Agreement, except
by mutual agreement.

	6.	 	Audit Rights. All parties hereto shall have the right at any and all
reasonable times to examine the books and records of the other party to the extent necessary
to verify the accuracy of any statement, charge, computation, or demand made under
or pursuant to this Agreement. Any statement or charge shall be final as to both parties
hereto unless questioned within two (2) years of the rendering thereof to the other party.

	7	 	Creditworthiness

	 	7.1	 	Seller shall not be required to commence or continue gas sales under the terms
of the Agreement to Buyer, if Buyer:

	 	A.	 	Fails to make any payment when due and fails to cure such failure
within ten (10) days of such due date; or
	 
	 	B.	 	Fails to demonstrate creditworthiness when reasonably requested
by Seller. Seller shall use all means available, including but not limited to
previous payment experience and prudent credit analysis, to determine credit
worthiness.

	 	7.2.	 	If either party has reasonable grounds for insecurity regarding performance of
any obligation under this Agreement by the other party, such first party may demand
adequate assurance 

13

 

	 	 	 	of performance from such other party in the form and amount
reasonably acceptable to the demanding party. Such assurance may include, but not be limited to, a standby
irrevocable letter of credit, a prepayment, a security interest in an asset or
performance bond or guaranty. In the event (each an Event of Default) either party
or its guarantor shall: (i) make an assignment or any general arrangement for the
benefit of creditors; (ii) file a petition or otherwise commence, authorize, or
acquiesce in the commencement of a proceeding or case under any bankruptcy or similar
law for the protection of creditors or have such petition filed or proceeding
commenced against it; (iii) otherwise become bankrupt or insolvent; (iv) be unable to
pay its debts as they fall due; (v) have a receiver, provisional liquidator,
conservator, custodian, trustee, or other similar official appointed with respect to
it or substantially all of its assets; (vi) fail to perform any obligation to the
other party with respect to any credit support obligations relating to this
Agreement; (vii) fail to give adequate assurance of performance under this Section 7
within 48 hours but at least one day of a written request of the other party; or
(viii) not have paid any amount due the other party hereunder on or before the second
day following written notice that such payment is due; then the other party shall
have the right, at its sole election, to immediately withhold and/or suspend
deliveries or receipts of gas upon notice. If an Event of Default has occurred and
is continuing, the non-defaulting party shall have the right, by notice to the
defaulting party, to designate a day, no earlier than the day such notice is given
and no later than 20 days after such notice is given to terminate this Agreement.

	8.	 	Transfer and Warranty of Title. As between the parties hereto, Seller shall be in
control and in possession of the gas prior to such gas being received hereunder by Buyer at
the Receipt Point(s) and shall be responsible for any damages, losses, or injuries caused
thereby; and upon Buyer’s physical receipt of such gas at the Receipt Point(s), Buyer shall
thereafter be deemed to be in exclusive control and possession of such gas, and responsible
for any injuries, losses, or damages caused thereby; provided, however, neither party shall be
indemnified for damages, losses, or injuries caused by its own omissions or negligent acts.
Each party hereby warrants to the other that at the time of receipt of delivery of gas
hereunder, it will have the right to receive or deliver, as the case may be, such gas, and
that such gas shall be free and clear of all liens and adverse claims; and each party agrees,
with respect to the gas received or delivered by it, to indemnify the other party against all
suits, actions, debts, accounts, damages, costs (including attorney fees), losses, and
expenses arising from or out of any adverse claim of any and all persons to or against said
gas while that party has responsibility for the gas; PROVIDED, THAT IN NO EVENT WILL A PARTY
BE LIABLE TO THE OTHER PARTY FOR PUNITIVE, EXEMPLARY, OR INDIRECT DAMAGES OR LOSSES.

	9.	 	Confidentiality. Buyer and Seller agree to keep the content and nature of this
Agreement, and any other material or information provided during the negotiation of this
Agreement, strictly confidential and to not disclose the nature or contents to any third party
without prior written consent from the other party to this Agreement, which consent will not
be unreasonably withheld; provided, however that either party may make any public disclosure
it believes in good faith is required by applicable law or any listing or trading agreement
concerning its publicly traded securities, in which case the disclosing party agrees to use
reasonable efforts to advise the other party prior to making such disclosure.

	10.	 	Descriptive Headings. The descriptive headings of the provisions of this Agreement,
including these General Terms and Conditions, are formulated and used for convenience only and
shall not be deemed to affect the meaning or construction of any such provision.

14

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