Exhibit 10.1
 
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Carbon Natural Gas Company

Annual Incentive Plan

2013

 
 

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Carbon Natural Gas Company
2013 Annual Incentive Plan

Plan Objectives

The Annual Incentive Plan (the “Plan”) is designed to meet the following
objectives:

●    
Provide an annual incentive plan that is performance driven and focused on
objectives that are critical to the success of Carbon Natural Gas Company and
the creation of value for shareholders.

●    
Offer competitive cash compensation opportunities to employees.

●    
Reward outstanding achievement.

●    
Recruit and retain key employees.

Plan Concept

The Plan provides Annual Incentive Awards which will be determined primarily on
the basis of the Company’s results on financial and operating performance
measures.

Sixty percent of the Incentive Award shall be based on financial and operating
performance measures selected by the Board of Directors.

Forty percent of the Incentive Award will be based upon discretion of the Board
of Directors.

The Plan period is from January 1, 2013 to December 31, 2013.

Performance Objective Measures and Weighting

The Board of Directors will establish the Performance Measures and Objectives,
the Threshold, Target and Outstanding performance levels and the weighting for
each Performance Measure.

Measure
 
Weighting
 
Target
         
EBITDA per Debt Adjusted Share Growth
 
16.67%
 
75.00% increase
         
Net Total Proved Reserves
 
16.67%
 
15.00% increase
         
Net Annual Production Growth
 
16.67%
 
20.00% increase
         
Lease Operating Expenses ($/unit)
 
16.67%
 
$1.00/mcfe (6:1)
         
G&A per Unit of Production ($/unit)
 
16.6%
 
$1.00 per unit of production equivalent
         
F&D Cost per Unit of Reserves
 
16.6%
 
$.75 per unit of reserve equivalent
         
Total of Performance Measures
 
100.00%
   

 
 
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Carbon Natural Gas Company
2013 Annual Incentive Plan
 
Plan Administration

The Plan will be administered by the Committee and the Chief Executive Officer
(for all positions except his own).  The Chief Financial Officer will verify the
performance calculation for the financial and operating measures in consultation
with the President, who shall be responsible for the estimation of the Company’s
oil and gas reserves.

The CEO will establish the Incentive Award Pool for the non-officer employees
and will allocate Incentive Awards to the Pool Participants.

The board cannot increase payout amounts above the outstanding level under
performance categories that depend on the achievement of specific Company
targets. Payments related to performance categories that are tied to the
achievement of specific targets are capped once the highest level is
achieved.  The committee can, in its reasonable discretion, reduce the payout
amounts for these performance categories after taking into account special or
unusual factors that may have contributed to the achievement of target
performance measures such as acquisitions, commodity prices or other factors
considered appropriate by the Board.

Award Achievement Levels

Award Achievement Levels for the Plan will be:
 

● Threshold Minimum level at which Incentive Award payout occurs       ● Target
Level at which the participant receives the Incentive Target Award percentage.
      ● Outstanding
Level at which the participant receives 200% of the Incentive Target Award
percentage.

 
Completion percentages between Threshold, Target and Outstanding will be
determined by interpolation.

Targets shall be adjusted for material changes made during the year to the
business plan or scope thereof, including the capital expenditure budget.
 
 
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Carbon Natural Gas Company
2013 Annual Incentive Plan

 
Performance Levels

Performance levels will be set for each measure.  Performance results below the
Threshold will equate to a zero completion percentage.

A minimum 30% completion threshold is required for the total Plan in order for
Award payments to be made under the Plan.

Completion Calculation

Completion percentages for each individual measure will be equal to the
calculated completion percentage of the measure times the weighting for that
measure. The overall completion percentage for the Plan for financial and
operating measures and department objectives will be the sum of the weighted
completion percentages for each individual measure.

Participants

The CEO shall determine which employees are to be participants in the Plan.  If
a participant’s employment with the Company terminates for any reason prior to
payment, no bonus award will be paid.

The Target Award percentages for the CEO and other officers of the Company
(Exhibit A) are established by the Board of Directors.  Changes to Target Award
percentages for Company officers are subject to the approval of the Board. The
CEO is authorized to establish and adjust at his discretion the Target Award
percentages for non-officer Plan participants. All Awards to officers under the
Plan are subject to approval of the Board.

Incentive compensation Awards will be calculated based upon the participant’s
average base salary during the Plan year or earned salary during the Plan year
if the participant was a new hire during the year.

 
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Carbon Natural Gas Company
2013 Annual Incentive Plan
 
Performance Measure
EBITDA per Debt Adjusted Share Growth
   
Objective
75.00% increase in EBITDA per Debt Adjusted Share Growth.
   
Definition
% increase in EBITDA per Debt Adjusted Share Growth from January 1, 2013 to
December 31, 2013.
   
Awards Level
●
Threshold
75% of Objective         ●
Target
100% of Objective         ●
Outstanding
150% of Objective

 
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Carbon Natural Gas Company
2013 Annual Incentive Plan
 
Performance Measure
Net Total Proved Reserves
   
Objective
15.00 % increase in Net Total Proved Reserves. All reserve calculations are
based on SEC reserve rules.
   
 
For purposes of the Plan, proved reserves shall be measured by calculating the
natural gas equivalent value as determined by the ratio of the individual
product annual average SEC prices at December 31, 2013.
    Definition
The percentage change in the company’s Net Total Proved Reserves from January 1,
2013 to December 31, 2013.
   
Awards Level
●
Threshold
75% of Objective         ●
Target
100% of Objective         ●
Outstanding
150% of Objective

 
 
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Carbon Natural Gas Company
2013 Annual Incentive Plan
 
Performance Measure
% Growth in Net Annual Production
   
Objective
20.00% increase in net annual production.
     
For purposes of the Plan, net production shall be measured by calculating the
natural gas equivalent value as determined by the ratio of the individual
product annual average SEC prices at December 31, 2013.
    Definition
% increase in net production from January 1, 2013 to December 31, 2013.
   
Awards Level
●
Threshold
75% of Objective         ●
Target
100% of Objective         ●
Outstanding
150% of Objective

 
 
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Carbon Natural Gas Company
2013 Annual Incentive Plan

Performance Measure
Lease Operating Cost $/unit
   
Objective
Lease Operating Expenses of $1.00/mcfe (6:1)
    Definition
Actual cash costs of the Company’s lease operating expenses.
   
Awards Level
●
Threshold
110% of Objective
        ●
Target
100% of Objective         ●
Outstanding
80% of Objective

 
 
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Carbon Natural Gas Company
2013 Annual Incentive Plan
 
Performance Measure
G&A Cost $/unit
   
Objective
General and Administrative Expense of $1.00 per unit of net production
equivalent.
     
For purposes of the Plan, net equivalent production shall be measured by
calculating the natural gas equivalent value as determined by the ratio of the
individual product annual average SEC prices at December 31, 2013.
    Definition
Actual cash costs of the company’s general and administrative expenses.
   
Awards Level
●
Threshold
110% of Objective
        ●
Target
100% of Objective         ●
Outstanding
90% of Objective

 
 
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Carbon Natural Gas Company
2013 Annual Incentive Plan
 
Performance Measure
Finding and Development Cost $/unit
   
Objective
Finding and Development Costs at $.75 per unit of net  equivalent reserve
additions through drilling and completion activities.
     
For purposes of the Plan, net equivalent reserve additions shall be measured by
calculating the natural gas equivalent value as determined by the ratio of the
individual product annual average SEC prices at December 31, 2013.
    Definition
The quotient of capital expenditures divided by the change in proved reserves
during 2013 after the addition of 2013 production.
   
Awards Level
●
Threshold
110% of Objective
        ●
Target
100% of Objective         ●
Outstanding
80% of Objective

 
 
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Exhibit A

Target Bonus Award Levels
 
%
     
Patrick R. McDonald
Chief Executive Officer
100
Kevin D. Struzeski
Chief Financial Officer
  60
Mark D. Pierce
President
  60

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