Carbon Natural Gas Company Corporate Governance Guidelines
The following guidelines have been approved by the Board of Directors (the “Board”) of Carbon Natural Gas Company (“Carbon” or the “Company”) and, along with the charters of the Board committees, provide the framework for the governance of Carbon. The Board believes sound corporate governance policies and practices provide an essential foundation for the Board in fulfilling its oversight responsibilities to the stockholders and employees of Carbon. The Board will monitor best practices and periodically review and revise, as advisable, these guidelines and the committee charters.
Role of Board and Management.
Carbon’s business is conducted by its employees, managers and officers, under the direction of the Chief Executive Officer (CEO) and the oversight of the Board, with the objective of enhancing the long-term value of Carbon for its stockholders. The Board is elected by the stockholders to oversee management and to assure that the interests of the stockholders are being served.
Board Composition, Qualifications and Independence.
Number of Directors. The board will consist of between three and eleven members. A majority must meet the independence criteria established in these guidelines.
Functions of Board. The Board schedules a minimum of four meetings a year, held quarterly, at which it reviews and discusses presentations by management on the performance of the Company, progress towards its goals, its strategic plans and prospects, as well as immediate issues confronting Carbon. The Board also holds additional informational sessions each year called periodically by the Chairman as required to update the Board on important operational and other material events. Except in extenuating circumstances, directors are expected to attend all scheduled meetings of the Board and of committees on which they serve. Meeting materials are to be circulated to the Board by the Secretary prior to meetings, and all directors are expected to review these materials prior to the meetings. Additionally, Board members are expected to attend Carbon’s annual stockholders meeting.
Nomination of Board Members. The Nominating and Corporate Governance Committee of the Board is responsible for leading the search for individuals qualified to serve on the Board. The Nominating and Corporate Governance Committee of the Board will evaluate candidates for nomination to the Board, including those recommended by stockholders, and will conduct appropriate inquiries into the backgrounds and qualifications of possible candidates. Based on these reviews, the Nominating and Corporate Governance Committee of the Board will make recommendations to the Board of director nominees to be presented for approval at meetings of the stockholders or to be presented to the Board for election. Stockholders may recommend director nominees for consideration by the Nominating and Governance Committee by writing to the Carbon Corporate Secretary specifying the nominee’s name and the qualifications for Board membership. Following verification of the stockholder status of the person submitting the recommendation, all properly submitted recommendations are brought to the attention of the Nominating and Corporate Governance Committee at a regularly scheduled Nominating and Corporate Governance Committee meeting. Stockholders may also nominate directors for election at the Company’s annual meeting of stockholders by following the provisions set forth in the Company’s bylaws.
Director Qualifications. The Board’s objective is to select individuals with the skills and characteristics that taken together will assure a strong Board with experience and expertise in business and corporate governance. The Board considers candidates diverse in gender, ethnic background and professional experience. All candidates must possess the following personal characteristics: integrity and accountability, informed judgment, financial literacy, mature confidence and high performance standards. In addition, the Board looks for recognized achievement and reputation, an ability to contribute to specific aspects of the Company’s activities and the willingness and ability to make the commitment of time and effort required, including attendance at all Board meetings and committee meetings of which he or she is a member.
Independence. While the Company’s common stock is not currently listed on either the New York Stock Exchange or Nasdaq, the Company believes that best practices dictate that a majority of the Board be independent and Carbon intends to adhere to these practices and is committed to maintaining an independent Board as determined by Nasdaq rules. Accordingly, the Board must determine that a director does not have any direct or indirect material relationship with Carbon to be considered independent. The Board has established the following criteria to assist it in determining director independence. A director is not independent if:
The director is, or has been within the last three years, an employee of Carbon;
a director has accepted or who has an immediate family member who accepted any compensation from the Company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the determination of independence, other than the following:
compensation for Board or Board committee service;
compensation paid to an immediate family member who is an employee (other than an Executive Officer) of the Company; or
benefits under a tax-qualified retirement plan, or non-discretionary compensation;
Provided, however, that in addition to the requirements provided above, audit committee members are also subject to additional, more stringent requirements. The following persons would not be independent for purposes of serving on the audit committee:
a director who is an immediate family member of an individual who is, or at any time during the past three years was, employed by the company as an Executive Officer;
a director who is, or has an immediate family member who is, a partner in, or a controlling stockholder or an Executive Officer of, any organization to which the Company made, or from which the Company received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenues for that year, or $200,000, whichever is more, other than the following:
payments arising solely from investments in the Company’s securities; or
payments under non-discretionary charitable contribution matching programs;
a director of the Company who is, or has an immediate family member who is, employed as an Executive Officer of another entity where at any time during the past three years any of the Executive Officers of the Company serve on the compensation committee of such other entity; or
a director who is, or has an immediate family member who is, a current partner of the Company’s outside auditor, or was a partner or employee of the Company’s outside auditor who worked on the Company’s audit at any time during any of the past three years.
For relationships not covered by the foregoing guidelines in subsection (a) through (f) above, the determination of independence shall be made by the directors. Carbon shall identify which directors are independent and shall disclose the basis for such independence determination in Carbon’s proxy statement.
Also a member of the Board will be eligible to serve on the Compensation Committee, if, he or she meets the foregoing independence criteria, and, he or she is a “non-employee director” under the federal securities laws and an “outside director” under the Internal Revenue Code:
Loans. The company will not make any personal loans or extensions of credit to directors or executive officers, to entities owned by directors or executive officers, or to entities for which a director or executive officer serves as an executive officer or trustee.
Director Orientation and Continuing Education. Newly elected board members are provided with a director orientation session and continuing directors are provided opportunities for continuing education to become more knowledgeable about specific areas of importance to the company’s operations and governance.
Resignation, Tenure. Management directors are expected to submit a letter of resignation at the time of their retirement or resignation from the Company. Non-management directors are expected to submit a proposed letter of resignation upon a change in their principal affiliation or position of principal employment; in the event that the proposed letter of resignation is not accepted, the director’s tenure will continue. Otherwise, Carbon does not have specific tenure criteria; however, the Board evaluation process described below will be an important determinant for individual director tenure.
Board Structure and Meetings.
Number of Board Meetings. Regular meetings of the Board are held four times per year and special meetings are held as needed for the directors to properly discharge their responsibilities.
Committees of the Board. The Board has established the following standing committees to assist it in discharging its responsibilities: Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee shall establish, monitor and recommend the purpose, structure, operations, and charters of the committees and annually recommend to the Board members to serve on the committees of the Board. All members of the standing committees shall be independent directors, as determined by the Board pursuant to these guidelines. In addition, no member of the Audit Committee may simultaneously serve on more than three audit committees of public companies, including the Audit Committee of Carbon, unless the Board has determined that such simultaneous service will not impair the ability of such director to serve on the Audit Committee and it shall disclose any such determination in the annual proxy statement.
Board Leadership. Currently, the positions of Chief Executive Officer and Chairman are held by the same person. The Board is led by the Chairman/CEO who will chair all Board meetings and set the meeting agenda in consultation with the other directors. The Board will hold executive sessions in connection with each regular meeting of the Board without the CEO or any other management directors. The Chairman, or the Presiding Director if the Chairman also holds the position of Chief Executive Officer, shall lead the executive sessions of non-management directors. Committee chairmen will chair their respective committee meetings and set the meeting agenda in consultation with the other committee members.
Presiding Director. In the event that the Chairman also holds the position of Chief Executive Officer, the Board shall appoint a Presiding Director. The Presiding Director will be an independent director and will lead the executive session discussion at meetings of the Board and will review with the Chairman and Chief Executive Officer the agenda for the meetings.
Interaction with Senior Management and Advisors. Board members have complete access to Carbon’s senior management and independent advisors. The Board and its committees have the right at any time to retain independent outside financial, legal or other advisors.
Evaluation and Compensation.
Board Evaluation. The Nominating and Corporate Governance Committee will review and evaluate annually the performance of the Board and its committees and discuss its findings with the Board. In addition, each committee shall annually evaluate its performance. The purpose of these evaluations is to increase the effectiveness of the Board as a whole, each committee, and each individual Board member.
Senior Management Evaluation and Compensation. The Compensation Committee will review and evaluate annually the performance of the CEO and senior management. It will discuss its findings with the Board and approve their annual compensation.
Management Succession. The Nominating and Corporate Governance Committee will oversee and approve the management continuity planning process. In the event of a vacancy in the position of CEO, the committee shall be responsible for leading the search for individuals qualified to serve as CEO and recommending candidates to the Board.
Director Compensation. The Nominating and Corporate Governance Committee will review on an annual basis director compensation to ensure that it is reasonable and competitive with companies that are similarly situated and make its recommendations to the Board. Management directors shall receive no additional compensation for Board service.
Reporting of Concerns and Other Communications with Carbon Board.
If any stockholder or third party has a complaint or concern regarding accounting, internal accounting controls or auditing matters at Carbon, they should send their complaint in writing to the Chairman of the Audit Committee in care of the Carbon Corporate Secretary at the Company’s offices in Denver, Colorado. If any stockholder or third party has a concern about Carbon or otherwise wishes to communicate with the Board, they should send their communication in writing to the Chairman (or in the event that the Chairman also holds the position of Chief Executive Officer, the Presiding Director) in care of the Carbon Corporate Secretary at the Company’s offices in Denver, Colorado. A majority of the independent directors shall approve Carbon’s process for collecting and organizing stockholder communications to the Board.