Exhibit 10.5
 
RESTRICTED STOCK AGREEMENT
 
THIS RESTRICTED STOCK AGREEMENT (this “Agreement”) is made as of the ____ day
of______________, 2012 (the “Effective Date”), between Carbon Natural Gas
Company, a Delaware corporation (the “Company”), and ____________ (the
“Employee”).
 
1.            Award.  Pursuant to the Carbon Natural Gas Company 2011 Stock
Incentive Plan, as amended (the “Plan”) and effective as of the Effective Date,
_________ shares of the Company’s common stock, par value $0.01 per share (the
“Restricted Stock Shares”), are being issued in the Employee’s name subject to
certain restrictions thereon.  The Restricted Stock Shares are being issued in
consideration of services that the Employee has performed for the Company in
2011 and services to be provided to the Company in the future.  The Restricted
Stock Shares are being issued subject to acceptance of this Agreement by the
Employee and satisfaction of the conditions of this Agreement.  This award of
Restricted Stock Shares is subject to all of the terms and provisions of the
Plan, including future amendments thereto, if any.  For paper copies of the Plan
please contact Carbon Natural Gas Company, 1700 Broadway, Suite 1170, Denver, CO
80290, or call 720-407-7043.  In the event of any conflict between the terms of
this Agreement and the Plan, the Plan shall control.
 
2.            Restricted Stock.  The Employee hereby accepts the Restricted
Stock Shares and agrees as follows:
 
(a)           Forfeiture Restrictions.  The Restricted Stock Shares may not be
sold, assigned, pledged, exchanged, hypothecated or otherwise transferred,
encumbered or disposed of to the extent then subject to the Forfeiture
Restrictions (as hereinafter defined), and in the event of termination of the
Employee’s employment with the Company for any reason other than death,
Disability, or Involuntary Termination (as such terms are hereinafter defined),
the Employee shall, for no consideration, forfeit to the Company all Restricted
Stock Shares to the extent then subject to the Forfeiture Restrictions.  The
prohibition against transfer and the obligation to forfeit and surrender
Restricted Stock Shares to the Company upon termination of employment are herein
referred to as the “Forfeiture Restrictions.”  The Forfeiture Restrictions shall
be binding upon and enforceable against any transferee of Restricted Stock
Shares.  For purposes of this Agreement, the following capitalized words and
terms shall have the meanings indicated below:
 
(i)           “Change in Control” means the occurrence of:
 
(A)           the acquisition within any 12-month period by any “Person” (as the
term person is used for purposes of Section 13(d) or 14(d) of the Exchange Act),
immediately after which such Person has “Beneficial Ownership” (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent
(30%) or more of the total voting power of the then outstanding stock of the
Company entitled to vote generally in the election of directors, but excluding
the following transactions (the “Excluded Acquisitions”):
 
(1)           any acquisition directly from the Company (other than an
acquisition by virtue of the exercise of a conversion privilege of a security
that was not acquired directly from the Company),
 
(2)           any acquisition by the Company, and
 
(3)           any acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company;
 
(B)           a change in the composition of the Board such that at any time
during a period of 12 months or less, individuals who at the beginning of such
period constitute the Board (and any new directors whose election by the Board
or nomination for election by the Company’s stockholders was approved by a vote
of at least a majority of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was so approved) cease for any reason to constitute a majority thereof;
 
 
 

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(C)           an acquisition (other than an Excluded Acquisition) by any Person
of fifty percent (50%) or more of the voting power or value of the Company’s
stock;
 
(D)           the consummation of a merger, consolidation, reorganization or
similar corporate transaction, whether or not the Company is the surviving
company in such transaction, other than a merger, consolidation, or
reorganization that would result in the Persons who are Beneficial Owners of the
Company’s stock outstanding immediately prior thereto continuing to Beneficially
Own, directly or indirectly, in substantially the same proportions, at least
fifty percent (50%) of the combined voting power or value of the Company’s stock
(or the stock of the surviving entity) outstanding immediately after such
merger, consolidation or reorganization; or
 
(E)           the sale or other disposition during any 12 month period of all or
substantially all of the assets of the Company, provided that such sale is of
assets having a total gross fair market value equal to or greater than forty
percent (40%) of the total gross fair market value of the assets of the Company
immediately prior to such sale or disposition.
 
The foregoing definition of “Change in Control” is intended to comply with the
requirements of Section 409A of the Code and the guidance issued thereunder and
shall be interpreted and applied by the Committee in a manner consistent
therewith.
 
(ii)           “Disability” means disability as determined by the Committee in
accordance with Section 22(e)(3) of the Code.
 
(iii)           “Fair Market Value” has the meaning provided in the Plan.
 
(iv)           “Involuntary Termination” means any termination of the Employee’s
employment with the Company (including, if the Employee is party to a written
employment agreement with the Company, a good reason termination in accordance
with the terms and conditions of such written employment agreement) which does
not result from a resignation by the Employee; provided, however, that the term
“Involuntary Termination” shall not include a termination as a result of death,
Disability, or a termination of the Employee’s employment by the Company (or its
subsidiaries) by reason of the Employee’s unsatisfactory performance of his
duties, to be determined by the Company in its sole discretion, or final
conviction of (A) a misdemeanor involving money or property of the Company or
which detrimentally affects the Company or its business or (B) a felony.
 
(v)           “Section 16 Person” shall mean an officer, director or affiliate
of the Company or a former officer, director or affiliate of the Company who is
subject to section 16 of the Securities Exchange Act of 1934, as amended.
 
(b)           Lapse of Forfeiture Restrictions.  The Forfeiture Restrictions
shall lapse as to the Restricted Stock Shares in accordance with the following
schedule provided that the Employee has been continuously employed by the
Company from the date of this Agreement through the lapse date:
 

 
Lapse Date
 
Percentage of Total Number of
Restricted Stock Shares as to
Which Forfeiture Restrictions Lapse
 
First Anniversary of the Award
 
One-third of the Restricted Stock Shares
 
Second Anniversary of the Award
 
One-third of the Restricted Stock Shares
 
Third Anniversary of the Award
 
One-third of the Restricted Stock Shares

 
 
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Notwithstanding the foregoing, the Forfeiture Restrictions shall lapse as to all
of the Restricted Stock Shares then subject to the Forfeiture Restrictions on
the first to occur of (i) the date of a Change in Control provided that the
Employee has been continuously employed by the Company from the date of this
Agreement to the date of such Change in Control or (ii) the date the Employee’s
employment with the Company is terminated by reason of death, Disability, or
Involuntary Termination.

(c)           Certificates.  A certificate evidencing the Restricted Stock
Shares shall be issued by the Company in the Employee’s name, pursuant to which
Employee shall have all of the rights of a stockholder of the Company with
respect to the Restricted Stock Shares, including, without limitation, voting
rights and, subject to section 2(d), the right to receive dividends; provided,
however, that dividends paid in shares of the Company’s stock shall be subject
to the Forfeiture Restrictions.  The Employee may not sell, transfer, pledge,
exchange, hypothecate or otherwise dispose of the Restricted Stock Shares until
the Forfeiture Restrictions have expired; a breach of the terms of this
Agreement shall cause a forfeiture of the Restricted Stock Shares. The Company,
in its discretion, may elect to complete the delivery of the Restricted Stock
Shares by means of an electronic, book-entry statement, instead of issuing
physical share certificates.
 
Certificates, if any, shall be delivered upon issuance to the Secretary of the
Company or to such other depository as may be designated by the Committee as a
depository for safekeeping until the forfeiture of such Restricted Stock Shares
occurs or the Forfeiture Restrictions lapse pursuant to the terms of the Plan
and this Agreement. Upon the lapse of the Forfeiture Restrictions, the Company
shall cause a new certificate or certificates to be issued without legend
(except for any legend required pursuant to applicable securities laws or any
other agreement to which the Employee is a party) in the name of the Employee in
exchange for the certificate evidencing the Restricted Stock Shares, or, as may
be the case, it shall issue appropriate instructions to the transfer agent if
the electronic, book-entry method is utilized. In any event, the Company, in its
discretion, may elect to deliver the shares in certificate form or
electronically to a brokerage account established for the Employee’s benefit at
a brokerage financial institution selected by the Company. At the Company’s
request, the Employee shall deliver to the Company a stock power, endorsed in
blank, relating to the Restricted Stock Shares and the Employee agrees to
complete and sign any other documents and take additional action that the
Company may request to enable it to deliver the Restricted Stock Shares on the
Employee’s behalf.

(d)           Treatment of Dividends. Any dividends declared or paid on the
Restricted Stock Shares shall be (i) deferred until the lapsing of the
Forfeiture Restrictions applicable to such Shares and (b) held by the Company
for the account of the Employee until such time. The Committee shall determine
whether such dividends are to be reinvested in shares (which shall be held as
additional Restricted Stock Shares) or held in cash. If deferred dividends are
to be held in cash, there may be credited at the end of each year (or portion
thereof) interest on the amount of the account at a rate per annum as the
Committee, in its discretion, may determine. Payment of deferred dividends in
respect of the Restricted Stock Shares (whether held in cash or as additional
Restricted Stock Shares), together with interest accrued thereon, if any, shall
be made upon the lapsing of the Forfeiture Restrictions applicable to the
Restricted Stock Shares in respect of which the deferred dividends were paid,
and any dividends deferred (together with any interest accrued thereon) in
respect of any of the Restricted Stock Shares shall be forfeited upon the
forfeiture of such shares.
 
(e)           Corporate Acts.  The existence of the Restricted Stock Shares
shall not affect in any way the right or power of the Board or the stockholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company’s capital structure or its
business, any merger or consolidation of the Company, any issue of debt or
equity securities, the dissolution or liquidation of the Company or any sale,
lease, exchange or other disposition of all or any part of its assets or
business or any other corporate act or proceeding. The prohibitions of
Section 2(a) hereof shall not apply to the transfer of Restricted Stock Shares
pursuant to a plan of reorganization of the Company, but the stock, securities
or other property received in exchange therefor shall also become subject to the
Forfeiture Restrictions and provisions governing the lapsing of such Forfeiture
Restrictions applicable to the original Restricted Stock Shares for all purposes
of this Agreement and the certificates representing such stock, securities or
other property shall be legended to show such restrictions.
 
 
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3.           Withholding of Tax.  To the extent that the receipt of the
Restricted Stock Shares or the lapse of any Forfeiture Restrictions results in
compensation income or wages to the Employee for federal or state income tax
purposes, the Employee shall deliver to the Company at the time of such receipt
or lapse, as the case may be, such amount of money as the Company may require to
meet its obligation under applicable tax laws or regulations. The Employee may
elect with respect to this Agreement to surrender or authorize the Company to
withhold shares of stock of the Company (valued at their Fair Market Value on
the date of surrender or withholding of such shares) to satisfy any tax required
to be withheld by reason of compensation income or wages resulting under this
Agreement. An election pursuant to the preceding sentence shall be referred to
herein as a “Stock Withholding Election” and the Company retains the right to
impose conditions on the Employee’s rights regarding any Stock Withholding
Election. All Stock Withholding Elections shall be made by written notice to the
Company at its principal executive office addressed to the attention of the
Secretary. If the Employee is not a Section 16 Person, the Employee may revoke
such election by delivering to the Secretary written notice of such revocation
prior to the date such election is implemented through actual surrender or
withholding of shares of stock of the Company (the “Withholding Date”). If the
Employee is a Section 16 Person, the Stock Withholding Election must:
 
(a)           be irrevocable and made six months prior to the Withholding Date,
or
 
(b)           (i) be approved by the Committee, either before or after such
election is made, (ii) be made, and the Withholding Date occur, during a period
beginning on the third business day following the date of release by the Company
for publication of quarterly and annual summary statements of sales and earnings
and ending on the twelfth business day following such date, and (iii) be made
more than six months after the effective date of this Agreement.
 
If the Employee fails to pay the required amount to the Company or fails to make
a Stock Withholding Election, the Company is authorized to withhold from any
cash remuneration (or, if the Employee is not a Section 16 Person, stock
remuneration, including withholding any Restricted Stock Shares distributable to
the Employee under this Agreement) then or thereafter payable to the Employee
any tax required to be withheld by reason of compensation income or wages
resulting under this Agreement or the disposition of Restricted Stock Shares
acquired under this Agreement.
 
4.           Tax Consequences.  The Employee has reviewed with the Employee’s
own tax advisors the federal, state, local and foreign tax consequences of the
grant of Restricted Stock Shares and the transactions contemplated by this
Restricted Stock Agreement.  The Employee is relying solely on such advisors and
not on any statements or representations of the Company or any of its
agents.  The Employee understands that the Employee (and not the Company) shall
be responsible for any tax liability that may arise as a result of the
transactions contemplated by this Restricted Stock Agreement.  The Employee
understands that Section 83 of the Code, taxes as ordinary income the difference
between the purchase price for any restricted property (such as the Restricted
Stock Shares granted hereunder) and the fair market value of the Restricted
Stock Shares as of the date the Forfeiture Restrictions applicable to the
Restricted Stock Shares lapse.  The Employee understands that the Employee may
elect to be taxed at the time the Restricted Stock Shares are granted rather
than when and as the Forfeiture Restrictions lapse by filing an election under
Code Section 83(b) with the Internal Revenue Service within 30 days from the
date of grant of the Restricted Stock Shares.  The Employee acknowledges that it
is the Employee’s sole responsibility, and not the Company’s, to file a timely
election under Code Section 83(b), even if the Employee requests the Company or
its representatives to make this filing on his or her behalf.
 
5.           Status of Stock.  The Employee agrees that the Restricted Stock
Shares issued under this Agreement will not be sold or otherwise disposed of in
any manner which would constitute a violation of any applicable federal or state
securities laws. The Employee also agrees that certificates, if any,
representing the Restricted Stock Shares shall bear the following restrictive
legends in order to reflect the Forfeiture Restrictions and to assure compliance
with applicable securities laws,
 
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
UNITED STATES FEDERAL OR STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED OR ASSIGNED FOR VALUE, DIRECTLY OR INDIRECTLY, NOR
MAY THE SECURITIES BE TRANSFERRED ON THE BOOKS OF THE COMPANY, WITHOUT
REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE UNITED STATES FEDERAL AND
STATE SECURITIES LAWS OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM, SUCH
COMPLIANCE, AT THE OPTION OF THE COMPANY, TO BE EVIDENCED BY AN OPINION OF
STOCKHOLDER’S COUNSEL, IN A FORM ACCEPTABLE TO THE COMPANY, THAT NO VIOLATION OF
SUCH REGISTRATION PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR
ASSIGNMENT.
 
 
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO FORFEITURE AND
TRANSFER RESTRICTION PROVISIONS AS CONTAINED IN A RESTRICTED STOCK AGREEMENT BY
AND BETWEEN THE COMPANY AND [_________] DATED [_________].

The Employee further agrees that (i) the Company may refuse to register the
transfer of the Restricted Stock Shares on the stock transfer records of the
Company if such proposed transfer would constitute a violation of the Forfeiture
Restrictions or, in the opinion of counsel satisfactory to the Company, of any
applicable securities law, and (ii) the Company may give related instructions to
its transfer agent, if any, to stop registration of the transfer of the
Restricted Stock Shares.

6.           Employment Relationship.  For purposes of this Agreement, the
Employee shall be considered to be in the employment of the Company as long as
the Employee remains an employee of either the Company or a Subsidiary (as such
term is defined in the Plan). Without limiting the scope of the preceding
sentence, it is expressly provided that the Employee shall be considered to have
terminated employment with the Company at the time of the termination of the
“Subsidiary” status under the Plan of the entity or other organization that
employs the Employee. Nothing in this Agreement, the Plan or the award of any
Restricted Stock Shares thereunder, shall confer upon the Employee the right to
continued employment by the Company or affect in any way the right of the
Company to terminate such employment at any time. Unless otherwise provided in a
written employment agreement or by applicable law, the Employee’s employment by
the Company shall be on an at-will basis, and the employment relationship may be
terminated at any time by either the Employee or the Company for any reason (or
no reason at all), with or without cause. Any question as to whether and when
there has been a termination of such employment, and the cause of such
termination, shall be determined by the Committee, and its determination shall
be final.
 
7.           Notices.  Any notices or other communications provided for in this
Agreement shall be sufficient if in writing. In the case of the Employee, such
notices or communications shall be effectively delivered if hand delivered to
the Employee at his principal place of employment or if sent by registered or
certified mail to the Employee at the last address the Employee has filed with
the Company. In the case of the Company, such notices or communications shall be
effectively delivered if sent by registered or certified mail to the Company at
its principal executive offices.
 
8.           Parachute Payment.  In the event that the receipt of the Restricted
Stock Shares or the lapse of any Forfeiture Restrictions would constitute a
parachute payment (within the meaning of section 280G of the Code) at a time
when the Employee’s severance agreement, if any, with the Company that is in
effect as of the date hereof (or any successor agreement) is in effect, then the
amount of such parachute payment shall be treated as a payment to the Employee
for purposes of determining the amount of any gross-up payment to be made to the
Employee under the terms of any such severance agreement (or any successor
agreement) with respect to the excise tax imposed by Section 4999 of the Code.
 
9.           Entire Agreement; Amendment.  This Agreement replaces and merges
all previous agreements and discussions relating to the same or similar subject
matters between the Employee and the Company and constitutes the entire
agreement between the Employee and the Company with respect to the subject
matter of this Agreement. This Agreement may not be modified in any respect by
any verbal statement, representation or agreement made by any employee, officer,
or representative of the Company or by any written agreement unless signed by an
officer of the Company authorized to execute such document. Except as provided
below, any modification of this Agreement shall be effective only if it is in
writing and signed by both the Employee and an authorized officer of the
Company.
 
10.           Binding Effect.  This Agreement shall be binding upon and inure to
the benefit of any successors to the Company and all persons lawfully claiming
under the Employee.
 
11.           Controlling Law.  This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware.
 
 
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IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by
an officer thereunto duly authorized, and the Employee has executed this
Agreement, all as of the date first above written.
 

   
CARBON NATURAL GAS COMPANY
           
By:
       
Patrick R. McDonald,
Chief Executive Officer
           
EMPLOYEE
                   
 
SS#:

 
 
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