Document:

Exhibit 10.1

 

Eagle Rock Energy G&P, LLC

2012 Short Term Incentive Bonus Plan

 

Objective

 

The objective of the 2012 Short Term Incentive Bonus Plan (the “Plan”) is to encourage the employees of Eagle Rock Energy G&P, LLC (the “Company”) to conduct activities that result in the achievement of the Company’s financial and operational objectives. The Company serves as the general partner of the general partner of Eagle Rock Energy Partners, L.P. (the “Partnership”) and receives reimbursement from the Partnership for its expenses, including payments under this Plan.  References in the Plan to “Enterprise” mean the Company, the Partnership and all of its subsidiaries.

 

Participants

 

Regular full-time employees who were 1) employed during 2012; 2) hired prior to October 1, 2012; and 3) who are active full-time employees at the time of bonus payment are “Participants” in the Plan; provided, however, that the Company may cause an employee who began employment after September 30, 2012 to be included as a Participant, but only if such treatment is expressly set forth in a written offer letter from the Company at the time of employment.  If bonus payments are made under the Plan, they are expected to be paid in March 2013.

 

Plan Provisions

 

·                  The Plan will be administered by the Compensation Committee of the Board of Directors of the Company (the “Committee”), based on funding approval by the Board of Directors of the Company (the “BOD”), and subject to performance recommendations made by the Chief Executive Officer (“CEO”) and members of senior management (“Senior Management) as described in further detail in this Plan, as follows:

 

·                  The BOD must first determine the Partnership’s 2012 achievement of Enterprise Goals and approve a Funding Percentage, and the BOD has full discretion to fully or partially fund the Plan, or to deny funding; the Board may over-fund the Plan (i.e., by setting a Funding Percentage in excess of 100% ) in extraordinary circumstances;

 

 

·                  The Committee has complete discretion in administering the Plan and approving individual bonus payments under the Plan after the BOD has approved a Funding Percentage.

 

·                  Each Participant will be assigned and notified of their eligible Target Bonus Percentage (as defined below) in writing during the First Quarter of 2012 or, if starting with the Company after such notification event, in a written offer letter at the time of initial employment or, at the time a job reclassification or promotion commences that results in a Target Bonus Percentage change as communicated in a written notification letter at the time of the job reclassification or promotion.  If a Target Bonus Percentage change occurs, the new Target Bonus Percentage change will be factored into the bonus formula for the entire Plan year, unless otherwise specified.  The Target Bonus Percentage is a percentage of the Participant’s Annual Gross Base Wage Earnings (as defined below), and represents the target bonus opportunity based on 100% achievement of the Enterprise Goals and a 100% Individual Performance Factor as a result of the individual performance review appraisals performed at the end of 2012 and/or early 2013.   Any Participant who has performed at an exceptional level and whose accomplishments are recognized by the Committee or Senior Management could receive an Individual Performance Factor up to 125%.    The Committee may increase the Individual Performance Factor in excess of 125% in extraordinary circumstances.

 

·                  Participants are not guaranteed to receive a bonus payment.

 

Bonus Payments

 

Each Participant’s bonus payment will be calculated according to the following formula:

 

Bonus =  Annual Gross Base Wage Earnings

* Bonus Target Percentage

* Funding Percentage

* Individual Performance Factor

 

where,

 

Annual Gross Base Wage Earnings =                                          gross base cash wages earned from January 1, 2012 (or employment commencement for new hires hired before October 1, 2012) through December 31, 2012 (which, for the avoidance of doubt, and by way of example, shall not include overtime, call out pay, shift differential, bonuses, commissions, transportation subsidies, or distributions on restricted common units).

 

2

 

Bonus Target Percentage =                                                                                               % assigned by the Committee for Senior Management and by Senior Management for all other Participants, based on Participant’s position level in relation to other positions in the Company (e.g., requirements relative to the skills and knowledge required to perform the essential job functions, overall level of responsibility, decision making authority, and impact to the Company’s overall operations and financial performance).

 

Funding Percentage =                                                                                                                           value from 0 to in excess of 100% determined by, and at the complete discretion of, the BOD; expressly dependent on achievement of Enterprise financial, operational and safety goals (see “Enterprise Goals” below).

 

Individual Performance Factor =                                                                      value from 0 to 125% (or in excess of 125% at the discretion of the Committee) depending on individual performance relative to Participant’s Performance Appraisal Rating (see Table 1).

 

3

 

2012 Enterprise Goals

 

2012 Enterprise Goals
 Short Term Incentive Bonus Plan (“STIBP”)
  STIBP Payout 100%

 

	
 
    	
 
    	
Target
    	
 
    	
Weighting %
    
	
1.    Adjusted EBITDA
    	
 
    	
$[*****]
    	
 
    	
20%
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
2.    DCF
    	
 
    	
$[*****]   / unit
    	
 
    	
15%
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
3.    Volumes Targets
    	
 
    	
 
    	
 
    	
15%
    
	
a.     Midstream   Daily volumes
    	
 
    	
497.5   MMcf/d average
    	
 
    	
 
    
	
i.      Equity   Barrels (NGLs and Cond.)
    	
 
    	
7,453   bbls / day average
    	
 
    	
 
    
	
b.     Upstream   Annual Volumes
    	
 
    	
33.752   Bcfe
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
4.    OPEX (excludes ad valorem /   sev. Tax) / G&A
    	
 
    	
 
    	
 
    	
10%
    
	
a.     Midstream
    	
 
    	
$67.7   MM
    	
 
    	
 
    
	
i.      $/Mcf Target
    	
 
    	
$[*****]   / Mcf
    	
 
    	
 
    
	
ii.    Run   Times of major equipment (see note 2)
    	
 
    	
97%   or better on an annualized basis
    	
 
    	
 
    
	
b.     Upstream
    	
 
    	
$36.454   MM (see note 3)
    	
 
    	
 
    
	
i.      $/   Mcfe Target
    	
 
    	
$[*****]   / Mcfe (see note 3)
    	
 
    	
 
    
	
c.     G&A   (excluding LTIPs)
    	
 
    	
not   to exceed $ 54.0 MM
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
5.    Capital Efficiency
    	
 
    	
 
    	
 
    	
15%
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
a.     Midstream
    	
 
    	
 
    
	
 
    	
 
    	
a.
    	
ROR >16% (excludes acquisitions)
    
	
 
    	
 
    	
b.
    	
Acquisition ROR >12% (must be accretive while   maintaining appropriate capital structure)
    
	
 
    	
 
    	
c.
    	
Add [*****]/d volumes @ gross margin not less   than $[*****] / MMBtu
    
	
 
    	
 
    	
 
    
	
b.     Upstream
    	
 
    	
 
    
	
 
    	
 
    	
a.
    	
ROR > 18% (excludes   acquisitions)
    
	
 
    	
 
    	
b.
    	
Acquisition ROR >12% (must be accretive while   maintaining appropriate capital structure)
    
	
 
    	
 
    	
c.
    	
UDC <$1.95 / Mcfe on Drill, Completion &   Recompletion costs
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
6.    Safety
    	
 
    	
 
    	
 
    	
10%
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
a.
    	
Maximum employee recordable incident rate of .75
    
	
 
    	
 
    	
b.
    	
Maximum preventable motor vehicle incident rate   (PMVR) of 2.0
    
	
 
    	
 
    	
c.
    	
No preventable pipeline strikes
    
	
 
    	
 
    	
d.
    	
Track and report Contractor Recordable Injury   Rate performance
    
	
 
    	
 
    	
e.
    	
Complete full implementation of critical Health &   Safety Procedures
    
	
 
    	
 
    	
f.
    	
Conduct annual emergency response training for   Corporate and Field personnel
    
	
 
    	
 
    	
g.
    	
Continue implementation of Process Safety   management systems across Company and goal of no past due Process Safety   Audits or Process Hazard Analysis action items
    
	
 
    	
 
    	
 
    	
 
    
	
7.    Environmental
    	
 
    	
 
    	
 
    	
10%
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
a.
    	
Complete full implementation and use of   Environmental Management Information System
    
	
 
    	
 
    	
b.
    	
Complete Big Escambia Creek and Flomaton SO2   reduction projects on time and on budget
    
	
 
    	
 
    	
c.
    	
No major NRC recordable spills
    
	
 
    	
 
    	
 
    	
-      defined as spills greater than   1,000 gallons or two 42 gallon spills in navigable water
    
	
 
    	
 
    	
d.
    	
10 or fewer reportable   emissions events (excludes Big Escambia Creek)
    
	
 
    	
 
    	
 
    	
 
    
	
8.    Property Sales
    	
 
    	
 
    	
 
    	
5%
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
a.
    	
Sell $10 MM of non core   assets
    
								

 

	
NOTE 1:
    	
The above figures are based on the Corporate Price Deck as of February 2012 ($[*****]/ bbl oil and $[*****] / Mcf gas)
    
	
 
    	
 
    
	
NOTE 2:
    	
a.     Major equipment is defined as Compressors   and large gathering and processing facilities
    
	
 
    	
 
    
	
 
    	
b.     Runtime of major equipment excludes   approved schedule (i) major turnarounds and (ii) preventative   maintenance and (iii) force majeure weather events
    
	
 
    	
 
    	
 
    
	
NOTE 3:
    	
a.      Upstream OPEX excludes taxes and post   production costs.
    

 

[*****] indicates redacted terms for which confidential treatment has been requested from the Securities and Exchange Commission.

 

4

 

 

Individual Goals and Performance Appraisal Rating

 

·                  Each Participant will document a set of measurable 2012 goals by the later of February 28, 2012 or within one month of their employment start date.  These goals should support the achievement of the 2012 Enterprise Goals and must be both submitted through the online performance management system and approved by the Participant’s immediate supervisor in order to be valid and eligible for inclusion in the Plan.   Senior Management’s goals must also be approved by the Committee.

·                  The achievement of these goals will be a key factor in determining a Participant’s Performance Appraisal Rating.

·                  The Committee will determine the Performance Appraisal Rating for the Chief Executive Officer and approve the Performance Appraisal Ratings of Senior Management, with recommendations of the Chief Executive Officer, and Senior Management will determine the Performance Appraisal Ratings for all other Participants, with recommendations made by the immediate supervisor and all other supervisors in between such supervisor and Senior Management.

 

Individual Performance Factor

 

·                  The Committee, with respect to Senior Management, and Senior Management, with respect to all other Participants, will consider the Performance Appraisal Rating and, in their discretion, further evaluate the Participant’s performance by assigning an Individual Performance Factor within the appropriate range (Table 1).

 

5

 

Table 1

Individual Performance Factors

 

	
Performance Appraisal
   Rating
    	
 
    	
Individual   Performance
   Factor
    
	
 
    	
 
    	
 
    
	
1   - Exceptional
    	
 
    	
110 - 125%

(or in excess of 125% at the discretion of the Committee)
    
	
2   - Strong
    	
 
    	
95 - 109%
    
	
3   - Fully Met Expectations
    	
 
    	
75 - 94%
    
	
4   - Not Acceptable; Improvement Needed
    	
 
    	
25 - 50%
    
	
5   - Not Acceptable; Improvement Required
    	
 
    	
0%
    

 

6

 

Example Bonus Calculation

 

Assume the Company achieves most, but not all, of its 2012 Enterprise Goals.  The BOD reviews the performance of the company and determines that a Funding Percentage of 90% is appropriate.  Participant A is an operator who was rated “3 - Fully Met Expectations” by his supervisor, based on his achievement of his individual goals.  Management determines that Participant A should receive an Individual Performance Factor of 91% based on the Performance Appraisal Rating.  Participant A was hired on April 1, 2012 and earned gross base wages in the amount of $38,999.99 from April 1, 2012 through December 31, 2012.

 

In this example,

 

	
Annual   Gross Base Wage Earnings =
    	
=   $38,999.99
    
	
 
    	
 
    
	
Bonus   Target Percentage =
    	
7%
    
	
 
    	
 
    
	
Funding   Percentage =
    	
90%   (determined by the BOD’s assessment of achievement of 2012 Enterprise Goals)
    
	
 
    	
 
    
	
Individual   Performance Factor =
    	
91%   (based on Performance Appraisal Rating and Senior Management discretion)
    
	
 
    	
 
    

So,

 

Bonus payment = $38,999.99* 0.07 * 0.90 * 0.91 = $2,235.87

 

APPROVED AND ADOPTED FEBRUARY 7, 2012

BY THE BOARD OF DIRECTORS

 

7December 31, 2011 Exhibit 10.7

 Exhibit 10.7

CONSULTING AGREEMENT

This Consulting Agreement is effective September 22, 2009 between Cavitation Technologies,
Inc. ("Company") and R.L. Hartshorn ("Consultant").

1.Scope and Term of Services.  Consultant shall, upon request by Company,
provide the services specified in Exhibit A, Section 1.  Consultant shall coordinate Consultant's efforts and
report Consultant's progress regularly to the individual specified in Exhibit A, Section 2. Consultant shall
provide such services during the period shown in Exhibit A, Section 3.

2.Payment.  Company shall pay Consultant as specified in Exhibit A,
Section 4.  Payments to Consultant shall not be subject to income or employment tax withholding and shall be
reported on Form 1099.  Company has no obligation to reimburse Consultant for any expenses incurred by
Consultant under this Agreement, unless specifically authorized in writing by Company.  Consultant hereby indemnifies
Company against any obligation imposed on Company to pay withholding taxes or similar items or resulting from a
court's or governmental entity's determination that Consultant is not an independent contractor to Company.

3.Confidentiality.

(a)Consultant shall keep confidential all technical, customer, business and financial
information relating to Company's business disclosed by Company or its customers to Consultant directly or indirectly in
writing, orally or by inspection ("Information").  Consultant will not, during or after Consultant's consulting relationship
with Company, (i) disclose any Information directly or indirectly to any person or entity other than an employee or
affiliate of Company, acting in that capacity and for Company's benefit or (ii) use any Information other than for
Company's benefit.  These obligations do not apply to Information which has been published or is available generally to
the public, except where publication or availability results from Consultant's acts.

(b)  Consultant will not disclose to Company, or induce Company to use, any confidential or
proprietary information of a third party.  Consultant represents that Consultant's performance of this Agreement does not
and will not conflict with any agreement binding on Consultant to keep confidential a third party's proprietary information
or trade secrets.

(c)Upon Company's request Consultant will return to Company any Information in tangible
form possessed by Consultant.

4.Ownership of Inventions.

(a)Any invention, copyrightable material, technology and know-how created during and
relating to consulting services under this Agreement and any related intellectual property rights ("Inventions") shall be
owned by Company and are hereby assigned to Company.  Consultant shall

                                              - 1 -

promptly disclose to Company all Inventions which Consultant may conceive or make during the term of this Agreement.

(b)Whenever requested by Company, Consultant shall execute and deliver documents
considered necessary by Company to apply for and maintain intellectual property protection for the benefit of company
in any country, or to perfect Company's ownership of and exclusive right to Inventions.  Consultant irrevocably appoints
company and its authorized agents as Consultant's attorney-in-fact, to execute and file any such documents if
Consultant is unavailable, unable or unwilling to do so.  Consultant shall cooperate at Company's expense as requested
by Company in prosecuting or defending any litigation or other proceeding involving any Invention in any country.

(c)If Consultant incorporates into any Invention any invention, copyrightable material,
technology or know-how owned by Consultant or in which Consultant has an interest, Company shall have a
nonexclusive, royalty-free, perpetual, irrevocable, worldwide license to make, have made, modify, use and sell such item
in connection with such invention.

5.Subcontractors.   If Consultant is an entity, then Consultant shall obtain a written
agreement (naming Company as a third party beneficiary) from each employee of or consultant to Consultant which
binds such individual to the provisions of Sections 3 and 4.

6.Conflicts of Interest.  Consultant represents that this Agreement does not conflict
with any agreement or obligation binding on Consultant.  Consultant represents that Consultant is not presently retained
by any entity that designs, manufactures or sells products competitive with Company's present products, or proposed
products disclosed to Consultant.  Consultant shall not accept such retention without Company's approval while
Consultant is providing services to Company.

7.Independent Contractor Relationship.  The parties are independent contractors
and neither party is the agent of the other for any purpose.  Neither party has authority to assume any obligation for the
other or to make any representation on behalf of the other.  Consultant is not an employee of Company and is not
entitled to any benefits provided by Company to its employees.

8.Arbitration and Equitable Relief.  Any dispute arising out of this Agreement shall
be settled by arbitration held in Los Angeles, California, in accordance with the rules of the American Arbitration
Association.  The arbitrator may grant injunctions or other equitable relief.  The arbitrator's decision shall be final,
conclusive and binding on the parties to the arbitration.  Judgment may be entered on the arbitrator's decision in any
court of competent jurisdiction.  Company and Consultant shall each pay 50% of the costs of arbitration and shall each
separately pay its respective counsel fees and expenses.  Consultant agrees that it would be impossible or inadequate
to measure Company's damages from Consultant's breach of Sections 3, 4 or 6.  Accordingly, if Consultant
breaches Sections 3, 4 or 6, Company may, in addition to any other right or remedy, obtain an injunction
restraining such breach or threatened breach and specific performance of such provision, without delivery by Company
of a bond or other security.

                                              - 2 -

9.Termination. This Agreement may be terminated by either party upon 15
days written notice to the other party.  

10.Miscellaneous.  Any notice under this Agreement shall be in writing and shall be
deemed delivered 5 days after being mailed to the other party at the address set forth at the end of this Agreement or at
such other address given pursuant to this provision, and shall also be considered delivered upon transmission by
facsimile if a confirming letter is mailed on the same day.  This Agreement is the entire agreement regarding consulting
services between the parties.  The Agreement shall be governed by California law without regard to conflict of law
provisions thereof.  This Agreement may be modified only by a subsequent written instrument signed by Company and
Consultant.  Sections 3, 4, 5, 6 and 8 shall survive any termination of this Agreement or of consulting services.
Consultant may not subcontract any services to be provided under this Agreement without Company's prior written
consent.  This Agreement shall bind and benefit the heirs, legal representatives, successors and assigns of the
parties.

	

CAVITATION TECHNOLOGIES, INC.

	

CONSULTANT

	

By: /s/ Roman Gordon

	

By: /s/ R.L. Hartshorn

	

Title: Roman Gordon, CEO

	

Title: CFO

    

    

    

                                               - 3 -

EXHIBIT A

1.Scope of Services.  Consultant shall act as the Company's Chief Financial
Officer provide the Company with marketing and business plan writing purposes and Consultant shall provide audit prep
services.  

2.Supervisor.  Consultant shall report to Roman Gordon, CEO of the Company.

3.Term of Services.  12 months unless terminated by either party

4.Payment 75,000 shares for services rendered between September 22, 2009 and March 22, 2010
and cash payments on a to be determined basis thereafter.

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