Exhibit 10.1


 


Execution


 


CARBON
NATURAL GAS COMPANY


 


Fifty
Thousand Shares of Series B 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 1170, 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 fifty thousand (50,000) shares of its Series B 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 Certificate of Designation
of Relative Rights and Preferences of the Series B Convertible Preferred Stock filed with the Delaware Secretary of State (the
“Certificate of Designation”) on April 5, 2018, the Preferred Securities are convertible into shares
of the Company’s common stock, par value $0.01 per share (the “Conversion Securities”). 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.


 


The
Securities are being offered and sold to the Purchaser in a private placement (the “Private Placement”)
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.


 


Proceeds
from the Private Placement, will be utilized by the Company (i) to acquire 5,000 Class A Units of Carbon California Company,
LLC, a Delaware limited liability company (“CCC, LLC”) and (ii) to meet additional capital contribution
requirements of CCC, LLC pursuant to the Amended and Restated Limited Liability Company Agreement of CCC, LLC.


 


CCC,
LLC will use the contributed funds, along with (i) funds contributed by Prudential Capital Energy Partners, L.P., (ii) borrowed
funds under CCC, LLC’s senior secured credit facility with Prudential Legacy Insurance Company of New Jersey and The Prudential
Insurance Company of America and (iii) borrowed funds from Prudential Capital Energy Partners, L.P. pursuant to a subordinated
note financing, to finance the acquisition (the “Acquisition”) of certain oil and gas properties, gas
gathering and compression facilities and other assets related thereto from Seneca Resources Corporation (the “Seller”)
pursuant to a Purchase and Sale Agreement (the “PSA”) between CCC, LLC and the Seller.


 


This
Agreement and the PSA 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. The Company has 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, 50,000 shares
of the Preferred Securities for the purchase price of $100 per share (the “Purchase Price”).


 






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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 April 6, 2018 (the “Closing Date”) at the offices of the Company, 1700 Broadway, Suite 1170,
Denver, Colorado 80290, or such other location on which the Company and the Purchaser mutually agree.


 


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(a)(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 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 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 CCC, LLC, the Acquisition, 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 the Purchaser; the Purchaser, or its representatives, if any, have been afforded the opportunity
to ask questions of and perform customary due diligence regarding the Company, CCC, LLC and the Acquisition; 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 in any filings made
by the Company with the Securities Exchange Commission (the “Commission”). 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.


 






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(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 the 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 if in the future it decides to offer and sell any Securities that it purchases hereunder,
those Securities, absent an effective registration statement under the Securities Act, may be offered and sold only pursuant to
an exemption from registration under the Securities Act and in accordance with any applicable securities laws of the states and
other jurisdictions of the United States.


 


(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:


 


THE
SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER
THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE
COMPANY MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION
OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.


 


(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) The
Purchaser acknowledges that the Company will rely upon the trust and accuracy of the foregoing acknowledgements, representations
and agreements.


 


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 Purchaser as follows:


 


(a) The
Company’s filings with the Commission, conformed, when filed, 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.


 






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(b) 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 Exploration (USA) Inc., a Delaware corporation
(“Nytis USA”), Nytis Exploration Company LLC, a Delaware limited liability company (“NEC”),
CCC, LLC, and Carbon Appalachian Company, LLC, a Delaware limited liability company is a “significant subsidiary”,
as such term is defined in Rule 405 of the Securities Act.


 


(c) The
Company is authorized to issue 10,000,000 shares of $0.01 par value per share common stock and 1,000,000 shares of $0.01 par value
per share preferred stock. 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 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. Except as disclosed in filings with the Commission, (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.


 


(d) 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.


 


(e) There
has been no change in the capitalization of the Company or any of its subsidiaries since March 23, 2018, 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 existing on the date hereof or the Company’s
2011 and 2015 Stock Incentive Plans.


 


(f) 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 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.


 






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(g) 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 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 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.


 


(h) Except
for material losses or interference in connection with the Thomas Fire in Ventura County, California, neither the Company nor
its subsidiaries has sustained, since the date of the latest audited financial statements, 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 Company’s filings
with the Commission.


 


(i) The
financial statements, including the related notes and supporting schedules, included or incorporated by reference in the Company’s
filings with the Commission 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.


 


(j) The
proceeds of the sale of the Series B 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 of this Agreement.


 


(k) EKS&H,
LLLP (the “Company Accountants”), who have audited the financial statements of the Company 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.


 


(l) 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).


 






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(m) 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. 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.


 


(n) 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
the Company to grant security interests on the equity ownership in CCC, LLC that the Company acquires) 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.


 


(o) 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 PSA, (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.


 






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(p) 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 recitals hereto, 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”).


 


(q) The
Company and its subsidiaries have (i) good and marketable title to all real property and good title to all personal property owned
by them, free and clear of all liens, encumbrances and defects, other than those imposed under the Company’s or its subsidiaries’
respective credit facility; 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, other than those imposed under the Company’s or its
subsidiaries’ respective credit facility, 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.


 


(r) 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.


 


(s) 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.


 


(t) Assuming
the accuracy of the representations and warranties of the Purchaser contained in Section 5 and its compliance with the 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, to register the offer and sale of the Securities under the Securities Act.


 


(u) 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(a)(2); and the Company has not entered, and will not enter, into any arrangement or agreement with respect to the distribution
of the Securities, and the Company agrees not to enter into any such arrangement or agreement.


 






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(v) 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.


 


(w) 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.


 


(x) 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 pursuant to employee benefit plans, qualified
stock options plans or the Company’s 2011 and 2015 Stock Incentive 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 (i) the offering of the Conversion Securities as contemplated in this Agreement, (ii) the
offering of the Company’s common stock during the second or third quarter of 2018 in an offering registered on Form S-1
(the “Re-IPO”) or (iii)  shares issued pursuant to employee benefit plans, qualified stock options
plans or the Company’s 2011 and 2015 Stock Incentive Plans. As used in this paragraph, the terms “offer” and
“sale” have the meanings specified in Section 2(a)(3) of the Securities Act.


 


(y) No
securities of the same class as the Preferred 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.


 


(z) 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.


 


(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 Sections 8 and 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 Purchaser promptly after such filing. 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.


 






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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;


 


(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; and


 


(c) determination
by the Board that the funds to be raised by the sale of the Securities pursuant hereto are necessary for the Company to purchase
the Class A Units of CCC, LLC.


 


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
representations and warranties made by the Company in Section 6 hereof qualified as to materiality shall be true and correct 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 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.


 


(c) 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.


 


(d) Each
of the Transaction Documents shall have been duly executed and delivered by the Company and the other parties thereto; and


 


(e) the
Preferred Securities shall have been duly executed and delivered by the Company.


 






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10. Indemnification.


 


(a) Subject
to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive the
Closing and shall remain in full force and effect until the date that is eighteen (18) months from the Closing Date; provided,
that the representations and warranties in Sections 6(b), 6(c), 6(e), 6(l), 6(m), 6(n) and 6(o) shall survive indefinitely. All
covenants and agreements of the parties contained herein shall survive the Closing indefinitely or for the period explicitly specified
therein. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at
such time) and in writing by notice from the non-breaching party to the breaching party prior to the expiration date of the applicable
survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall
survive until finally resolved.


 


(b) Each
party hereto (each, an “Indemnifying Party”) agrees to indemnify and hold harmless the other party and
its affiliates and its and their respective partners, members, directors, managers, officers, employees and agents (collectively,
the “Indemnified Parties”) 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 (i) any inaccuracy in or breach of any of the representations or warranties of the Indemnifying Party contained
in the Transaction Documents or in any certificate or instrument delivered by or on behalf of the Indemnifying Party pursuant
to this Agreement; or (b) any breach or non-fulfillment of any covenant, agreement or obligation to be performed by the Indemnifying
Party pursuant to the Transaction Documents, and agrees to reimburse the Indemnified Parties for any legal or other expenses reasonably
incurred by the Indemnified Parties in connection with investigating or defending any such action or claim as such expenses are
incurred.


 


(c) 
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.


 






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(d) The
parties acknowledge and agree that their sole and exclusive remedy with respect to any and all claims (other than claims arising
from fraud, criminal activity or willful misconduct on the part of a party hereto in connection with the transactions contemplated
by this Agreement) for any breach of any representation, warranty, covenant, agreement or obligation set forth herein or otherwise
relating to the subject matter of this Agreement, shall be pursuant to the indemnification provisions set forth in this Section
10. In furtherance of the foregoing, each party hereby waives, to the fullest extent permitted under law, any and all rights,
claims and causes of action for any breach of any representation, warranty, covenant, agreement or obligation set forth herein
or otherwise relating to the subject matter of this Agreement it may have against the other parties hereto and their affiliates
and each of their respective representatives arising under or based upon any law, except pursuant to the indemnification provisions
set forth in this Section 10. Nothing in this Section 10(d) shall limit any person’s right to seek and obtain any equitable
relief to which any person shall be entitled or to seek any remedy on account of any party’s fraudulent, criminal or intentional
misconduct.


 


11. Registration
Rights.


 


(a) Following
conversion of the Preferred Securities in accordance with the Certificate of Designation, the Purchaser shall be entitled to no
fewer than three (3) Demand Registration Rights on Form S-1 (and an unlimited number of Demand Registration Rights on Form S-3,
if available), which Demand Registration Rights may be exercised at any time; provided, that such Demand Registration Rights may
not be exercised by the Holder more than two (2) times in any three hundred sixty-five (365) day period.


 


(b) The
Purchaser shall be entitled to unlimited Piggyback Rights, provided, however, that the Purchaser will not be entitled to
such Piggyback Rights in connection with the Re-IPO.


 


(c) The
Company shall bear all costs of any shelf or underwritten registration (other than underwriters’ discounts and commissions
relating to the Purchaser’s Conversion Securities sold thereunder).


 


(d) Upon
request by the Purchaser, the Company shall execute and deliver to the Purchaser an agreement setting forth the registration rights
contemplated by this Section 11 and establishing procedures and including such terms and conditions, reasonably satisfactory to
the Purchaser, as are customary in registration rights agreements, including provisions in respect of (i) an indemnity by the
Company in favor of the Purchaser, (ii) “blackout” periods and (iii) “lockups”.


 


(e) The
Purchaser shall have the registration rights contemplated by this Section 11 from the Closing and thereafter until all Conversion
Securities (i) have been sold by the Purchaser under an effective registration statement or pursuant to Rule 144 adopted under
the Securities Act or (ii) have become freely tradable without restriction, including any manner-of-sale requirement or restriction
on the number of shares that may be sold during any period of time, under Rule 144.


 






     


     


    

 


(f) Purchaser’s
exercise of any registration rights hereunder shall be conditioned on Purchaser providing such information to the Company, and
completing a standard form of selling shareholder questionnaire, as may be necessary in order to include such securities in the
registration statement.


 


12. Certain
Definitions.  If not expressly defined elsewhere in this Agreement, the following terms shall have the following
meanings:


 


“Demand
Registration Rights” means the right of the Purchaser to require the Company to effect a registration of all or
part of the Conversion Securities held by the Purchaser on a registration statement on Form S-1 (or on Form S-3, if available)
under the Securities Act and to register or qualify such Conversion Securities under the appropriate state securities or “blue
sky” laws in connection therewith.


 


“Piggyback
Rights” means, subject to the limitations provided in Section 11 hereof, the right of the Purchaser to require the
Company to include the Purchaser’s Conversion Securities in any registration statement to be filed under the Securities
Act by the Company with respect to any of its equity securities for its own account (other than a registration statement on Form
S 4 or Form S-8 or any successor or substantially similar form) or for the account of any other holders of its equity securities.


 


13. Miscellaneous.


 


(a) Governing
Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without giving
effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction).


 


(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.


 


(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. 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.


 






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(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.


 


(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) 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 Purchaser.


 


(g) 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.


 


(h) 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.


 


(i) 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.


 


(j) 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 1170, Denver, Colorado
80290, Attention: Patrick R. McDonald (fax: 720-407-7041; telephone: 720-407-7043; email: pmcdonald@carbonnaturalgas.com);


 


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


 






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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:	 
	 	 	Patrick R. McDonald,
	 	 	Chief Executive Officer




 






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


 



	 	YORKTOWN ENERGY PARTNERS XI, LP
	 	 	 	 	 
	 	By:	Yorktown XI Company LP, its general partner
	 	 	 	 	 
	 	 	By:	Yorktown XI Associates LLC,
	 	 	 	its general partner
	 	 	 	 	 
	 	 	 	By:	 
	 	 	 	 	Name:
	 	 	 	 	Title:
	 	 	 	 	 
	 	Address:	 	 
	 	 	 	 










 





Signature Page


Securities Purchase Agreement






     


     


    

 


APPENDIX
I


 


Certificate
of Designation