Carbon Natural Gas Co (Form: 8-K, Received: 07/06/2011 13:58:50)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of Earliest Event Reported): July 6, 2011 (June 29, 2011)

CARBON NATURAL GAS COMPANY

(Exact name of registrant as specified in charter)

Delaware

000-02040

26-0818050

(State or Other Jurisdiction

of Incorporation)

(Commission File

Number)

(IRS Employer

Identification No.)

1700 Broadway, Suite 2020, Denver, Colorado		80290
(Address of principal executive offices)		(Zip code)

(720) 407-7043

(Registrant’s telephone number including area code)

(Former Name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 — Entry Into a Material Definitive Agreement.

On June 29, 2011, Carbon Natural Gas Company, a Delaware corporation (“ Carbon ” or the “ Company ”) entered into a common stock purchase agreement (the “ Common Purchase Agreement ”) with various institutional investors and other accredited investors for the private placement of 44,444,444 shares of the Company’s common stock at a price of $0.45 per share, and a preferred stock purchase agreement (the “ Preferred Purchase Agreement ”) with Yorktown Energy Partners IX, L.P., an institutional investor and affiliate of the Company’s current majority stockholders, for the private placement of 100 shares of the Company’s Series A Convertible Preferred Stock at a price of $100,000 per share (collectively, the “ Private Placement ”).

The shares of Series A Convertible Preferred Stock issued in the Private Placement will automatically convert to 22,222,222 shares of common stock upon the effectiveness of an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of common stock shares the Company is authorized to issue. Upon such conversion, Carbon will have issued 66,666,666 shares of common stock at $0.45 per share, for $30 million in gross proceeds.

The $30 million in gross proceeds from the offering is before the deduction of fees payable to the placement agents, representing five percent of gross proceeds ($1.5 million), plus reimbursement of certain expenses and legal fees they incurred, as well as other fees and expenses incurred by the Company in connection with the private placement.

Net Proceeds from the Private Placement have been principally used (approximately $22.7 million) for Carbon’s majority owned subsidiary, Nytis Exploration Company LLC (“NEC”), to complete the acquisition of certain gas and oil assets from The Interstate Natural Gas Company, LLC and certain related parties, which acquisition also closed on June 29, 2011 (see Item 2.01 below). The remainder of the net proceeds will be used to fund future acquisitions and for general working capital purposes.

The shares of common stock and Series A Convertible Preferred Stock issued in the Private Placement and the shares of common stock issuable upon the automatic conversion of the Series A Convertible Preferred Stock have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. Pursuant to the terms of the Common Purchase Agreement and a Registration Rights Agreement (the “ Registration Rights Agreement ”) by and between the Company and the purchasers under the Common Purchase Agreement in the Private Placement, the Company is required to file a registration statement with the U.S. Securities and Exchange Commission (the “ SEC ”) covering the resale of the shares of common stock issued to such purchasers, but not the shares of Series A Convertible Preferred Stock nor the common stock shares issuable upon the automatic conversion of the Series A Convertible Preferred Stock.

Carbon believes that it has a reasonable basis to believe that each of the 24 purchasers in the Private Placement are accredited investors as that term is defined in the SEC’s Regulation D, adopted under the Securities Act of 1933 (the “ 1933 Act ”). Accordingly, Carbon claims the exemption from registration of the offer and sale of the shares under Section 5 of the 1933 Act, under rule 506 of the SEC’s Regulation D, and also under Section 4(6) of the 1933 Act.

The forms of Common Purchase Agreement, Preferred Purchase Agreement and Registration Rights Agreement are included as Exhibits 10.1 , 10.2 and 10.3 , respectively, to this Current Report on Form 8-K (the “ Current Report ”).

Also, see the description of the pending acquisition of assets from Alerion Drilling I, LLC and the effectiveness of the asset purchase agreement entered into in connection therewith under Item 2.01(e) below.

Item 2.01 - Completion of Acquisition or Disposition of Assets

In the following disclosures, “we,” “our,” and “us” refer collectively to Carbon and NEC, unless otherwise stated.

(a) Date of completion of the transaction

On June 29, 2011, NEC effected the Final Closing under its February 14, 2011 Asset Purchase Agreement, as amended (the “ ING APA ”) with The Interstate Natural Gas Company, LLC and certain related parties, as seller (hereafter collectively referred to as “ ING ”) , of certain gas and oil assets (the “ ING Assets ”). The Final Closing was preceded by an Initial Closing on April 22, 2011, when NEC closed on the purchase of a portion of the ING Assets.

(b) Brief description of the assets involved

The ING Assets generally consist of certain natural gas properties, natural gas gathering and compression facilities and other assets related thereto, all located in eastern Kentucky and four counties in West Virginia.

Specifically, the ING Assets included (i) some but not all of ING’s leases and interests in natural gas and oil leases, and wells and wellbores thereon and related natural gas production equipment; (ii) partnership interests in various general partnerships that own comparable natural gas and oil assets and as to which ING was the managing general partner, wherein Nytis succeeded to ING’s position as managing general partner, (iii) partnership interests in other general partnerships in which ING owned partnership interests, but was not the managing general partner; (iv) natural gas gathering and compression facilities; and (v) various other contracts, vehicles and equipment related thereto, and easements and rights-of-way relating to or used in connection with the ownership and operation of the ING assets.

The partnership interests described in (ii) and (iii) include interests in approximately 154 of the approximately 430 producing wells acquired. Prior to the Final Closing, ING obtained consents from partners in these partnerships as required for us to succeed ING as a full substitute partner, and for those partnerships where ING was the managing general partner, to succeed ING as managing general partner.

Natural gas production from the ING Assets is gathered through a series of mostly 2-4 inch gathering lines to numerous meter stations, where the gas is delivered directly into interstate transmission lines or into other gatherers, or into one of several systems owned by local production companies for redelivery into interstate transmission. We assumed certain obligations to transport gas from wells that are owned by ING (or its affiliates) that NEC did not acquire, as well as obligations under other contracts and agreements that NEC acquired at the Final Closing.

(c) Identity of the person(s) from whom the assets were acquired, and the nature of any material relationship (other than in respect of the transaction) between them and Carbon, or any affiliate or any director or officer of Carbon, or any associate of any Carbon director or officer

For information on the persons from whom the ING Assets were acquired, see (b) above. There is no relationship otherwise between such persons and Carbon, NEC, or any affiliate or any director or officer of Carbon or NEC, or any associate or director or officer of Carbon or NEC.

(d) The nature and amount of consideration given or received for the assets and, if any material relationship is disclosed under (c) above, the formula or principle followed in determining the amount of such consideration

At the Initial and Final Closings, we paid a total of approximately $24.2 million cash for the ING Assets: $1.5 million at the Initial Closing, and $22.7 million at the Final Closing. Because completion of the financing through the Private Placement (see Item 2.01 above) took longer than anticipated, in addition to the amount paid at the Final Closing, NEC paid ING a total of $790,000 as additional purchase price adjustments and consideration for extending the date of the Final Closing to a date no later than June 30, 2011. As a consequence of closing on June 29, 2011, NEC received a $25,000 credit thereby reducing the above consideration and extension payments to a net $765,000.

(e) If the transaction being reported is an acquisition and if a material relationship exists between the registrant or any of its affiliates and the source(s) of the funds used in the acquisition, the identity of the source(s) of the funds, unless all or any part of the consideration used is a loan made in the ordinary course of business by a bank as defined in section 3(a)(6) of the Act, in which case the identity of such bank may be omitted, provided the registrant has made a request for confidentiality pursuant to section 13(d)(1)(b) of the Act, and states in the report on form 8-K that the identity of the bank has been so omitted and filed separately with the Commission

As described under Item 1.01 above, Carbon sold 100 shares of Series A Convertible Preferred Stock ($10 million aggregate purchase price) to Yorktown Energy Partners IX, L.P., an affiliate of Carbon’s majority stockholders, Yorktown Energy Partners V, L.P. and Yorktown Energy Partners VI, L.P. The proceeds from the sale of these shares were used to acquire the ING Assets. The approximately $1.5 million paid at the Initial Closing was borrowed from the Bank of Oklahoma under our Credit Facility.

The Alerion APA

A portion of the assets acquired from ING under the terms of the ING APA were direct interests in natural gas and oil properties and related assets that prior to closing the ING acquisition were held in a partnership (the “Alerion Partnership”) in which ING and Alerion Drilling I, LLC, a New Jersey limited liability company (“ Alerion ”), were equal partners. Immediately prior to the Final Closing under the ING APA described above, ING and Alerion caused the Alerion partnership to distribute all of the assets of the Alerion Partnership to it partners, Alerion and ING. As a consequence, NEC acquired direct interests in that portion of the properties so distributed out of the Alerion Partnership representing ING’s interest in those properties that were subject to the ING APA.

On June 6, 2011, NEC and Alerion entered into an Asset Purchase Agreement (the “ Alerion APA ”) to acquire the interests of Alerion in the assets that were to be distributed to Alerion and ING by the Alerion Partnership and that NEC was to acquire (and in fact did acquire at the Final Closing) under the ING APA. Under the terms of the Alerion APA, the obligations of the parties were subject to the condition that the ING APA be closed on or before June 30, 2011. As the ING APA did in fact close on June 29, 2011, the Alerion APA is in full force and effect and is scheduled to close on or before July 28, 2011. At closing under the Alerion APA, NEC will acquire from Alerion all of its interests in the same assets distributed by the Alerion Partnership to ING and Alerion as to which NEC acquired the interests so distributed to ING at the Final Closing under the ING APA. The purchase price to be paid by NEC for Alerion’s interest in such assets is approximately $1.2 million, to be adjusted at closing for normal operating activities and other customary purchase and sale price adjustments to reflect the January 1, 2011 effective date under the terms of the Alerion APA.

3.02 — Unregistered Sales of Equity Securities

The information provided in Item 1.01 is incorporated herein in its entirety.

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

On June 16, 2011, Carbon filed a Certificate of Designation with the Delaware Secretary of State creating a series of preferred stock (the “ Series A Convertible Preferred Stock ”). On June 27, 2011, Carbon amended and restated this series of preferred stock by filing an Amended and Restated Certificate of Designation with the Delaware Secretary of State, which sets forth the designation, preferences, relative rights, qualifications, limitations and restrictions of the Series A Convertible Preferred Stock approved by our Board of Directors. Pursuant to the Delaware General Corporation Law, a certificate of designation amends the Company’s Certificate of Incorporation.

Prior to the filing of the Certificate of Designation on June 16, 2011, which was amended and restated in its entirety by the Amended and Restated Certificate of Designation of June 27, 2011, Carbon did not have a designated series of preferred stock.

For a complete description of the Series A Convertible Preferred Stock, you should refer to the Amended and Restated Certificate of Designation filed with this Current Report as Exhibit 3(i) .

In connection with the closing of the Private Placement described in Item 1.01 above, we sold all 100 shares of the Series A Convertible Preferred Stock pursuant to the Preferred Purchase Agreement.

The following summarizes the terms of the Series A Convertible Preferred Stock:

Conversion

The Series A Convertible Preferred Stock will automatically convert into shares of our Common Stock upon the effectiveness of an amendment to our Amended and Restated Certificate of Incorporation increasing the number of shares of common stock that we are authorized to issue. The number of shares of our common stock into which each share of Series A Preferred Stock shall be converted will be determined by dividing $100,000 (the sales price per share for the Series A Convertible Preferred Stock) by $0.45 (the “ Conversion Price ”). The Conversion Price will be proportionately increased or decreased to reflect any changes to the outstanding shares of Common Stock, such as the result of a combination, reclassification, subdivision, stock split, stock dividend or other similar transaction involving the Common Stock.

Voting

Each share of Series A Convertible Preferred Stock will be entitled to the same number of votes of common stock that such share of Series A Convertible Preferred Stock would represent on an as converted basis. Prior to the automatic conversion, except as otherwise provided by the Delaware General Corporation Law or the Company’s Certificate of Incorporation, the Series A Convertible Preferred Stock and common stock will vote together as a single class on all matters to come before the stockholders; provided, however, that any amendments to the terms of the Series A Convertible Preferred Stock require the approval of the holder of Series A Convertible Preferred Stock shares and the separate consent of a majority of the disinterested holders the Company’s common stock.

Dividends

Shares of Series A Preferred Stock will participate in distributions (which is defined as the transfer of cash or property without consideration, whether by payment of a dividend or otherwise, or the purchase or redemption of shares of the Company for cash or property) payable in respect of the common stock on an as converted basis and ratably with the common stock. All dividends payable on the Series A Convertible Preferred Stock shall be paid in the same form and manner as paid to holders of common stock, as determined in the discretion of the Board. The Company will make no distributions to the holders of the Series A Convertible Preferred Stock other than distributions payable in respect of the common stock in which the holders of the Series A Convertible Preferred Stock shall participate on an as converted basis and ratably with the common stock. The Series A Convertible Preferred Stock will have no dividend or distribution preferences.

Liquidation

Prior to any payment to holders of common stock or any other class or series of stock ranking junior to the Series A Preferred Stock on liquidation, the holders of the Series A Convertible Preferred Stock then outstanding will receive, an amount equal to $0.01 per share, which would result in an aggregate liquidation preference amount of $1.00 (100 shares of Series A Convertible Preferred Stock multiplied by $0.01). Thereafter, distributions upon a liquidation will be distributed ratably among the holders of the common stock and the holders of the Series A Convertible Preferred Stock on an as converted basis.

Item 8.01. Other Events

Carbon has issued the press release attached hereto as Exhibit 99.1 which is incorporated by reference herein.

Section 9 - Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

(a) Financial statements of businesses acquired

An audit of the financial statements as of and for the years ended December 31, 2010 and 2009 is now underway, and is expected to be completed by August 12, 2011. The audited statements (along with the unaudited statements as of March 31, 2010 and 2011 and the three months then ended) will be provided by an amendment to this Current Report on Form 8-K. The financial statements to be presented will be statements of revenues from the acquired assets, and direct expenses related thereto, instead of full audited financial statements as required by Rule 3-05 of Regulation S-X.

(b) Pro forma financial information

The amendment to this Current Report on Form 8-K mentioned in Item 9.01(a) above will also include a condensed unaudited balance sheet of Carbon as of March 31, 2011, combined with pro forma adjustments to give effect to the ING asset acquisition as if it occurred on March 31, 2011 and an unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2011 based on the unaudited statement of operations for Carbon for the three months ended March 31, 2011 and the unaudited statement of revenues and direct operating expenses of the acquired ING assets for the three months ended March 31, 2011 and an unaudited pro forma condensed combined statement of

operations for the year ended December 31, 2010 based on the historical unaudited statements of operations of Carbon for the three months ended March 31, 2010 and the nine months ended December 31, 2010, the audited statement of operations of Nytis Exploration (USA) Inc. for the year ended December 31, 2010 and the audited statement of revenues and direct operating expenses of the acquired ING assets for the year ended December 31, 2010, together with pro forma adjustments to give effect to the ING asset acquisition as if it occurred on January 1, 2010.

(d) Exhibits :

Exhibit No.		Description

3(i)*		Amended and Restated Certificate of Designation with respect to Series A Convertible Preferred Stock
10.1*		Form of Common Stock Purchase Agreement dated June 29, 2011
10.2*		Form of Preferred Stock Purchase Agreement dated June 29, 2011
10.3*		Form of Registration Rights Agreement dated June 29, 2011
99.1*		Press Release dated June 30, 2011

* Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned, hereunto duly authorized.

	CARBON NATURAL GAS COMPANY
July 6, 2011
	/s/ Patrick R. McDonald
	Patrick R. McDonald,
	President and CEO

Exhibit 3(i)

AMENDED AND RESTATED

CERTIFICATE OF DESIGNATION

OF RELATIVE RIGHTS AND PREFERENCES

OF THE

SERIES A CONVERTIBLE PREFERRED STOCK

CARBON NATURAL GAS COMPANY

a Delaware corporation

WHEREAS , on June 16, 2011, CARBON NATURAL GAS COMPANY , a Delaware corporation (the “ Corporation ”), pursuant to the provisions of Section 151 of the Delaware General Corporation Law (the “ DGCL ”), filed with the Delaware Secretary of State a Certificate of Designation of Relative Rights and Preferences for the Series A Convertible Preferred Stock (the “ Certificate of Designation ”); and

WHEREAS , in accordance with Section 151(g), the Corporation states that no shares of the Series A Convertible Preferred Stock have been issued; and

WHEREAS , the Corporation does hereby amend and restate the Certificate of Designation and does hereby state and certify that pursuant to the authority expressly vested in the Board of Directors of the Corporation by the Amended and Restated Certificate of Incorporation of the Corporation, as amended to date (the “ Certificate of Incorporation ”), the Board of Directors duly adopted the following resolutions, which resolutions remain in full force and effect as of the date hereof:

WHEREAS , the Certificate of Incorporation provides for a class of its authorized shares of stock known as Preferred Stock, par value $0.01 per share (the “ Preferred Stock ”), 1,000,000 shares are authorized for issuance from time to time in one or more series; and

WHEREAS , the Board of Directors (the “ Board ”) of the Corporation is authorized to fix by resolution the number of shares of any series of Preferred Stock, to determine the designation of any such series, and to determine the powers, preferences, and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation, the dividend rate, conversion rights, redemption price and liquidation preference of any series of Preferred Stock; and

WHEREAS , it is the desire of the Board, pursuant to its authority under the Certificate of Incorporation, to fix the designation and preferences and relative rights, and qualifications, limitations and restrictions and other matters relating to a series of Preferred Stock to be designated Series A Convertible Preferred Stock as follows.

RESOLVED, that, pursuant to Article 4 of the Certificate of Incorporation, the Board of Directors hereby authorizes the issuance of, and fixes the designation and preferences and relative rights, and qualifications, limitations and restrictions, of a series of the Corporation’s Preferred Stock to consist of 100 shares, par value $0.01 per share, and designated “Series A Convertible Preferred Stock”;

FURTHER RESOLVED, that all shares of Series A Convertible Preferred Stock shall rank equally in all respects and shall be subject to the following terms and provisions:

1. Determination . The first series of the Corporation’s Preferred Stock, par value $0.01 per share (the “ Preferred Stock ”), is designated Series A Convertible Preferred Stock (the “ Series A Preferred Stock ”).

2. Authorized Shares . The number of authorized shares of Preferred Stock constituting the Series A Preferred Stock shall be 100 shares.

3. Dividends .

(a) Participating . Shares of Series A Preferred Stock will participate in Distributions (as such term is defined below) payable in respect of Common Stock such that each share of Series A Preferred Stock shall be entitled to receive, out of funds legally available therefor, an amount of any Distribution equal to a fraction, the numerator of which shall equal the number of shares of Common Stock into which such share of Series A Preferred Stock are to be converted pursuant to Section 6 and the denominator of which shall equal the sum of (a) the aggregate number of shares of Common Stock outstanding on the record date for the determination of the stockholders entitled to receive such Distribution as determined by the Board, plus (b) the number of shares of Common Stock into which all shares of Series A Preferred Stock are to be converted pursuant to Section 6. “Distribution” in this Section means the distribution or transfer of cash or property without consideration, whether by payment of a dividend or otherwise, or the purchase, redemption or acquisition of shares of the Corporation for cash or property.

(b) Form of Dividend . All dividends payable on the Series A Preferred Stock shall be paid in the same form and manner as paid to the holders of shares of Common Stock, as determined in the discretion of the Board.

(c) Dividend Priority . The Corporation shall make no Distribution to the holders of the Series A Preferred Stock apart from a Distribution payable in respect of Common Stock in which the holders of the Series A Preferred Stock shall participate pursuant to Section 3(a) above.

4. Liquidation . In the event of any liquidation, dissolution or winding up of the Corporation, either voluntarily or involuntarily, distributions to the stockholders of the Corporation will be made in the following manner:

(a) Common Stock and Series A Preferred Stock . Prior to any payment to holders of Common Stock or any other class or series of stock ranking junior to the Series A Preferred Stock on

liquidation, the holders of the Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, an amount equal to $0.01 per share (the “ Liquidation Preference ”). Following payment of the Liquidation Preference, the entire remaining assets and surplus funds of the Corporation legally available for distribution upon liquidation will be distributed ratably among the holders of the Common Stock and the holders of the Series A Preferred Stock in proportion to the shares of Common Stock then held, or, with respect to the holders of Series A Preferred Stock, deemed held by them. The holders of the Series A Preferred Stock shall be deemed to hold the number of shares of Common Stock into which their shares of Series A Preferred Stock are to be converted pursuant to Section 6.

(b) Merger or Sale Deemed a Liquidation . For purposes of this Section 4, the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) that results in the transfer of 50% or more of the voting power of the Corporation, outstanding immediately prior to such transaction, or a sale of all or substantially all of the assets of the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation.

(c) Valuation . Assets to be distributed pursuant to this Section 4, insofar as the same shall be property other than cash, if not liquidated, shall be valued at the fair market value thereof upon the occurrence of the liquidation event, as determined in good faith by the Board.

5. Voting Rights . Except as provided in Section 9, the holder of each share of Series A Preferred Stock issued and outstanding will be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Series A Preferred Stock are to be converted pursuant to Section 6 at the record date for the determination of the stockholders entitled to vote on the matter in question, or, if no such record date is established, at the record date provided by the Delaware General Corporation Law (the “ DGCL ”) for any vote or action by written consent. If the shares of Series A Preferred Stock held by a holder are convertible into a non-integral number of shares of Common Stock as of the date of determination, the number of votes to which such stockholder will be entitled will, after aggregating all such shares of Series A Preferred Stock, be rounded down to the nearest whole vote. Except as provided in Section 9 or as otherwise provided by the DGCL or the Certificate of Incorporation, the Series A Preferred Stock shall be entitled to vote on all matters submitted to a vote of stockholders, voting together with the Common Stock as a single class.

6. Conversion .

(a) Automatic Conversion . Each share of Series A Preferred Stock will be automatically converted into Common Stock upon the effectiveness of the filing of the Certificate of Amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware which amends Section 4.1 of the Certificate of Incorporation to provide as follows:

“ Authorized Shares . The total number of shares of stock that the Corporation shall have authority to issue is Two Hundred One Million (201,000,000) shares, consisting of (i) Two Hundred Million (200,000,000) shares of common stock, each with par value of $0.01 (the “ Common Stock ”) and (ii) One Million (1,000,000) shares of preferred stock, each with par value of $0.01 (the “ Preferred Stock ”)”

(the “ Certificate of Amendment ”).

The number of shares of Common Stock into which each share of Series A Preferred Stock shall be converted will be determined by dividing $100,000 (the price at which each share of Series A Preferred Stock was sold) by $0.45 (the “ Conversion Price ”).

(b) Mechanics of Conversion . Upon the effectiveness of the Certificate of Amendment, the outstanding shares of Series A Preferred Stock will be converted automatically without any action by the holders of such shares and whether or not the certificate or certificates representing such shares are surrendered to the Corporation or its transfer agent; provided , however , that the Corporation will not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Series A Preferred Stock are either delivered to the Corporation or its transfer agent, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation will, as soon as practicable after such delivery, or such agreement and indemnification in the case of a lost certificate, issue and deliver to such holder of Series A Preferred Stock a certificate or certificates representing the number of shares of Common Stock to which such holder will be entitled as aforesaid. Such conversion will be deemed to have been made upon the effectiveness of the filing of the Certificate of Amendment, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion will be treated for all purposes as the record holder or holders of such shares of Common Stock at such time.

(c) Adjustments to Conversion Prices of Series A Preferred Stock . If the outstanding shares of Common Stock shall be subdivided, by stock split, stock dividend or otherwise, into a greater number of shares of Common Stock, the Conversion Price of the Series A Preferred Stock then in effect shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. If the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price of the Series A Preferred Stock then in effect shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased.

(d) Certificates as to Adjustments . Upon the occurrence of each adjustment or readjustment of a Conversion Price pursuant to this Section 6, the Corporation at its expense will promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation will, upon the written request at any time of any holder of Series A Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such applicable adjustments and readjustments, (ii) the applicable Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Series A Preferred Stock. Any certificate sent to the holders of Series A Preferred Stock pursuant to this Section 6(d) will be signed by an officer of the Corporation.

(e) Notices of Record Date . In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, any security or right convertible into or entitling the holder thereof to receive Common Stock, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation will mail to each holder of Series A Preferred Stock, at the address for such holder shown on the books of the Corporation, at least 10 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution, security or right, and the amount and character of such dividend, distribution, security or right.

(f) Payment of Taxes . The Corporation will pay all transfer taxes and other governmental charges that may be imposed in respect of the issue or delivery of shares of Common Stock upon conversion of shares of Series A Preferred Stock.

7. No Reissuance of Series A Preferred Stock . Any shares of Series A Preferred Stock acquired by the Corporation by reason of purchase, conversion or otherwise shall be cancelled, retired, and eliminated from the shares of Series A Preferred Stock that the Corporation shall be authorized to issue. All such shares of Series A Preferred Stock shall upon their cancellation become authorized but unissued shares of the Corporation’s preferred stock and may be reissued as part of a new series of the Corporation’s Preferred Stock subject to the conditions and restriction on issuance set forth in any certificate of designation creating a series of preferred stock or any similar stock or as otherwise required by law.

8. Severability . If any right, preference or limitation of the Series A Preferred Stock set forth herein is invalid, unlawful or incapable of being enforced by reason of any rule, law or public policy, all other rights, preferences and limitations set forth herein that can be given effect without the invalid, unlawful or unenforceable right preference or limitation shall nevertheless remain in full force and effect, and no right, preference or limitation herein shall be deemed dependent upon any other such right, preference or limitation unless so expressed herein.

9. Amendment of the Terms of the Series A Preferred Stock . Except as otherwise provided by the DGCL, the terms of the Series A Preferred Stock set forth herein may be amended only by the holders of the Series A Preferred Stock voting as a single class, with the consent of a majority of the issued and outstanding Common Stock held by Disinterested Stockholders. As used herein and solely with respect to the amendment of the terms of the Series A Preferred Stock, “Disinterested Stockholders” means holders of the Corporation’s issued and outstanding Common Stock, excluding the holders of the Series A Preferred Stock and their Affiliates. As used herein, “Affiliate” means, with respect to a holder of the Series A Preferred Stock, any person that controls, is controlled by or under common control with such holder of the Series A Preferred Stock.

FURTHER RESOLVED , that the Chief Executive Officer and the Secretary of the Corporation be, and each hereby is, authorized and directed to execute, acknowledge, file and record an Amended and Restated Certificate of Designation in accordance with the foregoing resolutions and the provisions of Delaware law.

IN WITNESS WHEREOF, the undersigned authorized officers of the Corporation, for the purpose of amending the Certificate of Incorporation pursuant to Delaware General Corporation Law, do hereby make and file this Amended and Restated Certificate of Designation on behalf of the Corporation, hereby declaring and certifying that the facts stated herein are true, and accordingly have hereunto set their respective hands this 24th day of June, 2011.

	CARBON NATURAL GAS COMPANY


	By:	/s/ Patrick R. McDonald

		Patrick R. McDonald,
		Chief Executive Officer


	By:	/s/ Kevin D. Struzeski

		Kevin D. Struzeski,
		Secretary and Treasurer

Exhibit 10.1

CARBON NATURAL GAS COMPANY

44,444,444 Shares of Common Stock

PURCHASE AGREEMENT

As of March 22, 2011, the Company’s board of directors and the holders of a majority of the outstanding common stock approved (by consent, not a full meeting of stockholders) certain changes to the Company’s Certificate of Incorporation, including, without limitation (i) a change of the Company’s name from St. Lawrence Seaway Corporation to Carbon Natural Gas Company and (ii) an increase in the authorized number of shares of common stock to 100,000,000, in accordance with Delaware law and the Company’s Certificate of Incorporation and Bylaws in effect at March 22, 2011. These changes took effect on May 2, 2011, when the Amended and Restated Certificate of Incorporation filed by the Company with the Delaware Secretary of State became effective. This filing occurred promptly after the expiration of 20 calendar days following the Company’s distribution to all stockholders of an Information Statement on Schedule 14C (the “ First Information Statement ”). The First Information Statement was filed with the Securities and Exchange Commission (the “ Commission ”) on March 30, 2011 and was distributed to all Company stockholders beginning on or about April 12, 2011.

As of June 15, 2011, the Company’s board of directors and the holders of a majority of the outstanding common stock approved (by consent, not a full meeting of stockholders) an increase in the authorized number of shares of common stock to 200,000,000, in accordance with Delaware law and the Company’s Certificate of Incorporation and Bylaws in effect at June 15, 2011 (the “ Charter Amendment ”). The Charter Amendment will take effect when a Certificate of Amendment is filed by the Company with the Delaware Secretary of State. This filing will occur promptly on the expiration of 20 calendar days following the Company’s distribution to all its stockholders as of the record date of such action (June 10, 2011) of an Information Statement on Schedule 14C (the “ Second Information Statement ”). The Second Information Statement was filed with the Commission on June 17, 2011 and is expected to be distributed to all Company stockholders as of such record date on or about June 27, 2011.

Concurrently with the Placement, the Company will sell $10 million of a series of its preferred stock (the “ Series A Convertible Preferred Stock ”) to an affiliate of the Company pursuant to a preferred stock purchase agreement (the “ Preferred Stock Purchase Agreement ”) and the designation and preferences and relative rights, qualifications, limitations and restrictions set forth in an Amended and Restated Certificate of Designation of Relative Rights and Preferences of the Series A Convertible Preferred Stock (the “ Preferred Stock Designation ”), in the form of Exhibit A hereto.

The Securities are being offered and sold to the Purchasers without being registered under the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the “ Securities Act ”), in reliance upon Regulation D (“ Regulation D ”) thereunder.

Contemporaneous with the sale of the Securities, the parties hereto will execute and deliver a Registration Rights Agreement, in the form attached hereto as Exhibit B (the “ Registration Rights Agreement ”), pursuant to which the Company will agree to provide certain registration rights under the Securities Act, and the rules and regulations promulgated thereunder, and applicable state securities laws.

Proceeds from the offering of the Securities, together with proceeds from the sale of the Series A Convertible Preferred Stock and available cash of the Company will be used (i) to finance the acquisition (the “ Acquisition ”) of certain natural gas properties, natural gas gathering and compression facilities and other assets related thereto (the “ Acquired Assets ”) from The Interstate Natural Gas Company, LLC (the “ Seller ”) pursuant to an Asset Purchase Agreement, as amended (the “ Asset Purchase Agreement ”) among the Company, Nytis Exploration Company LLC, an indirect subsidiary owned 98.1% by the Company (the “ Acquiring Sub ”) and (ii) for working capital purposes.

This Agreement, the Registration Rights Agreement, the Preferred Stock Purchase Agreement, the Preferred Stock Designation and the Asset Purchase Agreement are referred to herein collectively as the “ Transaction Documents ”, and the transactions contemplated hereby, and thereby are referred to herein collectively as the “ Transactions ”.

1. Authorization of Sale of the Securities . The Company has authorized the issuance and sale of the Securities.

2. Purchase and Sale of the Securities. Subject to the satisfaction or waiver of the conditions set forth in Sections 8 and 9 below, the Company will issue and sell to the Purchasers and each of the Purchasers, severally and not jointly, shall purchase from the Company, upon the terms, conditions and other provisions hereinafter set forth, the number of Securities set forth in an individualized Appendix I to this Agreement for the purchase price of $0.45 per Share (the “ Purchase Price ”).

3. Delivery of the Securities at the Closing . Subject to the satisfaction or waiver of the conditions set forth in Sections 8 and 9 below, the closing of the purchase and sale of the Securities (the “ Closing ”) shall occur on June 29, 2011 (the “ Closing Date ”) at the offices of King & Spalding LLP, 1180 Peachtree Street, Atlanta, Georgia 30309, or such other location

on which the Company, the Purchasers and SunTrust Robinson Humphrey, Inc. and Carr Securities Corp. (collectively, the “ Placement Agents ”) mutually agree.

4. Form of Payment . Unless other arrangements have been made with a specific Purchaser, on or prior to the Closing Date, (a) each Purchaser shall deliver its Purchase Price for the Securities to be issued and sold to such Purchaser by wire transfer of immediately available funds into an account (the “ Escrow Account ”) established by the Company with BOKF, NA d/b/a Colorado State Bank and Trust (the “ Escrow Agent ”) pursuant to the Amended and Restated Subscription Escrow Agreement dated June 24, 2011 (a copy of which is attached hereto as Exhibit C , the “ Escrow Agreement ”) in accordance with the Company’s written wire instructions and (b) the Company shall deliver certificates for the Securities to the Placement Agents, on behalf of the Purchasers, for prompt post-Closing delivery to such Purchaser (with the legend specified in Section 5(d) hereof), duly executed on behalf of the Company, representing the number of Securities being purchased. Each Purchaser shall complete Appendix I hereto which will specify the number of Securities to be purchased by such Purchaser, the name in which the certificate(s) representing the Securities are to be registered and the federal tax identification number of such Purchaser.

5. Purchaser Representations and Warranties . Each Purchaser, severally and not jointly, represents and warrants to, and agrees with, the Company as follows (as to itself only):

(a) The Purchaser (i) is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in securities representing an investment decision like that involved in the purchase of the Securities, and has had the opportunity to ask questions of and receive answers from the Company regarding the Company, its business and the terms and conditions of the offering of the Securities (neither such inquiries nor any other due diligence investigation conducted by such Purchaser shall modify, limit or otherwise affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement); (ii) is acquiring the Securities to be acquired by it hereunder in the ordinary course of its business and for its own account or the account of another accredited investor for investment only and not with a view to the resale or distribution of any part thereof in violation of the Securities Act, and Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the Securities Act without prejudice, however, to such Purchaser’s right at all times to sell or otherwise dispose of all or any part of such Securities in compliance with applicable federal and state securities laws; nothing contained herein shall be deemed a representation or warranty by such Purchaser to hold the Securities for any period of time; (iii) will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Securities except in compliance with the Securities Act and any applicable state securities laws; (iv) has, in connection with its decision to purchase the Securities to be issued and sold to such Purchaser, relied solely upon the Private Placement Memorandum (as defined below), including the Incorporated Documents (as defined below) and the representations and warranties of the Company contained herein, and (v) understands that its investment in the Securities involves a significant degree of risk including a risk of total loss of

Purchaser’s investment, and the Purchaser is fully aware of and understands all the risk factors related to the Purchaser’s purchase of the Securities, including, but not limited to, those set forth under the caption “Risk Factors” in the Private Placement Memorandum (as defined below) and those set forth in any document incorporated by reference in the Private Placement Memorandum (the “ Incorporated Documents ”).

(b) The Purchaser has all requisite power and authority to execute and deliver this Agreement and the Registration Rights Agreement; each of this Agreement and the Registration Rights Agreement has been duly authorized by the Purchaser. Assuming that each of this Agreement and the Registration Rights Agreement is the valid and binding agreement of each of the parties thereto, other than the Purchaser, each of this Agreement and the Registration Rights Agreement constitutes a valid and binding agreement of the Purchaser, enforceable against the Purchaser in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and (ii) general equitable principles (whether considered in a proceeding in equity or at law).

(c) The Purchaser understands that the Securities are “restricted securities” under the U.S. federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering, and that under such laws and applicable regulations such securities may be resold, pledged or transferred without registration under the Securities Act only in certain limited circumstances.

(d) The Purchaser understands that, except as provided below, the Securities will bear a legend to the following effect:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR UNDER THE SECURITIES LAWS OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND, ACCORDINGLY, MAY NOT BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS (I) SUCH SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, (II) SUCH SECURITIES MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED PURSUANT TO RULE 144, OR (III) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

(e) The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities or the fairness or suitability of the

investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

(f) The Purchaser’s principal executive offices are in the jurisdiction set forth immediately below the Purchaser’s signature on the signature page hereto.

(g) The Purchaser is an “accredited investor” (as defined in Rule 501(a) of Regulation D promulgated under the Securities Act) or a “qualified institutional buyer” as defined in Rule 144A.

(h) Since the earlier of (a) such time as such Purchaser was first contacted by the Company or any other person acting on behalf of the Company regarding the transactions contemplated hereby or (b) thirty (30) days prior to the date hereof, neither such Purchaser nor any affiliate of such Purchaser which (x) had knowledge of the transactions contemplated hereby, (y) has or shares discretion relating to such Purchaser’s investments or trading or information concerning such Purchaser’s investments, including in respect of the Securities, or (z) is subject to such Purchaser’s review or input concerning such affiliate’s investments or trading (collectively, “ Trading Affiliates ”) has, directly or indirectly, effected or agreed to effect any short sale, whether or not against the box, established any “put equivalent position” (as defined in Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended) with respect to the common stock of the Company (the “ Common Stock ”), granted any other right (including, without limitation, any put or call option) with respect to the Common Stock or with respect to any security that includes, relates to or derived any significant part of its value from the Common Stock or otherwise sought to hedge its position in the Securities (each, a “ Prohibited Transaction ”). Prior to the earliest to occur of (i) the termination of this Agreement, (ii) the date on which the initial Registration Statement is declared effective by the Commission or (iii) the date on which the initial Registration Statement is required to be declared effective by the Commission under the terms of the Registration Rights Agreement, such Purchaser shall not, and shall cause its Trading Affiliates not to, engage, directly or indirectly, in a Prohibited Transaction. Such Purchaser acknowledges that the representations, warranties and covenants contained in this Section 5(h) are being made for the benefit of the Purchasers as well as the Company and that each of the other Purchasers shall have an independent right to assert any claims against such Purchaser arising out of any breach or violation of the provisions of this Section 5(h).

6. Representations, Warranties and Agreements of the Company . In addition to the other representations, warranties and agreements contained in this Agreement, the Company represents and warrants to, and agrees with, the Purchasers as follows:

(a) The Company has prepared a private placement memorandum dated April 20, 2011, a supplement dated June 2, 2011, a supplement dated June 20, 2011, and a supplement dated June 27, 2011, and will prepare additional supplements to such private placement memorandum, if required, setting forth information concerning the Company, the Securities, the Series A Convertible Preferred Stock, the Transaction Documents and certain other matters (the April 20, 2011 private placement memorandum, the June 2, 2011 supplement, the June 20, 2011 supplement, the June 27,

2011 supplement, as well as any additional supplements provided to the Purchasers prior to the date hereof are collectively referred to as the “Private Placement Memorandum” ). Copies of the Private Placement Memorandum have been, and copies of any necessary supplement will be, delivered by the Company to the Purchaser. The Private Placement Memorandum will not as of its date, or any supplement, as of the Closing Date, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(b) The Incorporated Documents, when they became effective or were filed with the Commission, as the case may be, conformed in all material respects to the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder (collectively, the “ Exchange Act ”); and none of such documents contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and any further documents so filed and incorporated by reference in the Private Placement Memorandum after the date hereof, when such documents are filed, will conform in all material respects to the requirements of the Exchange Act and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading.

(c) The Company and each of its subsidiaries has been duly organized and is validly existing and in good standing under the laws of its respective jurisdiction of formation, is duly qualified to do business and is in good standing as a foreign entity in each jurisdiction in which its ownership or lease of property or the conduct of its businesses requires such qualification, and has all power and authority necessary to own, lease or hold its properties and to conduct the businesses in which it is engaged except where the failure to be so qualified or have such power and authority would not, individually or in the aggregate, have a material adverse effect on the business, condition (financial or other) or prospects of the Company or its subsidiaries taken as a whole (a “ Material Adverse Effect ”). None of the subsidiaries of the Company other than Nytis USA and Nytis Exploration Company LLC, a Delaware limited liability company (“ NEC ”) is a “significant subsidiary”, as such term is defined in Rule 405 of the Securities Act. Other than as described in the Private Placement Memorandum and the Asset Purchase Agreement, the Company does not own, directly or indirectly, any shares of common stock or any other equity or long-term debt securities or have any equity interest in any firm, partnership, joint venture or other entity.

(d) The Company has an authorized capitalization as set forth in the Private Placement Memorandum, and all of the issued shares of capital stock of the Company, including the Series A Convertible Preferred Stock, have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description thereof contained in the Private Placement Memorandum; and all of the issued equity of each subsidiary of the Company has been duly and validly authorized and issued and is fully paid and non-assessable and, are owned directly or indirectly by

the Company as described in the Private Placement Memorandum, free and clear of all liens, encumbrances, equities, claims or adverse interests (collectively, “ Liens ”) of any nature. Except as disclosed in the Private Placement Memorandum, (i) there are no outstanding securities convertible into or exchangeable for, or warrants, options or rights issued by the Company to purchase, any shares of the common stock, (ii) there are no statutory, contractual, preemptive or other rights to subscribe for or to purchase any common stock and (iii) there are no restrictions upon transfer of the common stock pursuant to the Company’s charter or bylaws.

(e) Except as set forth in the Private Placement Memorandum and except with respect to the rights contained in the Registration Rights Agreement, there are no contracts, agreements or other documents between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned, directly or indirectly, by such person.

(f) Except as described in the Private Placement Memorandum, there has been no change in the capitalization of the Company or any of its subsidiaries since the date indicated in the Private Placement Memorandum except with respect to (i) changes occurring in the ordinary course of business and (ii) changes in outstanding common stock resulting from transactions relating to an employee benefit plan, stock purchase warrants, stock options or other employee compensation plans existing on the date hereof.

(g) Since the date as of which information is given in the Private Placement Memorandum through the date hereof, neither the Company nor its subsidiaries has (i) issued or granted any securities, (ii) incurred any liability or obligation, direct or contingent, other than liabilities and obligations which were incurred in the ordinary course of business, (iii) entered into any transaction not in the ordinary course of business or (iv) declared or paid any dividend on any of its common stock, except with respect to (ii) and (iii) above, in connection with the closing of the Asset Purchase Agreement.

(h) Except as set forth in the Private Placement Memorandum, there are no legal or governmental proceedings pending to which the Company or its subsidiaries is a party or of which any property or assets of any of the Company or its subsidiaries or the Acquired Assets is subject which, if determined adversely to such companies, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; and, to the best of the Company’s knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others. There is no pending or, to the best of the Company’s knowledge, threatened legal or governmental proceeding that seeks to restrain, enjoin, prevent the consummation of, or otherwise challenge the issuance of the Securities to be sold pursuant to this Agreement or the consummation of the other Transactions. The aggregate of all pending legal or governmental proceedings to which the Company and its subsidiaries are a party or of which any of their respective property or assets or the Acquired Assets is the subject

which are not described in the Private Placement Memorandum, including ordinary routine litigation incidental to the business, would not result in a Material Adverse Effect.

(i) Neither the Company nor its subsidiaries is (i) in violation of its charter or bylaws, or equivalent organizational document, (ii) in default in any material respect, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate, contract or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets or the Acquired Assets is subject or (iii) to the best of the Company’s knowledge, in violation in any material respect of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets or the Acquired Assets may be subject or has failed to obtain any material license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its property or to the conduct of its business.

(j) Neither the Company nor its subsidiaries has sustained, since the date of the latest audited financial statements included or incorporated by reference in the Private Placement Memorandum, any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any strike, job action, slowdown, work stoppage, labor dispute or court or governmental action, order or decree (a “ Material Loss ”); and, since such date, there has not been any change in the common stock, short-term debt or long-term debt of either the Company or its subsidiaries other than borrowings in the ordinary course of the Company’s or its subsidiaries business or any Material Adverse Effect, or any development involving a prospective Material Adverse Effect, in or affecting the business, general affairs, management, position (financial or otherwise), stockholders’ equity, results of operations, cash flow or earnings of the Company or its subsidiaries taken as a whole, otherwise than as set forth or contemplated in the Private Placement Memorandum and the Incorporated Documents.

(k) The financial statements, including the related notes and supporting schedules, included or incorporated by reference in the Private Placement Memorandum present fairly the financial condition, results of operations and changes in financial position of the Company and Nytis USA and their subsidiaries on the basis stated therein at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles in the United States (“ GAAP ”) consistently applied throughout the periods involved; the supporting schedules, if any, included or incorporated by reference in the Private Placement Memorandum present fairly, in accordance with GAAP, the information required to be stated therein; and the other financial and statistical information and data set forth in the Private Placement Memorandum are or will be, in all material respects, accurately presented and prepared on a basis consistent with such financial statements (including the related notes and supporting schedules) and the books and records of the Company and Nytis USA, as the case may be.

(l) The pro forma financial statements of the Company related to the Merger and the related notes thereto incorporated by reference in the Private Placement Memorandum have been prepared on a basis consistent with the historical financial statements of the Company and its subsidiaries, give effect to the assumptions used in the preparation thereof on a reasonable basis and in good faith and present fairly the historical financial statements and the Merger. Such pro forma financial statements have been prepared in accordance with the applicable requirements of Rule 1l-02 of Regulation S-X of the Commission, except that the pro forma condensed statements of income do not cover the period from the most recent fiscal year end to the end of the first quarter of 2011.

(m) The pro forma financial statements of the Company related to the Acquisition and the related notes thereto incorporated by reference in the Private Placement Memorandum have been prepared on a basis consistent with the historical financial statements of the Company and its subsidiaries, give effect to the assumptions used in the preparation thereof on a reasonable basis and in good faith and present fairly the historical financial statements and proposed Acquisition. Such pro forma financial statements have been prepared in accordance with the applicable requirements of Rule 1l-02 of Regulation S-X of the Commission, except that the pro forma condensed statements of income do not cover the period from the most recent fiscal year end to the end of the first quarter of 2011.

(n) The financial statements, including the related notes and supporting schedules, incorporated by reference in the Private Placement Memorandum present fairly the financial condition, results of operations and changes in financial position of the Acquired Assets on the basis stated therein at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with GAAP consistently applied throughout the period presented; the supporting schedules, if any, included or incorporated by reference in the Private Placement Memorandum present fairly, in accordance with GAAP, the information required to be stated therein; and the other financial and statistical information and data set forth in the Private Placement Memorandum are or will be, in all material respects, accurately presented and prepared on a basis consistent with such financial statements (including the related notes and supporting schedules) and the books and records related to the Acquired Assets, as the case may be.

(o) The statistical, industry and market-related data included in the Private Placement Memorandum are based on or derived from sources that the Company believes to be reliable and accurate.

(p) The proceeds of the sale of the Securities and the Series A Convertible Preferred Stock (net of the expenses and commissions associated therewith) shall be used by the Company only for the purposes specified in the recitals to this Agreement.

(q) Ehrhardt Keefe Steiner & Hottman PC (the “ Company Accountants ”), who have certified the financial statements of Nytis USA and whose

report is contained or incorporated by reference in the Private Placement Memorandum is a registered public accounting firm; and the Company Accountants were independent accountants as required by the Exchange Act during the periods covered by the financial statements on which they reported.

(r) The Company and its subsidiaries employ disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that they file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and is accumulated and communicated to the management of the Company, as the case may be, including their principal executive officer or officers and principal financial officer or officers, as appropriate to allow timely decisions regarding disclosure; since the close of the Merger, the principal executive officers (or their equivalents) and principal financial officers (or their equivalents) of the Company have made all certifications required by the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”) and any related rules and regulations of the Commission, and the statements contained in any such certification are complete and correct in all material respects; and the Company is otherwise in compliance in all material respects with all applicable, effective provisions of the Sarbanes-Oxley Act.

(s) The Company and its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s authorization; (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; (v) material information relating to the Company and its subsidiaries is promptly made known to the officers responsible for establishing and maintaining the system of internal accounting controls; and (vi) any significant deficiencies or weaknesses in the design or operation of internal accounting controls which could adversely affect the Company’s ability to record, process, summarize and report financial data, and any fraud whether or not material that involves management or other employees who have a significant role in internal controls, are adequately and promptly disclosed, as applicable, to the Company’s independent auditors and the board of directors.

(t) The Company has all necessary power and authority to execute and deliver this Agreement and each of the other Transaction Documents to which it is a party, and to perform its obligations hereunder and thereunder to issue the Securities and the Series A Convertible Preferred Stock and to consummate the other Transactions; each of the Transaction Documents and the Transactions have been duly authorized by the Company; this Agreement has been duly executed and delivered by the Company and each of the other Transaction Documents, when executed and delivered by the Company, assuming that such Transaction Documents are or will be the valid and binding agreements of the other parties thereto, will constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms,

subject to (i) the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and (ii) general equitable principles (whether considered in a proceeding in equity or at law); and each of the Transaction Documents will conform, when executed and delivered, in all material respects to the description thereof contained in the Private Placement Memorandum.

(u) At Closing, the Company will have all necessary power and authority to execute, issue and deliver the Securities and the Series A Convertible Preferred Stock; the Securities will have been duly and validly authorized, and, when issued and delivered to and paid for by the Purchasers pursuant to the Purchase Agreements on the Closing Date, the Securities will be duly and validly authorized and issued, fully paid and nonassessable and will be free and clear of any preemptive rights and Liens; and the Securities and the Series A Convertible Preferred Stock will conform, when issued, in all material respects to the description thereof in the Private Placement Memorandum.

(v) The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents, the performance of the obligations of the Company hereunder and thereunder, the issuance of the Securities and the Series A Convertible Preferred Stock and the consummation of the other Transactions will not, as of the Closing Date, (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate, contract or other agreement or instrument to which the Company or its subsidiaries is a party or by which the Company or their subsidiaries is bound or to which any of the property or assets of the Company or the Acquired Assets is subject, (ii) result in any violation of the provisions of the charter, bylaws of any of the Company or its subsidiaries or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over any of the Company or its subsidiaries or any of their properties or assets or the Acquired Assets, (iii) result in the imposition or creation of (or the obligation to create or impose) any Lien under any agreement or instrument to which the Company or its subsidiaries is a party or by which the Company or its subsidiaries or their respective properties or assets or the Acquired Assets is bound (provided, however, that the Company anticipates that the lender under its credit facility will require NEC to grant mortgages on some or all of the Acquired Assets) or (iv) result in the suspension, termination or revocation of any permit, license, consent, exemption, franchise, authorization or other approval (each, an “ Authorization ”) of the Company or its subsidiaries or any other impairment of the rights of the holder of any such Authorization.

(w) No consent, approval, authorization or order of, or filing or registration with, any court or governmental agency or body is required for the execution, delivery and performance of the Transaction Documents by the Company, the issuance of the Securities and the Series A Convertible Preferred Stock, the performance of the obligations of the Company hereunder and thereunder and the consummation of the other Transactions contemplated hereby and thereby, except (i) with respect to the transactions

contemplated by (A) the Asset Purchase Agreement and (B) the Registration Rights Agreement as may be required under the Securities Act and the Exchange Act, (ii) as required by the state securities or “blue sky” laws and (iii) for such consents, approvals, authorizations, orders, filings or registrations which have been obtained or made or will be made as described in the Private Placement Memorandum. Subject to the accuracy of the representations and warranties of each Purchaser set forth in Section 5 hereof, the Company has taken all action necessary to exempt (i) the issuance and sale of the Securities, and (ii) the other transactions contemplated by the Transaction Documents from the provisions of any stockholder rights plan or other “poison pill” arrangement, any anti-takeover, business combination or control share law or statute binding on the Company or to which the Company or any of its assets and properties may be subject and any provision of the Company’s Certificate of Incorporation or Bylaws that is or could reasonably be expected to become applicable to the Purchasers as a result of the transactions contemplated hereby, including without limitation, the issuance of the Securities and the ownership, disposition or voting of the Securities by the Purchasers or the exercise of any right granted to the Purchasers pursuant to this Agreement or the other Transaction Documents.

(x) Neither Company, or its subsidiaries is or, as of the Closing Date, after giving effect to the issuance of the Securities and the application of the net proceeds therefrom as set forth in the Private Placement Memorandum (including completion of the Transactions), will be an “investment company” as defined, and subject to regulation, under the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (collectively, the “ Investment Company Act ”).

(y) The Company and its subsidiaries have (i) good and marketable title in fee simple to all real property and good title to all personal property owned by them, free and clear of all liens, encumbrances and defects; and all assets held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases; and (ii) defensible title to all their interests in all oil and gas properties owned or leased by them, free and clear of all liens, encumbrances and defects and title investigations have been carried out by the Company in accordance with customary practice in the oil and gas industry, except in each case, as do not materially and adversely affect the value of such property and do not materially interfere with the use made or proposed to be made of such property by the Company or its subsidiaries.

(z) The equipment of the Company and its subsidiaries has been maintained in a manner consistent with that of a reasonably prudent owner and such equipment is in good working condition, reasonable wear and tear excepted, except where the failure to so maintain such equipment would not have a Material Adverse Effect.

(aa) The Company and its subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties from insurers of recognized financial responsibility and as is customary for companies engaged in similar businesses in similar industries. Neither the Company nor any of its subsidiaries (i) has

received notice from any insurer or agent of such insurer that substantial capital improvements or other material expenditures will have to be made in order to continue such insurance or (ii) has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers at a cost that would not have a Material Adverse Effect.

(bb) The Company and its subsidiaries have such Authorization of, and have made all filings with and notices to, all governmental or regulatory authorities and self-regulatory organizations and all courts and other tribunals, including, without limitation, under any applicable environmental law, ordinance, rule, regulation, order, judgment, decree or permit, as are necessary to own, lease, license and operate its respective properties and to conduct its business, except where the failure to have any such Authorization or to make any such filing or notice would not have a Material Adverse Effect; each such Authorization is valid and in full force and effect and the Company and its subsidiaries are in compliance with all the terms and conditions thereof and with the rules and regulations of the authorities and governing bodies having jurisdiction with respect thereto; and no event has occurred (including, without limitation, the receipt of any notice from any authority or governing body) which allows or, after notice or lapse of time or both, would allow, revocation, suspension or termination of any such Authorization or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such Authorization, except where such failure to be valid and in full force and effect or to be in compliance, or the occurrence of any such event or the presence of any such restriction would not have a Material Adverse Effect.

(cc) The Company and its subsidiaries own or possess adequate rights to use all material patents, patent rights, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, inventions, know-how (including trade secrets and other unpatented and/or unpatentable proprietary of confidential information, systems or procedures) and licenses necessary for the conduct of their respective businesses and have no reason to believe that the conduct of their respective businesses will conflict with; and neither the Company nor any of its subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to any of such intellectual property which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect.

(dd) Neither the Company nor any of its subsidiaries is involved in any strike, job action or labor dispute with any group of employees that might be expected to have a Material Adverse Effect, and, to the Company’s knowledge, no such action or dispute is threatened.

(ee) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, “ ERISA ”); no “reportable event” (as defined in ERISA) has occurred with respect to any “pension plan” (as defined in ERISA) for which the Company would have

any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “pension plan” or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (collectively, the “Internal Revenue Code”); and each “pension plan” for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Internal Revenue Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification.

(ff) Except as set forth in the Private Placement Memorandum, the Company and each of its subsidiaries has filed by the due date (including any extensions thereof) all federal, state and local income and franchise tax returns required to be filed through the date hereof and has paid all taxes (including withholding taxes, penalties and interest, assessments, fees and other charges) due thereon, other than those being contested in good faith and for which adequate reserves have been taken; and no tax deficiency has been determined adversely to the Company or any of its subsidiaries which has had (nor does the Company have any knowledge of any tax deficiency which, if determined adversely to the Company or any of its subsidiaries, might have) a Material Adverse Effect.

(gg) Neither the Company or any of its subsidiaries, nor any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of its subsidiaries, has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or the Patriot Act of 2001, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment.

(hh) The Company and its subsidiaries are in material compliance with all environmental laws, and neither the Company nor any of its subsidiaries has received any communications alleging or has any basis to believe that the Company or any subsidiary is not in material compliance with such laws and, to the knowledge of the Company, there are no present circumstances that would prevent or interfere with the continuation of such material compliance. There has been no storage, disposal, generation, manufacture, refinement, transportation, handling or treatment of toxic wastes, hazardous wastes, hazardous substances or other materials regulated by environmental laws (“ Hazardous Materials ”) by the Company or any of its subsidiaries (or, to the knowledge of the Company, any of their predecessors in interest) at, upon or from any of the property now or previously owned or leased by the Company or its subsidiaries or (to the knowledge of the Company) the Acquired Assets except in compliance with all applicable environmental laws, ordinances, rules, regulations, orders, judgments, decrees or permits and there are no facts or circumstances that would give rise to a claim for remedial action under any applicable laws, ordinances, rules, regulations, orders, judgments, decrees or permits, except for any violation or remedial action which would not have, or could not be reasonably likely to have a Material

Adverse Effect; there has been no material spill, discharge, leak, emission, injection, escape, dumping or release of any kind onto such property or into the environment surrounding such property of Hazardous Materials due to or caused by the Company or any of its subsidiaries or with respect to which the Company or any of its subsidiaries have knowledge, except for any such spill, discharge, leak, emission, injection, escape, dumping or release which would not have or would not be reasonably likely to have a Material Adverse Effect; and the terms “hazardous wastes”, “toxic wastes”, “hazardous substances” and shall have the meanings specified in any applicable local, state, federal and foreign laws or regulations with respect to environmental protection.

(ii) Cawley, Gillespie & Associates, a petroleum engineering firm from whose audit (the “ Reserve Audit ”) of the Company’s internally prepared reserve reports information (the “ Reserve Information ”) is set forth or incorporated by reference in the Private Placement Memorandum, are independent petroleum engineers with respect to the Company. Other than (i) the production of reserves in the ordinary course of business, (ii) intervening price fluctuations or (iii) as described in the Private Placement Memorandum, the Company is not aware of any facts or circumstances that would result in a Material Adverse Effect in its proved developed reserves in the aggregate, or the aggregate present value of estimated future net revenues from such reserves or the standardized measure of discounted future net cash flows therefrom, as described in the Private Placement Memorandum and reflected in the Reserve Information as of the respective dates such information is given. Estimates of proved reserves and the present value of the estimated future net revenues and the discounted future net cash flows derived therefrom as described in the Private Placement Memorandum and reflected in the Reserve Information comply in all material respects to the applicable requirements of the Securities Act and the Exchange Act.

(jj) Assuming the accuracy of the representations and warranties of the Placement Agent contained in the Placement Agency Agreement and of the Purchasers contained in Section 5 and the compliance of such parties with the agreements set forth herein and therein, it is not necessary, in connection with the issuance and sale of the Securities, in the manner contemplated by Transaction Documents and the Private Placement Memorandum, to register the Securities under the Securities Act.

(kk) The Company or any of its Affiliates (as defined in Rule 501(b) of Regulation D) have not engaged, and will not engage, directly or indirectly in any form of general solicitation or general advertising in connection with the offering of the Securities (as those terms are used in Regulation D) under the Securities Act or in any manner involving a public offering within the meaning of Section 4(2); and the Company has not entered, and will not enter, into any arrangement or agreement with respect to the distribution of the Securities, except for the Placement Agency Agreement, this Agreement and the Registration Rights Agreement, and the Company agrees not to enter into any such arrangement or agreement.

(ll) Neither the Company nor any of its Affiliates has directly or indirectly sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of any “security” (as defined in the Securities Act) which is, or would be, integrated with

the sale of any of the Securities in a manner that would require the registration under the Securities Act of any of the Securities.

(mm) Neither the Company nor, to the Company’s knowledge, any of the Affiliates of the Company, has taken, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the Securities to facilitate the sale or resale of such securities.

(nn) The Company has not sold or issued any security of the same or similar class or series as any of the Securities or any security convertible into any of the Securities during the six-month period preceding the earlier of the date of this Agreement and the Closing Date, including any sales pursuant to Rule 144A, or Regulation D (other than shares issued in connection with the Merger or pursuant to employee benefit plans, qualified stock options plans or other employee compensation plans or pursuant to outstanding options, rights or warrants), and has no intention of making, and will not make, an offer or sale of such securities, for a period of six months after the date of the Purchase Agreement, except for the offering of Securities as contemplated by the Placement Agency Agreement, the Purchase Agreement and the Registration Rights Agreement. As used in this paragraph, the terms “offer” and “sale” have the meanings specified in Section 2(a)(3) of the Securities Act.

(oo) The Company will not offer or sell any of the Securities to any person who it does not reasonably believe is (i) a qualified institutional buyer as defined in Rule 144A or (ii) an “accredited investor” (as defined in Rule 501(a) of Regulation D of the Act.

(pp) No securities of the same class as the Securities are listed on any national securities exchange. The Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is quoted on The OTC Bulletin Board quotation service (the “ OTCBB ”), and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or removal from quotation of the Common Stock from the OTCBB, nor has the Company received any notification that the Commission, the OTCBB or the Financial Industry Regulatory Authority, Inc. is contemplating terminating such registration or quotation.

(qq) Except as described in the Private Placement Memorandum, no person will have, as a result of the transactions contemplated by the Transaction Documents, any valid right, interest or claim against or upon the Company, any subsidiary or a Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company.

(rr) Neither the Company nor any person acting on its behalf has provided the Purchasers or their agents or counsel with any information that constitutes or might constitute material, non-public information, other than the terms of the transactions contemplated hereby. The Company acknowledges that the Purchasers will

be relying on the accuracy of this representation in effecting transactions in the securities of the Company.

(ss) Each certificate signed by any officer of the Company and delivered to the Purchasers or counsel to the Purchasers shall be deemed to be a representation and warranty by the Company to the Purchasers as to the matters covered thereby.

7. Covenants .

(a) Reasonable Best Efforts . Each party hereto shall use its reasonable best efforts to timely satisfy each of the conditions to be satisfied by it as provided in Section 8 and Section 9 of this Agreement.

(b) Form D and Blue Sky . The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Purchasers promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Securities for, sale to the Purchasers at the Closing pursuant to this Agreement under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of any such action so taken to the Purchasers on or prior to the Closing Date. The Company shall make all filings and reports relating to the offer and sale of the Securities required under applicable securities or “Blue Sky” laws of the states of the United States following the Closing Date.

(c) Second Information Statement . The Company shall use commercially reasonable efforts to effect the Charter Amendment as soon as practicable after the Closing. Without limiting the generality of the foregoing, promptly following the Closing the Company shall respond to any Commission comments to the preliminary Second Information Statement and shall prepare and file with the Commission a definitive Second Information Statement meeting the requirements of Section 14(c) of the Exchange Act and the rules promulgated thereunder and shall promptly mail the Second Information Statement to the stockholders of the Company. The Company will comply with Section 14(c) of the Exchange Act and the rules promulgated thereunder connection with the preparation and mailing of the Second Information Statement, and the Second Information Statement shall not, as of the date that the Second Information Statement (or any amendment thereof or supplement thereto) is first mailed to stockholders or at the effective date of the Charter Amendment, contain any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the same subject matter which has become false or misleading. If the Company should discover at any time prior to the effectiveness of the Charter Amendment, any event relating to the Company or any of its subsidiaries or any of their respective affiliates, officers or directors that is required to be set forth in a supplement or amendment to the Second Information Statement, in addition to the

Company’s obligations under the Exchange Act, the Company will promptly inform the Purchasers thereof.

(d) Certificate of Amendment . The Company agrees to file the Certificate of Amendment described in the Private Placement Memorandum increasing the number of authorized shares of its common stock no later than two business days after the expiration of 20 calendar days following the Company’s distribution to all its stockholders (current as of the record date associated therewith) of the Second Information Statement.

(e) Lock-Up . Except for the issuance of (i) 100 shares of the Company’s Series A Convertible Preferred Stock and (ii) shares of Common Stock issuable upon the automatic conversion of such 100 shares of Series A Convertible Preferred Stock, during the period beginning from the date hereof and continuing to and including the date 60 days after the date hereof, the Company agrees not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Securities, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or any such substantially similar securities (other than pursuant to employee equity compensation plans or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement), without the prior written consent of the Placement Agents.

(f) Legend Removal . In connection with any sale or disposition of the Securities by a Purchaser pursuant to Rule 144 or pursuant to any other exemption under the Securities Act such that the transferee acquires freely tradable shares and upon compliance by the Purchaser with the requirements of this Agreement, the Company shall or, in the case of Common Stock, shall cause the transfer agent for the Common Stock (the “ Transfer Agent ”) to issue replacement certificates representing the Securities sold or disposed of without restrictive legends. Upon the earlier of (i) registration for resale pursuant to the Registration Rights Agreement or (ii) the Shares becoming freely tradable by a non-affiliate pursuant to Rule 144 the Company shall (A) deliver to the Transfer Agent irrevocable instructions that the Transfer Agent shall reissue a certificate representing shares of Common Stock without legends upon receipt by such Transfer Agent of the legended certificates for such shares, together with either (1) a customary representation by the Purchaser that Rule 144 applies to the shares of Common Stock represented thereby or (2) a statement by the Purchaser that such Purchaser has sold the shares of Common Stock represented thereby in accordance with the Plan of Distribution contained in the Registration Statement, and (B) cause its counsel to deliver to the Transfer Agent one or more blanket opinions to the effect that the removal of such legends in such circumstances may be effected under the Securities Act. From and after the earlier of such dates, upon a Purchaser’s written request, the Company shall promptly cause certificates evidencing the Purchaser’s Securities to be replaced with certificates which do not bear such restrictive legends. When the Company is required to cause an unlegended certificate to replace a previously issued legended certificate, if: (1) the unlegended certificate is not delivered to a Purchaser within three (3) business days of submission by that Purchaser of a legended certificate and supporting documentation to

the Transfer Agent as provided above and (2) prior to the time such unlegended certificate is received by the Purchaser, the Purchaser, or any third party on behalf of such Purchaser or for the Purchaser’s account, purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Purchaser of shares represented by such certificate (a “ Buy-In ”), then the Company shall pay in cash to the Purchaser (for costs incurred either directly by such Purchaser or on behalf of a third party) the amount by which the total purchase price paid for Common Stock as a result of the Buy-In (including brokerage commissions, if any) exceeds the proceeds received by such Purchaser as a result of the sale to which such Buy-In relates. The Purchaser shall provide the Company written notice indicating the amounts payable to the Purchaser in respect of the Buy-In.

(g) Subsequent Sales . From the date hereof until ninety (90) days after the Closing Date, without the consent of the Required Holders (as defined below), neither the Company nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents (as defined below). Notwithstanding the foregoing, the provisions of this Section 7(g) shall not apply to (i) the issuance of the Series A Convertible Preferred Stock pursuant to the terms of the Preferred Stock Purchase Agreement (as in effect on the date hereof) or the issuance of shares of Common Stock upon the automatic conversion of the Series A Convertible Preferred Stock pursuant to the Designations (as in effect on the date hereof); (ii) the issuance of Common Stock or Common Stock Equivalents upon the conversion or exercise of any securities of the Company or a subsidiary outstanding on the date hereof, provided that the terms of such security are not amended after the date hereof to decrease the exercise price or increase the Common Stock or Common Stock Equivalents receivable upon the exercise, conversion or exchange thereof or (iii) the issuance of any Common Stock or Common Stock Equivalents pursuant to any Company equity incentive plan approved by the Company’s stockholders and in place as of the date hereof. As used herein, “ Required Holders ” means, (i) prior to Closing, (A) each Purchaser agreeing to purchase at least $1,000,000 of Securities and (B) the Purchasers agreeing to purchase a majority of the Securities to be sold hereunder and, (ii) after the Closing, (C) each Purchaser, or any transferee, holding at least 2,200,000 Shares (subject to adjustment for any stock split, reverse stock split or other similar transaction), and (D) the Purchasers, or their transferees, holding a majority of the Shares issued hereunder. As used herein, “ Common Stock Equivalents ” means any securities of the Company or any subsidiary which would entitle the holder thereof to acquire at any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

(h) Prohibition on Variable Rate Transactions . From the date hereof until the earlier of (i) three years from the Closing Date or (ii) such time as no Purchaser holds any of the Securities, the Company shall be prohibited from effecting or entering into an agreement to effect any “Variable Rate Transaction”. The term “ Variable Rate Transaction ” shall mean a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A) at a conversion,

exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may sell securities at a future determined price. For the avoidance of doubt, the issuance of a security which is subject to customary anti-dilution protections, including where the conversion, exercise or exchange price is subject to adjustment as a result of stock splits, reverse stock splits and other similar recapitalization or reclassification events, shall not be deemed to be a “Variable Rate Transaction.”

(i) No Integration . The Company shall not, and shall use its commercially reasonable efforts to ensure that no affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that will be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers, or that will be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any trading market such that it would require stockholder approval prior to the closing of such other transaction unless stockholder approval is obtained before the closing of such subsequent transaction.

(j) Equal Treatment of Purchasers . No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

(k) Publicity . Except as set forth below, no public release or announcement concerning the transactions contemplated hereby shall be issued by the Company or the Purchasers without the prior consent of the Company (in the case of a release or announcement by the Purchasers) or the Purchasers (in the case of a release or announcement by the Company) (which consents shall not be unreasonably withheld), except as such release or announcement may be required by law or the applicable rules or regulations of any securities exchange or securities market, in which case the Company or the Purchasers, as the case may be, shall allow the Purchasers or the Company, as applicable, to the extent reasonably practicable in the circumstances, reasonable time to comment on such release or announcement in advance of such issuance. By 8:30 a.m. (New York City time) on the trading day immediately following the Closing Date (the “ Disclosure Deadline ”), the Company shall issue a press release disclosing the consummation of the transactions contemplated by this Agreement. No later than the fourth trading day following the Closing Date, the Company will file a Current Report on Form 8-K attaching the press release described in the foregoing sentence as well as

copies of the Transaction Documents. In addition, the Company will make such other filings and notices in the manner and time required by the Commission. From and after the Disclosure Deadline, no Purchaser shall be deemed to be in possession of any material non-public information relating to the Company and, subject to the other terms of this Agreement, shall be free to effect transactions in securities of the Company.

8. Conditions to the Company’s Obligation to Sell the Securities . The obligation of the Company hereunder to issue and sell the Securities to the Purchasers at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

(a) receipt by the Company of same-day funds in the full amount of the Purchase Price for the Securities being purchased hereunder; and

(b) the accuracy of the representations and warranties made by the Purchasers and the fulfillment of those undertakings by such Purchasers prior to the Closing.

9. Conditions to the Purchaser’s Obligation to Purchase the Securities . The obligation of each Purchaser hereunder to purchase its Securities at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Purchaser’s sole benefit and may be waived by each Purchaser at any time in its sole discretion as to itself only:

(a) The representations and warranties made by the Company in Section 6 hereof qualified as to materiality shall be true and correct at all times prior to and on the Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct as of such earlier date, and, the representations and warranties made by the Company in Section 6 hereof not qualified as to materiality shall be true and correct in all material respects at all times prior to and on the Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date. The Company shall have performed in all material respects all obligations and covenants herein required to be performed by it on or prior to the Closing Date.

(b) The Company shall have obtained any and all consents, permits, approvals, registrations and waivers necessary or appropriate for consummation of the purchase and sale of the Securities and the consummation of the other transactions contemplated by the Transaction Documents, all of which shall be in full force and effect.

(d) The Company shall have entered into the Preferred Stock Purchase Agreement, in substantially the form previously provided to the Purchasers.

(e) The Company shall have received gross proceeds from the sale of the Securities and the Series A Convertible Preferred Stock of at least Thirty Million Dollars ($30,000,000).

(f) The Asset Purchase Agreement shall remain in full force and effect and no amendment, modification or waiver of any term thereof shall have occurred which could reasonably be expected to be materially adverse to the Purchasers.

(g) No judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, including any bankruptcy court or judge, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall have been instituted by any governmental authority, enjoining or preventing the consummation of the transactions contemplated hereby or in the other Transaction Documents.

(h) Welborn Sullivan Meck & Tooley, P.C., counsel to the Company, shall have furnished to the Purchasers its written opinion addressed to the Purchasers and dated the Closing Date, in form and substance reasonably satisfactory to the Purchasers to the effect as set forth in Appendix II.

(i) Prior to the Closing, the Placement Agents shall have received from the Company Accountants a letter, in form and substance reasonably satisfactory to the Placement Agents, addressed to the Placement Agents and dated the date hereof (i) confirming that they are independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements relating to the qualification of accountants under Rule 2-01 of Regulation S-X of the Commission and (ii) stating, as of the date of Closing (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Private Placement Memorandum, as of a date not more than five days prior to the date hereof), the conclusions and findings of such firm with respect to the financial information and other matters ordinarily covered by accountants’ “comfort letters” to initial purchasers in Rule 144A underwritten offerings.

(j) Prior to the Closing, the Purchasers and the Placement Agents shall have received from Cawley, Gillespie & Associates, an independent petroleum engineer firm for the Company, a letter, in form and substance reasonably satisfactory to the Placement Agents, with respect to the audit of the Company’s estimated proved developed producing reserves as prepared by the Company as set forth or incorporated by reference in the Private Placement Memorandum and such related matters as the Placement Agents shall reasonably request.

(k) The Company shall have furnished to the Purchasers a certificate, dated the Closing Date, of its chief executive officer and its chief financial officer, in form and substance reasonably satisfactory to the Purchasers, stating that:

(i) the representations, warranties and agreements of the Company in Section 6 of this Agreement are true and correct as of the date of this

Agreement and as of the Closing Date; and the Company has complied in all material respects with all its agreements contained herein to be performed prior to or on the Closing Date;

(ii) since the respective dates as of which information is given in the Private Placement Memorandum, other than as set forth in the Private Placement Memorandum (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement) and the Incorporated Documents, (A) there has not occurred any change or any development that might have a Material Adverse Effect, (B) there has not been any change in the common stock, the short-term debt, or the long-term debt of the Company or any of its subsidiaries that might have a Material Adverse Effect, (C) neither the Company nor any of its subsidiaries has incurred any material liability or obligation, direct or contingent, other than borrowings in the ordinary course of the Company’s or its subsidiaries’ business, (D) a Material Loss has not occurred and (E) the Company has not declared or paid any dividend on its common stock, except for dividends declared in the ordinary course of business and consistent with past practice, and, except as set forth in the Private Placement Memorandum, neither the Company nor any of its subsidiaries has entered into any transaction or agreement (whether or not in the ordinary course of business) material to the Company and its subsidiaries taken as a whole;

(iii) they have carefully examined the Private Placement Memorandum and, in their opinion the Private Placement Memorandum, as of its date and the Closing Date, did not and does not include any untrue statement of a material fact and did not and does not omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

(iv) (a) the Charter Amendment has been approved by the Company’s Board of Directors and by the holders of more than a majority of its common stock, (b) the Company has distributed to all of its current stockholders an Information Statement on Schedule 14C as described in the Private Placement Memorandum, (c) such Information Statement has been filed with the Securities and Exchange Commission and (d) the Company has duly filed the Preferred Stock Designation with the Delaware Secretary of State and the Preferred Stock Designation is effective; and

(v) The Company has satisfied all conditions on its part to be satisfied on or prior to the Closing.

(l) The Company shall have delivered a Certificate, executed on behalf of the Company by its Secretary, dated as of the Closing Date, certifying the resolutions adopted by the Board of Directors of the Company approving the transactions contemplated by this Agreement and the other Transaction Documents and the issuance of the Securities, certifying the current versions of the Certificate of Incorporation and

Bylaws of the Company and certifying as to the signatures and authority of persons signing the Transaction Documents and related documents on behalf of the Company.

(m) Each of the Transaction Documents, other than this Agreement and the Asset Purchase Agreement, shall be in form and substance reasonably satisfactory to the Purchasers and each of the Transaction Documents, other than this Agreement, shall have been duly executed and delivered by the Company and the other parties thereto, and the Securities and the Series A Convertible Preferred Stock shall have been duly executed and delivered by the Company.

10. Termination of Obligations to Effect Closing; Effect.

(a) The obligations of the Company, on the one hand, and the Purchasers, on the other hand, to effect the Closing shall terminate as follows:

(i) Upon the mutual written consent of the Company and the Purchasers;

(ii) By the Company if any of the conditions set forth in Section 8 shall have become incapable of fulfillment, and shall not have been waived by the Company;

(iii) By a Purchaser (with respect to itself only) if any of the conditions set forth in Section 9 shall have become incapable of fulfillment, and shall not have been waived by the Purchaser; or

(iv) By either the Company or any Purchaser (with respect to itself only) if the Closing has not occurred on or prior to July 1, 2011;

provided, however, that, except in the case of clause (i) above, the party seeking to terminate its obligation to effect the Closing shall not then be in breach of any of its representations, warranties, covenants or agreements contained in this Agreement or the other Transaction Documents if such breach has resulted in the circumstances giving rise to such party’s seeking to terminate its obligation to effect the Closing.

(b) In the event of termination by the Company or any Purchaser of its obligations to effect the Closing pursuant to this Section 10, written notice thereof shall forthwith be given to the other Purchasers by the Company and the other Purchasers shall have the right to terminate their obligations to effect the Closing upon written notice to the Company and the other Purchasers. Nothing in this Section 10 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents.

11. Indemnification.

(a) The Company agrees to indemnify and hold harmless each Purchaser and the directors, officers, employees and agents of each such Purchaser against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject, under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of, are based upon or related to any untrue statement or alleged untrue statement of a material fact contained in the Private Placement Memorandum or the omission or alleged omission to state therein, in light of the circumstances under which they were made, a material fact necessary to make the statements therein not misleading, and agrees to reimburse each such indemnified party for any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim as such expenses are incurred.

(b) Promptly after receipt by an indemnified party under subsection (a) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under subsection (a) above unless and to the extent it did not otherwise learn of such action and such failure results in forfeiture by the indemnifying party of substantial rights and defenses; and (ii) will not, in any event, relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) above. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act, by or on behalf of any indemnified party.

(c) If the indemnification provided for in this Section 11 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall have a joint and several obligation to

contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by such indemnifying party, on the one hand, and such indemnified party, on the other hand, from the offering of the Securities. The relative benefits received by the Company shall be deemed to be equal to the total net proceeds from the offering of the Securities (before deducting expenses) received by the Company. The relative benefits received by the Purchaser shall be deemed to be equal to the value of receiving the Securities. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (c) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (c), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

(d) The obligations of the Company under this Section 11 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Purchaser within the meaning of the Securities Act.

12. Miscellaneous .

(a) Governing Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

(b) Consent to Jurisdiction; Forum Selection; Appointment of Agent for Service of Process; Waiver of Jury Trial . (i) Each of the Purchasers and the Company hereby submits to the jurisdiction of the courts of the State of New York and the courts of the United States of America located in the State of New York over any suit, action or proceeding with respect to this Agreement or the transactions contemplated hereby.

(ii) Any suit, action or proceeding with respect to this Agreement or the transactions contemplated hereby may be brought only in the courts of the State of New York or the courts of the United States of America located in the State of New York, located in the Borough of Manhattan, City of New York, State of New York. Each of the parties hereto waives any objection that it may have to the venue of such suit, action or proceeding in any such court or that such suit, action or proceeding in such court was brought in an inconvenient court and agrees not to plead or claim the same. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

(iii ) Entire Agreement; No Inconsistent Agreements. This Agreement constitutes the entire agreement among the parties hereto with respect to the

subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof.

(c) Amendments and Waiver . The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the written consent of the Company and the Required Holders. The failure by any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

(d) Survival . The representations and warranties of the Company and the Purchasers, the agreements and covenants and the indemnification and contribution provisions set forth in this Agreement shall survive the Closing.

(e) Further Assurances . Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the Transactions.

(f) Broker’s Fee . The Purchasers acknowledge that the Company intends to pay to the Placement Agents a fee in respect of the sale of the Securities to the Purchasers. Each of the parties hereto hereby represents that, on the basis of any actions and agreements by it, there are no other brokers or finders entitled to compensation in connection with the sale of the Securities to the Purchasers.

(g) Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Required Holders.

(h) Severability . If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

(i) Counterparts; E-Mail or Facsimile Execution . This Agreement may be executed in any number of counterparts and, if executed in more than one counterpart, the executed counterparts shall be deemed to be an original but all such counterparts shall together constitute one and the same instrument This Agreement may be executed and delivered electronically including by emailed pdf signatures or facsimile signatures.

(j) Headings . The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.

(k) Independent Nature of Purchasers’ Obligations and Rights . The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document. The decision of each Purchaser to purchase Securities pursuant to the Transaction Documents has been made by such Purchaser independently of any other Purchaser. Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser acknowledges that no other Purchaser has acted as agent for such Purchaser in connection with making its investment hereunder and that no Purchaser will be acting as agent of such Purchaser in connection with monitoring its investment in the Securities or enforcing its rights under the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. The Company acknowledges that each of the Purchasers has been provided with the same Transaction Documents for the purpose of closing a transaction with multiple Purchasers and not because it was required or requested to do so by any Purchaser.

(l) Notices . All statements, requests, notices and agreements hereunder shall be in writing, and:

(i) if to the Company, shall be delivered or sent by mail or facsimile transmission to it at: 1700 Broadway, Suite 2020, Denver, Colorado 80290, Attention: Patrick R. McDonald (fax: 720-407-7041; telephone: 720-407-7043; email: pmcdonald@nytis.com);

with a copy to Welborn Sullivan Meck & Tooley, P.C., Address: 1125 17 th Street, Suite 2200, Denver, Colorado 80202, Attention: John F. Meck, Esq. (fax: (303) 832-2366; telephone: (303) 830-2500; email: jmeck@wmstlaw.com); and

if to a Purchaser, shall be delivered or sent by mail, telex or facsimile transmission to the address set forth immediately below such Purchaser’s name on the signature page hereto.

Any such statements, requests or notices will take effect at the time of receipt thereof. Each party shall provide notice to the other party of any change in address.

[ Signature pages follow ]

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed as of the date first above written.

	CARBON NATURAL GAS COMPANY


	By:
		Name: Patrick R. McDonald
		Title: Chief Executive Officer

IN WITNESS WHEREOF, each Purchaser has caused this Agreement to be duly executed as of the date first above written.




	By:
		Name:
		Title:

	Address:

APPENDIX I

PURCHASE INFORMATION

(separate Appendix I to be completed for each separate Purchaser)

Purchaser (Name for Securities to be Registered in)	Tax ID Number	Number of Shares	Aggregate Purchase Price
			$

APPENDIX II

Legal Opinions

Exhibit 10.2

CARBON NATURAL GAS COMPANY

One Hundred Shares of Series A Convertible Preferred Stock

PURCHASE AGREEMENT

This Agreement will confirm the arrangement between Carbon Natural Gas Company, a Delaware corporation (the “ Company ”), with its principal offices at 1700 Broadway, Suite 2020, Denver, Colorado 80290, and the purchaser whose name and address are set forth on the signature pages hereof (the “Purchaser ”), relating to the issuance and sale by the Company to the Purchaser of one hundred (100) shares of its Series A Convertible Preferred Stock, par value $0.01 per share (the “Preferred Securities ”) on the terms, conditions and other provisions contained in this Agreement and in the Certificate of Designation (as such term is defined below). In accordance with the terms of the Amended and Restated Certificate of Designation of Relative Rights and Preferences of the Series A Convertible Preferred Stock filed with the Delaware Secretary of State (the “Certificate of Designation” ) on June 27, 2011, the Preferred Securities will convert automatically into shares of the Company’s common stock, par value $0.01 per share (the “Conversion Securities” ) upon the filing of a Certificate of Amendment (the “Certificate of Amendment” ) to the Company’s Certificate of Incorporation with the Delaware Secretary of State as described below under “ Increase in Authorized Common Stock — June 2011 .” The Preferred Securities together with the Conversion Securities to be issued to the Purchaser upon conversion of the Preferred Securities are referred to herein as the “Securities.” A copy of the Certificate of Designation is attached hereto as Appendix I.

On February 14, 2011, pursuant to an Agreement and Plan of Merger between (i) the Company and its subsidiary St. Lawrence Merger Sub, Inc. (“ Merger Co. ”), a Delaware corporation, and (ii) Nytis Exploration (USA) Inc., a Delaware corporation (“ Nytis USA ”), Merger Co. merged with and into Nytis USA with Nytis USA as a surviving subsidiary of the Company (the “ Merger ”).

Increase in Authorized Common Stock — March 2011. As of March 22, 2011, the Company’s board of directors and the holders of a majority of the outstanding common stock approved (by consent, not a full meeting of shareholders) certain changes to the Company’s Certificate of Incorporation, including, without limitation (i) a change of the Company’s name from St. Lawrence Seaway Corporation to Carbon Natural Gas Company and (ii) an increase in the authorized number of shares of common stock to 100,000,000, in accordance with Delaware law and the Company’s Certificate of Incorporation and Bylaws in effect at March 22, 2011. These changes took effect on May 2, 2011, when the Amended and Restated Certificate of Incorporation filed by the Company with the Delaware Secretary of State became effective. This filing occurred promptly after the expiration of 20 calendar days following the Company’s distribution to all shareholders of an Information Statement on Schedule 14C. The Information Statement was filed with the Securities and Exchange Commission (the “ Commission ”) on March 30, 2011 and was distributed to all Company shareholders beginning on or about April 12, 2011.

Increase in Authorized Common Stock — June 2011. As of June 15, 2011, the Company’s board of directors and the holders of a majority of the outstanding common stock approved (by consent, not a full meeting of shareholders) an increase in the authorized number of shares of common stock to 200,000,000, in accordance with Delaware law and the Company’s Certificate of Incorporation and Bylaws in effect at June 15, 2011. This change will take effect when a Certificate of Amendment is filed by the Company with the Delaware Secretary of State. This filing will occur promptly on the expiration of 20 calendar days following the Company’s distribution to all its stockholders as of the record date of such action (June 10, 2011) of an Information Statement on Schedule 14C. The Information Statement was filed with the Securities and Exchange Commission on June 17, 2011 and is expected to be distributed to all Company stockholders on or about June 27, 2011.

The Securities are being offered and sold to the Purchaser in a private placement (the “Private Placement — Preferred” ) without being registered under the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the “ Securities Act ”), in reliance upon Regulation D (“ Regulation D ”) thereunder. Contemporaneously with the Private Placement - Preferred, the Company is making an offer to sell 44,444,444 shares of the Company’s common stock (the “Common Securities ”) at $0.45 per share in a private placement (the “Private Placement — Common” and together with the Private Placement — Preferred, the “Private Placement” ) without being registered under the Securities Act in reliance upon Regulation D.

Proceeds from the Private Placement, together with available cash of the Company, will be used (i) to finance the acquisition (the “ Acquisition ”) of certain natural gas properties, natural gas gathering and compression facilities and other assets related thereto (the “ Acquired Assets ”) from The Interstate Natural Gas Company, LLC (the “ Seller ”) pursuant to an Asset Purchase Agreement, as amended (the “ Asset Purchase Agreement ”) among the Company, Nytis Exploration Company LLC, an indirect subsidiary owned 98.1% by the Company (the “ Acquiring Sub ”) and (ii) for working capital purposes.

This Agreement and the Asset Purchase Agreement are referred to herein collectively as the “ Transaction Documents ”, and the transactions contemplated hereby, and thereby are referred to herein collectively as the “ Transactions ”.

1. Authorization of Sale of the Securities . The Company has authorized the issuance and sale of the Securities. Prior to conversion of the Preferred Securities into the Conversion Securities, the Company shall have filed an amendment to its Certificate of Incorporation to increase the number of authorized shares of common stock and shall have reserved for issuance to the holder of the Preferred Securities, the number of shares to be issued upon conversion of the Preferred Securities into the Conversion Securities.

2. Purchase and Sale of the Securities. Subject to the satisfaction or waiver of the conditions set forth in Sections 8 and 9 below, the Company will issue and sell to the Purchaser and the Purchaser agrees to purchase from the Company, upon the terms, conditions and other provisions hereinafter set forth and set forth in the Certificate of Designation, 100 shares of the Preferred Securities for the purchase price of $100,000 per share (the “ Purchase Price ”).

4. Form of Payment . On the Closing Date, (a) the Purchaser shall pay the Purchase Price to the Company for the Preferred Securities to be issued and sold to the Purchaser by wire transfer of immediately available funds in accordance with the Company’s written wire instructions and (b) the Company shall deliver certificates for the Preferred Securities to the Purchaser (with the customary legend thereon restricting transfer except pursuant to registration under Section 5 of the 1933 Act or an exemption from registration under Section 4(2) of the 1933 Act found in Section 5(d) hereof), duly executed on behalf of the Company.

5. Purchaser’s Representations and Warranties . Purchaser represents and warrants to, and agrees with, the Company as follows:

(a) The Purchaser (i) is knowledgeable, sophisticated and experienced in making, and is qualified to make, decisions with respect to investments in securities representing an investment decision like that involved in the purchase of the Securities, and has requested, received, reviewed and considered all information it deems relevant in making an informed decision to purchase the Securities; (ii) is acquiring the Securities in the ordinary course of its business and for its own account or the account of another accredited investor for investment only and with no present intention of distributing any of such Securities or any arrangement or understanding with any other persons regarding the distribution of such Securities; (iii) will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Securities except in compliance with the Securities Act and any applicable state securities laws; (iv) has, in connection with its decision to purchase the Securities, relied solely upon the Private Placement Memorandum (as defined below) and the representations and warranties of the Company contained herein, and Purchaser or its representatives, if any, have been furnished with, or have had access to, all materials relating to the business, finances and operations of the Company (including all reports filed with the Commission) and materials relating to the offer and sale of the Securities which have been requested by such Purchaser; such Purchaser, or its representatives, if any, have been afforded the opportunity to ask questions of and perform customary due diligence regarding, the Company; and neither such inquiries and due diligence nor any other due diligence investigations conducted by the Purchaser, or its representatives shall modify, amend or affect the Purchaser’s right to rely on the Company’s representations and warranties contained in Section 6 below; and (v) understands that its investment in the Securities involves a significant degree of risk including a risk of total loss of Purchaser’s investment, and the Purchaser is fully aware of and understands all the risk factors related to the Purchaser’s purchase of the Securities, including, but not limited to, those set forth under the caption “Risk Factors” in the Private Placement Memorandum (as defined below) and those set forth in any document incorporated by reference in the Private Placement Memorandum (the

“ Incorporated Documents ”). Purchaser further represents and warrants to the Company that Purchaser has determined that the purchase of the Securities is a suitable investment for the Purchaser, and is consistent with the Purchaser’s risk tolerance and investment objectives.

(b) The Purchaser has all necessary power and authority to execute and deliver this Agreement, and the execution and delivery of this Agreement has been duly authorized by the Purchaser. Assuming that this Agreement is the valid and binding agreement of the Company, this Agreement constitutes a valid and binding agreement of the Purchaser, enforceable against the Purchaser in accordance with its terms, subject to (i) the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and (ii) general equitable principles (whether considered in a proceeding in equity or at law).

(c) The Purchaser understands and acknowledges that the Securities are being offered in transactions not involving any public offering within the meaning of the Securities Act, that the offer and sale of the Securities have not been registered under the Securities Act or any other securities law and that (i) if in the future it decides to resell, pledge or otherwise transfer any Securities that it purchases hereunder, those Securities, absent an effective registration statement under the Securities Act, may be resold, pledged or transferred only (a) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available) or (b) pursuant to another applicable exemption from the registration requirements of the Securities Act, and in each of cases (a) and (b), in accordance with any applicable securities laws of the states and other jurisdictions of the United States, and that (ii) it will, and each subsequent holder of any of the Securities that it purchases in this offering is required to, notify any subsequent purchaser of such Securities from it or subsequent holders, as applicable, of the resale restrictions referred to in (i) above.

(d) The Purchaser understands that the Securities will bear a legend to the following effect unless the Company determines otherwise in compliance with applicable law:

MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED.

(e) The Purchaser understands that the information provided to it in connection with its purchase of the Securities, including information contained in the Private Placement Memorandum (as defined below), is strictly confidential and proprietary to the Company and has been prepared from the Company’s publicly available documents and other information and is being submitted to the Purchaser solely for the Purchaser’s confidential use in connection with the Purchaser’s evaluation of a possible investment in the Securities. In addition, the Purchaser hereby acknowledges that unauthorized disclosure of information regarding the Private Placement may result in a violation of Regulation FD promulgated under the Securities Act.

(f) The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

(g) The Purchaser’s principal executive offices are in the jurisdiction set forth immediately below the Purchaser’s signature on the signature page hereto.

(h) The Purchaser is an “accredited investor” (as defined in Rule 501(a) of Regulation D promulgated under the Securities Act) or a “qualified institutional buyer” as defined in Rule 144A.

(i) The Purchaser acknowledges that the Company and others will rely upon the trust and accuracy of the foregoing acknowledgements, representations and agreements. The Purchaser agrees that if any of the acknowledgements, representations or agreements the Purchaser is deemed to have made by its purchase of Securities is no longer accurate, it shall promptly notify the Company. If the Purchaser is purchasing Shares as a fiduciary or agent for one or more investor accounts, the Purchaser represents that it has sole investment discretion with respect to each of those accounts and full power to make the above acknowledgements, representations and agreements on behalf of each account.

(a) The Company has prepared a private placement memorandum dated April 20, 2011, a supplement dated June 2, 2011, and a supplement dated June 20, 2011, and will prepare additional supplements to such private placement memorandum, if required, setting forth information concerning the Company, the Securities, the Transaction Documents, the Private Placement and certain other matters (the April 20, 2011 private placement memorandum, the June 2, 2011 supplement, the June 20, 2011 supplement, as well as any additional supplements are collectively referred to as the

“Private Placement Memorandum” ). Copies of the Private Placement Memorandum have been, and copies of any necessary supplement will be, delivered by the Company to the Purchaser. The Private Placement Memorandum will not as of its date, or any supplement, as of the Closing Date, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(d) The Company has an authorized capitalization as set forth in the Private Placement Memorandum, and all of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and conform to the description thereof contained in the Private Placement Memorandum; and all of the issued equity of each subsidiary of the Company has been duly and validly authorized and issued and is fully paid and non-assessable and, are owned directly or indirectly by the Company as described in the Private Placement Memorandum, free and clear of all liens, encumbrances, equities, claims or adverse interests (collectively, “ Liens ”) of any nature. Except as disclosed in the Private

Placement Memorandum, (i) there are no outstanding securities convertible into or exchangeable for, or warrants, options or rights issued by the Company to purchase, any shares of its capital stock, (ii) there are no statutory, contractual, preemptive or other rights to subscribe for or to purchase any of its capital stock and (iii) there are no restrictions upon transfer of its capital stock pursuant to the Company’s charter or bylaws.

(e) Except as set forth in the Private Placement Memorandum and except with respect to the rights contained in the Registration Rights Agreement (described in the Private Placement Memorandum), there are no contracts, agreements or other documents between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned, directly or indirectly, by such person.

(l) The pro forma financial statements of the Company related to the Merger and the related notes thereto incorporated by reference in the Private Placement

Memorandum have been prepared on a basis consistent with the historical financial statements of the Company and its subsidiaries, give effect to the assumptions used in the preparation thereof on a reasonable basis and in good faith and present fairly the historical financial statements and the Merger. Such pro forma financial statements have been prepared in accordance with the applicable requirements of Rule 1l-02 of Regulation S-X of the Commission, except that the pro forma condensed statements of income do not cover the period from the most recent fiscal year end to the end of the first quarter of 2011.

(o) The statistical, industry and market-related data included in the Private Placement Memorandum are based on or derived from sources that the Company believes to be reliable and accurate.

(p) Ehrhardt Keefe Steiner & Hottman PC (the “ Company Accountants ”), who have certified the financial statements of Nytis USA and whose report is contained or incorporated by reference in the Private Placement Memorandum is a registered public accounting firm; and the Company Accountants were independent accountants as required by the Exchange Act during the periods covered by the financial statements on which they reported.

(q) The Company and its subsidiaries employ disclosure controls and procedures that are designed to ensure that information required to be disclosed by the

Company in the reports that they file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and is accumulated and communicated to the management of the Company, as the case may be, including their principal executive officer or officers and principal financial officer or officers, as appropriate to allow timely decisions regarding disclosure; since the close of the Merger, the principal executive officers (or their equivalents) and principal financial officers (or their equivalents) of the Company have made all certifications required by the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”) and any related rules and regulations of the Commission, and the statements contained in any such certification are complete and correct in all material respects; and the Company is otherwise in compliance in all material respects with all applicable, effective provisions of the Sarbanes-Oxley Act.

(r) The Company and its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s authorization; (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; (v) material information relating to the Company and its subsidiaries is promptly made known to the officers responsible for establishing and maintaining the system of internal accounting controls; and (vi) any significant deficiencies or weaknesses in the design or operation of internal accounting controls which could adversely affect the Company’s ability to record, process, summarize and report financial data, and any fraud whether or not material that involves management or other employees who have a significant role in internal controls, are adequately and promptly disclosed, as applicable, to the Company’s independent auditors and the board of directors.

(s) The Company has all necessary power and authority to execute and deliver this Agreement and each of the other Transaction Documents to which it is a party, and to perform its obligations hereunder and thereunder to issue the Securities and to consummate the other Transactions; each of the Transaction Documents and the Transactions have been duly authorized by the Company; this Agreement has been duly executed and delivered by the Company and each of the other Transaction Documents, when executed and delivered by the Company, assuming that such Transaction Documents are or will be the valid and binding agreements of the other parties thereto, will constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms, subject to (i) the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors’ rights generally and (ii) general equitable principles (whether considered in a proceeding in equity or at law); and each of the Transaction Documents will conform, when executed and delivered, in all material respects to the description thereof contained in the Private Placement Memorandum.

(t) At Closing, the Company will have all necessary power and authority to execute, issue and deliver the Preferred Securities; the Preferred Securities will have been duly and validly authorized, and, when issued and delivered to and paid for by the Purchaser pursuant to the Purchase Agreements on the Closing Date, the Preferred Securities will be duly and validly authorized and issued, fully paid and nonassessable and will be free and clear of any preemptive rights and Liens; and the Securities, when issued, will conform in all material respects to the description thereof in the Private Placement Memorandum. Subject to the filing of the Certificate of Amendment, the Company will have all necessary power and authority to execute, issue and deliver the Conversion Securities; the Conversion Securities will have been duly and validly authorized, and, when issued and delivered upon conversion of the Preferred Securities in accordance with the Certificate of Designation, the Conversion Securities will be duly and validly authorized and issued, fully paid and nonassessable and will be free and clear of any preemptive rights and Liens.

(u) The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents, the performance of the obligations of the Company hereunder and thereunder, the issuance of the Securities and the consummation of the other Transactions will not, as of the Closing Date with respect to the Preferred Securities and at such time as the Preferred Securities are converted into the Conversion Securities in accordance with the Certificate of Designation, (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate, contract or other agreement or instrument to which the Company or its subsidiaries is a party or by which the Company or their subsidiaries is bound or to which any of the property or assets of the Company or the Acquired Assets is subject, (ii) result in any violation of the provisions of the charter, bylaws of any of the Company or its subsidiaries or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over any of the Company or its subsidiaries or any of their properties or assets or the Acquired Assets, (iii) result in the imposition or creation of (or the obligation to create or impose) any Lien under any agreement or instrument to which the Company or its subsidiaries is a party or by which the Company or its subsidiaries or their respective properties or assets or the Acquired Assets is bound (provided, however, that the Company anticipates that the lender under its credit facility will require NEC to grant mortgages on some or all of the Acquired Assets) or (iv) result in the suspension, termination or revocation of any permit, license, consent, exemption, franchise, authorization or other approval (each, an “ Authorization ”) of the Company or its subsidiaries or any other impairment of the rights of the holder of any such Authorization.

(v) No consent, approval, authorization or order of, or filing or registration with, any court or governmental agency or body is required for the execution, delivery and performance of the Transaction Documents by the Company, the issuance of the Securities, the performance of the obligations of the Company hereunder and thereunder and the consummation of the other Transactions contemplated hereby and thereby, except (i) with respect to the transactions contemplated by the Asset Purchase Agreement, (ii) with respect to the filing of the Certificate of Amendment, (iii) as

required by the state securities or “blue sky” laws and (iv) for such consents, approvals, authorizations, orders, filings or registrations which have been obtained or made.

(w) Neither Company, or its subsidiaries is or, as of the Closing Date, after giving effect to the issuance of the Securities and the application of the net proceeds therefrom as set forth in the Private Placement Memorandum (including completion of the Transactions), will be an “investment company” as defined, and subject to regulation, under the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (collectively, the “ Investment Company Act ”).

(x) The Company and its subsidiaries have (i) good and marketable title in fee simple to all real property and good title to all personal property owned by them, free and clear of all liens, encumbrances and defects; and all assets held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases; and (ii) defensible title to all their interests in all oil and gas properties owned or leased by them, free and clear of all liens, encumbrances and defects and title investigations have been carried out by the Company in accordance with customary practice in the oil and gas industry, except in each case, as do not materially and adversely affect the value of such property and do not materially interfere with the use made or proposed to be made of such property by the Company or its subsidiaries.

(y) The equipment of the Company and its subsidiaries has been maintained in a manner consistent with that of a reasonably prudent owner and such equipment is in good working condition, reasonable wear and tear excepted, except where the failure to so maintain such equipment would not have a Material Adverse Effect.

(z) The Company and its subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties from insurers of recognized financial responsibility and as is customary for companies engaged in similar businesses in similar industries. Neither the Company nor any of its subsidiaries (i) has received notice from any insurer or agent of such insurer that substantial capital improvements or other material expenditures will have to be made in order to continue such insurance or (ii) has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers at a cost that would not have a Material Adverse Effect.

(aa) The Company and its subsidiaries have such Authorization of, and have made all filings with and notices to, all governmental or regulatory authorities and self-regulatory organizations and all courts and other tribunals, including, without limitation, under any applicable environmental law, ordinance, rule, regulation, order, judgment, decree or permit, as are necessary to own, lease, license and operate its respective properties and to conduct its business, except where the failure to have any such Authorization or to make any such filing or notice would not have a Material Adverse Effect; each such Authorization is valid and in full force and effect and the Company and its subsidiaries are in compliance with all the terms and conditions thereof

and with the rules and regulations of the authorities and governing bodies having jurisdiction with respect thereto; and no event has occurred (including, without limitation, the receipt of any notice from any authority or governing body) which allows or, after notice or lapse of time or both, would allow, revocation, suspension or termination of any such Authorization or results or, after notice or lapse of time or both, would result in any other impairment of the rights of the holder of any such Authorization, except where such failure to be valid and in full force and effect or to be in compliance, or the occurrence of any such event or the presence of any such restriction would not have a Material Adverse Effect.

(bb) The Company and its subsidiaries own or possess adequate rights to use all material patents, patent rights, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, inventions, know-how (including trade secrets and other unpatented and/or unpatentable proprietary of confidential information, systems or procedures) and licenses necessary for the conduct of their respective businesses and have no reason to believe that the conduct of their respective businesses will conflict with; and neither the Company nor any of its subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to any of such intellectual property which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a Material Adverse Effect.

(cc) Neither the Company nor any of its subsidiaries is involved in any strike, job action or labor dispute with any group of employees that might be expected to have a Material Adverse Effect, and, to the Company’s knowledge, no such action or dispute is threatened.

(dd) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, “ ERISA ”); no “reportable event” (as defined in ERISA) has occurred with respect to any “pension plan” (as defined in ERISA) for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “pension plan” or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (collectively, the “Internal Revenue Code”); and each “pension plan” for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Internal Revenue Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification.

(ee) Except as set forth in the Private Placement Memorandum, the Company and each of its subsidiaries has filed by the due date (including any extensions thereof) all federal, state and local income and franchise tax returns required to be filed through the date hereof and has paid all taxes (including withholding taxes, penalties and interest, assessments, fees and other charges) due thereon, other than those being contested in good faith and for which adequate reserves have been taken; and no tax

deficiency has been determined adversely to the Company or any of its subsidiaries which has had (nor does the Company have any knowledge of any tax deficiency which, if determined adversely to the Company or any of its subsidiaries, might have) a Material Adverse Effect.

(ff) Neither the Company or any of its subsidiaries, nor any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of its subsidiaries, has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or the Patriot Act of 2001, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment.

(gg) The Company and its subsidiaries are in material compliance with all environmental laws, and neither the Company nor any of its subsidiaries has received any communications alleging or has any basis to believe that the Company or any subsidiary is not in material compliance with such laws and, to the knowledge of the Company, there are no present circumstances that would prevent or interfere with the continuation of such material compliance. There has been no storage, disposal, generation, manufacture, refinement, transportation, handling or treatment of toxic wastes, hazardous wastes, hazardous substances or other materials regulated by environmental laws (“Hazardous Materials”) by the Company or any of its subsidiaries (or, to the knowledge of the Company, any of their predecessors in interest) at, upon or from any of the property now or previously owned or leased by the Company or its subsidiaries or (to the knowledge of the Company) the Acquired Assets except in compliance with all applicable environmental laws, ordinances, rules, regulations, orders, judgments, decrees or permits and there are no facts or circumstances that would give rise to a claim for remedial action under any applicable laws, ordinances, rules, regulations, orders, judgments, decrees or permits, except for any violation or remedial action which would not have, or could not be reasonably likely to have a Material Adverse Effect; there has been no material spill, discharge, leak, emission, injection, escape, dumping or release of any kind onto such property or into the environment surrounding such property of Hazardous Materials due to or caused by the Company or any of its subsidiaries or with respect to which the Company or any of its subsidiaries have knowledge, except for any such spill, discharge, leak, emission, injection, escape, dumping or release which would not have or would not be reasonably likely to have a Material Adverse Effect; and the terms “hazardous wastes”, “toxic wastes”, “hazardous substances” and shall have the meanings specified in any applicable local, state, federal and foreign laws or regulations with respect to environmental protection.

(hh) Cawley, Gillespie & Associates, a petroleum engineering firm from whose audit (the “ Reserve Audit ”) of the Company’s internally prepared reserve reports information (the “ Reserve Information ”) is set forth or incorporated by reference in the Private Placement Memorandum, are independent petroleum engineers with respect to the Company. Other than (i) the production of reserves in the ordinary course

of business, (ii) intervening price fluctuations or (iii) as described in the Private Placement Memorandum, the Company is not aware of any facts or circumstances that would result in a Material Adverse Effect in its proved developed reserves in the aggregate, or the aggregate present value of estimated future net revenues from such reserves or the standardized measure of discounted future net cash flows therefrom, as described in the Private Placement Memorandum and reflected in the Reserve Information as of the respective dates such information is given. Estimates of proved reserves and the present value of the estimated future net revenues and the discounted future net cash flows derived therefrom as described in the Private Placement Memorandum and reflected in the Reserve Information comply in all material respects to the applicable requirements of the Securities Act and the Exchange Act.

(ii) Assuming the accuracy of the representations and warranties of the Purchaser contained in Section 5 hereof and the Purchaser’s compliance with its agreements set forth herein, it is not necessary, in connection with the issuance and sale of the Securities, in the manner contemplated by Transaction Documents and the Private Placement Memorandum, to register the Securities under the Securities Act.

(jj) The Company or any of its Affiliates (as defined in Rule 501(b) of Regulation D) have not engaged, and will not engage, directly or indirectly in any form of general solicitation or general advertising in connection with the offering of the Securities (as those terms are used in Regulation D) under the Securities Act or in any manner involving a public offering within the meaning of Section 4(2); and the Company has not entered, and will not enter, into any arrangement or agreement with respect to the distribution of the Securities, except for the Placement Agency Agreement, this Agreement and the Registration Rights Agreement, and the Company agrees not to enter into any such arrangement or agreement.

(kk) Neither the Company nor any of its Affiliates has directly or indirectly sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of any “security” (as defined in the Securities Act) which is, or would be, integrated with the sale of any of the Securities in a manner that would require the registration under the Securities Act of any of the Securities.

(ll) Neither the Company nor, to the Company’s knowledge, any of the Affiliates of the Company, has taken, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the Securities to facilitate the sale or resale of such securities.

(mm) The Company has not sold or issued any security of the same or similar class or series as any of the Securities or any security convertible into any of the Securities during the six-month period preceding the earlier of the date of this Agreement and the Closing Date, including any sales pursuant to Rule 144A, or Regulation D (other than shares issued in connection with the Merger or pursuant to employee benefit plans, qualified stock options plans or other employee compensation plans or pursuant to outstanding options, rights or warrants), and has no intention of making, and will not

make, an offer or sale of such securities, for a period of six months after the date of the Purchase Agreement, except for the offering of the Common Securities as contemplated in this Agreement, in the Private Placement - Common, and in the Registration Rights Agreement. As used in this paragraph, the terms “offer” and “sale” have the meanings specified in Section 2(a)(3) of the Securities Act.

(nn) The Company will not offer or sell any of the Securities in the Private Placement to any person who it does not reasonably believe is (i) a qualified institutional buyer as defined in Rule 144A or (ii) an “accredited investor” (as defined in Rule 501(a) of Regulation D of the Act.

(oo) The Company will exercise reasonable care to assure that the Purchaser of the Securities is not an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act.

(pp) No securities of the same class as the Securities are listed on any national securities exchange.

(qq) Each certificate signed by any officer of the Company and delivered to the Purchaser shall be deemed to be a representation and warranty by the Company to the Purchaser as to the matters covered thereby.

7. Covenants .

(b) Form D and Blue Sky . The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Purchaser promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Securities for, sale to the Purchaser at the Closing pursuant to this Agreement under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of any such action so taken to the Purchaser on or prior to the Closing Date. The Company shall make all filings and reports relating to the offer and sale of the Securities required under applicable securities or “Blue Sky” laws of the states of the United States following the Closing Date.

(c) Certificate of Amendment . The Company agrees to file the Certificate of Amendment described in the Private Placement Memorandum increasing the number of authorized shares of its common stock promptly on the expiration of 20 calendar days following the Company’s distribution to all its current stockholders of an Information Statement on Schedule 14C as described in the Private Placement Memorandum.

(d) Lock-Up . Except for the issuance of (i) the Common Securities and (ii) the Conversion Securities, during the period beginning from the date hereof and

continuing to and including the date 60 days after the date hereof, the Company agrees not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Company that are substantially similar to the Securities, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or any such substantially similar securities (other than pursuant to employee equity compensation plans or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement) without the prior written consent of the Placement Agents.

8. Conditions to the Company’s Obligation to Sell the Securities . The obligation of the Company hereunder to issue and sell the Securities to the Purchaser at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

(a) receipt by the Company of same-day funds in the full amount of the Purchase Price for the Securities being purchased hereunder; and

(b) the accuracy of the representations and warranties made by the Purchaser and the fulfillment of those undertakings by such Purchaser prior to the Closing.

9. Conditions to the Purchaser’s Obligation to Purchase the Securities . The obligation of Purchaser hereunder to purchase the Preferred Securities at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for such Purchaser’s sole benefit and may be waived by such Purchaser at any time in its sole discretion:

(a) The contemporaneous Closing of the Private Placement — Common.

(b) Each of the Transaction Documents shall have been duly executed and delivered by the Company and the other parties thereto, and the Preferred Securities shall have been duly executed and delivered by the Company.

10. [ Intentionally Omitted ].

11. Miscellaneous .

(a) Governing Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

(b) Consent to Jurisdiction; Forum Selection; Appointment of Agent for Service of Process . (i) Each of the Purchaser and the Company hereby submits to the jurisdiction of the courts of the State of New York and the courts of the United States of America located in the State of New York over any suit, action or proceeding with respect to this Agreement or the transactions contemplated hereby.

(iii ) Entire Agreement; No Inconsistent Agreements. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof.

(c) Amendments and Waiver . The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the written consent of the Company and the holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents. The failure by any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

(d) Survival . The representations and warranties of the Company and the Purchaser, the agreements and covenants and the indemnification and contribution provisions set forth in this Agreement shall survive the Closing.

(f) Broker’s Fee . The Purchaser acknowledges that the Company intends to pay to the Placement Agents a fee in respect of the sale of the Preferred Securities to the Purchaser. Each of the parties hereto hereby represents that, on the basis of any actions and agreements by it, there are no other brokers or finders entitled to compensation in connection with the sale of the Securities to the Purchaser.

(g) Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. Neither the Company nor the Purchaser shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other.

(h) Severability . If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the

validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

(j) Headings . The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.

(k) Notices . All statements, requests, notices and agreements hereunder shall be in writing, and:

if to the Purchaser, shall be delivered or sent by mail, telex or facsimile transmission to the address set forth immediately below such Purchaser’s name on the signature page hereto.

Any such statements, requests or notices will take effect at the time of receipt thereof. Each party shall provide notice to the other party of any change in address.

[ Signature pages follow ]

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed as of the date first above written.

	CARBON NATURAL GAS COMPANY


	By:
		Name: Patrick R. McDonald
		Title: Chief Executive Officer

IN WITNESS WHEREOF, the Purchaser has caused this Agreement to be duly executed as of the date first above written.

YORKTOWN ENERGY PARTNERS IX, LP

By:	Yorktown IX Company LP, its general partner

	By:		Yorktown IX Associates LLC,
			its general partner


		By:
				Name:
				Title:

APPENDIX I

Certificate of Designation

Exhibit 10.3

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (the “Agreement”) is made and entered into as of this 29th day of June, 2011 by and among Carbon Natural Gas Company, a Delaware corporation (the “Company”), and the “Purchasers” named in that certain Purchase Agreement by and among the Company and the Purchasers (the “Purchase Agreement”). Capitalized terms used herein have the respective meanings ascribed thereto in the Purchase Agreement unless otherwise defined herein.

The parties hereby agree as follows:

1. Certain Definitions .

As used in this Agreement, the following terms shall have the following meanings:

“ Common Stock ” means the Company’s common stock, par value $0.01 per share, and any securities into which such shares may hereinafter be reclassified.

“ Prospectus ” means (i) the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus, and (ii) any “free writing prospectus” as defined in Rule 405 under the 1933 Act.

“ Purchasers ” means the Purchasers identified in the Purchase Agreement and any Affiliate or permitted transferee of any Purchaser who is a subsequent holder of any Warrants or Registrable Securities.

“ Register ,” “ registered ” and “ registration ” refer to a registration made by preparing and filing a Registration Statement or similar document in compliance with the 1933 Act (as defined below), and the declaration or ordering of effectiveness of such Registration Statement or document.

“ Registrable Securities ” means (i) the Shares and (ii) any other securities issued or issuable with respect to or in exchange for Registrable Securities, whether by merger, charter amendment or otherwise; provided, that, a security shall cease to be a Registrable Security upon (A) sale pursuant to a Registration Statement or Rule 144 under the 1933 Act, or (B) such security becoming eligible for sale without restriction (including the public information requirement) by the Purchasers pursuant to Rule 144.

“ Registration Statement ” means any registration statement of the Company filed under the 1933 Act that covers the resale of any of the Registrable Securities pursuant to the provisions of this Agreement, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement.

“ SEC ” means the U.S. Securities and Exchange Commission.

“ Shares ” means the shares of Common Stock issued pursuant to the Purchase Agreement.

“ 1933 Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“ 1934 Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

2. Registration .

(a) Registration Statements .

(i) Promptly following the closing of the purchase and sale of the securities contemplated by the Purchase Agreement (the “Closing Date”) but no later than forty-five (45) days after the Closing Date (the “Filing Deadline”), the Company shall prepare and file with the SEC one Registration Statement on Form S-1 covering the resale of the Registrable Securities held by non-affiliates. Subject to any SEC comments, such Registration Statement shall include the plan of distribution attached hereto as Exhibit A ; provided, however, that no Purchaser shall be named as an “underwriter” in the Registration Statement without the Purchaser’s prior written consent. Such Registration Statement also shall cover, to the extent allowable under the 1933 Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities. Such Registration Statement shall not include any shares of Common Stock or other securities for the account of any other holder without the prior written consent of the Required Holders. The Registration Statement (and each amendment or supplement thereto, and each request for acceleration of effectiveness thereof) shall be provided in accordance with Section 3(c) to the Purchasers and their counsel prior to its filing or other submission. If a Registration Statement covering the Registrable Securities is not filed with the SEC on or prior to the Filing Deadline, the Company will make pro rata payments to each Purchaser, as liquidated damages and not as a penalty, in an amount equal to 1.5% of the aggregate amount invested by such Purchaser for each 30-day period or pro rata for any portion thereof following the Filing Deadline for which no Registration Statement is filed with respect to the Registrable Securities. Such payments shall constitute the Purchasers’ exclusive monetary remedy for such events, but shall not affect the right of the Purchasers to seek injunctive relief. Such payments shall be made to each Purchaser in cash no later than three (3) Business Days after the end of each 30-day period.

(ii) S-3 Qualification . Promptly following the date (the “Qualification Date”) upon which the Company becomes eligible to use a registration statement on Form S-3 to register the Registrable Securities for resale, but in no event more than thirty (30) days after the Qualification Date (the “Qualification Deadline”), the Company shall file a registration statement on Form S-3 covering the Registrable Securities held by non-affiliates (or a post-effective amendment on Form S-3 to the registration statement on Form S-1) (a “Shelf Registration Statement”) and shall use commercially reasonable efforts to cause such Shelf Registration Statement to be declared effective as promptly as practicable thereafter. If a Shelf Registration Statement covering the Registrable Securities is not filed with the SEC on or prior to the Qualification Deadline, the Company will make pro rata payments to each Purchaser, as

liquidated damages and not as a penalty, in an amount equal to 1.5% of the aggregate purchase price paid by such Purchaser pursuant to the Purchase Agreement attributable to those Registrable Securities that remain unsold at that time for each 30-day period or pro rata for any portion thereof following the date by which such Shelf Registration Statement should have been filed for which no such Shelf Registration Statement is filed with respect to the Registrable Securities. Such payments shall constitute the Purchasers’ exclusive monetary remedy for such events, but shall not affect the right of the Purchasers to seek injunctive relief. Such payments shall be made to each Purchaser in cash no later than three (3) Business Days after the end of each 30-day period.

(b) Expenses . The Company will pay all expenses associated with each registration, including filing and printing fees, the Company’s counsel and accounting fees and expenses, costs associated with clearing the Registrable Securities for sale under applicable state securities laws, listing fees, fees and expenses of one counsel to the Purchasers (up to an aggregate of $25,000) and the Purchasers’ reasonable expenses in connection with the registration, but excluding discounts, commissions, fees of underwriters, selling brokers, dealer managers or similar securities industry professionals with respect to the Registrable Securities being sold.

(i) The Company shall use commercially reasonable efforts to have the Registration Statement declared effective as soon as practicable. The Company shall notify the Purchasers by facsimile or e-mail as promptly as practicable, and in any event, within twenty-four (24) hours, after any Registration Statement is declared effective and shall simultaneously provide the Purchasers with copies of any related Prospectus to be used in connection with the sale or other disposition of the securities covered thereby. If (A)(x) a Registration Statement covering the Registrable Securities is not declared effective by the SEC prior to the earlier of (i) five (5) Business Days after the SEC shall have informed the Company that no review of the Registration Statement will be made or that the SEC has no further comments on the Registration Statement or (ii) the 90th day after the Closing Date or (y) a Shelf Registration Statement is not declared effective by the SEC prior to the earlier of (i) five (5) Business Days after the SEC shall have informed the Company that no review of the Registration Statement will be made or that the SEC has no further comments on the Registration Statement or (ii) the 60 th day after the Qualification Deadline, or (B) after a Registration Statement has been declared effective by the SEC, sales cannot be made pursuant to such Registration Statement for any reason (including without limitation by reason of a stop order, or the Company’s failure to update the Registration Statement), but excluding any Allowed Delay (as defined below) or the inability of any Purchaser to sell the Registrable Securities covered thereby due to market conditions, then the Company will make pro rata payments to each Purchaser, as liquidated damages and not as a penalty, in an amount equal to 1.5% of the aggregate amount invested by such Purchaser for each 30- day period or pro rata for any portion thereof following the date by which such Registration Statement should have been effective (the “Blackout Period”). Such payments shall constitute the Purchasers’ exclusive monetary remedy for such events, but shall not affect the right of the Purchasers to seek injunctive relief. The amounts payable as liquidated damages pursuant to this paragraph shall be paid monthly within three (3) Business Days of the

last day of each month following the commencement of the Blackout Period until the termination of the Blackout Period. Such payments shall be made to each Purchaser in cash.

(ii) For not more than twenty (20) consecutive days or for a total of not more than forty-five (45) days in any twelve (12) month period, the Company may suspend the use of any Prospectus included in any Registration Statement contemplated by this Section in the event that the Company determines in good faith that such suspension is necessary to (A) delay the disclosure of material non-public information concerning the Company, the disclosure of which at the time is not, in the good faith opinion of the Company, in the best interests of the Company or (B) amend or supplement the affected Registration Statement or the related Prospectus so that such Registration Statement or Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of the circumstances under which they were made, not misleading (an “Allowed Delay”); provided, that the Company shall promptly (a) notify each Purchaser in writing of the commencement of an Allowed Delay, but shall not (without the prior written consent of an Purchaser) disclose to such Purchaser any material non-public information giving rise to an Allowed Delay, (b) advise the Purchasers in writing to cease all sales under the Registration Statement until the end of the Allowed Delay and (c) use commercially reasonable efforts to terminate an Allowed Delay as promptly as practicable.

(d) Rule 415; Cutback

(i) If at any time the SEC takes the position that the offering of some or all of the Registrable Securities in a Registration Statement is not eligible to be made on a delayed or continuous basis under the provisions of Rule 415 under the 1933 Act or requires any Purchaser to be named as an “underwriter”, the Company shall use its best efforts to persuade the SEC that the offering contemplated by the Registration Statement is a valid secondary offering and not an offering “by or on behalf of the issuer” as defined in Rule 415 and that none of the Purchasers is an “underwriter”. The Purchasers shall have the right to participate or have their counsel participate in any meetings or discussions with the SEC regarding the SEC’s position and to comment or have their counsel comment on any written submission made to the SEC with respect thereto. No such written submission shall be made to the SEC to which the Purchasers’ counsel reasonably objects. In the event that, despite the Company’s best efforts and compliance with the terms of this Section 2(d), the SEC refuses to alter its position, the Company shall (i) remove from the Registration Statement such portion of the Registrable Securities (the “Cut Back Shares”) and/or (ii) agree to such restrictions and limitations on the registration and resale of the Registrable Securities as the SEC may require to assure the Company’s compliance with the requirements of Rule 415 (collectively, the “SEC Restrictions”); provided, however, that the Company shall not agree to name any Purchaser as an “underwriter” in such Registration Statement without the prior written consent of such Purchaser. Any cut-back imposed on the Purchasers pursuant to this Section 2(d) shall be allocated among the Purchasers on a pro rata basis, unless the SEC Restrictions otherwise require or provide or the Purchasers otherwise agree. No liquidated damages shall accrue as to any Cut Back Shares until such date as the Company is able to effect the registration of such Cut Back Shares in accordance with any SEC Restrictions (such date, the “Restriction Termination Date” of such Cut Back Shares). From and after the Restriction Termination Date applicable to any Cut Back Shares, all of the provisions of

this Section 2 (including the liquidated damages provisions) shall again be applicable to such Cut Back Shares; provided, however, that (i) the Filing Deadline and the Qualification Deadline, as applicable, for the Registration Statement including such Cut Back Shares shall be ten (10) Business Days after such Restriction Termination Date, and (ii) the date by which the Company is required to obtain effectiveness with respect to such Cut Back Shares under Section 2(c) shall be the 60 th day immediately after the Restriction Termination Date.

(ii) If the SEC will not allow all the Cut Back Shares (such lower number of Cut Back Shares, the “Less Than All Cut Back Shares”) to be registered for resale in one additional Registration Statement (the “Less Than All Cut Back Shares Registration”), then, at such time, if ever, as one or more but fewer than all the Purchasers have sold all or substantially all of their Less than All Cut Back Shares then registered for resale, and upon notice to the Company, but subject to the provisos in subparagraph 2(d)(iii), the Company shall file a separate Registration Statement for the benefit of such Purchasers (the “Additional Less Than All Cut Back Shares Registration”), subject to the limitation that the number of such to-be-registered Less Than All Cut Back Shares plus the then unsold Shares under the Registration Statement then in effect for the benefit of all Purchasers, does not exceed the SEC Restrictions. The Company shall use its best efforts to file such Additional Less Than All Cut Back Shares Registration within 45 days of the notice, and have it declared effective by the SEC within 70 days after such notice, all at the Company’s expense. Failure of the Company to meet these deadlines will result in the Company having to pay the liquidated damages as provided in Section 2(a)(i) above, pro rata to such Purchasers, but with the calculation of penalties based upon such Purchasers’ Less Than All Cut Back Shares included in the Additional Less Than All Cut Back Shares Registration.

(iii) Notwithstanding subparagraph 2(d)(ii), the Company’s undertaking to file any Additional Less Than All Cut Back Shares Registration is expressly subject to such filing not being in contravention of the SEC Restrictions. If the SEC Restrictions prohibit the filing of any Additional Less Than All Cut Back Shares Registration, then the liquidated damages provisions set forth in Section 2(a)(i) above shall not apply.

(e) Right to Piggyback Registration .

(i) If at any time following the date of this Agreement that any Registrable Securities remain outstanding (A) there is not one or more effective Registration Statements covering all of the Registrable Securities and (B) the Company proposes for any reason to register any shares of Common Stock under the 1933 Act (other than pursuant to a registration statement on Form S-4 or Form S-8 (or a similar or successor form)) with respect to an offering of Common Stock by the Company for its own account or for the account of any of its stockholders, it shall at each such time promptly give written notice to the holders of the Registrable Securities of its intention to do so (but in no event less than thirty (30) days before the anticipated filing date) and, to the extent permitted under the provisions of Rule 415 under the 1933 Act, include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within fifteen (15) days after receipt of the Company’s notice (a “Piggyback Registration”). Such notice shall offer the holders of the Registrable Securities the opportunity to register such number of shares of Registrable Securities

as each such holder may request and shall indicate the intended method of distribution of such Registrable Securities.

(ii) Notwithstanding the foregoing, (A) if such registration involves an underwritten public offering, the Purchasers must sell their Registrable Securities to, if applicable, the underwriter(s) at the same price and subject to the same underwriting discounts and commissions that apply to the other securities sold in such offering (it being acknowledged that the Company shall be responsible for other expenses as set forth in Section 2(b)) and subject to the Purchasers entering into customary underwriting documentation for selling stockholders in an underwritten public offering, and (B) if, at any time after giving written notice of its intention to register any Registrable Securities pursuant to Section 2(e)(i) and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to cause such registration statement to become effective under the 1933 Act, the Company shall deliver written notice to the Purchasers and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration; provided, however, that nothing contained in this Section 2(e)(ii) shall limit the Company’s liabilities and/or obligations under this Agreement, including, without limitation, the obligation to pay liquidated damages under this Section 2.

3. Company Obligations . The Company will use commercially reasonable efforts to effect the registration of the Registrable Securities in accordance with the terms hereof, and pursuant thereto the Company will, as expeditiously as possible:

(a) use commercially reasonable efforts to cause such Registration Statement to become effective and to remain continuously effective for a period that will terminate upon the earlier of (i) the date on which all Registrable Securities covered by such Registration Statement as amended from time to time, have been sold, and (ii) the date on which all Registrable Securities covered by such Registration Statement may be sold without restriction pursuant to Rule 144 (the “Effectiveness Period”) and advise the Purchasers in writing when the Effectiveness Period has expired;

(b) prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement and the Prospectus as may be necessary to keep the Registration Statement effective for the Effectiveness Period and to comply with the provisions of the 1933 Act and the 1934 Act with respect to the distribution of all of the Registrable Securities covered thereby;

(c) provide copies to and permit counsel designated by the Purchasers to review each Registration Statement and all amendments and supplements thereto no fewer than seven (7) days prior to their filing with the SEC and not file any document to which such counsel reasonably objects;

(d) furnish to the Purchasers and their legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC, or received by the Company (but not later than two (2) Business Days after the filing date, receipt date or sending date, as the case may be) one (1) copy of any Registration Statement and any amendment thereto, each preliminary prospectus and Prospectus and each amendment or supplement thereto, and each

letter written by or on behalf of the Company to the SEC or the staff of the SEC, and each item of correspondence from the SEC or the staff of the SEC, in each case relating to such Registration Statement (other than any portion of any thereof which contains information for which the Company has sought confidential treatment), and (ii) such number of copies of a Prospectus, including a preliminary prospectus, and all amendments and supplements thereto and such other documents as each Purchaser may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Purchaser that are covered by the related Registration Statement;

(e) use commercially reasonable efforts to (i) prevent the issuance of any stop order or other suspension of effectiveness and, (ii) if such order is issued, obtain the withdrawal of any such order at the earliest possible moment;

(f) prior to any public offering of Registrable Securities, use commercially reasonable efforts to register or qualify or cooperate with the Purchasers and their counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions requested by the Purchasers and do any and all other commercially reasonable acts or things necessary or advisable to enable the distribution in such jurisdictions of the Registrable Securities covered by the Registration Statement ; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(f), (ii) subject itself to general taxation in any jurisdiction where it would not otherwise be so subject but for this Section 3(f), or (iii) file a general consent to service of process in any such jurisdiction;

(g) use commercially reasonable efforts to cause all Registrable Securities covered by a Registration Statement to be listed on each securities exchange, interdealer quotation system or other market on which similar securities issued by the Company are then listed;

(h) immediately notify the Purchasers, at any time prior to the end of the Effectiveness Period, upon discovery that, or upon the happening of any event as a result of which, the Prospectus includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly prepare, file with the SEC and furnish to such holder a supplement to or an amendment of such Prospectus as may be necessary so that such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing;

(i) otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the SEC under the 1933 Act and the 1934 Act, including, without limitation, Rule 172 under the 1933 Act, file any final Prospectus, including any supplement or amendment thereof, with the SEC pursuant to Rule 424 under the 1933 Act, promptly inform the Purchasers in writing if, at any time during the Effectiveness Period, the Company does not satisfy the conditions specified in Rule 172 and, as a result thereof, the Purchasers are required to deliver a Prospectus in connection with any disposition of Registrable

Securities and take such other actions as may be reasonably necessary to facilitate the registration of the Registrable Securities hereunder; and make available to its security holders, as soon as reasonably practicable, but not later than the Availability Date (as defined below), an earnings statement covering a period of at least twelve (12) months, beginning after the effective date of each Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act, including Rule 158 promulgated thereunder (for the purpose of this subsection 3(i), “Availability Date” means the 45th day following the end of the fourth fiscal quarter that includes the effective date of such Registration Statement, except that, if such fourth fiscal quarter is the last quarter of the Company’s fiscal year, “Availability Date” means the 90th day after the end of such fourth fiscal quarter); and

(j) (i) With a view to making available to the Purchasers the benefits of Rule 144 (or its successor rule) and any other rule or regulation of the SEC that may at any time permit the Purchasers to sell shares of Common Stock to the public without registration, the Company covenants and agrees to: (1) make and keep public information available, as those terms are understood and defined in Rule 144, until the earlier of (A) six months after such date as all of the Registrable Securities may be sold without restriction (including the public information requirement) by the holders thereof pursuant to Rule 144 or any other rule of similar effect or (B) such date as all of the Registrable Securities shall have been resold; (2) file with the SEC in a timely manner all reports and other documents required of the Company under the 1934 Act; and (3) furnish to each Purchaser upon request, as long as such Purchaser owns any Registrable Securities, (A) a written statement by the Company that it has complied with the reporting requirements of the 1934 Act, (B) a copy of the Company’s most recent Annual Report on Form 10-K or Quarterly Report on Form 10-Q, and (C) such other information as may be reasonably requested in order to avail such Purchaser of any rule or regulation of the SEC that permits the selling of any such Registrable Securities without registration.

(ii) If the Company should at any time during the Periodic Filing Lapse Period (defined below) fail to meet its obligations under Section 3(j)(i), then the Company shall pay the liquidated damages in the same manner as provided in Section 2(a)(i) until such obligations are satisfied, to all Purchasers, pro rata, who then are holding Registrable Securities. For the purpose of calculating the amount of such liquidated damages for any Purchaser, the Company will make pro rata payments to each Purchaser, as liquidated damages and not as a penalty, in an amount equal to 1.5% of the aggregate amount then invested by such Purchaser for each 30-day period (or pro rata for any shorter period of time) of non-compliance by the Company under Section 3(j)(i) that may occur during the Periodic Filing Lapse Period. Any such payments shall be in addition to the liquidated damages provided in Section 2(a)(i) for failure to file or see to the effectiveness of the Registration Statement, as therein provided. The Periodic Filing Lapse Period for any Purchaser shall begin on the Closing Date and end on the earliest to occur of (i) the date on which such Purchaser no longer holds any Registrable Securities, or (ii) the date on which counsel to the Company delivers an opinion to the effect that the removal of restrictive legends to the Registrable Securities and transfer of the Registrable Securities may be effected under the Securities Act (such time period, the “ Periodic Filing Lapse Period ”).

4. Due Diligence Review; Information . The Company shall make available, during normal business hours, for inspection and review by the Purchasers, advisors to and

representatives of the Purchasers (who may or may not be affiliated with the Purchasers and who are reasonably acceptable to the Company), all financial and other records, all SEC Filings (as defined in the Purchase Agreement) and other filings with the SEC, and all other corporate documents and properties of the Company as may be reasonably necessary for the purpose of such review, and cause the Company’s officers, directors and employees, within a reasonable time period, to supply all such information reasonably requested by the Purchasers or any such representative, advisor or underwriter in connection with such Registration Statement (including, without limitation, in response to all questions and other inquiries reasonably made or submitted by any of them), prior to and from time to time after the filing and effectiveness of the Registration Statement for the sole purpose of enabling the Purchasers and such representatives, advisors and underwriters and their respective accountants and attorneys to conduct initial and ongoing due diligence with respect to the Company and the accuracy of such Registration Statement.

The Company shall not disclose material nonpublic information to the Purchasers, or to advisors to or representatives of the Purchasers, unless prior to disclosure of such information the Company identifies such information as being material nonpublic information and provides the Purchasers, such advisors and representatives with the opportunity to accept or refuse to accept such material nonpublic information for review and any Purchaser wishing to obtain such information enters into an appropriate confidentiality agreement with the Company with respect thereto.

5. Obligations of the Purchasers .

(a) Each Purchaser shall furnish in writing to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. At least five (5) Business Days prior to the first anticipated filing date of any Registration Statement, the Company shall notify each Purchaser of the information the Company requires from such Purchaser if such Purchaser elects to have any of the Registrable Securities included in the Registration Statement. An Purchaser shall provide such information to the Company at least two (2) Business Days prior to the first anticipated filing date of such Registration Statement if such Purchaser elects to have any of the Registrable Securities included in the Registration Statement.

(b) Each Purchaser, by its acceptance of the Registrable Securities agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of a Registration Statement hereunder, unless such Purchaser has notified the Company in writing of its election to exclude all of its Registrable Securities from such Registration Statement.

(c) Each Purchaser agrees that, upon receipt of any notice from the Company of either (i) the commencement of an Allowed Delay pursuant to Section 2(c)(ii) or (ii) the happening of an event pursuant to Section 3(h) hereof, such Purchaser will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering

such Registrable Securities, until the Purchaser is advised by the Company that such dispositions may again be made.

6. Indemnification .

(a) Indemnification by the Company . The Company will indemnify and hold harmless each Purchaser and its officers, directors, members, employees and agents, successors and assigns, and each other person, if any, who controls such Purchaser within the meaning of the 1933 Act, against any losses, claims, damages or liabilities, joint or several, to which they may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement or omission or alleged omission of any material fact contained in any Registration Statement, any preliminary Prospectus or final Prospectus, or any amendment or supplement thereof; (ii) any blue sky application or other document executed by the Company specifically for that purpose or based upon written information furnished by the Company filed in any state or other jurisdiction in order to qualify any or all of the Registrable Securities under the securities laws thereof (any such application, document or information herein called a “Blue Sky Application”); (iii) the omission or alleged omission to state in a Blue Sky Application a material fact required to be stated therein or necessary to make the statements therein not misleading; (iv) any violation by the Company or its agents of any rule or regulation promulgated under the 1933 Act applicable to the Company or its agents and relating to action or inaction required of the Company in connection with such registration; or (v) any failure to register or qualify the Registrable Securities included in any such Registration Statement in any state where the Company or its agents has affirmatively undertaken or agreed in writing that the Company will undertake such registration or qualification on an Purchaser’s behalf and will reimburse such Purchaser, and each such officer, director or member and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided , however , that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Purchaser or any such controlling person in writing specifically for use in such Registration Statement or Prospectus.

(b) Indemnification by the Purchasers . Each Purchaser agrees, severally but not jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors, officers, employees, stockholders and each person who controls the Company (within the meaning of the 1933 Act) against any losses, claims, damages, liabilities and expense (including reasonable attorney fees) resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or preliminary Prospectus or amendment or supplement thereto or necessary to make the statements therein not misleading, to the extent, but only to the extent that such untrue statement or omission is contained in any information furnished in writing by such Purchaser to the Company specifically for inclusion in such Registration Statement or Prospectus or amendment or supplement thereto. In no event shall the liability of an Purchaser be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such Purchaser in connection with any claim relating to this Section 6 and the amount of any damages such Purchaser has otherwise

been required to pay by reason of such untrue statement or omission) received by such Purchaser upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation.

(c) Conduct of Indemnification Proceedings . Any person entitled to indemnification hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses, or (b) the indemnifying party shall have failed to assume the defense of such claim and employ counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such person, based upon written advice of its counsel, a conflict of interest exists between such person and the indemnifying party with respect to such claims (in which case, if the person notifies the indemnifying party in writing that such person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such person); and provided , further , that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations hereunder, except to the extent that such failure to give notice shall materially adversely affect the indemnifying party in the defense of any such claim or litigation. It is understood that the indemnifying party shall not, in connection with any proceeding in the same jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any time for all such indemnified parties. No indemnifying party will, except with the consent of the indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation.

(d) Contribution . If for any reason the indemnification provided for in the preceding paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless, other than as expressly specified therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. No person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933 Act shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation. In no event shall the contribution obligation of a holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such holder in connection with any claim relating to this Section 6 and the amount of any damages such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.

7. Miscellaneous .

(a) Amendments and Waivers . This Agreement may be amended only by a writing signed by the Company and the Required Holders. The Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of the Required Holders.

(b) Notices . All notices and other communications provided for or permitted hereunder shall be made as set forth in the Purchase Agreement.

(c) Assignments and Transfers by Purchasers . The provisions of this Agreement shall be binding upon and inure to the benefit of the Purchasers and their respective successors and assigns. A Purchaser may transfer or assign, in whole or from time to time in part, to one or more persons its rights hereunder in connection with the transfer of Registrable Securities by such Purchaser to such person, provided that such Purchaser complies with all laws applicable thereto and provides written notice of assignment to the Company promptly after such assignment is effected.

(d) Assignments and Transfers by the Company . This Agreement may not be assigned by the Company (whether by operation of law or otherwise) without the prior written consent of the Required Holders; provided, however, that in the event that the Company is a party to a merger, consolidation, share exchange or similar business combination transaction in which the Common Stock is converted into the equity securities of another Person, from and after the effective time of such transaction, such Person shall, by virtue of such transaction, be deemed to have assumed the obligations of the Company hereunder, the term “Company” shall be deemed to refer to such Person and the term “Registrable Securities” shall be deemed to include the securities received by the Purchasers in connection with such transaction unless such securities are otherwise freely tradable by the Purchasers after giving effect to such transaction.

(e) Benefits of the Agreement . The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

(f) Counterparts; E-Mail or Facsimile Execution . This Agreement may be executed in any number of counterparts and, if executed in more than one counterpart, the executed counterparts shall be deemed to be an original but all such counterparts shall together constitute one and the same instrument This Agreement may be executed and delivered electronically including by emailed pdf signatures or facsimile signatures.

(g) Titles and Subtitles . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

(h) Severability . Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provisions hereof prohibited or unenforceable in any respect.

(i) Further Assurances . The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained.

(j) Entire Agreement . This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter.

(k) Governing Law; Consent to Jurisdiction; Waiver of Jury Trial . This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without regard to the choice of law principles thereof. Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of New York located in New York County and the United States District Court for the Southern District of New York for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement. Each of the parties hereto irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.

IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized officers to execute this Agreement as of the date first above written.

The Company:	CARBON NATURAL GAS COMPANY


	By:
		Patrick R. McDonald
		Chief Executive Officer

The Purchasers:


	By:
	Name:
	Title:

Exhibit A

Plan of Distribution

The selling stockholders, which as used herein includes donees, pledgees, transferees or other successors-in-interest selling shares of common stock or interests in shares of common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.

The selling stockholders may use any one or more of the following methods when disposing of shares or interests therein:

· ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

· block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

· purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

· an exchange distribution in accordance with the rules of the applicable exchange;

· privately negotiated transactions;

· short sales effected after the date the registration statement of which this Prospectus is a part is declared effective by the SEC;

· through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

· broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

· a combination of any such methods of sale; and

· any other method permitted by applicable law.

The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this

prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. Each of the selling stockholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the proceeds from this offering.

The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet the criteria and conform to the requirements of that rule.

The selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling stockholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.

To the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus.

In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

We have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates. In addition, to the extent applicable we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.

We have agreed to indemnify the selling stockholders against liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus.

We have agreed with the selling stockholders to keep the registration statement of which this prospectus constitutes a part effective until the earlier of (1) such time as all of the shares covered by this prospectus have been disposed of pursuant to and in accordance with the registration statement or (2) the date on which all of the shares may be sold without restriction pursuant to Rule 144 of the Securities Act.

Exhibit 99.1

CARBON NATURAL GAS COMPANY ANNOUNCES $30 MILLION PRIVATE PLACEMENT OF SECURITIES AND COMPLETION OF ACQUISITION OF INTERSTATE NATURAL GAS COMPANY ASSETS

Denver, CO — June 30, 2011 — Carbon Natural Gas Company (OTCBB:CRBO) (“ Carbon ”) announced today that, on June 29, 2011, it closed a private placement for $30 million comprised of 44,444,444 shares of common stock, at $0.45 per share, and 100 shares of convertible preferred stock, at $100,000 per share. The shares of convertible preferred stock will be automatically converted into 22,222,222 shares of common stock upon the effectiveness of an amendment to Carbon’s certificate of incorporation to increase its authorized shares of common stock. The $30 million in gross proceeds from the offering is before the deduction of fees payable to the placement agents, representing five percent of gross proceeds, plus reimbursement of certain expenses and legal fees they incurred, as well as other fees and expenses incurred by the Company in connection with the private placement.

SunTrust Robinson Humphrey, Inc. and Carr Securities Corp. served as co-placement agents for the private placement.

The proceeds from the private placement have been used to complete Carbon’s acquisition of oil and gas properties from The Interstate Natural Gas Company LLC, which also closed on June 29, 2011.

Pursuant to an agreement with the investors, Carbon is required to file a registration statement with the U.S. Securities and Exchange Commission covering the resale of the shares of Common Stock issued to the investors.

The securities sold in this private placement are restricted securities.

Carbon is an independent natural gas and oil company engaged in the acquisition, exploration, development and production of natural gas and oil properties located in the Appalachian and the Illinois Basin of the United States. We focus on unconventional reservoirs, including fractured shale gas plays, tight gas sands and coalbed methane. Our corporate headquarters are in Denver, Colorado and Catlettsburg, Kentucky.

Contacts

Carbon Natural Gas Company
Kevin Struzeski, 720-407-7043