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Board of Directors Code of Conduct - Carbon Natural Gas Company

Board of Directors Code of Conduct

Carbon Natural Gas Company Code of Business Conduct and Ethics for Members of the Board of Directors

The Board of Directors (the “Board”) of Carbon Natural Gas Company (“Carbon” or the “Company”) has adopted the following Code of Business Conduct and Ethics (this “Code”) for directors of the Company. This Code is intended to focus the Board and each director on areas of ethical risk, provide guidance to directors to help them recognize and deal with ethical issues, provide mechanisms to report unethical conduct, and help foster a culture of honesty and accountability.

Each director must comply with the letter and spirit of this Code.  No code or policy can anticipate every situation that may arise. Accordingly, this Code is intended to serve as a source of guiding principles for directors. Directors are encouraged to bring questions about particular circumstances that may implicate one or more of the provisions of this Code to the attention of the Chairman of the Board, who may consult with inside or outside legal counsel as appropriate.

Directors who also serve as officers of the Company should read this Code in conjunction with the Company’s Proper Business Practices Policy for employees.

Conflict of Interest.

A “conflict of interest” occurs when a director’s private interest interferes in any way, or appears to interfere, with the interests of the Company as a whole. Conflicts of interest also arise when a director, or an immediate family member receives improper personal benefits as a result of his or her position as a director of the Company.

Directors must avoid conflicts of interest with the Company. Any situation that involves, or may reasonably be expected to involve, a conflict of interest with the Company must be disclosed immediately to the Chairman of the Board.

This Code does not attempt to describe all possible conflicts of interest which could develop. Some of the more common conflicts from which directors must refrain, however, are set out below.

Relationship of Company with third-parties. Directors may not engage in any conduct or activities that are inconsistent with the Company’s best interests or that disrupt or impair the Company’s relationship with any person or entity with which the Company has or proposes to enter into a business or contractual relationship of which the directors are aware.

Compensation from non-Company sources. Directors may not accept compensation, in any form, for services performed for the Company from any source other than the Company.

Gifts. Directors and members of their families may not offer, give, or receive gifts from persons or entities who deal with the Company in those cases where any such gift is being made in order to influence the directors’ actions as members of the Board, or where acceptance of the gifts could create the appearance of a conflict of interest.

Corporate Opportunities.

Directors owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises. Directors are prohibited from: (a) taking for themselves personally, opportunities that are discovered through the use of corporate property, information, or the director’s position; (b) using the Company’s property, information, or position for personal gain; or (c) knowingly competing with the Company for a particular business opportunity, provided, however, if the Company’s disinterested directors determine that the Company will not pursue an opportunity that relates to the Company’s business, a director may be permitted to do so after receiving confirmation from the Chairman of the Board.

Confidentiality.

Directors must maintain the confidentiality of information entrusted to them by the Company or its customers, and any other confidential information about the Company that comes to them, from whatever source, in their capacity as director, except when disclosure is authorized or required by laws or regulations. Confidential information includes all non-public information that could be material to an investor in the Company’s securities, of use to competitors, or harmful to the Company or its customers, if disclosed.

Protection and Proper Use of Company Assets.

Directors must protect the Company’s assets and ensure their efficient use. Theft, loss, misuse, carelessness, and waste of assets have a direct impact on the Company’s profitability.  Directors must not use Company time, employees, supplies, equipment, tools, buildings, or other assets for personal benefit without prior authorization from the Chairman of the Board or as part of a compensation or expense reimbursement program available to all directors.

Fair Dealing.

Directors shall deal fairly and require fair dealing by employees and officers with the Company’s directors, officers, employees, customers, suppliers, and competitors. None should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair dealing practices.

Compliance with Laws, Rules and Regulations.

Directors shall comply, and require compliance by employees, officers, and other directors, with all laws, rules, and regulations applicable to the Company, including insider trading laws. Directors’ transactions in Company securities are governed by the Company’s “Statement of Policy: Prohibition of Insider Trading; Blackout Periods.”

Waivers of the Code of Business Conduct and Ethics.

Any waiver or amendment of this Code may be made only by the Board and must be promptly disclosed to the Company’s stockholders.

Encouraging the Reporting of any Illegal or Unethical Behavior.

Directors should promote ethical behavior and take steps to ensure the Company (a) encourages employees to talk to supervisors, managers, and other appropriate personnel when in doubt about the best course of action in a particular situation; (b) encourages employees to report violations of laws, rules, regulations, or the Company’s Proper Business Practices Policy to the Compliance Officer under said policy; and (c) informs employees that the Company will not permit retaliation for reports made in good faith.

Failure to Comply; Compliance Procedures.

A failure by any director to comply with this Code may result in disciplinary action and, if warranted, legal proceedings.

Directors should communicate any suspected violations of this Code promptly to the Chairman of the Board. Violations will be investigated by the Board or a Committee of the Board or by a person or persons designated by the Board, and appropriate action will be taken in the event of any violations of this Code.

For purposes of this Code of Business Conduct and Ethics, immediate family member means a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law and anyone (other than domestic employees) sharing such person’s home, but excluding any person who is no longer a family member as a result of legal separation, divorce or death or who is incapacitated.