CarbonNatural Gas Company AnnualIncentive Plan 2016
Exhibit 10.1
Carbon Natural Gas Company
Annual Incentive Plan
2016
Carbon Natural Gas Company
2016 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 is focused on objectives that are critical to the success of Carbon Natural Gas Company and the creation of value for shareholders. |
| ● | Offer industry competitive cash compensation opportunities for employees. |
| ● | Reward outstanding achievement. |
| ● | Recruit and retain key employees. |
Plan Outline
The Plan provides for Annual Incentive Awards which will be determined on the basis of the Company’s results of Financial and Operating Performance Measures.
Thirty percent of the Incentive Award will be based on Financial and Operating Performance Measures selected by the Board of Directors.
Seventy percent of the Incentive Award will be a Discretionary Award determined by the Board of Directors.
The Plan period is from January 1, 2016 to December 31, 2016.
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Carbon Natural Gas Company
2016 Annual Incentive Plan
Performance Objective Measures and Weighting
The Board of Directors will establish the Financial and Operating Performance Measures, the Threshold, Target and Outstanding performance levels and the weighting for each Performance Measure.
The Financial and Operating Performance Measures and Targets for the 2016 Annual Incentive Plan are set forth below:
| Performance Measure | ||||||||||||||||
| Weighting | Threshold | Target | Outstanding | |||||||||||||
| Lease Operating Expenses $ / unit of Production | 33.33 | % | $ | 1.25 | $ | 1.11 | $ | 1.00 | ||||||||
| General & Administrative Expenses | 33.33 | % | $ | 4,500,000 | $ | 4,200,000 | $ | 4,000,000 | ||||||||
| Year End Bank Debt | 33.33 | % | $ | 9,500,000 | $ | 9,045,000 | $ | 8,600,000 | ||||||||
| Total Performance Measures | 100 | % | ||||||||||||||
Board of Directors Discretionary Component - Weighting_70% of Award
The discretionary component is designed to address notable achievements not reflected in the Performance Measures component of the Plan Award.
| Range of Board Discretionary Incentive Award: | 0% - 200% |
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Carbon Natural Gas Company
2016 Annual Incentive Plan
Plan Administration
The Plan will be administered by the Compensation, Nominating and Governance 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.
The Board of Directors shall determine Award levels for the Chief Executive Officer, Chief Financial Officer, President and the Staff Pool. The CEO will allocate Incentive Awards to the Pool Participants.
The Board cannot increase payout amounts above the outstanding level for performance categories which 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 Board can, in its discretion, reduce or increase the payout amounts for 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 | Level at which Minimum Award payout occurs | |
| ● | Target | Level at which the participant receives the Target Award percentage. | |
| ● | Outstanding | Level at which the participant receives 200% of the Target Award. |
Completion percentages between Threshold, Target and Outstanding will be determined by linear interpolation.
Targets maybe adjusted for material changes made during the year to the business plan or scope thereof, including changes to the capital expenditure budget.
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Carbon Natural Gas Company
2016 Annual Incentive Plan
Performance Levels
Performance levels will be set for each Measure. Performance results below the Threshold in any one Measure will equate to a zero completion percentage for that Measure.
A minimum 30% overall completion achievement is required for the total Plan in order for any Incentive 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 will be the sum of the weighted completion percentages for each individual Measure.
The Board will determine the Discretionary Award which may range from 0% to 200% achievement and which will account for 70% of the overall Incentive Award.
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, the bonus award (if any) will be paid at the discretion of the Board of Directors.
The Target Award percentages for the CEO and the named executive officers of the Company (Exhibit A) are established by the Board of Directors. The CEO is authorized to establish and adjust at his discretion the Target Award percentages for Staff Pool participants and the allocation of incentive awards to the Pool Participants. All Awards to officers under the Plan are subject to approval of the Board.
Incentive 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, took a leave of absence, or was absent due to a worker’s compensation issue.
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Carbon Natural Gas Company
2016 Annual Incentive Plan
| Performance Measure | Lease Operating Expenses $ / unit of Net Production |
| Target | Lease Operating Expenses of $1.11 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 one barrel of oil equal to 6 mcf of natural gas. | |
| Definition | Actual cash Lease Operating Expenses. |
| Award Levels | ● Threshold $1.25 per Unit |
| ● Target $1.11 per Unit | |
| ● Outstanding $1.00 per Unit |
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Carbon Natural Gas Company
2016 Annual Incentive Plan
| Performance Measure | General & Administrative Expenses |
| Target | General & Administrative Expenses of $4,200,000 |
| Definition | Actual cash General and Administrative expenses. |
| For purposes of the Plan, Annual Incentive Plan Award amounts shall be excluded from cash General and Administrative expenses. |
| Award Levels | ● Threshold $4,500,000 |
| ● Target $4,200,000 | |
| ● Outstanding $4,000,000 |
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Carbon Natural Gas Company
2016 Annual Incentive Plan
| Performance Measure | Year End Bank Debt |
| Target | Year End Bank Debt of $9,045,000 |
| Definition | Bank Debt at December 31, 2016 |
| Bank debt shall be defined as outstanding borrowings on the Company’s credit facility. The Board of Directors may consider adjusting bank debt to include changes in working capital (if such adjustments have a material effect on the ratio) or if the Company completes corporate or asset acquisitions during the year. |
| Award Levels | ● Threshold $9,500,000 |
| ● Target $9,045,000 | |
| ● Outstanding $8,600,000 |
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Carbon Natural Gas Company
2016 Annual Incentive Plan
Exhibit A
| Target Bonus Award Levels | % | |||
| Patrick M. McDonald | Chief Executive Officer | 100 | ||
| Kevin D. Struzeski | Chief Financial Officer | 65 | ||
| Mark D. Pierce | President | 65 |
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