UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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): February 12, 2016
(February 11, 2016)
U.S.
ENERGY CORP. |
(Exact Name of Company as Specified in its Charter) |
Wyoming |
0-6814 |
83-0205516 |
(State or other jurisdiction of |
(Commission File No.) |
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
4643 S. Ulster Street, Suite 970, Denver, CO |
|
80237 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrant's telephone number, including area code: (303) 993-3200 |
877 North 8th West, Riverton, WY 82501 |
(Former Name, Former Address or Former Fiscal Year,
If Changed From 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):
¨ |
Written communications pursuant to Rule 425 under the Securities Act |
¨ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act |
¨ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act |
¨ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act |
Item 1.01. Entry into a Material Definitive Agreement.
Acquisition Agreement
On February 11, 2016, U.S. Energy Corp., a Wyoming
corporation (the “Company”), entered into an Acquisition Agreement (the “Acquisition
Agreement”) with Mt. Emmons Mining Company, a subsidiary of Freeport-McMoRan Inc. (“MEM”),
whereby MEM acquired the Company’s Mt. Emmons mine site located in Gunnison County, Colorado, including the Keystone
Mine, a related water treatment plant (the “WTP”) and other related properties (collectively, the
“Purchased Assets”). Under the Acquisition Agreement, MEM will replace the Company as the permittee and
owner of the WTP and will discharge the obligation of the Company to operate the WTP from and after the closing in accordance
with the applicable permits issued by the Colorado Department of Public Health and Environment.
Series A Convertible Preferred Stock Purchase Agreement and Series
A Preferred Stock
Concurrent with entry into the Acquisition Agreement, and as
additional consideration for MEM to accept transfer of the Purchased Assets, including related obligations, the Company
entered into a Series A Convertible Preferred Stock Purchase Agreement (the “Series A Purchase Agreement”)
with MEM, whereby the Company issued 50,000 shares of newly designated Series A Convertible Preferred Stock (the
“Preferred Stock”) in exchange for (a) MEM accepting the transfer of the Purchased Assets and
replacing the Company as the permittee and owner of the WTP, and (b) the payment of $500 to the Company. The Series A
Purchase Agreement contained customary representations and warranties on the part of the Company. As contemplated by the
Acquisition Agreement and the Series A Purchase Agreement and as approved by the Company’s Board of Directors, the
Company filed with the Secretary of State of the State of Wyoming Articles of Amendment containing a Certificate of
Designations with respect to the Preferred Stock (the “Certificate of Designations”) on February 11, 2016.
Pursuant to the Certificate of Designations, the Company designated 50,000 shares of its blank check preferred stock as
Series A Convertible Preferred Stock. The Preferred Stock will accrue dividends at a rate of 12.250% per annum of
the Adjusted Liquidation Preference (as defined), which are not payable in cash but are accrued and compounded quarterly in
arrears. The “Adjusted Liquidation Preference” is initially $40 per share of Preferred Stock, increased
each quarter by the accrued quarterly dividend. The Preferred Stock is senior to other classes or series of shares of the
Company with respect to dividend rights and rights upon liquidation. No dividend or distribution will be declared or paid on
junior stock, including the Company’s common stock, (1) unless approved by the holders of Preferred Stock, voting as a
group and (2) unless and until a like dividend has been declared and paid on the Preferred Stock on an as-converted basis,
unless waived by the holders of Preferred Stock.
Each share of Preferred Stock may initially be converted into
80 shares of the common stock of the Company, $0.01 par value, of the Company (the “Common Stock”),
subject to applicable anti-dilution adjustments (the “Conversion Rate”), at the option of the holder at
any time. The conversion rate is subject to anti-dilution adjustments for stock splits, stock dividends and certain
reorganization events and to price-based anti-dilution protections. Each share of Preferred Stock will be convertible into a
number of shares of Common Stock equal to the product of (1) the conversion value as adjusted for accumulated dividends
divided by the initial conversion value, multiplied by (2) the Conversion Rate (plus cash in lieu of fractional shares
and dividends accrued since the last accrual date). In no event will the aggregate number of shares of Common Stock issued
upon conversion be greater than 4,760,095 shares (which equals 16.86% of the number of shares of Common Stock outstanding on
the issue date) or 95.20 shares of Common Stock for each share of Preferred Stock. The Preferred Stock will generally not
vote with the Common Stock on an as-converted basis on matters put before the Company’s shareholders. The holders of
the Preferred Stock have the right to approve specified matters as set forth in the Certificate of Designations and have
the right to require the Company to repurchase the Preferred Stock in connection with a change of control.
Investor Rights Agreement
Concurrent with entry into the Acquisition
Agreement and Series A Purchase Agreement, the Company and MEM entered into an Investor Rights Agreement (the “Investor
Rights Agreement”), which provides MEM (so long as it beneficially owns the Preferred Stock or at least 5% of the Common
Stock then outstanding) rights to certain information and Board observer rights. MEM has agreed that it, along with its affiliates,
will not acquire more than 16.86% of the issued and outstanding shares of Common Stock. In
addition, MEM has the right to demand registration of the shares of Common Stock issuable upon conversion of the Preferred Stock
under the Securities Act of 1933, as amended.
The above descriptions do not purport to be complete and are qualified
in their entirety by the Acquisition Agreement, the Certificate of Designations, the Series A Purchase Agreement, and the Investor
Rights Agreement, which are filed as Exhibits 2.1, 3.1, 10.1, and 10.2, respectively, to this Current Report on Form 8-K and are
incorporated by reference herein.
Item 2.01 Completion of Acquisition or Disposition of Assets
Reference is made to the disclosure set forth under Item 1.01 and
to the unaudited pro forma financial information included in Exhibit 99.1 to this Current Report on Form 8-K, which disclosure
is incorporated herein by reference.
Item 2.05. Costs Associated with Exit or Disposal Activities.
The Company expects to recognize a charge of $2.0 million related
to the issuance of Preferred Stock discussed under Item 1.01 above. Reference is made to the disclosure set forth under Item 1.01,
which disclosure is incorporated herein by reference.
Additionally, as discussed in a Current Report on Form 8-K
dated February 11, 2016, the Company reported that it expects to recognize an aggregate impairment charge of $22.8 million
during the fourth quarter of 2016 related to the decision to dispose of the Purchased Assets discussed under item 1.01
hereof. Reference is made to the unaudited pro forma financial information included in Exhibit 99.1 to this Current Report on
Form 8-K, which disclosure is incorporated herein by reference.
Item 3.02 Unregistered Sales of Equity Securities
Reference is made to the disclosure set forth
under Item 1.01 of this Current Report on Form 8-K, which disclosure is incorporated herein by reference. The sale of Preferred
Stock to MEM is exempt from registration pursuant to Section 4(a)(2) of the Securities Act.
Item 3.03 Material Modification to Rights of Security Holders
Reference is made to the description
of the Preferred Stock and the Certificate of Designations filed with the Secretary of State of Wyoming above under Item 1.01 of
this Current Report on Form 8-K, which disclosure is incorporated herein by reference.
Item 5.03. Amendments to Articles of Incorporation or Bylaws;
Change in Fiscal Year.
Reference is made to the description
of the Preferred Stock and the Certificate of Designations filed with the Secretary of State of Wyoming above under Item 1.01 of
this Current Report on Form 8-K, which disclosure is incorporated herein by reference.
Item 8.01. Other Events.
As previously reported in a Current Report on Form 8-K filed by
the Company on July 14, 2015, the Company received a letter from The Nasdaq Stock Market (“Nasdaq”) dated July
10, 2015 (the “Nasdaq Notice”) indicating that for 30 consecutive business days the Common Stock had not maintained
a minimum closing bid price of $1.00 (the “Minimum Bid Price Requirement”) per share as required by Nasdaq
Listing Rule 5550(a)(2). The Nasdaq Notice provided that if by January 6, 2016, the Company did not achieve compliance with
the Minimum Bid Price Requirement but (a) is in compliance with all other listing standards for the Common Stock on the Nasdaq
Capital Market (other than the Minimum Bid Price Requirement), and the (b) Company provides written notice of its intention to
cure the Minimum Bid Price Requirement deficiency during a second compliance period, Nasdaq may grant the Company an additional
Compliance Period extending until July 5, 2016. On December 22, 2015, the Company provided written notice of its intent to cure
the Minimum Bid Price Requirement deficiency during a second compliance period. On January 8, 2016, Nasdaq issued a notice
indicating that the Company’s compliance period has been formally extended until July 5, 2016.
The Company’s ability to regain compliance with the Minimum
Bid Price Requirement and satisfy other Nasdaq Listing Rules is subject to numerous risks and uncertainties, including but not
limited to risks associated with the possibility of an extended period of low commodity prices, operational and regulatory issues,
the failure to obtain shareholder approval of a reverse stock split if requested to cure the deficiency, and general economic conditions.
On February 12, 2016, the Company issued a press release announcing
the transfer of the Project discussed in Item 1.01 and the notice from Nasdaq discussed above. That press release is not incorporated
by reference into this Item 8.01.
Item 9.01 Financial Statements and Exhibits
(b) Pro Forma Financial Information
Unaudited pro forma information giving effect to the events reported
in Items 1.01, 2.01 and 2.05 is incorporated herein as Exhibit 99.1.
(d) Exhibits
Exhibit No. |
|
Description |
2.1 |
|
Acquisition Agreement |
3.1 |
|
Certificate of Designation for Series A Convertible Preferred Stock |
10.1 |
|
Series A Convertible Preferred Stock Purchase Agreement |
10.2 |
|
Investor Rights Agreement |
99.1 |
|
Unaudited pro forma financial information |
99.2 |
|
Press Release |
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
U.S. ENERGY CORP. |
|
|
|
Dated: February 12, 2016 |
By: |
/s/ David A. Veltri |
|
|
David A. Veltri, CEO |
Exhibit 2.1
EXECUTION VERSION
ACQUISITION AGREEMENT
by and between
U.S. ENERGY CORP.
and
MT. EMMONS MINING COMPANY
Dated as of February 11, 2016
Table of
Contents
|
|
Page |
|
|
|
Article I DEFINITIONS |
2 |
Section 1.1 |
Definitions |
2 |
Section 1.2 |
Other Defined Terms |
4 |
Section 1.3 |
Interpretative Provisions |
6 |
|
|
|
Article II SALE AND PURCHASE OF ASSETS; CLOSING |
6 |
Section 2.1 |
Sale and Purchase of Purchased Assets |
6 |
Section 2.2 |
Excluded Assets |
8 |
Section 2.3 |
Assumed Liability |
8 |
Section 2.4 |
Excluded Liabilities |
8 |
Section 2.5 |
Purchase Price/Consideration |
9 |
Section 2.6 |
Closing |
10 |
Section 2.7 |
Deliveries |
10 |
|
|
|
Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY |
11 |
Section 3.1 |
Organization; Qualification |
12 |
Section 3.2 |
Authorization; Enforcement |
12 |
Section 3.3 |
Absence of Conflicts |
12 |
Section 3.4 |
No Undisclosed Liabilities |
13 |
Section 3.5 |
Absence of Certain Changes |
13 |
Section 3.6 |
Material Contracts |
14 |
Section 3.7 |
Absence of Litigation; Orders |
15 |
Section 3.8 |
Insurance |
15 |
Section 3.9 |
Compliance with Laws; Permits |
15 |
Section 3.10 |
Tangible Personal Property |
16 |
Section 3.11 |
Real Property |
16 |
Section 3.12 |
Inventory |
18 |
Section 3.13 |
Intellectual Property |
19 |
Section 3.14 |
Credits |
19 |
Section 3.15 |
Warranties |
19 |
Section 3.16 |
Taxes |
19 |
Section 3.17 |
Sole Ownership of Purchased Assets |
19 |
Section 3.18 |
No Liens |
19 |
Section 3.19 |
No Material Adverse Change |
19 |
Section 3.20 |
Full Disclosure |
19 |
Section 3.21 |
Brokers; Fees and Expenses |
19 |
Section 3.22 |
Fair Value; Solvency |
20 |
Section 3.23 |
Marketing Efforts |
20 |
Section 3.24 |
Good Faith; Arm’s Length |
20 |
Article IV REPRESENTATIONS AND WARRANTIES OF PURCHASER |
21 |
Section 4.1 |
Organization; Authority; Enforcement |
21 |
Section 4.2 |
Absence of Conflicts |
21 |
Section 4.3 |
Expertise |
21 |
Section 4.4 |
Absence of Litigation |
21 |
Section 4.5 |
Brokers; Fees and Expenses |
22 |
|
|
|
Article V ADDITIONAL AGREEMENTS |
22 |
Section 5.1 |
Post-Closing Access to Information |
22 |
Section 5.2 |
Permits |
22 |
Section 5.3 |
Environmental Matters |
22 |
Section 5.4 |
Further Assignments and Assurances |
22 |
Section 5.5 |
Mail; Written Communication; Funds |
23 |
Section 5.6 |
Transfer Taxes |
23 |
Section 5.7 |
Integrated Agreements |
23 |
Section 5.8 |
Insurance |
23 |
Section 5.9 |
Survival |
23 |
|
|
|
Article VI MISCELLANEOUS |
24 |
Section 6.1 |
Fees and Expenses |
24 |
Section 6.2 |
Entire Agreement |
24 |
Section 6.3 |
Notices |
24 |
Section 6.4 |
Amendments; Waivers |
25 |
Section 6.5 |
Headings; Gender |
25 |
Section 6.6 |
Successors; Assigns |
25 |
Section 6.7 |
No Third Party Beneficiaries |
25 |
Section 6.8 |
Governing Law |
25 |
Section 6.9 |
Severability |
25 |
Section 6.10 |
Remedies Cumulative |
26 |
Section 6.11 |
Mutual Drafting |
26 |
Section 6.12 |
Enforcement of Agreement |
26 |
Section 6.13 |
Execution; Counterparts |
26 |
Disclosure Schedules |
|
|
|
|
Exhibit A – |
Form of Ranch Deed |
|
|
|
|
Exhibit B – |
Form of Patented Claims Deed |
|
|
|
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Exhibit C – |
Form of 2006 Unpatented Claims Deed |
|
|
|
|
Exhibit D – |
Form of Post-2006 Unpatented Claims Deed |
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|
|
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Exhibit E – |
Form of Bill of Sale |
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|
|
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Exhibit F – |
Form of Assumption Agreement |
|
|
|
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Exhibit G – |
Form of Conflict Waiver |
|
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT
(this “Agreement”), dated and effective as of February 11, 2016 (the “Effective Date”), is
entered into by and between U.S. Energy Corp., a Wyoming corporation (the “Company”), and Mt. Emmons Mining
Company, a Delaware corporation (“Purchaser”). The Company and Purchaser are hereinafter at times referred to
individually as a “Party” and collectively as the “Parties”.
WHEREAS, the Company
is the owner of certain property related to the Mt. Emmons mine site located in Gunnison County, Colorado and referred to by the
Company as the “Mt. Emmons Project,” including the historic Keystone Mine (the “Mine”), a related
water treatment plant (the “WTP”), and other property as described hereinbelow, and is responsible for the operation
of some or all of the property (the “Project”).
WHEREAS, the Company
is the owner and operator of the WTP pursuant to permits issued to the Company by the Colorado Department of Public Health and
Environment (“CDPHE”).
WHEREAS, the Company
has requested that Purchaser accept the transfer of the Project and other Purchased Assets (defined below), including the WTP and
the CDPHE permits, and thus incur the obligations relating thereto from and after the Effective Date.
WHEREAS, contemporaneous
with the execution of this Agreement, the Parties have entered into a Series A Convertible Preferred Stock Purchase Agreement (the
“Stock Purchase Agreement”), pursuant to which, subject to the terms and conditions set forth in the Stock Purchase
Agreement, the Company agrees to issue and sell to Purchaser, and Purchaser agrees to purchase from the Company, 50,000 shares
of the Series A Convertible Preferred Stock, par value $0.01 per share, of the Company (the “Preferred Stock”).
WHEREAS, the board
of directors of the Company (the “Board of Directors”) has determined that the transactions contemplated by
this Agreement and the other Transaction Documents (defined below) are in the best interests of the Company and its shareholders
and creditors, and has approved the transactions contemplated by this Agreement and the other Transaction Documents.
WHEREAS, the sole director
of Purchaser has determined that the transactions contemplated by this Agreement and the other Transaction Documents are in the
best interests of Purchaser and its stockholder and has approved the transactions contemplated by this Agreement.
NOW, THEREFORE, in
consideration of the mutual agreements and covenants contained in this Agreement, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company and Purchaser agree as follows:
Article
I
DEFINITIONS
Section 1.1 Definitions.
Initially capitalized terms used in this Agreement shall have the meanings assigned to them in this Section 1.1 or
the applicable Section referenced in Section 1.2, unless the context otherwise indicates:
“Affiliate”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 405 promulgated under the Securities Act of 1933,
as amended.
“Confidentiality
Agreement” shall have the meaning set forth in the Stock Purchase Agreement.
“Contracts”
means any contracts, agreements, licenses, notes, bonds, mortgages, indentures, leases or other binding instruments or binding
commitments, whether written or oral.
“Environmental
Laws” means any applicable Law, and any Order or binding agreement with any Governmental Entity: (a) relating to pollution
(or the cleanup thereof) or the protection of natural resources, endangered or threatened species, human health or safety, or the
environment (including ambient air, soil, surface water or groundwater, or subsurface strata); or (b) concerning the presence of,
exposure to, or the management, manufacture, use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge,
transportation, processing, production, disposal or remediation of any Hazardous Materials. The term “Environmental Law”
includes the following (including their implementing regulations and any state analogs): the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.§ 9601
et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous
and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act
of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control
Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§
11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401
et seq.; the Federal Land Policy and Management Act of 1976, as amended, 43 U.S.C. §§ 1701, et seq.; the
Endangered Species Act of 1973, as amended, 16 U.S.C. §§1531, et seq.; and the Occupational Safety and Health
Act of 1970, as amended, 29 U.S.C. §§651 et seq., and any rules or regulations corresponding to, issued pursuant
to or promulgated under any of the foregoing statutes. For avoidance of doubt, the term “Environmental Laws” also includes
all applicable environmental laws (including implementing rules and regulations) of the State of Colorado that relate to and regulate
the Project.
“Environmental
Permit” means any Permit, letter, clearance, consent, waiver, closure, exemption, decision or other action required
under or issued, granted, given, authorized by or made pursuant to Environmental Law.
“Governmental
Entity” means any supranational, national, state, municipal, local or foreign government, any instrumentality, subdivision,
court, administrative agency or commission or other governmental authority, or any quasi-governmental or private body exercising
any regulatory or other governmental or quasi-governmental authority.
“Hazardous
Materials” means (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid,
mineral or gas, in each case, whether naturally occurring or man-made, that is described or defined as hazardous, acutely hazardous,
toxic, a waste, or words of similar import or regulatory effect under Environmental Laws, or is otherwise regulated under any Environmental
Laws, and (b) any petroleum or petroleum-derived products, radon, radioactive materials or wastes, asbestos in any form, lead
or lead-containing materials, urea formaldehyde foam insulation and polychlorinated biphenyls.
“Knowledge
of the Company” means when used in reference to any matter or representation, the actual knowledge of David Veltri, including
the knowledge of matters, developments or trends that David Veltri should reasonably infer from any matters discovered or reviewed
as part of his due inquiry. For purposes of this definition, “due inquiry” means that level of due diligence that a
reasonable person would undertake in order to give reasonable assurance that the representation and warranties contained herein,
and the Schedules attached hereto, are accurate and complete.
“Laws”
means any domestic or foreign laws, including any Environmental Laws, common law, statutes, ordinances, rules, regulations, codes,
Orders or legally enforceable requirements enacted, issued, adopted, promulgated, enforced, ordered or applied by any Governmental
Entity.
“Lien”
means any lien, charge, pledge, security interest, mortgage, encumbrance, claim, right of first refusal, transfer restriction,
preemptive right, right of way, servitude, restrictive covenant or other restriction.
“Losses”
means any actions, suits, claims, assessments, interest, penalties, proceedings, investigations, audits, demands, losses, liabilities,
damages, deficiencies, fines, judgments, costs and expenses (including reasonable attorneys’ fees).
“Order”
means any order, writ, assessment, decision, injunction, decree, stipulation, determination, award, ruling or judgment of, or entered
by or with, a Governmental Entity.
“Person”
means any individual, company, partnership, limited liability company, joint venture, association, joint stock company, trust,
unincorporated organization, Governmental Entity or any other entity.
“Permits”
means licenses, permits, approvals, registrations, certificates and other authorizations issued, granted, given or provided by
a Governmental Entity, including Environmental Permits.
“Permitted
Lien” means (a) liens for Taxes not yet due and payable; (b) mechanics’, carriers’, workmen’s,
repairmen’s or other like liens arising or incurred in the ordinary course of business consistent with past practice or amounts
that are not delinquent; (c) other than with respect to Real Property, liens arising under original purchase price conditional
sales contracts and equipment leases with third parties entered into in the ordinary course of business consistent with past practice
which are not, individually or in the aggregate, material to the Project or the Purchased Assets; (d) the liens, encumbrances,
easements, rights-of-way, exceptions, limitations, qualifications, covenants and requirements set forth in that Limited Original
Title Opinion prepared by Davis Graham & Stubbs LLP dated March 23, 2007; and (e) production royalties of record burdening
the Real Property.
“Phelps Dodge
Corporation Quitclaim Deed” means that certain Quitclaim Deed dated August 22, 2006 between Phelps Dodge Corporation
(successor in interest to Cyprus Amax Minerals Company and Amax, Inc.), as Grantor, and the Company and Crested Corp., as co-equal
tenants in common, pursuant to which Grantor transferred certain real property, together with improvements and appurtenant water
rights in the County of Gunnison, State of Colorado, as specified therein.
“Proceeding”
means an action, claim, suit, notice of violation, investigation or proceeding (including an informal investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
“Shares”
shall have the meaning set forth in the Stock Purchase Agreement.
“Taxes”
means any income, corporation, gross receipts, gross margins, profits, gains, capital stock, capital duty, franchise, commercial
or business activity, withholding, social security, unemployment, disability, property, wealth, welfare, stamp, excise, occupation,
sales, use, lease, consumption, transfer, intangible, value added, alternative minimum, estimated or other similar tax (including
any fee, assessment or other charge of any kind or nature) imposed by any Governmental Entity, and any interest, penalties, additions
or additional amounts of any kind or nature in respect of the foregoing, and including any transferee or secondary liability in
respect of any Tax (whether imposed by Law, contractual agreement or otherwise) and any liability in respect of any Tax as a result
of being a member of any affiliated, consolidated, combined, unitary or similar group.
“Tax Returns”
means all returns, reports, estimates, declarations, statements, certificates and any other documents of any nature relating to,
or required to be filed in connection with, any Taxes, including information returns or reports with respect to backup withholding
and other payments to Third Parties.
“Third Party”
means any Person that is not a Party to this Agreement and that is not an Affiliate of any Party to this Agreement or the other
Transaction Documents.
“Transaction
Documents” shall have the meaning set forth in the Stock Purchase Agreement.
Section 1.2 Other
Defined Terms. In addition, each of the following terms is defined in the Section set forth opposite such term:
Term |
|
Section |
2006 Unpatented Claims |
|
2.1(c) |
2006 Unpatented Claims Deed |
|
2.1(a)(iv) |
Agreement |
|
Preamble |
Assumed Liability |
|
2.3 |
Bill of Sale |
|
2.7(a)(vi) |
Board of Directors |
|
Preamble |
Books and Records |
|
2.1(n) |
CDPHE |
|
Preamble |
Claims |
|
2.1(o) |
Closing |
|
2.6 |
Company |
|
Preamble |
Conflict Waiver |
|
2.7(a)(xi) |
Credits |
|
2.1(l) |
Effective Date |
|
Preamble |
Excluded Assets |
|
2.2 |
Excluded Liabilities |
|
2.4 |
Insolvency Laws |
|
3.22 |
Insolvent |
|
3.22 |
Insurance |
|
3.8 |
Intellectual Property |
|
3.14 |
Inventory |
|
2.1(f) |
Leased Real Property |
|
3.11(c) |
Leases |
|
3.11(c) |
Material Contracts |
|
3.6(a) |
Mine |
|
Preamble |
Owned Real Property |
|
3.11(a) |
Parties |
|
Preamble |
Party |
|
Preamble |
Patented Claims |
|
2.1(b) |
Patented Claims Deed |
|
2.7(a)(iii) |
Post-2006 Unpatented Claims |
|
2.1(d) |
Post-2006 Unpatented Claims Deed |
|
2.7(a)(v) |
Preferred Stock |
|
Preamble |
Project |
|
Preamble |
Purchased Assets |
|
2.1 |
Purchaser |
|
Preamble |
Ranch |
|
2.1(a) |
Ranch Deed |
|
2.7(a)(ii) |
Real Property |
|
3.11(c) |
Stock Purchase Agreement |
|
Preamble |
Tangible Personal Property |
|
2.1(g) |
Unpatented Claims |
|
2.1(d) |
Warranties |
|
2.1(l) |
Water Rights |
|
2.1(h) |
WTP |
|
Preamble |
Section 1.3 Interpretative
Provisions. The words “hereof”, “herein” and “hereunder” and words of like import used
in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Any initially
capitalized terms used in any exhibit, annex or schedule but not otherwise defined therein, shall have the meaning as defined
in this Agreement. Whenever the words “include”, “includes” or “including” are used in this
Agreement, they shall be deemed to be followed by the words “without limitation”, whether or not they are in fact
followed by those words or words of like import. “Writing”, “written” and comparable terms refer to printing,
typing and other means of reproducing words (including electronic media) in a visible form. References to any agreement or contract
are to that agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and
thereof. References to any Person include the successors and permitted assigns of that Person.
Article
II
SALE AND PURCHASE OF ASSETS; CLOSING
Section 2.1 Sale
and Purchase of Purchased Assets. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing,
the Company shall sell, assign, transfer, convey and deliver to Purchaser, and Purchaser shall purchase from the Company, free
and clear of all Liens except for any Permitted Liens, all of the Company’s right, title, interest, claim and demand in,
to and under all of the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible
(including goodwill, if any), which relate to, or are used or held for use in connection with, the Project (collectively, the
“Purchased Assets”), including the following:
(a) the
real property, together with all improvements and appurtenant water rights, described on Schedule 2.1(a) attached hereto
and made a part hereof (the “Ranch”);
(b) the
real property, together with all improvements and appurtenant water rights described as the patented mining claims transferred
pursuant to the Phelps Dodge Corporation Quitclaim Deed and listed on Schedule 2.1(b) attached hereto and made a part
hereof (the “Patented Claims”);
(c) the
real property, together with all improvements and appurtenant water rights described as the unpatented mining claims including
unpatented load and placer mining and millsite claims transferred pursuant to the Phelps Dodge Corporation Quitclaim Deed and listed
on Schedule 2.1(c) attached hereto and made a part hereof (the “2006 Unpatented Claims”);
(d) the
real property, together with all improvements and appurtenant water rights described as the unpatented mining claims including
unpatented load and placer mining and millsite claims, related to the Project that were acquired by the Company after the date
of the Phelps Dodge Corporation Quitclaim Deed, and listed on Schedule 2.1(d) attached hereto and made a part hereof
(the “Post-2006 Unpatented Claims” and together with the 2006 Unpatented Claims, the “Unpatented Claims”);
(e) all
additional real property, patented or unpatented mining claims including unpatented load and placer mining and millsite claims,
together with all improvements and appurtenant water rights, related to the Project or the Purchased Assets, if any;
(f) all
inventory, finished goods, raw materials, work in progress, packaging, supplies or parts related to the Project or the Purchased
Assets (the “Inventory”);
(g) all
furniture, fixtures, equipment, machinery, tools, vehicles, office equipment, supplies, computers, telephones and other tangible
personal property related to the Project or the Purchased Assets, including those listed on Schedule 2.1(g) attached
hereto and made a part hereof (the “Tangible Personal Property”);
(h) all
water rights described in the Findings of Fact, Conclusions of Law, Judgment and Decree by the Water Court for Water Division
No. 4, State of Colorado in Case No. 96CW311, a copy of which is attached hereto and made a part hereof as Schedule 2.1(h)
(the “Water Rights”);
(i) all
intellectual property, agreements with respect to intellectual property, business names and domain names related to the Project
or the Purchased Assets;
(j) all
Permits, including all Environmental Permits, related to, used, held for use or required in connection with the ownership or operation
of the Project (including the WTP) or the Purchased Assets, including the Permits listed on Schedule 3.9(b), but only
to the extent such Permits may be transferred to Purchaser under applicable Law;
(k) all
accounts or notes receivable, prepaid expenses, bonds (other than security bonds), credits, advance payments, claims, security,
refunds, rights of recovery, rights of set-off, rights of recoupment, deposits, charges, sums and fees related to the Permits,
the Project or the Purchased Assets (the “Credits”);
(l) all
rights under warranties, indemnities and all similar rights against any Third Party to the extent related to the Project or the
Purchased Assets, including those listed on Schedule 2.1(l) (the “Warranties”);
(m) originals,
or where not available, copies, of all books and records, including books of account, ledgers and general, financial and accounting
records, internal financial statements, machinery and equipment maintenance files, supplier lists, quality control records and
procedures, complaints and inquiry files, research and development files, records and data (including all correspondence with any
Governmental Entity), strategic plans, pre-feasibility or feasibility studies, in each case relating to the Project or the Purchased
Assets (“Books and Records”);
(n) all
goodwill, if any, and the going concern value of or related to the Project or the Purchased Assets; and
(o) all
(i) contractual claims against any Third Party related to the Purchased Assets, and (ii) all claims against any Third
Party arising from damage to the Purchased Assets on or before the Effective Date, except in each case for any such claims arising
under Environmental Laws (the “Claims”); provided, however, that the Company reserves the right to assert defenses,
cross-claims and counterclaims against any Third Party.
Section 2.2 Excluded
Assets. Notwithstanding the foregoing, the Purchased Assets shall not include the following assets (collectively, the “Excluded
Assets”):
(a) all
cash, cash equivalents and bank accounts of the Company;
(b) the
security bonds described on Schedule 2.2(b), which shall be cancelled by the Company following the Closing with all
funds due thereunder paid to the Company;
(c) the
corporate seals, organizational documents, minute books, stock books, Tax Returns, books of account or other records having to
do with the corporate organization of the Company, or any operations or business of the Company other than that related to the
Project or the Purchased Assets;
(d) all
employee plans and benefit arrangements and assets held in trust or in support thereof;
(e) the
rights which accrue or will accrue to the Company under the Transaction Documents;
(f) all
Tax assets (including Tax refunds) of the Company; and
(g) the
Company’s 100% membership interest in its wholly-owned subsidiary, Energy One LLC.
Section 2.3 Assumed
Liability. Upon the terms and subject to the conditions of this Agreement, Purchaser hereby assumes and agrees to pay, perform
and discharge the obligation of the Company to operate the WTP from and after the Effective Date in accordance with the applicable
Permits issued by CDPHE (the “Assumed Liability”). The obligation to operate the WTP in accordance with the
applicable Permits is an obligation to CDPHE and not to the Company.
Section 2.4 Excluded
Liabilities. The Parties acknowledge that Purchaser shall have all rights associated with and be responsible for the obligations
associated with the ownership and operation of the Purchased Assets from and after the Effective Date. Purchaser shall not, however,
assume and shall not be responsible for the payment, performance or discharge of any other liabilities or obligations of the Company
or any of its Affiliates of any kind or nature whatsoever (the “Excluded Liabilities”). The Company shall,
and shall cause each of its Affiliates to, pay and satisfy in due course all Excluded Liabilities which it or they are obligated
to pay and satisfy. Without limiting the generality of the foregoing, the Excluded Liabilities shall include the following:
(a) any
liability for (i) Taxes of the Company relating to the Project, the Purchased Assets or the Assumed Liability for any period
ending on or before the Effective Date; or (ii) other Taxes of the Company (or any stockholder or Affiliate of the Company)
of any kind or description;
(b) any
liabilities relating to or arising out of the Excluded Assets;
(c) any
liabilities of the Company or its Affiliates arising under or in connection with any employee plan or benefit arrangement providing
benefits to any present or former employee of the Company or its Affiliates;
(d) any
liabilities of the Company or its Affiliates for any present or former employees, officers, directors, retirees, independent contractors
or consultants of the Company or its Affiliates, including any liabilities associated with any claims for wages or other benefits,
bonuses, accrued vacation, workers’ compensation, disability, severance, retention, termination or other payments;
(e) any
liabilities to indemnify, reimburse or advance amounts to any present or former officer, director, employee or agent of the Company
(including with respect to any breach of fiduciary obligations by same); and
(f) any
liabilities arising out of, in respect of or in connection with the failure by the Company or any of its Affiliates to comply with
any Law, Order or Permit applicable to the Purchased Assets prior to the Effective Date.
Section 2.5 Purchase
Price/Consideration.
(a) The
Parties have agreed that the Company will be relieved of the Assumed Liability, and the other obligations associated with the ownership
and operation of the Purchased Assets, from and after the Effective Date, as a result of this Agreement, and accordingly, the Company
has offered the Preferred Stock to Purchaser in order to induce Purchaser to enter into this Agreement and, subject to the terms
and conditions set forth in this Agreement, accept the transfer from the Company of the Purchased Assets, including the Project,
and replace the Company as the permittee and operator of the WTP. The closing of this Agreement is subject to and conditioned upon
the simultaneous closing of the Stock Purchase Agreement and the other Transaction Documents.
(b) The
Parties shall execute such returns, questionnaires and other documents as shall be required with regard to all applicable real
property transaction taxes imposed by applicable Federal, state or local law or ordinance.
(c) The
Company shall pay:
(i) the
fees of counsel representing the Company in connection with this transaction;
(ii) any
realty transfer tax, sales tax, documentary stamp tax or similar tax which becomes payable by reason of the transfer of the Purchased
Assets; and
(iii) the
fees for any consultants which have been hired or retained by the Company in connection with the transactions contemplated by this
Agreement.
(d) Purchaser
shall pay:
(i) the
fees of counsel representing Purchaser in connection with this transaction;
(ii) the
fees for any title examination or title commitment and the premium for any title policy to be issued to the Company by the title
company at Closing, and all endorsements thereto;
(iii) the
cost of any survey and any appraisals and environmental assessments of the Purchased Assets prepared on Purchaser’s behalf
or at Purchaser’s direction; and
(iv) the
fees for recording any recordable transfer documents.
(e) All
costs and expenses incident to the transaction contemplated hereby and the closing thereof, and not specifically described above,
shall be paid by the Party incurring same.
Section 2.6 Closing.
The closing of the sale and purchase of the Purchased Assets (the “Closing”) shall occur at the offices of
Hogan Lovells US LLP in Denver, Colorado on the date hereof contemporaneously with the execution and delivery of this Agreement
and the Stock Purchase Agreement.
Section 2.7 Deliveries.
(a) At
the Closing, the Company shall deliver or caused to be delivered to Purchaser the following:
(i) the
certificate of the Secretary of the Company required pursuant to Section 2.4(a)(v) of the Stock Purchase Agreement;
(ii) a
Special Warranty Deed in the form attached hereto as Exhibit A (the “Ranch Deed”) pursuant to which
the Company shall sell, assign, transfer, convey and deliver to Purchaser the Ranch, duly executed by the Company;
(iii) a
Special Warranty Deed in the form attached hereto as Exhibit B (the “Patented Claims Deed”) pursuant
to which the Company shall sell, assign, transfer, convey and deliver to Purchaser the Patented Claims, together with all improvements
and appurtenant water rights, related to the Project or any of the Purchased Assets, duly executed by the Company;
(iv) a
Bargain and Sale Deed in the form attached hereto as Exhibit C (the “2006 Unpatented Claims Deed”)
pursuant to which the Company shall sell, assign, transfer, convey and deliver to Purchaser all Unpatented Claims acquired by the
Company pursuant to the Phelps Dodge Corporation Quitclaim Deed and owned by the Company, together with all improvements and appurtenant
water rights, related to the Project or any of the Purchased Assets, and the Water Rights, duly executed by the Company;
(v) a
Bargain and Sale Deed in the form attached hereto as Exhibit D (the “Post-2006 Unpatented Claims Deed”)
pursuant to which the Company shall sell, assign, transfer, convey and deliver to Purchaser all Unpatented Claims acquired by the
Company after the date of the Phelps Dodge Corporation Quitclaim Deed and owned by the Company, together with all improvements
and appurtenant water rights, related to the Project or any of the Purchased Assets, duly executed by the Company;
(vi) a
General Assignment and Bill of Sale in the form attached hereto as Exhibit E (the “Bill of Sale”)
pursuant to which the Company shall sell, assign, transfer, convey and deliver to Purchaser the Inventory, the Tangible Personal
Property, the intellectual property, the Credits, the Warranties and the Claims, duly executed by the Company;
(vii) all
documents required to transfer and assign to Purchaser all Permits, including all Environmental Permits, related to, used, held
for use or required in connection with the ownership or operation of the Project (including the WTP) or the Purchased Assets, that
may be transferred to Purchaser under applicable Law, in the form required by applicable Law and duly executed by the Company;
(viii) all
Books and Records;
(ix) written
evidence of release of all Liens, other than Permitted Liens (but including all Liens securing indebtedness which shall be paid
and cancelled by the Company on or before the Effective Date), in and upon any of the Purchased Assets;
(x) such
other customary instruments of transfer, assumption, filings or documents, in form and substance reasonably satisfactory to Purchaser,
as may be required to give effect to this Agreement;
(xi) a
conflict waiver in the form attached hereto as Exhibit G (the “Conflict Waiver”) permitting Purchaser
to retain the services of the identified consultants (and their former owners, employees or contractors) used by the Company prior
to the Closing with respect to the Purchased Assets; and
(xii) One
Thousand Five Hundred Eighty-Three U.S. dollars ($1583.00), which amount represents the property taxes owed as of the Effective
Date for ownership of the Purchased Assets during the year ended December 31, 2015.
(b) At
the Closing, Purchaser shall deliver or caused to be delivered to the Company an Assignment and Assumption of Liabilities Agreement
in the form attached hereto as Exhibit F (the “Assumption Agreement”), pursuant to which Purchaser
shall assume the obligation to operate the WTP in accordance with the applicable Permits issued by CDPHE.
Article
III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth
in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation made
herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company represents
and warrants as of the date hereof and as of the Closing to Purchaser as follows (unless as of a specific date therein):
Section 3.1 Organization;
Qualification. The Company is a corporation duly incorporated, validly existing and in good standing under the Laws of the
State of Wyoming, has all requisite corporate power and authority to own, lease and operate its properties and to carry on its
business as now being conducted, and is duly qualified and in good standing as a foreign corporation in each jurisdiction in which
the nature of the business conducted by it or the ownership or leasing of its properties makes such qualification necessary, except
where the failure to be so licensed, qualified or in good standing is, or could reasonably be expected to result in: (i) a
material adverse effect on the legality, validity or enforceability of any Transaction Document; (ii) a material adverse
effect on the results of operations, cash flow, assets, business, prospects or condition (financial or otherwise) of the Company
and its subsidiaries, taken as a whole; or (iii) a material adverse effect on the Company’s ability to perform in any
material respect on a timely basis its obligations under any Transaction Document. The Company has made available to Purchaser
accurate and complete copies of its Restated Articles of Incorporation and Bylaws, each as currently in effect.
Section 3.2 Authorization;
Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder
and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company, the Board of Directors or the Company’s shareholders
in connection herewith or therewith. This Agreement and each other Transaction Document to which it is a party has been (or upon
delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will
constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except:
(i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting enforcement of creditors’ rights generally; and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable remedies.
Section 3.3 Absence
of Conflicts. The execution and delivery of this Agreement by the Company does not, and the consummation of the transactions
contemplated hereby will not, (i) conflict with or violate the Restated Articles of Incorporation or Bylaws of the Company,
(ii) conflict with or violate in any material respect any Law or Order applicable to the Company, the Project or the Purchased
Assets, (iii) except as set forth on Schedule 3.3, require the consent, notice or other action by an Person under,
conflict with, result in any breach of or constitute a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or
cancel any Contract or Permit to which the Company is a party or by which the Company is bound or subject or to which any of the
Purchased Assets are subject, or (iv) result in the creation or imposition of any Liens other than Permitted Liens on the
Purchased Assets.
Section 3.4 No
Undisclosed Liabilities. The Company has no liabilities or obligations (whether accrued, absolute, contingent, liquidated
or unliquidated, actual or contingent, unasserted or otherwise) with respect to the Purchased Assets, except (a) as disclosed
in the Disclosure Schedules to this Agreement and (b) those incurred in the ordinary course of holding, owning and operating
the Purchased Assets and immaterial in nature and amount in the aggregate.
Section 3.5 Absence
of Certain Changes. From and after January 1, 2015, except as expressly contemplated in this Agreement or the Stock Purchase
Agreement or as disclosed on Schedule 3.5, the Company has held, owned and operated the Purchased Assets only in the
ordinary course of business and has not (and has not agreed to):
(a) entered
into any Contract or engaged in any transaction outside of the ordinary course of business related to the Purchased Assets;
(b) made
any material change in the conduct of holding, owning or operating the Purchased Assets;
(c) subjected
any of the Purchased Assets to any Lien other than Permitted Liens or those released on or prior to the Effective Date;
(d) waived
or released any debts, claims or rights of value other than in the ordinary course of holding, owning or operating the Purchased
Assets;
(e) transferred
any asset, right or interest to any Third Party relating to the Purchased Assets other than transfers of de minimus amounts
of assets in the ordinary course of holding, owning or operating Purchased Assets;
(f) made
capital commitments in excess of $10,000 for any single expenditure or commitment related to the Purchased Assets that will be
enforceable against the Purchased Assets or Purchaser on or after the Effective Date;
(g) suffered
any extraordinary losses or any material damage, destruction or casualty with respect to the Purchased Assets, or written down
the value of any of the Purchased Assets;
(h) experienced
any events, conditions, losses or casualties which have resulted in or are reasonably likely to result in one or more claims under
its insurance policies of an aggregate of $5,000 or more relating to the Purchased Assets;
(i) been
notified that it is in default of any material term of any Contract, or terminated or amended or suffered the termination or amendment
of any Contract to which it is or was a party, relating to the Purchased Assets;
(j) received
any notification or had any communication from any Governmental Entity with respect to any proposed remedial action for any violation
or alleged or possible violation of any Law relating to or affecting the Purchased Assets;
(k) suffered
the termination, suspension or revocation of any Permit;
(l) settled
any Proceedings relating to the Purchased Assets;
(m) delayed
or postponed the payment of any accounts payable or other debt, obligation or liability relating to the Purchased Assets or deferred
ordinarily scheduled maintenance of any of the Purchased Assets; or
(n) made
any agreement or commitment (whether or not in writing) to do any of the foregoing.
Section 3.6 Material
Contracts.
(a) Schedule 3.6(a)
contains a complete and accurate list of each of the following Contracts related to the Purchased Assets to which the Company is
a party or by which any of the Purchased Assets are bound as of the date hereof (collectively with the Leases, the “Material
Contracts”):
(i) all
such Contracts involving aggregate consideration in excess of $10,000;
(ii) all
confidentiality, environmental consulting, operating, maintenance, security, utilities, communications, broker, distributor, dealer,
manufacturer’s representative, franchise, agency, sales promotion, market research, market consulting, public relations and
advertising Contracts;
(iii) all
such Contracts under which the Company has borrowed or loaned money, or any note, bond, indenture, mortgage, installment obligation
or other evidence of indebtedness for borrowed or loaned money or any guarantee of such indebtedness, in each case, relating to
amounts in excess of $10,000;
(iv) all
such Contracts involving a Governmental Entity;
(v) all
such Contracts involving any joint venture, partnership, or limited liability company agreement involving a sharing of profits,
losses, costs, Taxes, or other liabilities by the Company with any other Person;
(vi) all
such Contracts to which any Affiliate of the Company or any officer, director or employee of the Company or any Affiliate of the
Company is a party; and
(vii) any
other such Contract that is material to the Purchased Assets or the operation of the Project, or not entered into in the ordinary
course of business related to the Purchased Assets and not previously disclosed pursuant to this Section 3.6.
(b) Each
Material Contract is valid and binding on the Company in accordance with its terms and is in full force and effect. None of the
Company or, to the Knowledge of the Company, any other party thereto is in breach of or default under (or is alleged to be in breach
of or default under) in any material respect or has provided or received any written notice of any intention to terminate, any
Material Contract. No event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event
of default under any Material Contract or result in a termination thereof or would cause or permit the acceleration or other changes
of any right or obligation or the loss of any benefit thereunder. Accurate and complete copies of each Material Contract (including
all modifications, amendments and supplements thereto and waivers thereunder) have been provided to Purchaser. There are no material
disputes pending or, to the Knowledge of the Company, threatened under any Material Contract.
Section 3.7 Absence
of Litigation; Orders. Except as set forth on Schedule 3.7, there are no Proceedings pending or, to the Knowledge
of the Company, threatened against, related to or affecting the Company with respect to the Purchased Assets or the Project, nor
is there any judgment, decree, writ, injunction, rule, assessment or order of any Governmental Entity outstanding with respect
to the Purchased Assets or the Project. Neither the Company nor any of its Subsidiaries is subject to any proceeding or action
under any applicable Law relating to bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or preferential
transfers, or similar Law relating to or affecting creditors’ rights generally. There is no Proceeding pending or, to the
Knowledge of the Company, threatened against or affecting the Company or any of their Affiliates, directors, officers or employees,
involving any challenge to or seeking damages or other relief in connection with any of the transactions contemplated by this
Agreement, the Stock Purchase Agreement or the other Transaction Documents or that may, to the Knowledge of the Company, have
the effect of preventing, delaying, making illegal or otherwise interfering with the transactions contemplated by this Agreement,
the Stock Purchase Agreement or the other Transaction Documents.
Section 3.8 Insurance.
Schedule 3.8 contains a complete and accurate list and summary description (including the name of the insurer, coverage,
policy limits, and expiration date) of all primary, excess, and umbrella policies, bonds and other forms of insurance, and renewals
thereof, owned or held by or on behalf of or providing insurance coverage to or for the benefit of the Company related to the
Project or the Purchased Assets (the “Insurance”). All such policies of Insurance are in full force and effect, all
premiums currently payable or previously due have been paid, no notice of cancellation or termination has been received by the
Company with respect to any such policy and no assignment of proceeds or encumbrance exists with respect to the proceeds of any
such policy.
Section 3.9 Compliance
with Laws; Permits.
(a) To
the Knowledge of the Company, the operations and activities of the Company related to the Purchased Assets comply and have complied,
in all material respects, with all applicable Laws and Permits.
(b) To
the Knowledge of the Company, the Company possesses all Permits that are required by Law for the ownership, use and operation of
the Purchased Assets or otherwise necessary to permit the conduct or operation of the Purchased Assets as currently conducted or
operated. To the Knowledge of the Company, all such Permits are valid and are in full force and effect. Schedule 3.9(b) contains
a complete and accurate list of each such Permit and of the Governmental Entity issuing the same. To the Knowledge of the Company,
all applications or notices required to have been filed for the renewal or extensions of such Permits have been duly filed on a
timely basis with the appropriate Governmental Entity, and the Company has not been notified in writing that such renewals or extensions
will be withheld or delayed.
(c) Except
as set forth on Schedule 3.9(c), the Company has not received any written notice from any Governmental Entity or Third Party regarding
(i) any violation of or failure to comply with, in any material respect, any Law or Permit, (ii) any withdrawal, suspension,
cancellation, termination of, or modification to any Permit held by the Company or any employee of the Company, or (iii) any
obligation on the part of the Company to undertake, or to bear all or any portion of the cost of, any remedial action, excluding
those that have been resolved and routine incidental or other minor actions involving de minimus costs.
(d) To
the Knowledge of the Company, no event has occurred that, with or without notice or lapse of time or both, could reasonably be
expected to result in the revocation, suspension, lapse or limitation of any Permit set forth on Schedule 3.9(b).
Section 3.10 Tangible
Personal Property. Schedule 2.1(g) contains a complete and accurate list of all Tangible Personal Property owned
or leased by the Company related to the Purchased Assets, which schedule indicates whether such property is owned or leased. The
Company has good and valid title to, or a valid leasehold interest in, all of the Tangible Personal Property. All such Tangible
Personal Property (including leasehold interests) is free and clear of Liens except for any Permitted Liens. Except as set forth
on Schedule 2.1(g), such Tangible Personal Property has been maintained in accordance with normal industry practice,
is sufficient for the continued conduct of the Project after the Closing in substantially the same manner as conducted prior to
the Closing and together with the other Purchased Assets constitutes all rights, property and assets necessary to conduct the
Project as currently conducted.
Section 3.11 Real
Property.
(a) Schedule
2.1(a) contains the complete and accurate legal description of the Ranch. Schedule 2.1(b) contains the complete
and accurate list of all Patented Claims owned by the Company. The Company has not acquired any additional patented mining claims
since the date of the Phelps Dodge Corporation Quitclaim Deed. Schedule 2.1(c) contains a complete and accurate list
of all unpatented mining claims including unpatented load and placer mining and millsite claims transferred to the Company pursuant
to the Phelps Dodge Corporation Quitclaim Deed. Schedule 2.1(d) contains a complete and accurate list of all unpatented
mining claims including unpatented load and placer mining and millsite claims acquired by the Company since the date of the Phelps
Dodge Corporation Quitclaim Deed. Schedule 2.1(c) and Schedule 2.1(d) together contain a complete and accurate
list of all Unpatented Claims owned by the Company. Immediately prior to the date of the Phelps Dodge Corporation Quitclaim Deed,
there was no real property (including patented and unpatented mining claims including unpatented load and placer mining and millsite
claims) owned by the Company, or in which the Company owned any claim, related to, used or held for use in connection with the
Project. The Ranch, the Patented Claims, and the Unpatented Claims are hereinafter at times collectively referred to as the “Owned
Real Property”. The Owned Real Property is integral and necessary to the Project, and comprises all the real property
owned by the Company or in which the Company owns any claim related to or used or held for use in connection with the Project.
Except as set forth on Schedule 3.11(a), with respect to each parcel or claim of Owned Real Property:
(i) the
Company has fee simple title to its Owned Real Property (except for the Unpatented Claims )free and clear of any Liens, except
for any Permitted Liens;
(ii) no
portion of the Owned Real Property is subject to a lease or right of use or possession, other than, with respect to the Unpatented
Claims, statutory rights of third parties to use and occupy the lands covered by the Unpatented Claims pursuant to the Multiple
Mineral Development Act of 1954, the Surface Resources and Multiple Use Act of 1955, and the Federal Land Policy and Management
Act of 1976, each as amended;
(iii) there
are no outstanding options, rights of first offer or rights of first refusal to purchase or acquire the Owned Real Property or
any portion thereof or interest therein;
(iv) none
of the improvements located on the Owned Real Property constitutes a legal non-conforming use or other required special dispensation,
variance or special permit under any laws, or encroach across a property line onto property owned by a Third Party;
(v) the
Real Property has adequate utilities of a capacity and condition to serve such Real Property to operate the Project for the use
to which such Real Property is currently being put, and in the case of the Leased Real Property, subject to the terms and conditions
of the Leases and the rights and interests of the owners of such properties;
(vi) no
assessments or special assessments have been levied, or, to the Knowledge of the Company, are contemplated or pending against the
Real Property; and
(vii) no
portion of the Real Property is subject to any pending, or to the Knowledge of the Company, threatened, suit for appropriation,
condemnation or other taking by any public authority or other suit or proceeding that may affect the value of the Real Property
and, to the Knowledge of the Company, nor has the Company received any notice of any such suit or proceeding.
(b) With
respect to the Unpatented Claims, except as set forth on Schedule 3.11(b):
(i) the
Unpatented Claims were properly located in accordance with applicable federal and state laws and regulations;
(ii) all
assessment work requirements for the Unpatented Claims have been performed and all filings and recordings of proof of performance
have been made properly and all federal annual unpatented mining claim maintenance and rental fees have been paid properly and
timely;
(iii) the
Unpatented Claims are in good standing and the Company has record title to and owns the entire undivided legal and equitable interest
in the Unpatented Claims, subject to the paramount title of the United States provided, however, that no representation or warranty
is made with respect to (A) a discovery of valuable minerals on or within any or all of the unpatented mining claims comprising
a portion of the Unpatented Claims, and (B) no representation or warranty is made as to the validity of any or all of the millsites
comprising a portion of the Unpatented Claims; and
(iv) the
Company has the right and full power to convey its interests in the Unpatented Claims.
(c) Schedule
3.11(c) sets forth an accurate and complete list of all leases or subleases (the “Leases”) pursuant to which
the Company holds an interest in or the right to use or occupy any land, buildings, structures, improvements, fixtures or other
real property related to the Project (the “Leased Real Property” and, collectively with the Owned Real Property,
the “Real Property”), including all amendments, extensions and renewals with respect thereto, and the address
or legal property description of each Leased Real Property. The Leased Real Property comprises all the real property leased by
the Company and related to or used or held for use in connection with the Project and the Company has a valid leasehold interest
in its Leased Real Property free and clear of any Liens, except any Permitted Liens. With respect to each of the Leases:
(i) such
Lease is in full force and effect and the Company has a valid leasehold estate in all Leased Property free and clear of all Liens,
other than Permitted Liens;
(ii) the
Company’s possession and quiet enjoyment of the Leased Real Property held under such Lease is undisturbed as of the date
hereof, and, to the Knowledge of the Company, there are no disputes with respect to such Lease, defaults or breaches of such Lease
by the landlord thereunder, with or without the delivery of notice, passage of time or both;
(iii) the
Company is not in breach or default under any Lease and no event has occurred which, with the delivery of notice, passage of time
or both, would constitute a breach or default, and the Company has paid all rent and other amounts due and payable pursuant to
the Leases;
(iv) the
Company has not granted any Person the right to use or occupy such Leased Real Property or any portion thereof.
(v) all
Leases of Leased Real Property are assignable to Purchaser or all necessary consents to assignment have been or will be obtained
prior to the Effective Date; and
(vi) none
of the Leases constituting the Leased Real Property require the Company to return the premises to its prior condition or any other
standard of repair and maintenance upon expiration or termination of such Lease.
Section 3.12 Inventory.
All Inventory consists of a quality and quantity as used in the ordinary course of business related to the Purchased Assets consistent
with past practice. All Inventory is owned by the Company free and clear of all Liens, except for any Permitted Liens, and no
Inventory is held on a consignment basis. The quantities of each item of Inventory to be transferred to Purchaser at the Closing
shall be of a quantity and quality as kept by the Company in connection with the Project consistent with past practice.
Section 3.13 Intellectual
Property. Schedule 3.14 contains a complete and accurate list of all patents, trademarks, service marks, trade
names, copyrights, business names and domain names (collectively, the “Intellectual Property”) owned, possessed,
licensed, used or held for use by the Company or any Subsidiary related to or used or held for use in connection with the Project,
and of any Contracts relating to such Intellectual Property to which the Company or any Subsidiary is a party.
Section 3.14 Credits.
All Credits involving an amount in excess of $1,000 or material to the Purchased Assets are listed on Schedule 3.15.
Section 3.15 Warranties.
All Warranties material to the Purchased Assets are listed on Schedule 3.16.
Section 3.16 Taxes.
The Company (i) has made or filed all Tax Returns related to the Purchased Assets required by any jurisdiction to which it
is subject, and (ii) has paid all Taxes related to the Purchased Assets that are material in amount, shown or determined
to be due on Tax Returns. There are no unpaid Taxes related to the Purchased Assets in any material amount claimed to be due by
the Taxing authority of any jurisdiction, and to the Knowledge of the Company no basis for any such claim exists.
Section 3.17 Sole
Ownership of Purchased Assets. None of the Company’s subsidiaries or Affiliates have any ownership, leasehold or other
legal interest in any of the Purchased Assets.
Section 3.18 No
Liens. The Purchased Assets are not subject to any Liens other than Permitted Liens and the Company warrants to Purchaser
that as of the Closing, all of the Purchased Assets shall be free and clear of any Liens other than Permitted Liens.
Section 3.19 No
Material Adverse Change. Since January 1, 2015, other than changes in commodities prices, there has not been any material
adverse change in the ownership, operation, prospects or condition of the Purchased Assets and no event has occurred or circumstance
exists that could reasonably be expected to results in such a material adverse change.
Section 3.20 Full
Disclosure. No representation or warranty by the Company in this Agreement and no statement contained in the Schedules to
this Agreement or any certificate or other document furnished or to be furnished to Purchaser pursuant to this Agreement contains
any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein,
in light of the circumstances in which they are made, not misleading.
Section 3.21 Brokers;
Fees and Expenses. No broker, finder, investment banker, financial advisor or other person is entitled to any brokerage, finder’s,
or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of the Company.
Section 3.22 Fair
Value; Solvency. The fair market value of the property and rights to be transferred by the Company to Purchaser pursuant to
this Agreement is less than the amount or value of the obligations and liabilities (including the Assumed Liability) that the
Company will be relieved of from and after the Effective Date as a result of this Agreement. The transaction between the Parties,
taken as a whole, represents an exchange of reasonably equivalent value for the Purchased Assets. The Company has received not
less than a fair market value, reasonably equivalent value, fair value, or fair saleable value (as those terms, standards, and
concepts of value are used in the law of Title 11 of the United States Code or other applicable Federal and State law (such
laws, collectively, the “Insolvency Laws”)), in exchange for the transfer of the Purchased Assets to Purchaser
pursuant to this Agreement. On the Effective Date, and after giving effect to this Agreement under the Insolvency Laws, the Company
and its subsidiaries, (a) are not Insolvent or rendered Insolvent as a result of such transfer, (b) are not engaged
in a business or transaction for which any property remaining with it is an unreasonably small capital or unreasonably small assets,
(c) does not intend to incur or believe that it would incur, debts that would be beyond its ability to pay as such debts
matured, and (d) has not and does not intend to impair, hinder, delay, or defraud any entity (as defined in 11 U.S.C.
section 101 (15)). As used herein, the term “Insolvent” means a financial condition such that (z) the
sum of an entity’s debts is greater than all of such entity’s property at a fair valuation exclusive of any
property of such entity that has been transferred, concealed or removed with intent to hinder, delay or defraud any of such entity’s
creditors, (y) such entity is generally not paying its debts as they become due; or (x) such entity is unable
to pay its debts as they become due.
Section 3.23 Marketing
Efforts. The Company has conducted a diligent, thorough, and good faith marketing and sale process. The value to be received
by the Company under this Agreement and the other Transaction Documents represents that highest and best offer obtained for the
transfer of the Purchased Assets as a result of such process and represents not less than a fair market value, reasonably equivalent
value, fair value, or fair saleable value (as those terms, standards, and concepts of value are used in the Insolvency Laws) for
the transfer of the Purchased Assets. No other person has made a binding offer to purchase all or any portion of the Purchased
Assets for an amount that equals or exceeds the value to be received by the Company under this Agreement and the other Transaction
Documents.
Section 3.24 Good
Faith; Arm’s Length. This Agreement and the other Transaction Documents have been proposed, negotiated, and entered
into by the Company and Purchaser in good faith and on an arm’s length basis and the Company has not been in a disparate
bargaining position with respect to the negotiation or such agreements. The Company acknowledges that except as set forth in this
Agreement, Purchaser has no obligation to accept the transfer of the WTP, the Purchased Assets, the Assumed Liability or any related
obligations. Except for the Transaction Documents and Confidentiality Agreement, as of the date of this Agreement, there are no
contractual obligations between the Company and its Affiliates on the one hand and Purchaser and its Affiliates on the other hand
relating to the Purchased Assets or the transactions contemplated by this Agreement. Purchaser is not an Affiliate of the Company,
Purchaser has no control or undue influence over the Company, and this Agreement and the transfer of the Purchased Assets contemplated
hereunder have been negotiated and consummated with procedural and substantive fairness as to all decision making processes and
requirements, as well as the value obtained and received by Company under this Agreement and the other Transaction Documents.
Article
IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents
and warrants as of the date hereof and as of the Closing to the Company as follows:
Section 4.1 Organization;
Authority; Enforcement. Purchaser is an entity duly incorporated, validly existing and in good standing under the laws of
the State of Delaware with full right, corporate power and authority to enter into and to consummate the transactions contemplated
by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of
the Transaction Documents and performance by Purchaser of the transactions contemplated by the Transaction Documents have been
duly authorized by all necessary corporate action, as applicable, on the part of Purchaser, and no further action is required
by Purchaser, its board of directors or its stockholder in connection herewith or therewith. Each Transaction Document to which
it is a party has been (or upon delivery will have been) duly executed by Purchaser, and when delivered by Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding obligation of Purchaser, enforceable against it in accordance
with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of creditors’ rights generally; and (ii) as
limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
Section 4.2 Absence
of Conflicts. The execution and delivery of this Agreement by Purchaser does not, and the consummation of the transactions
contemplated hereby will not, (i) conflict with or violate the articles of incorporation or bylaws of Purchaser or (ii) conflict
with or violate in any material respect any Law or Order applicable to Purchaser.
Section 4.3 Expertise.
Purchaser has knowledge and experience in financial and business matters that enable it to evaluate the merits and risks of the
transactions under this Agreement. This Agreement and the other Transaction Documents have been proposed, negotiated, and entered
into by Purchaser in good faith and on an arm’s length basis and Purchaser has not been in a disparate bargaining position
with respect to the negotiation or such agreements.
Section 4.4 Absence
of Litigation. There is no Proceeding pending or, to the knowledge of Purchaser, threatened against or affecting Purchaser
or any of its Affiliates, directors, officers or employees, involving any challenge to or seeking damages or other relief in connection
with any of the transactions contemplated by this Agreement, the Stock Purchase Agreement or the other Transaction Documents or
that may, to the knowledge of Purchaser, have the effect of preventing, delaying, making illegal or otherwise interfering with
the transactions contemplated by this Agreement, the Stock Purchase Agreement or the other Transaction Documents.
Section 4.5 Brokers;
Fees and Expenses. No broker, finder, investment banker, financial advisor or other person is entitled to any brokerage, finder’s,
or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Purchaser.
Article
V
ADDITIONAL AGREEMENTS
Section 5.1 Post-Closing
Access to Information. The Parties acknowledge that subsequent to Closing each Party may need access to information or documents
in the control or possession of the other Party for the purposes of concluding the transactions herein contemplated, audits, compliance
with Laws, and the prosecution or defense of Third Party claims. Accordingly, the Parties agree that for a period of five years
after Closing each will make reasonably available to the other’s agents, independent auditors, counsel, and/or Governmental
Entities upon written request and at the expense of the requesting party such documents and information as may be available relating
to its ownership and use of the Purchased Assets for periods prior and subsequent to Closing to the extent reasonably necessary
to facilitate concluding the transactions herein contemplated, audits, compliance with Laws, and the prosecution or defense of
Third Party claims.
Section 5.2 Permits.
To the extent any Permit, including any Environmental Permit related to, used, held for use or required in connection with the
ownership or operation of the Project (including the WTP) or the Purchased Assets may not be transferred to Purchaser under applicable
Law by the Effective Date, the Company agrees to cooperate with and reasonably assist Purchaser, at Purchaser’s sole expense,
in obtaining the transfer of such Permit (and to execute, acknowledge and deliver any assignment or other documents or instruments
of transfer after) the Effective Date or in obtaining a new Permit conferring similar rights, privileges and benefits.
Section 5.3 Environmental
Matters. The Parties acknowledge that (i) each Party may have a claim against the other Party relating to or arising
from that other Party’s prior ownership or operation of all or some portion of the Purchased Assets, as well as potential
claims against Third Parties arising from or relating to the Purchased Assets, and (ii) this Agreement does not and shall
not be construed to transfer, alter or allocate, as between the Parties, any obligations or liabilities resulting from or arising
under Environmental Laws or Environmental Permits as applied to the Purchased Assets, other than with respect to Purchaser’s
obligation to assume and discharge the Assumed Liability. Neither Party admits or acknowledges any liability to the other Party
or any Third Party. Except as set forth in Section 2.1(o), each Party hereby preserves and retains all such claims existing
or accrued as of the Effective Date. Nonetheless, the Company acknowledges and agrees that, notwithstanding anything contained
in this Agreement from and after the Effective Date Purchaser shall have the right, in its sole discretion, to request or obtain
any modification or termination of any existing Permit issued by CDPHE, or any renewal or new Permit from CDPHE.
Section 5.4 Further
Assignments and Assurances. If at any time after the Closing the Parties shall deem it necessary, advisable or appropriate
to take further or additional steps for the purpose of assigning, assuming, transferring, conveying, perfecting and/or confirming
or reducing to possession the Purchased Assets or for the purpose of fully consummating the transactions contemplated by the Transaction
Documents, the other Party shall execute, acknowledge and deliver any such assignments, assumptions, conveyances, certificates
or other documents or instruments of transfer consistent with the terms of this Agreement as may reasonably be requested. To the
extent that any consultants covered by the Conflict Waiver require their own form of such waiver, the Company hereby agrees to
execute any such waiver in form and substance reasonably satisfactory to the Company and Purchaser. The Company also agrees to
execute a conflict waiver in the form of the Conflict Waiver for any consultant identified by Purchaser following the Closing
that was used by the Company prior to the Closing with respect to the Purchased Assets.
Section 5.5 Mail;
Written Communication; Funds. From and after the Closing, if the Company receives or collects mail, invoices, written communications
or any funds relating to Purchased Assets, the Company or its Affiliate shall remit such mail, invoices, written communications
or funds to Purchaser within five business days after its receipt thereof.
Section 5.6 Transfer
Taxes. All transfer, documentary, sales, use, lease, consumption, stamp, registration, property, value added and other such
Taxes and fees (including any penalties and interest related thereto) incurred in connection with this Agreement and the other
Transaction Documents (including any real property transfer Taxes and any other similar Taxes) shall be borne and paid by the
Company when due. The Company shall, at its own expense, timely file any return for Taxes or other document with respect to such
Taxes or fees (and Purchaser shall cooperate with respect thereto as necessary).
Section 5.7 Integrated
Agreements. The Parties acknowledge and agree that although this Agreement, the Stock Purchase Agreement and the other Transaction
Documents are separate documents, they form an integrated contract and the closing of one is contingent upon and subject to the
closing of the other Transaction Documents. The Company will not issue, and Purchaser will not have an obligation to accept, the
Shares if the Company is subject to any proceeding or action under any applicable Law relating to bankruptcy, reorganization,
insolvency, moratorium, fraudulent conveyance or preferential transfer, or similar Law relating to or affecting creditors’
rights generally, and if Purchaser does not accept the Shares, Purchaser shall not be obligated to close this Agreement or the
other Transaction Documents.
Section 5.8 Insurance.
The Company shall have Purchaser endorsed as a Named Insured, effective as of the Effective Date, under that certain insurance
policy (No. FEI-EIL-21724-00) issued by Admiral Insurance Company, as insurer, to the Company, as the insured, having a policy
period from June 28, 2015 to June 28, 2018.
Section 5.9 Survival.
(a) All
representations, warranties, covenants and obligations in this Agreement, the Disclosure Schedules, and any other document, certificate
or instrument delivered pursuant to this Agreement shall survive the Closing and the consummation of the transactions contemplated
by this Agreement, subject to Section 5.9(b).
(b) The
Company will have liability pursuant to this Agreement with respect to any breach of a representation or warranty in this Agreement
only if Purchaser notifies the Company of a claim in writing, specifying the factual basis of the claim in reasonable detail to
the extent then known by Purchaser, on or before August 10, 2017, except for claims of breaches of (i) the representations
and warranties set forth in Sections 3.1, 3.2, 3.3, 3.22, 3.23, and 3.24, which shall
survive indefinitely and as to which Purchaser may notify the Company at any time after the Effective Date, and (ii) the representations
and warranties set forth in Sections 3.11 and 3.16 as to which Purchaser shall notify the Company on or before February
10, 2019.
Article
VI
MISCELLANEOUS
Section 6.1 Fees
and Expenses. Each Party shall pay the fees and expenses of its own advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such Party incident to the negotiation, preparation, execution, delivery and performance of
this Agreement.
Section 6.2 Entire
Agreement. The Transaction Documents, together with the exhibits and schedules thereto, and the Confidentiality Agreement,
taken together, are expressly intended by the Parties to be, shall be and constitute the Parties’ single, entire, non-severable,
indivisible and integrated agreement, and none of the Parties would have entered into any of the Transaction Documents but for
the totality of terms and provisions of the Transaction Documents and the Confidentiality Agreement. The Transaction Documents,
together with the exhibits and schedules thereto, and the Confidentiality Agreement contain the entire understanding of the Parties
with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the Parties acknowledge have been merged into such documents, exhibits and schedules.
Section 6.3 Notices.
All notices, demands, and other communications hereunder shall be in writing, and shall be deemed to have been duly given if delivered
personally, or if mailed by certified mail, return receipt requested, postage prepaid, or sent by nationally recognized overnight
carrier, as follows:
If to Purchaser: |
Mt. Emmons Mining Company |
|
Attention: Scott Statham, Deputy General Counsel |
|
333 North Central Avenue |
|
Phoenix, Arizona 85004-2189 |
|
|
with a copy to: |
Jones Walker, L.L.P. |
|
Attention: Dionne Rousseau |
|
8555 United Plaza Boulevard, Suite 500 |
|
Baton Rouge, Louisiana 70809 |
|
|
If to the Company: |
U.S. Energy Corp. |
|
Attention: David Veltri |
|
4643 S. Ulster Street, Suite 970 |
|
Denver, Colorado 80237 |
with a copy to: |
Davis Graham & Stubbs LLP |
|
Attention: John Elofson |
|
1550 Seventeenth Street, Suite 500 |
|
Denver, Colorado 80202 |
or to such other address and with such
other copies as such Party may hereafter reasonably specify for the purpose by notice to the other Party. Each such notice, demand
or other communication shall be effective upon delivery or refusal of delivery at the address specified in this Section 6.3.
Section 6.4 Amendments;
Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed
by the Company and Purchaser. No waiver of any default with respect to any provision, condition or requirement of this Agreement
shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any Party to exercise any right hereunder in any manner impair
the exercise of any such right.
Section 6.5 Headings;
Gender. When a reference is made in this Agreement to a section, exhibit or schedule, such reference shall be to a section,
exhibit or schedule of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All personal
pronouns used in this Agreement shall include the other genders, whether used in the masculine, feminine or neuter gender, and
the singular shall include the plural and vice versa, whenever and as often as may be appropriate.
Section 6.6 Successors;
Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns.
Neither Party may assign this Agreement or any rights or obligations hereunder without the prior written consent of the other
Party; provided, however, that Purchaser shall only be required to notify the Company of any assignment to an Affiliate of Purchaser
prior to Closing.
Section 6.7 No
Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors
and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person or entity.
Section 6.8 Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed
by the internal laws of the State of Colorado, United States of America, without giving effect to any choice of law or conflict
of law provision or rule (whether of the State of Colorado or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Colorado.
Section 6.9 Severability.
If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain
in full force and effect and shall in no way be affected, impaired or invalidated, and the Parties shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction.
Section 6.10 Remedies
Cumulative. The rights and remedies of the Parties are cumulative and not alternative.
Section 6.11 Mutual
Drafting. This Agreement is the mutual product of the Parties and each provision hereof has been subject to the mutual consultation,
negotiation and agreement of each of the Parties, and shall not be construed for or against any Party hereto.
Section 6.12 Enforcement
of Agreement. The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement
was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the Parties shall
be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of competent jurisdiction, this being in addition to any other remedy to which they are entitled at law or
in equity.
Section 6.13 Execution;
Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered
one and the same agreement and shall become effective when counterparts have been signed by each Party and delivered to the other
Party, it being understood that the Parties need not sign the same counterpart. In the event that any signature is delivered by
e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the Party
executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature
page were an original thereof.
* * * * * * * * * *
IN WITNESS WHEREOF,
this Agreement has been executed by the parties hereto as of the day and year first written above.
|
COMPANY: |
|
|
|
|
U.S. ENERGY CORP. |
|
|
|
|
By: |
/s/ David Veltri |
|
Name: |
David Veltri |
|
Title: |
Chief Executive Officer and President |
|
|
|
|
PURCHASER: |
|
|
|
|
MT. EMMONS MINING COMPANY |
|
|
|
|
By: |
/s/William E. Cobb |
|
Name: |
William E. Cobb |
|
Title: |
Vice President |
[Signature Page to Acquisition Agreement]
Exhibit 3.1
CERTIFICATE OF DESIGNATIONS OF
SERIES A CONVERTIBLE PREFERRED STOCK,
PAR VALUE $0.01 PER SHARE,
OF
U.S. ENERGY CORP.
Pursuant to Section 17-16-602 of the
Wyoming Business Corporation Act
The undersigned DOES HEREBY CERTIFY that the
following resolution was duly adopted by the Board of Directors (the “Board”) of U.S. Energy Corp., a Wyoming
corporation (hereinafter called the “Corporation”), with the designations, powers, preferences and relative,
participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, having been fixed
by the Board pursuant to authority granted to it under Article IV of the Corporation’s Restated Articles of Incorporation
and in accordance with the provisions of Section 17-16-602 of the Wyoming Business Corporation Act:
RESOLVED: That, pursuant to authority conferred
upon the Board by the Corporation’s Restated Articles of Incorporation, the Board hereby authorizes 50,000 shares of Series A
Convertible Preferred Stock, par value $0.01 per share, of the Corporation and hereby fixes the designations, powers, preferences
and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of
such shares, in addition to those set forth in the Restated Articles of Incorporation of the Corporation, as follows:
Section
1. Designation . The shares of such Series
shall be designated “Series A Convertible Preferred Stock,” and the number of shares constituting such Series
shall be 50,000 (the “Series A Preferred Stock”). The number of shares of Series A Preferred Stock
may be increased or decreased by resolution of the Board and approval by the holders of a majority of the outstanding shares of
the Series A Preferred Stock, voting as a separate voting group; provided that no decrease shall reduce the number
of shares of Series A Preferred Stock to a number less than the number of shares of such Series then outstanding.
Section
2. Currency .
All Series A Preferred Stock shall be denominated in United States currency, and all payments and distributions thereon or
with respect thereto shall be made in United States currency. All references herein to “$” or “dollars”
refer to United States currency.
Section
3. Ranking . The
Series A Preferred Stock shall, with respect to dividend rights and rights upon liquidation, winding up or dissolution, rank
senior to each other class or series of shares of the Corporation that is issued at the time of issuance of the Series A
Preferred Stock and that the Corporation may issue thereafter, including, without limitation, the common stock of the Corporation,
par value $0.01 per share (the “Common Stock”) (such junior stock, including the Common Stock, being referred
to hereinafter collectively as “Junior Stock”).
Section
4. Dividends
(a) The
holders of Series A Preferred Stock shall be entitled to receive, in the manner described in Section 4(b), regular quarterly
dividends per share of Series A Preferred Stock of an amount equal to 12.250% per annum of the Adjusted Liquidation Preference
(as herein defined) then in effect of each share of such Series A Preferred Stock (the “Regular Dividends”),
before any dividends shall be declared, set apart for or paid upon Junior Stock. For purposes hereof, the term “Adjusted
Liquidation Preference” shall mean $40.00 per share of Series A Preferred Stock as of the Issue Date, which
shall be increased as described in Section 4(c).
(b) Regular
Dividends shall not be distributed to the holders of Series A Preferred Stock in cash or any other form of shares or property
but rather shall be added to the Adjusted Liquidation Preference as provided in Section 4(c). Regular Dividends shall be accrued
quarterly in arrears on January 1, April 1, July 1 and October 1 of each year (unless any such day is not a
Business Day, in which event such Regular Dividends shall be accrued on the next succeeding Business Day), commencing on April 1,
2016 (each such accrual date being a “Regular Dividend Payment Date,” and the period from the date of issuance
of the Series A Preferred Stock to the first Regular Dividend Payment Date and each such quarterly period thereafter being
a “Regular Dividend Period”). The amount of Regular Dividends payable on the Series A Preferred Stock for
any period shall be computed on the basis of a 360-day year and the actual number of days elapsed.
(c) Regular
Dividends, whether or not declared, shall begin to accrue and be cumulative from the Issue Date and shall compound quarterly on
each subsequent Regular Dividend Payment Date initially at 3.0625% of the Adjusted Liquidation Preference as of the Issue Date
and thereafter at 3.0625% of the Adjusted Liquidation Preference as of the immediately preceding Regular Dividend Payment Date.
The amount accrued each Regular Dividend Period shall be added on each Regular Dividend Payment Date to the Adjusted Liquidation
Preference as of the immediately preceding Regular Dividend Payment Date (or in the case of the first Regular Dividend Period,
to the Adjusted Liquidation Preference as of the Issue Date), and such resulting amount shall become the new Adjusted Liquidation
Preference with respect to which the Regular Dividend shall be calculated for the next Regular Dividend Period. The cumulative
amount of Regular Dividends accrued pursuant to this Section 4(c) on each Regular Dividend Payment Date are referred to herein
as the “Accumulated Regular Dividends”. For the avoidance of doubt, dividends shall accumulate whether or not
in any Regular Dividend Period there have been funds of the Corporation legally available for the payment of such dividends.
(d) Except
for Permitted Distributions, no dividend or distribution of any kind shall be declared or paid on Junior Stock unless (1) approved
by the holders of a majority of the outstanding shares of the Series A Preferred Stock, voting as a separate voting group
and (2) the holders of Series A Preferred Stock shall receive dividends or distributions per share of Series A Preferred
Stock of an amount equal to the aggregate amount of any dividends or other distributions, whether cash, in kind or other property,
paid on outstanding shares of Common Stock on a per share basis based on the number of shares of Common Stock into which such share
of Series A Preferred Stock could be converted on the applicable record date for such dividends or other distributions, assuming
such shares of Common Stock were outstanding on the applicable record date for such dividend or other distributions (the “Participating
Dividends”), unless such right to Participating Dividends is waived by the holders of a majority of the outstanding shares
of the Series A Preferred Stock, voting as a separate voting group. “Permitted Distributions” shall mean
dividends or distributions of Common Stock or other securities for which anti-dilution adjustments are made as provided in (x) Sections 9(a)(1)
and 9(a)(3), and (y) Sections 9(a)(2) and 9(a)(4); provided, however, that with respect to clause (y)
no such dividends or distributions shall be Permitted Distributions on or after the time the Conversion Rate equals the Conversion
Cap, or if such dividend or distribution would cause the Conversion Rate to equal or exceed the Conversion Cap. For avoidance of
doubt, Permitted Distributions shall not include cash, a Spin-Off Transaction, or evidences of indebtedness, assets, or other property.
(e) For
so long as there shall be any shares of Series A Preferred Stock outstanding, without the approval of holders of a majority
of the outstanding shares of the Series A Preferred Stock, voting as a separate voting group, no Junior Stock shall be redeemed,
purchased or otherwise acquired for any consideration (nor shall any moneys be paid to or made available for a sinking fund for
the redemption of any shares of any such Junior Stock) by the Corporation or any Subsidiary; provided, however, that
the foregoing limitation shall not apply to:
(1) purchases,
redemptions or other acquisitions of shares of Junior Stock from employees or former employees in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of any one or more employees of the Corporation or
any of its Subsidiaries (or from permitted family member transferees pursuant to such arrangements), up to a maximum of an aggregate
of 50,000 shares from the Issue Date until such date as no shares of Series A Preferred Stock are issued and outstanding; or
(2) an
exchange, redemption, reclassification or conversion of any class or series of Junior Stock exclusively for any class or series
of Junior Stock.
(f) If
applicable as provided in Section 4(d), Participating Dividends shall be payable as and when paid to the holders of shares
of Common Stock. Each Participating Dividend shall be payable to the holders of record of shares of Series A Preferred Stock
as they appear on the stock records of the Corporation at the Close of Business on the relevant record date, which with respect
to Participating Dividends shall be the same day as the record date for the payment of dividends or distributions to the holders
of shares of Common Stock.
Section
5. Liquidation, Dissolution or Winding Up
(a) Upon
any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, or the Corporation’s sale, lease,
exchange or other disposition of assets (other than a disposition described in Section 17-16-1201 of the Wyoming Business Corporation
Act) if the disposition would leave the Corporation without a significant continuing business activity (each, a “Liquidation”),
after satisfaction (or proper provision made for the satisfaction) of all liabilities and obligations to creditors of the Corporation
and before any distribution or payment shall be made to holders of any Junior Stock, each holder of Series A Preferred Stock
shall be entitled to receive, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) legally available
therefor, an amount per share of Series A Preferred Stock equal to the greater of:
(1) the
Adjusted Liquidation Preference per share as of the date of payment of the Liquidation Preference, plus the amount of the Regular
Dividend that would be accrued on such share from the Regular Dividend Payment Date immediately preceding the date of payment of
the Liquidation Preference through but excluding the date of payment of the Liquidation Preference, plus any declared but unpaid
Participating Dividends through the date of payment of the Liquidation Preference; and
(2) the
payment such holders would have received had such holders, immediately prior to such Liquidation, converted their shares of Series A
Preferred Stock into shares of Common Stock (at the then applicable Conversion Rate) pursuant to Section 7 immediately prior
to such Liquidation, plus any declared but unpaid Participating Dividends through the date of Liquidation
(the greater of (1) and (2) is referred to herein as the “Liquidation
Preference”). Holders of Series A Preferred Stock will not be entitled to any other amounts from the Corporation
after they have received the full amounts provided for in this Section 5(a) and will have no right or claim to any of the
Corporation’s remaining assets.
(b) If,
in connection with any distribution described in Section 5(a) above, the assets of the Corporation or proceeds thereof are
not sufficient to pay in full the Liquidation Preference payable on the Series A Preferred Stock, then such assets, or the
proceeds thereof, shall be paid to the holders of Series A Preferred Stock pro rata per share of Series A Preferred Stock in accordance
with the full respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
(c) For
purposes of this Section 5, the Corporation’s sale, lease, exchange or other disposition of assets (other than a disposition
described in Section 17-16-1201 of the Wyoming Business Corporation Act) if the disposition would leave the Corporation without
a significant continuing business activity, shall constitute a Liquidation, such Liquidation shall be deemed to occur as of the
closing of such transaction, and payment of the Liquidation Preference shall occur as promptly as practicable after such Liquidation
event. For purposes of this Section 5, the merger or consolidation of the Corporation with or into any other corporation or
other entity shall not constitute a liquidation, dissolution or winding up of the Corporation.
Section
6. Voting Rights
(a) The
holders of the shares of Series A Preferred Stock shall be entitled to notice of all shareholders’ meetings (or any
action by written consent) in accordance with the Corporation’s Restated Articles of Incorporation and Bylaws, and applicable
law, as if the holders of Series A Preferred Stock were holders of Common Stock (and whether or not the holders of Series
A Preferred Stock are entitled to vote at the meeting or on the action taken by written consent).
(b) In
addition to the voting rights provided for by law or expressly provided elsewhere herein, for so long as any shares of Series A
Preferred Stock remain outstanding, the Corporation shall not and shall not permit any direct or indirect Subsidiary of the Corporation
to, without first obtaining the written consent, or affirmative vote at a meeting called for that purpose, of holders of at least
a majority of the then outstanding shares of Series A Preferred Stock, voting as a separate voting group, take any of the
following actions:
(1) Any
change, amendment, alteration or repeal (directly or indirectly and including in connection with or as a result of a merger, consolidation,
share exchange or other transaction) of any provisions of the Corporation’s Restated Articles of Incorporation or Bylaws
that amends, modifies or adversely affects the rights, preferences, privileges or voting powers of the Series A Preferred Stock,
or any amendment that would effect any of the actions or changes described in Section 17-16-1004 of the Wyoming Business Corporation
Act or any successor provision;
(2) Effect
a conversion to a different type of legal entity, effect a transfer of the Corporation to incorporation under the laws of another
jurisdiction, or voluntarily change the tax status of the entity;
(3) Any
creation, authorization, issuance or reclassification of Capital Stock that would rank equal or senior to the Series A Preferred
Stock with respect to redemption, Liquidation rights or with respect to dividend rights or rights on a Change of Control;
(4) The
issuance or reclassification of shares of the Corporation’s Series P Preferred Stock;
(5) A
sale, lease, exchange or other disposition of assets (other than a disposition described in Section 17-16-1201 of the Wyoming Business
Corporation Act) if the disposition would leave the Corporation or Subsidiary without a significant continuing business activity,
a merger, consolidation, share exchange, or similar business combination or extraordinary transaction involving the Corporation
or any Subsidiary, that (v) converts the shares of Series A Preferred Stock into cash, other securities, interests, obligations,
rights to acquire shares, other securities or interests, other property, or any combination of the foregoing; (w) contains one
or more provisions that would entitle the holders of Series A Preferred Stock to vote as a separate voting group on such provision
or provisions if they were contained in a proposed amendment to the Restated Articles of Incorporation, pursuant to such articles
or pursuant to Section 17-16-1004 of the Wyoming Business Corporation Act or any successor provision; (x) if share exchange, if
the Series A Preferred Stock is included in the exchange; (y) results in a Change of Control; or (z) impairs in any way other than
in a de minimus way, the value or rights of the Series A Preferred Stock;
(6) Any
repurchase or redemption of Series A Preferred Stock, other than pro rata or in whole;
(7) Any
issuance or sale of capital stock of a Subsidiary, repurchase or redemption of capital stock of a Subsidiary or dividend or distribution
with respect to capital stock of a Subsidiary, other than such transactions exclusively involving the Corporation and one or more
of its wholly-owned Subsidiaries;
(8) From
and after the time that the Conversion Rate equals the Conversion Cap, and including an issuance that would cause the Conversion
Rate to equal or exceed the Conversion Cap, the issuance of Common Stock or securities convertible into, exercisable or exchangeable
for Common Stock (including by means of a distribution of rights, options or warrants subject to Sections 9(a)(2), or by means
of an issuance described in Section 9(a)(4)) at a price per share that is less than ninety percent (90%) of the Closing Price
on the Trading Day immediately preceding the Record Date for the issuance of rights, options or warrants, or that is less than
ninety percent (90%) of the Closing Price on the Trading Day immediately preceding the earlier of (x) the date on which the
sale or issuance is publicly announced and (y) the date on which the price for such sale or issuance is agreed or fixed.
(c) The
shares of Series A Preferred Stock shall not have voting rights in the election, removal, or replacement of directors, or filling
a vacancy in the office of a director, of the Corporation.
(d) At
a meeting of holders of Series A Preferred Stock, a majority of the outstanding shares of Series A Preferred Stock shall constitute
a quorum. The rules and procedures for calling and conducting any meeting of the holders of Series A Preferred Stock (including,
without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting,
the obtaining of written consents and any other procedural aspect or matter with regard to such a meeting or such consents shall
be governed by any reasonable rules the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures
shall conform to the requirements of the Restated Articles of Incorporation and Bylaws of the Corporation; provided, that
the Corporation may not restrict or prohibit the use of proxies, or restrict access to shareholder’s lists, by holders of
Series A Preferred Stock pursuant to the Wyoming Management Stability Act Sections 17-18-116 and 17-18-118. Any vote of holders
of Series A Preferred Stock that may be taken at a meeting of such holders may be taken without a meeting, without prior notice
and without a vote if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding
Series A Preferred Stock having not less than the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present and voted. Each holder of Series A Preferred
Stock shall have one vote per share of Series A Preferred Stock.
Section
7. Conversion
(a) Mandatory
Conversion by the Corporation. If at any time the Closing Price of the Common Stock equals or exceeds $5.00 per share (adjusted
as described in and consistent with the provisions of Section 9 by multiplying such price by the quotient of the Conversion
Rate in effect prior to such adjustment divided by the Conversion Rate in effect after such adjustment) for a period of 30 consecutive
Trading Days (the Business Day immediately following such 30th Trading Day, the “Mandatory Conversion Date”),
at the Corporation’s election effected by written notice to the holders of Series A Preferred Stock within 30 days after
the Mandatory Conversion Date, all and not less than all of the shares of Series A Preferred Stock shall be converted such
that each share of Series A Preferred Stock is converted into a number of shares of Common Stock (subject to the Conversion
Cap) equal to the product of (1) the Adjusted Conversion Value per share divided by the Initial Conversion Value per share, multiplied
by (2) the Conversion Rate then in effect, plus cash in lieu of fractional shares as set out in Section 9(h), plus an amount
of cash per share of Series A Preferred Stock equal to the amount of the Regular Dividend that would be accrued on such share
from and including the immediately preceding Regular Dividend Payment Date to but excluding the Mandatory Conversion Date, out
of funds legally available therefor (the “Mandatory Conversion”). This Section 7(a) shall not apply (i.e.
there shall be no Mandatory Conversion) if the Common Stock is not traded on a U.S. national securities exchange.
(b) Optional
Conversion. At any time, each holder of Series A Preferred Stock shall have the right, at such holder’s option,
to convert any or all of such holder’s shares of Series A Preferred Stock, and each share of Series A Preferred
Stock to be converted shall be converted into a number of shares of Common Stock (subject to the Conversion Cap) equal to the product
of (1) the Adjusted Conversion Value per share divided by the Initial Conversion Value per share, multiplied by (2) the Conversion
Rate then in effect, plus cash in lieu of fractional shares as set out in Section 9(h), plus an amount of cash per share of
Series A Preferred Stock equal to the amount of the Regular Dividend that would be accrued on such share from and including
the immediately preceding Regular Dividend Payment Date to but excluding the applicable Conversion Date, out of funds legally available
therefor.
(c) Conversion
Definitions.
(1) “Adjusted
Conversion Value” per share means the Initial Conversion Value per share plus Accumulated Regular Dividends per share;
(2) “Conversion
Rate” means 80 shares, subject to adjustment in accordance with the provisions of Section 9 of this Certificate
of Designations;
(3) “Initial
Conversion Value” per share means $40 per share of Series A Preferred Stock; and
(4) “Total
Conversion Shares” means the aggregate number of shares of Common Stock issuable upon conversion (mandatory or optional)
of Series A Preferred Stock.
(d) Conversion
Cap. The Total Conversion Shares shall not exceed 4,760,095 shares of Common Stock (i.e. 16.86% of the number of shares
of Common Stock outstanding on the Issue Date), and the “Conversion Cap” shall mean 95.20 shares of Common Stock
per share of Preferred Stock, adjusted as described in and consistent with the provisions of Section 9, other than Sections
9(a)(2) and 9(a)(4), by multiplying such number by the quotient of the Conversion Rate in effect after such adjustment divided
by the Conversion Rate in effect prior to such adjustment).
(e) Conversion
Procedures. A holder must do each of the following in order to convert its shares of Series A Preferred Stock:
(1) in
the case of a conversion pursuant to Section 7(b), give written notice to the Corporation (or any conversion agent appointed
pursuant to Section 16) that such holder elects to convert such shares;
(2) deliver
to the Corporation or such conversion agent the certificate or certificates representing the shares of Series A Preferred
Stock to be converted (or, if such certificate or certificates have been lost, stolen or destroyed, a lost certificate affidavit
and indemnity in form and substance reasonably acceptable to the Corporation);
(3) if
required, furnish appropriate endorsements and transfer documents in form and substance reasonably acceptable to the Corporation;
and
(4) if
required, pay any stock transfer, documentary, stamp or similar taxes not payable by the Corporation pursuant to Section 7(i).
If the conversion is in connection with a Reorganization Event,
the conversion may, at the option of the holder, be conditioned upon the closing of the Reorganization Event, in which case the
Person(s) entitled to receive the Common Stock, cash or other property upon conversion shall not be deemed to have converted the
Series A Preferred Stock until immediately prior to the closing of such Reorganization Event. If the conversion is in connection
with a tender offer for the Common Stock, the conversion may, at the option of the holder, be conditioned upon the closing of the
tender offer and acceptance of tendered shares, in which case the Person(s) entitled to receive the Common Stock, cash or other
property upon conversion shall not be deemed to have converted the Series A Preferred Stock until immediately prior to the closing
of such tender offer; provided, that in the event less than all of the Common Stock (including the Conversion Shares) tendered
is accepted for purchase in the tender offer, the Person(s) entitled to receive the Common Stock, cash or other property upon conversion
shall only be deemed to have converted such portion of the Series A Preferred Stock for which the related Conversion Shares were
accepted for purchase pursuant to the tender offer. “Conversion Date” means, as applicable, either (x) if the
Corporation elects Mandatory Conversion as provided in Section 7(a), the Mandatory Conversion Date; (y) in the case of a conditional
conversion, the date such conversion is deemed to occur; or (z) in any other case, the date on which a holder complies in all respects
with the procedures set forth in this Section 7(e).
(f) Effect
of Conversion. Effective immediately prior to the Close of Business on the Conversion Date applicable to any shares of Series A
Preferred Stock, dividends shall no longer accrue or be declared on any such shares of Series A Preferred Stock and such shares
of Series A Preferred Stock shall cease to be outstanding.
(g) Record
Holder of Underlying Securities as of Conversion Date. The Person or Persons entitled to receive the Common Stock and, to the
extent applicable, cash or other property, issuable upon conversion of Series A Preferred Stock on a Conversion Date shall
be treated for all purposes as the record holder(s) of such shares of Common Stock and/or cash or other property as of the Close
of Business on such Conversion Date. As promptly as practicable on or after the Conversion Date and compliance by the applicable
holder with the relevant conversion procedures contained in Section 7(e) (and in any event no later than three Trading Days
thereafter), the Corporation shall issue the number of whole shares of Common Stock issuable upon conversion (and deliver payment
of cash in lieu of fractional shares, and other property due). Upon Mandatory Conversion, the outstanding shares of Series A Preferred
Stock shall be converted automatically without further action by the holders and whether or not the certificates representing such
shares are surrendered; provided, that the Corporation shall not be obligated to issue certificates evidencing the shares
of Common Stock or deliver other securities, cash or property due upon such conversion unless the certificates evidencing the shares
of Series A Preferred Stock are delivered to the Corporation or the conversion agent (or, if such certificate or certificates have
been lost, stolen or destroyed, a lost certificate affidavit and indemnity in form and substance reasonably acceptable to the Corporation).
Such delivery of shares of Common Stock, and if applicable other securities, shall be made, at the option of the applicable holder,
in certificated form or by book-entry. Any such certificate or certificates shall be delivered by the Corporation to the appropriate
holder on a book-entry basis or by mailing certificates evidencing the shares to the holders at their respective addresses as set
forth in the conversion notice. If fewer than all of the shares of Series A Preferred Stock held by any holder are converted
pursuant to Section 7(b), then a new certificate representing the unconverted shares of Series A Preferred Stock shall
be issued to such holder concurrently with the issuance of the certificates (or book-entry shares) representing the applicable
shares of Common Stock. In the event that a holder shall not by written notice designate the name in which shares of Common Stock,
and to the extent applicable cash or other property to be delivered upon conversion of shares of Series A Preferred Stock,
should be registered or paid, or the manner in which such shares, and if applicable cash or other property, should be delivered,
the Corporation shall be entitled to register and deliver such shares, and if applicable cash and other property, in the name of
the holder and in the manner shown on the records of the Corporation.
(h) Status
of Converted or Acquired Shares. Shares of Series A Preferred Stock duly converted in accordance with this Certificate
of Designations, or otherwise acquired by the Corporation in any manner whatsoever, shall be retired promptly after the conversion
or acquisition thereof. All such shares shall upon their retirement and any filing required by the Wyoming Business Corporation
Act become authorized but unissued shares of preferred stock, without designation as to series until such shares are once more
designated as part of a particular series by the Board pursuant to the provisions of the Restated Articles of Incorporation.
(i) Taxes.
(1) The Corporation and its paying agent shall be entitled to withhold taxes on all payments on the Series A Preferred
Stock or Common Stock or other securities issued upon conversion of the Series A Preferred Stock to the extent required by
law. Prior to the date of any such payment, each holder of Series A Preferred Stock shall deliver to the Corporation or its
paying agent a duly executed, valid, accurate and properly completed Internal Revenue Service Form W-9 or an appropriate Internal
Revenue Service Form W-8, as applicable.
(2) Absent
a change in law or Internal Revenue Service practice, or a contrary determination (as defined in Section 1313(a) of the United
States Internal Revenue Code of 1986, as amended (the “Code”)), each holder of Series A Preferred Stock
and the Corporation agree not to treat the Series A Preferred Stock (based on their terms as set forth in this Certificate
of Designations) as “preferred stock” within the meaning of Section 305 of the Code, and Treasury Regulation Section 1.305-5
for United States federal income tax and withholding tax purposes and shall not take any position inconsistent with such treatment.
(3) The
Corporation shall pay any and all documentary, stamp and similar issue or transfer tax due on (x) the issue of the Series A
Preferred Stock and (y) the issue of shares of Common Stock upon conversion of the Series A Preferred Stock. However,
in the case of conversion of Series A Preferred Stock, the Corporation shall not be required to pay any tax or duty that may
be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or Series A Preferred Stock
in a name other than that of the holder of the shares to be converted, and no such issue or delivery shall be made unless and until
the person requesting such issue has paid to the Corporation the amount of any such tax or duty, or has established to the satisfaction
of the Corporation that such tax or duty has been paid.
(4) Each
holder of Series A Preferred Stock and the Corporation agree to cooperate with each other in connection with any redemption
of part of the shares of Series A Preferred Stock and to use good faith efforts to structure such redemption so that such
redemption may be treated as a sale or exchange pursuant to Section 302 of the Code; provided that nothing in this
Section 7(i) shall require the Corporation to purchase any shares of Series A Preferred Stock, and provided further
that the Corporation makes no representation or warranty in this Section 7(i) regarding the tax treatment of any redemption
of Series A Preferred Stock.
Section
8. Redemption and Repurchase
(a) Repurchase
at the Option of the Holders Upon a Change of Control. Upon a Change of Control, the holders of shares of Series A Preferred
Stock, by the vote or written consent of holders of a majority of the outstanding shares of the Series A Preferred Stock,
voting or acting as a separate voting group, shall have the right to require the Corporation (or its successor) to repurchase,
by irrevocable, written notice to the Corporation (or its successor), all and not less than all of the outstanding shares of Series A
Preferred Stock, at a purchase price per share equal to the Adjusted Liquidation Preference per share as of the date of payment
of the purchase price, plus the amount of the Regular Dividend that would be accrued on such share from the Regular Dividend Payment
Date immediately preceding the date of the payment of the purchase price through but excluding the date of the payment of the purchase
price, plus any declared but unpaid Participating Dividends through the date of the payment of the purchase price. The shares of
Series A Preferred Stock shall be repurchased from the holders thereof no later than 10 Business Days after the Corporation
(or its successor) receives notice from the Series A Preferred Shareholders of the election to exercise the repurchase rights
under this Section 8.
(b) Procedures
for Repurchase Upon a Change of Control. Within 30 days of the occurrence of a Change of Control, the Corporation shall
send notice by first class mail, postage prepaid, addressed to the holders of record of the shares of Series A Preferred Stock
at their respective last addresses appearing on the books of the Corporation stating (1) that a Change of Control has occurred,
describing it in reasonable detail (2) that if the Corporation receives evidence to its reasonable satisfaction no later than
60 days after the Corporation’s notice of the Change of Control that the holders of outstanding shares of Series A
Preferred Stock, by the vote or written consent of holders of a majority of the outstanding shares of Series A Preferred Stock
voting or acting as a separate voting group, have elected to exercise the repurchase right hereunder, then all shares of Series A
Preferred Stock shall be repurchased as provided in this Section 8, and (3) the procedures that holders of the Series A
Preferred Stock must follow in order for their shares of Series A Preferred Stock to be repurchased, including the place or
places where certificates for such shares are to be surrendered for payment of the repurchase price.
Section
9. Anti-Dilution Provisions
(a) Adjustments.
The Conversion Rate will be subject to adjustment, without duplication, under the following circumstances:
(1) the
issuance of Common Stock as a dividend or distribution to all or substantially all holders of Common Stock, or a subdivision or
combination of Common Stock or a reclassification of Common Stock into a greater or lesser number of shares of Common Stock, in
which event the Conversion Rate will be adjusted based on the following formula:
where,
CR0 = the Conversion Rate
in effect immediately prior to the Close of Business on (i) the Record Date for such dividend or distribution, or (ii) the
effective date of such subdivision, combination or reclassification;
CR1 = the new Conversion
Rate in effect immediately after the Close of Business on (i) the Record Date for such dividend or distribution, or (ii) the
effective date of such subdivision, combination or reclassification;
OS0 = the number of shares
of Common Stock outstanding immediately prior to the Close of Business on (i) the Record Date for such dividend or distribution
or (ii) the effective date of such subdivision, combination or reclassification; and
OS1 = the number of shares
of Common Stock that would be outstanding immediately after, and solely as a result of, the completion of such event.
Any adjustment made pursuant to this
clause (1) shall be effective immediately prior to the Open of Business on the Trading Day immediately following the Record
Date, in the case of a dividend or distribution, or the effective date in the case of a subdivision, combination or reclassification.
If any such event is declared but does not occur, the Conversion Rate shall be readjusted, effective as of the date the Board announces
that such event shall not occur, to the Conversion Rate that would then be in effect if such event had not been declared.
(2) the
dividend, distribution or other issuance to all or substantially all holders of Common Stock of rights (other than a distribution
of rights issued pursuant to a shareholders rights plan, to the extent such rights are attached to shares of Common Stock (in which
event the provisions of Section 9(a)(3) shall apply)), options or warrants entitling them to subscribe for or purchase shares
of Common Stock for a period expiring 60 days or less from the date of issuance thereof, at a price per share that is less than
the Closing Price on the Trading Day immediately preceding the Record Date for such issuance, in which event the Conversion Rate
will be increased based on the following formula:
where,
CR0 = the Conversion Rate
in effect immediately prior to the Close of Business on the Record Date for such dividend, distribution or issuance;
CR1 = the new Conversion
Rate in effect immediately following the Close of Business on the Record Date for such dividend, distribution or issuance;
OS0 = the number of shares
of Common Stock outstanding immediately prior to the Close of Business on the Record Date for such dividend, distribution or issuance;
X = the total number of shares of
Common Stock issuable pursuant to such rights, options or warrants; and
Y = the number of shares of Common
Stock equal to the aggregate price payable to exercise such rights, options or warrants divided by the Closing Price on the Trading
Day immediately preceding the Record Date for such dividend, distribution or issuance.
For purposes of this clause (2),
in determining whether any rights, options or warrants entitle the holders to purchase the Common Stock at a price per share that
is less than the Closing Price on the Trading Day immediately preceding the Record Date for such dividend, distribution or issuance,
there shall be taken into account any consideration the Corporation receives for such rights, options or warrants, and any amount
payable on exercise thereof, with the value of such consideration, if other than cash, to be the fair market value thereof as determined
in good faith by the Board of Directors.
Any adjustment made pursuant to this
clause (2) shall become effective immediately prior to the Open of Business on the Trading Day immediately following the Record
Date for such dividend, distribution or issuance. In the event that such rights, options or warrants are not so issued, the Conversion
Rate shall be readjusted, effective as of the date the Board publicly announces its decision not to issue such rights, options
or warrants, to the Conversion Rate that would then be in effect if such dividend, distribution or issuance had not been declared.
To the extent that such rights, options or warrants are not exercised prior to their expiration or shares of Common Stock are otherwise
not delivered pursuant to such rights, options or warrants upon the exercise of such rights, options or warrants, the Conversion
Rate shall be readjusted to the Conversion Rate that would then be in effect had the adjustments made upon the dividend, distribution
or issuance of such rights, options or warrants been made on the basis of the delivery of only the number of shares of Common Stock
actually delivered.
(3) If
the Corporation has a shareholder rights plan in effect with respect to the Common Stock on the Conversion Date, upon conversion
of any shares of the Series A Preferred Stock, holders of such shares will receive, in addition to the shares of Common Stock,
the rights under such rights plan relating to such Common Stock, unless, prior to the Conversion Date, the rights have (i) become
exercisable or (ii) separated from the shares of Common Stock (the first of such events to occur being the “Trigger
Event”), in either of which cases the Conversion Rate will be adjusted, effective automatically at the time of such Trigger
Event, as if the Corporation had made a distribution of such rights to all holders of the Common Stock as described in Section 9(a)(2)
(without giving effect to the 60-day limit on the exercisability of rights, options and warrants ordinarily subject to such Section 9(a)(2)),
subject to appropriate readjustment in the event of the expiration, termination or redemption of such rights prior to the exercise,
deemed exercise or exchange thereof. Notwithstanding the foregoing, to the extent any such shareholder rights are exchanged by
the Corporation for shares of Common Stock, the Conversion Rate shall be appropriately readjusted as if such shareholder rights
had not been issued, but the Corporation had instead issued the shares of Common Stock issued upon such exchange as a dividend
or distribution of shares of Common Stock subject to Section 9(a)(1). Notwithstanding the preceding provisions of this paragraph,
no adjustment shall be required to be made to the Conversion Rate with respect to any holder of Series A Preferred Stock which
is, or is an “affiliate” or “associate” of, an “acquiring person” under such shareholder rights
plan or with respect to any direct or indirect transferee of such holder who receives Series A Preferred Stock in such transfer
after the time such holder becomes, or its affiliate or associate becomes, an “acquiring person.” The Corporation shall
not adopt a shareholder rights plan pursuant to which the holders of the Series A Preferred Stock on the Issue Date or their
affiliates could be deemed an “acquiring person” or an “affiliate” or “associate” of an “acquiring
person.”
(4) If
the Corporation, at any time or from time to time while any of the Series A Preferred Stock is outstanding, shall issue shares
of Common Stock or any other security convertible into, exercisable or exchangeable for Common Stock (such Common Stock or other
security, “Equity-Linked Securities”) (other than (i) an Excluded Issuance, (ii) Common Stock issued
upon conversion of the Series A Preferred Stock and (iii) rights, options, warrants or other distributions referred to
in Section 9(a)(2)), the Conversion Rate shall be increased based on the following formula:
where,
CR0 = the Conversion Rate
in effect immediately prior to the issuance of such Equity-Linked Securities;
CR1 = the new Conversion
Rate in effect immediately after the issuance of such Equity-Linked Securities;
AC = the aggregate consideration paid
or payable for such Equity-Linked Securities;
OS0 = the number of shares
of Common Stock outstanding immediately before the issuance of Equity-Linked Securities;
OS1 = the number of shares
of Common Stock outstanding immediately after the issuance of Equity-Linked Securities and giving effect to any shares of Common
Stock issuable upon conversion, exercise or exchange of such Equity-Linked Securities; and
SP = the Closing Price on the date
of issuance of such Equity-Linked Securities.
The adjustment shall become effective
immediately after such issuance.
(b) Calculation
of Adjustments. All adjustments to the Conversion Rate shall be calculated by the Corporation to the nearest 1/10,000th of
one share of Common Stock (or if there is not a nearest 1/10,000th of a share, to the next lower 1/10,000th of a share). No adjustment
to the Conversion Rate will be required unless such adjustment would require an increase or decrease of at least one percent of
the Conversion Rate; provided, however, that any such adjustment that is not required to be made will be carried
forward and taken into account in any subsequent adjustment; provided, further that any such adjustment of less than
one percent that has not been made will be made upon any Conversion Date.
(c) When
No Adjustment Required. Notwithstanding the foregoing, no adjustment to the Conversion Rate shall be made upon the issuance
of any shares of Common Stock pursuant to any option, warrant, right, or exercisable, exchangeable or convertible security outstanding
as of the Issue Date.
(d) Successive
and Multiple Adjustments. After an adjustment to the Conversion Rate under this Section 9, any subsequent event requiring
an adjustment under this Section 9 shall cause an adjustment to each such Conversion Rate as so adjusted. For the avoidance
of doubt, if an event occurs that would trigger an adjustment to the Conversion Rate pursuant to this Section 9 under more
than one subsection hereof (other than where holders of Series A Preferred Stock are entitled to elect the applicable adjustment,
in which case such election shall control), such event, to the extent fully taken into account in a single adjustment, shall not
result in multiple adjustments hereunder; provided, however, that if more than one subsection of this Section 9
is applicable to a single event, the subsection shall be applied that produces the largest adjustment.
(e) Other
Adjustments.
(1) The
Corporation will not, by amendment of its Restated Articles of Incorporation, Bylaws or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, share exchange, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Section 9 by the
Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 9 and in the
taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series
A Preferred Stock against impairment; and
(2) The
Corporation may, but shall not be required to, make such increases in the Conversion Rate, in addition to those required by this
Section 9, as the Board considers to be advisable in order to avoid or diminish any income tax to any holders of shares of
Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for
stock or from any event treated as such for income tax purposes or for any other reason.
(f) Notice
of Adjustments. Whenever the Conversion Rate is adjusted as provided under this Section 9, the Corporation shall as soon
as reasonably practicable following the occurrence of an event that requires such adjustment (or if the Corporation is not aware
of such occurrence, as soon as reasonably practicable after becoming so aware) or the date the Corporation makes an adjustment
pursuant to Section 9(e)(2):
(1) compute
the adjusted applicable Conversion Rate in accordance with this Section 9 and prepare and transmit to the conversion agent
(if other than the Corporation) an officer’s certificate setting forth the applicable Conversion Rate, the method of calculation
thereof in reasonable detail, and the facts requiring such adjustment and upon which such adjustment is based; and
(2) provide
a written notice to the holders of the Series A Preferred Stock of the occurrence of such event and a statement in reasonable
detail setting forth the method by which the adjustment to the applicable Conversion Rate was determined and setting forth the
adjusted applicable Conversion Rate.
(g) Conversion
Agent other than the Corporation. A conversion agent other than the Corporation shall not at any time be under any duty or
responsibility to any holder of Series A Preferred Stock to determine whether any facts exist that may require any adjustment
of the applicable Conversion Rate or with respect to the nature or extent or calculation of any such adjustment when made, or with
respect to the method employed in making the same. Such conversion agent shall be fully authorized and protected in relying on
any officer’s certificate delivered pursuant to Section 9(f) and any adjustment contained therein and such conversion
agent shall not be deemed to have knowledge of any adjustment unless and until it has received such certificate. Such conversion
agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or
of any securities or property, that may at the time be issued or delivered with respect to any Series A Preferred Stock; and
such conversion agent makes no representation with respect thereto. The Conversion Agent, if other than the Corporation, shall
not be responsible for any failure of the Corporation to issue, transfer or deliver any shares of Common Stock pursuant to the
conversion of Series A Preferred Stock or to comply with any of the duties, responsibilities or covenants of the Corporation
contained in this Section 9.
(h) Fractional
Shares. No fractional shares of Common Stock will be delivered to the holders of Series A Preferred Stock upon conversion.
In lieu of fractional shares otherwise issuable, holders of Series A Preferred Stock will be entitled to receive an amount
in cash equal to the fraction of a share of Common Stock, multiplied by the Closing Price of the Common Stock on the Trading Day
immediately preceding the applicable Conversion Date. In order to determine whether the number of shares of Common Stock to be
delivered to a holder of Series A Preferred Stock upon the conversion of such holder’s shares of Series A Preferred
Stock will include a fractional share (in lieu of which cash would be paid hereunder), such determination shall be based on the
aggregate number of shares of Series A Preferred Stock of such holder that are being converted on any single Conversion Date.
(i) Reorganization
Events. In the event of (each, a “Reorganization Event”):
(1) any
recapitalization, reclassification or change of the Common Stock (other than a change in par value or from par value to no par
value or from no par value to par value, or as a result of a subdivision or a combination);
(2) consolidation,
merger or other similar business combination of the Corporation with or into another Person;
(3) the
Corporation’s sale, lease, exchange or other disposition of assets (other than a disposition described in Section 17-16-1201
of the Wyoming Business Corporation Act) if the disposition would leave the Corporation without a significant continuing business
activity; or
(4) any
statutory share exchange of securities of the Corporation with another Person,
in each case as a result of which holders of Common Stock
are entitled to receive stock, other securities, other property or assets (including cash or any combination thereof) with respect
to or in exchange for Common Stock, each share of Series A Preferred Stock outstanding immediately prior to such Reorganization
Event shall become convertible into the number, kind and amount of stock, securities, other property or assets (including cash
or any combination thereof) (the “Exchange Property”) that the holder of such share of Series A Preferred
Stock would have received in such Reorganization Event had such holder converted its share of Series A Preferred Stock into
the applicable number of shares of Common Stock immediately prior to the effective date of the Reorganization Event.
(j) Exchange
Property Election. In the event that the holders of the shares of Common Stock have the opportunity to elect the form of consideration
to be received in such transaction, the Exchange Property that the holders of Series A Preferred Stock shall be entitled to
receive shall be determined by the holders of a majority of the outstanding shares of Series A Preferred Stock on or before
the earlier of (1) the deadline for elections by holders of Common Stock and (2) two Business Days before the anticipated
effective date of such Reorganization Event; provided, if no such election is made, they shall receive upon conversion the
weighted average of the types and amounts of consideration received by the holders of Common Stock that affirmatively make such
an election. The number of units of Exchange Property for each share of Series A Preferred Stock converted following the effective
date of such Reorganization Event shall be determined from among the choices made available to the holders of the Common Stock
and based on the per share amount as of the effective date of the Reorganization Event, determined as if the references to “share
of Common Stock” in this Certificate of Designations were to “units of Exchange Property.”
(k) Successive
Reorganization Events. The above provisions of Section 9(i) and Section 9(j) shall similarly apply to successive
Reorganization Events and the provisions of Section 9 shall apply to any shares of Capital Stock (or capital stock of any
other issuer) received by the holders of the Common Stock in any such Reorganization Event.
(l) Reorganization
Event Notice. The Corporation (or any successor) shall, no less than 20 Business Days prior to the occurrence of any Reorganization
Event, provide written notice to the holders of Series A Preferred Stock of such occurrence of such event and of the kind
and amount of the cash, securities or other property that constitutes the Exchange Property. Failure to deliver such notice shall
not affect the operation of this Section 9.
(m) Reorganization
Requirements. The Corporation shall not enter into any agreement for a transaction constituting a Reorganization Event unless
(1) such agreement provides for or does not interfere with or prevent (as applicable) conversion of the Series A Preferred
Stock into the Exchange Property in a manner that is consistent with and gives effect to this Section 9, and (2) to the
extent that the Corporation is not the surviving corporation in such Reorganization Event or will be dissolved in connection with
such Reorganization Event, proper provision shall be made in the agreements governing such Reorganization Event for the conversion
of the Series A Preferred Stock into stock of the Person surviving such Reorganization Event or such other continuing entity
in such Reorganization Event, or in the case of a Reorganization Event described in Section 9(i)(3), an exchange of Series A
Preferred Stock for the stock of the Person to whom the Corporation’s assets are conveyed or transferred, having voting powers,
preferences, and relative, participating, optional or other special rights as nearly equal as possible to those provided in this
Certificate of Designations.
Section
10. Reservation of Shares .
The Corporation shall at all times when the Series A Preferred Stock shall be outstanding reserve and keep available, free
from preemptive rights, for issuance upon the conversion of Series A Preferred Stock, such number of its authorized but unissued
Common Stock as will from time to time be sufficient to permit the conversion of all outstanding Series A Preferred Stock.
Prior to the delivery of any securities which the Corporation shall be obligated to deliver upon conversion of the Series A
Preferred Stock, the Corporation shall comply with all applicable laws and regulations which require action to be taken by the
Corporation.
Section
11. Certain Definitions .
As used in this Certificate of Designations, the following terms shall have the following meanings, unless the context otherwise
requires:
“Accumulated Regular Dividends”
shall have the meaning ascribed to it in Section 4(c).
“Adjusted Conversion Value”
shall have the meaning ascribed to it in Section 7(c).
“Adjusted Liquidation Preference”
shall have the meaning ascribed to it in Section 4(a).
“Beneficially Own” shall
mean “beneficially own” as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or any successor
provision thereto.
“Board” shall have the meaning
ascribed to it in the recitals.
“Business Day” shall mean
a day that is a Monday, Tuesday, Wednesday, Thursday or Friday and is not a day on which banking institutions in New York, New
York generally are authorized or obligated by law, regulation or executive order to close.
“Capital Stock” shall mean
any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however
designated) stock issued by the Corporation.
“Certificate of Designations”
shall mean this Certificate of Designations relating to the Series A Preferred Stock, as it may be amended from time to time.
“Change of Control” shall
mean the occurrence of any of the following:
(1) any
Person acquires after the date hereof Beneficial Ownership, directly or indirectly, through a purchase, merger, share exchange,
or other acquisition transaction or series of transactions, of shares of the Corporation’s Capital Stock entitling such
Person to exercise more than 50% of the total voting power of all classes of Voting Stock of the Corporation, other than an acquisition
by the Corporation, any of the Corporation’s Subsidiaries or any of the Corporation’s employee benefit plans (for purposes
of this clause (1), “Person” shall include any syndicate or group that would be deemed to be a “person”
under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended); or
(2) the
Corporation’s consummation of a reorganization, share exchange, merger or consolidation, or of the Corporation’s sale,
lease, exchange or other disposition of assets (other than a disposition described in Section 17-16-1201 of the Wyoming Business
Corporation Act) if the disposition would leave the Corporation without a significant continuing business activity, unless immediately
following such transaction (x) the Voting Stock of the Corporation outstanding immediately prior to such transaction is converted
into or exchanged for Voting Stock of the surviving or transferee Person constituting a majority of the outstanding shares of such
Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance) or (y) the transaction does
not result in a reclassification, conversion, exchange or cancellation of any of the Corporation’s outstanding Common Stock.
“Close of Business” shall
mean 5:00 p.m., New York City time, on any Business Day.
“Closing Price” shall mean
the price per share of the final trade of the Common Stock on the applicable Trading Day on the principal U.S. national securities
exchange on which the Common Stock is listed or admitted to trading. If the Common Stock is not traded on a U.S. national securities
exchange, Closing Price shall mean the fair market value per share of the Common Stock on the applicable Business Day, as determined
by the Corporation’s Board of Directors in good faith, with written notice of such determination and supporting analysis
in reasonable detail to be provided by the Corporation to the holders of Series A Preferred Stock.
“Code” shall have the meaning
ascribed to it in Section 7(i).
“Common Stock” shall have
the meaning ascribed to it in Section 3.
“Conversion Cap” shall have
the meaning ascribed to it in Section 7(d).
“Conversion Date” shall have
the meaning ascribed to it in Section 7(e).
“Conversion Rate” shall have
the meaning ascribed to it in Section 7(c).
“Corporation” shall have
the meaning ascribed to it in the recitals.
“Equity-Linked Securities”
shall have the meaning ascribed to it in Section 9(a)(4).
“Exchange Property” shall
have the meaning ascribed to it in Section 9(i).
“Excluded Issuance” shall
mean, any issuances of (1) Capital Stock or options to purchase shares of Capital Stock to employees, directors, managers,
officers or consultants of or to the Corporation or any of its Subsidiaries pursuant to a stock option or incentive compensation
or similar plan outstanding as of the Issue Date or, subsequent to the Issue Date, approved by the Board or a duly authorized committee
of the Board, (2) securities pursuant to any bona fide merger, joint venture, partnership, consolidation, share exchange,
business combination or any other direct or indirect acquisition by the Corporation, whereby the Corporation’s securities
comprise, in whole or in part, the consideration paid by the Corporation in such transaction, (3) shares of Common Stock issued
at a price equal to or greater than ninety percent (90%) of the Closing Price on the Trading Day immediately preceding the earlier
of (x) the date on which the sale or issuance is publicly announced and (y) the date on which the price for such sale
or issuance is agreed or fixed, and (4) securities convertible into, exercisable or exchangeable for shares of Common Stock
issued with an exercise or conversion price equal to or greater than ninety percent (90%) of the Closing Price on the Trading Day
immediately preceding the earlier of (x) the date on which the sale or issuance is publicly announced and (y) the date
on which the price for such sale or issuance is agreed or fixed.
“Initial Conversion Value”
shall have the meaning ascribed to it in Section 7(c).
“Issue Date” shall mean February
11, 2016.
“Junior Stock” shall have
the meaning ascribed to it in Section 3.
“Liquidation” shall have
the meaning ascribed to it in Section 5(a).
“Liquidation Preference”
shall have the meaning ascribed to it in Section 5(a).
“Mandatory Conversion” shall
have the meaning ascribed to it in Section 7(a).
“Mandatory Conversion Date”
shall have the meaning ascribed to it in Section 7(a).
“Open of Business” shall
mean 9:00 a.m., New York City time, on any Business Day.
“Participating Dividends”
shall have the meaning ascribed to it in Section 4(d).
“Permitted Distributions”
shall have the meaning ascribed to it in Section 4(d).
“Person” shall mean any individual,
company, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization,
government or agency or political subdivision thereof or any other entity.
“Record Date” shall mean,
with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to
receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other property, the date fixed for determination of shareholders entitled
to receive such cash, securities or other property (whether such date is fixed by the Board or by statute, contract, this Certificate
of Designations or otherwise).
“Regular Dividend” shall
have the meaning ascribed to it in Section 4(a).
“Regular Dividend Payment Date”
shall have the meaning ascribed to it in Section 4(b).
“Regular Dividend Period”
shall have the meaning ascribed to it in Section 4(b).
“Reorganization Event” shall
have the meaning ascribed to it in Section 9(i).
“Series A Preferred Stock”
shall have the meaning ascribed to it in Section 1.
“Spin-Off Transaction” means
any transaction by which a Subsidiary of the Corporation ceases to be a Subsidiary of the Corporation by reason of the distribution
of such Subsidiary’s equity securities to holders of Common Stock, whether by means of a spin-off, split-off, redemption,
reclassification, exchange, stock dividend, share distribution, rights offering or similar transaction.
“Subsidiary” means any company
or corporate entity for which the Corporation owns, directly or indirectly, an amount of the voting securities, other voting rights
or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing
body (or, if there are no such voting interests, more than 50% of the equity interests of such company or corporate entity).
“Total Conversion Shares”
shall have the meaning ascribed to it in Section 7(c).
“Trading Day” shall mean
any Business Day on which the Common Stock is traded, or able to be traded, on the principal national securities exchange on which
the Common Stock is listed or admitted to trading. If the Common Stock is not traded on a U.S. national securities exchange, Trading
Day shall mean the relevant Business Day.
“Trigger Event” shall have
the meaning ascribed to it in Section 9(a)(3).
“Voting Stock” shall mean
Capital Stock of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances
(determined without regard to any classification of directors) to elect one or more members of the Board of Directors of the Corporation
(without regard to whether or not, at the relevant time, Capital Stock of any other class or classes (other than Common Stock)
shall have or might have voting power by reason of the happening of any contingency).
Section
12. Headings .
The headings of the paragraphs of this Certificate of Designations are for convenience of reference only and shall not define,
limit or affect any of the provisions hereof.
Section
13. Record Holders .
To the fullest extent permitted by applicable law, the Corporation may deem and treat the record holder of any share of the Series A
Preferred Stock as the true and lawful owner thereof for all purposes, and the Corporation shall not be affected by any notice
to the contrary.
Section
14. Notices .
All notices or communications in respect of the Series A Preferred Stock shall be sufficiently given if given in writing
and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this
Certificate of Designations, in the Restated Articles of Incorporation or Bylaws or by applicable law or regulation. Notwithstanding
the foregoing, if the Series A Preferred Stock is issued in book-entry form through The Depository Trust Corporation or any
similar facility, such notices may be given to the holders of the Series A Preferred Stock in any manner permitted by such
facility.
Section
15. Replacement Certificates .
The Corporation shall replace any mutilated certificate at the holder’s expense upon surrender of that certificate to the
Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon
delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together
with any indemnity that may be required by the Corporation.
Section
16. Transfer Agent, Conversion Agent, Registrar and Paying
Agent . The duly appointed transfer agent, conversion agent, registrar and paying
agent for the Series A Preferred Stock shall be the Corporation. The Corporation may, in its sole discretion, resign from
such positions or remove such agents or registrar in accordance with the agreement between the Corporation and such agent or registrar;
provided that the Corporation shall appoint a successor who shall accept such appointment prior to the effectiveness of
such resignation or removal. Upon any such resignation, removal or appointment, the Corporation shall send notice thereof by first-class
mail, postage prepaid, to the holders of the Series A Preferred Stock.
Section
17. Severability .
If any term of the Series A Preferred Stock set forth herein is invalid, unlawful or incapable of being enforced by reason
of any rule of law or public policy, all other terms set forth herein which can be given effect without the invalid, unlawful
or unenforceable term will, nevertheless, remain in full force and effect, and no term herein set forth will be deemed dependent
upon any other such term unless so expressed herein.
Section
18. Information Rights .
In addition to reports required by law, regulation, or the rules of any national securities exchange on which the Common Stock
is listed or admitted to trading, the Corporation shall furnish to each of the holders of Series A Preferred Stock (1) within
45 days after the end of the first, second and third quarterly accounting periods in each fiscal year of the Corporation, a consolidated
balance sheet of the Corporation and its subsidiaries as of the end of each such quarterly period, and consolidated statements
of income and cash flows of the Corporation and its subsidiaries for such period and for the current fiscal year to date, prepared
in accordance with United States generally accepted accounting principles consistently applied and setting forth in comparative
form the figures for the corresponding periods of the prior fiscal year (subject to changes resulting from normal year-end audit
adjustments and except that such financial statements need not contain the notes required by generally accepted accounting principles),
and (2) within 120 days after the end of each fiscal year of the Corporation, an audited consolidated balance sheet of the Corporation
and its subsidiaries as at the end of such fiscal year, and audited consolidated statements of income and cash flows of the Corporation
and its subsidiaries for such year, prepared in accordance with United States generally accepted accounting principles consistently
applied and setting forth in each case in comparative form the figures for the previous fiscal year and certified by independent
public accountants of recognized national or regional standing selected by the Corporation (in each case in clauses (1) and (2),
whether or not such financial statements are then required to be filed with or furnished to the United States Securities and Exchange
Commission).
[Remainder of Page Left Intentionally Blank.]
IN WITNESS WHEREOF, U.S. Energy Corp. has caused
this Certificate of Designations to be duly executed by its authorized corporate officer this 11th day of February, 2016.
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U.S. ENERGY CORP. |
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By: |
/s/ David Veltri |
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Name: |
David Veltri |
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Title: |
Chief Executive Officer and President |
Exhibit 10.1
EXECUTION VERSION
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
by and between
U.S. ENERGY CORP.
and
MT. EMMONS MINING COMPANY
Dated as of February 11, 2016
Table of
Contents
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Page |
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ARTICLE I DEFINITIONS |
2 |
Section 1.1 |
Definitions |
2 |
Section 1.2 |
Other Defined Terms |
3 |
Section 1.3 |
Interpretative Provisions |
4 |
|
|
|
ARTICLE II PURCHASE AND SALE |
4 |
Section 2.1 |
Authorization of Shares |
4 |
Section 2.2 |
Purchase and Sale |
4 |
Section 2.3 |
Closing |
4 |
Section 2.4 |
Deliveries |
5 |
|
|
|
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY |
6 |
Section 3.1 |
Subsidiaries |
6 |
Section 3.2 |
Organization and Qualification |
6 |
Section 3.3 |
Authorization; Enforcement |
6 |
Section 3.4 |
No Conflicts |
7 |
Section 3.5 |
Filings, Consents and Approvals |
7 |
Section 3.6 |
Issuance of the Securities |
7 |
Section 3.7 |
Capitalization |
7 |
Section 3.8 |
SEC Reports; Financial Statements |
8 |
Section 3.9 |
Material Changes; Undisclosed Events, Liabilities or Developments |
9 |
Section 3.10 |
Litigation |
9 |
Section 3.11 |
Labor |
10 |
Section 3.12 |
Compliance with Laws; Permits |
10 |
Section 3.13 |
Title to Assets; Properties |
11 |
Section 3.14 |
Reserve Reports |
11 |
Section 3.15 |
Transactions with Affiliates and Employees |
11 |
Section 3.16 |
Sarbanes-Oxley; Internal Accounting Controls |
12 |
Section 3.17 |
No Brokers |
12 |
Section 3.18 |
Private Placement |
12 |
Section 3.19 |
Investment Company |
12 |
Section 3.20 |
Registration Rights |
13 |
Section 3.21 |
Listing and Maintenance Requirements |
13 |
Section 3.22 |
Application of Takeover Protections |
13 |
Section 3.23 |
Full Disclosure |
13 |
Section 3.24 |
No Integrated Offering |
13 |
Section 3.25 |
Accountants |
14 |
Section 3.26 |
Company Stock Plans |
14 |
Section 3.27 |
Tax Status |
14 |
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER |
14 |
Section 4.1 |
Organization; Authority |
14 |
Section 4.2 |
Absence of Conflicts |
15 |
Section 4.3 |
Own Account |
15 |
Section 4.4 |
Purchaser Status |
15 |
Section 4.5 |
General Solicitation |
15 |
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|
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ARTICLE V RESTRICTIONS ON TRANSFERS |
15 |
Section 5.1 |
Resales |
15 |
Section 5.2 |
Rule 144 |
15 |
Section 5.3 |
Legends |
15 |
Section 5.4 |
Legend Removal |
16 |
|
|
|
ARTICLE VI OTHER AGREEMENTS |
16 |
Section 6.1 |
Acknowledgement of No Set Off |
16 |
Section 6.2 |
Survival |
16 |
Section 6.3 |
Integration |
17 |
Section 6.4 |
Reservation and Listing of Securities |
17 |
Section 6.5 |
Securities Laws Disclosure; Publicity |
17 |
Section 6.6 |
Integrated Agreements |
17 |
Section 6.7 |
Confidentiality |
18 |
|
|
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ARTICLE VII MISCELLANEOUS |
18 |
Section 7.1 |
Fees and Expenses |
18 |
Section 7.2 |
Entire Agreement |
18 |
Section 7.3 |
Notices |
18 |
Section 7.4 |
Amendments; Waivers |
19 |
Section 7.5 |
Headings; Gender |
19 |
Section 7.6 |
Successors and Assigns |
19 |
Section 7.7 |
No Third-Party Beneficiaries |
20 |
Section 7.8 |
Governing Law |
20 |
Section 7.9 |
Severability |
20 |
Section 7.10 |
Remedies Cumulative |
20 |
Section 7.11 |
Mutual Drafting |
20 |
Section 7.12 |
Legal Fees and Costs |
20 |
Section 7.13 |
Enforcement of Agreement |
20 |
Section 7.14 |
Execution; Counterparts |
20 |
Disclosure Schedules
Exhibit A – Certificate of Designations
of Series A Convertible Preferred Stock
Exhibit B – Form of Investor Rights
Agreement
SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
THIS SERIES A CONVERTIBLE
PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”), dated and effective as of February 11, 2016 (the “Effective
Date”), is entered into by and between U.S. Energy Corp., a Wyoming corporation (the “Company”), and
Mt. Emmons Mining Company, a Delaware corporation (“Purchaser”). The Company and Purchaser are hereinafter at
times referred to individually as a “Party” and collectively as the “Parties.”
WHEREAS, subject to
the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended
(the “Securities Act”), the Company desires to issue and sell to Purchaser, and Purchaser desires to purchase
from the Company, 50,000 shares (the “Shares”) of the Series A Convertible Preferred Stock, par value $0.01
per share, of the Company (the “Preferred Stock”).
WHEREAS, contemporaneous
with the execution of this Agreement, the Parties have entered into an Acquisition Agreement (the “Acquisition Agreement”)
pursuant to which, among other things and subject to the terms and conditions therein and herein, Purchaser has agreed (at the
Company’s request) to accept the transfer of the property and rights specified therein, including the Project (as defined
therein), and to replace the Company as the permittee and operator of the WTP (as defined therein).
WHEREAS, the Company
has offered the Preferred Stock to Purchaser in order to induce Purchaser to enter into the Acquisition Agreement and, subject
to the terms and conditions set forth therein and herein, accept the transfer from the Company of the property and rights specified
therein, including the Project, and replace the Company as the permittee and operator of the WTP.
WHEREAS, subject to
the terms and conditions set forth in this Agreement and in the Acquisition Agreement, the sale of the Shares by the Company to
Purchaser shall be made in exchange for Purchaser’s payment of $500 to the Company and Purchaser’s acceptance of the
transfer of the property and rights specified in the Acquisition Agreement, including the Mine, and Purchaser’s replacement
of the Company as the permittee and operator of the WTP.
WHEREAS, the board
of directors of the Company (the “Board of Directors”) has determined that the transactions contemplated by
this Agreement and the other Transaction Documents (defined below) are in the best interests of the Company and its shareholders
and creditors and that the consideration to be received for the Shares is adequate, has approved the transactions contemplated
by this Agreement and the other Transaction Documents, and has approved the issuance of the Shares and Conversion Shares (defined
below) for purposes of Section 17-18-104 of the Wyoming Management Stability Act.
WHEREAS, the sole director
of Purchaser has determined that the transactions contemplated by this Agreement and the other Transaction Documents are in the
best interests of Purchaser and its shareholder and has approved the transactions contemplated by this Agreement.
NOW, THEREFORE, in
consideration of the mutual agreements and covenants contained in this Agreement, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company and Purchaser agree as follows:
ARTICLE
I
DEFINITIONS
Section 1.1 Definitions.
Initially capitalized terms used in this Agreement shall have the meanings assigned to them in this Section 1.1 or
the applicable Section referenced in Section 1.2, unless the context otherwise indicates:
“Affiliate”
shall have the meaning set forth in the Acquisition Agreement.
“Commission”
means the United States Securities and Exchange Commission.
“Common Stock”
means the common stock of the Company, par value $0.01 per share, and any other class of securities into which such securities
may hereafter be reclassified or changed.
“Confidentiality
Agreement” means that certain Confidentiality Agreement, dated June 24, 2015, by and among the Company, Purchaser,
Freeport Minerals Corporation and Cyprus Amax Minerals Company.
“Contracts”
shall have the meaning set forth in the Acquisition Agreement.
“Disclosure
Schedules” means the Disclosure Schedules attached hereto.
“Environmental
Laws” shall have the meaning set forth in the Acquisition Agreement.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended.
“Governmental
Entity” shall have the meaning set forth in the Acquisition Agreement.
“Hazardous
Materials” shall have the meaning set forth in the Acquisition Agreement.
“Investor
Rights Agreement” means the Investor Rights Agreement by and between the Company and Purchaser, a form of which is attached
as Exhibit B hereto.
“Knowledge
of the Company” shall have the meaning set forth in the Acquisition Agreement.
“Laws”
shall have the meaning set forth in the Acquisition Agreement.
“Lien”
shall have the meaning set forth in the Acquisition Agreement.
“NASDAQ”
means the NASDAQ Capital Market.
“Order”
shall have the meaning set forth in the Acquisition Agreement.
“Permits”
shall have the meaning set forth in the Acquisition Agreement.
“Permitted
Lien” shall have the meaning set forth in the Acquisition Agreement.
“Person”
shall have the meaning set forth in the Acquisition Agreement.
“Proceeding”
shall have the meaning set forth in the Acquisition Agreement.
“Purchased
Assets” shall have the meaning set forth in the Acquisition Agreement.
“Securities”
means the Shares and the Conversion Shares.
“Subsidiary”
means any subsidiary of the Company as set forth on Schedule 3.1 and shall, where applicable, also include any direct
or indirect subsidiary of the Company formed or acquired after the date hereof.
“Transaction
Documents” means this Agreement, the Investor Rights Agreement, the Certificate of Designations, the Acquisition Agreement,
all exhibits and schedules to such documents and any other documents or agreements executed in connection with the transactions
contemplated by such documents.
“Transfer
Agent” means Computershare Trust Company, Inc., the current transfer agent of the Company, with a mailing address 350
Indiana Street, Suite 800, Golden, Colorado 80401, and any successor transfer agent of the Company.
Section 1.2 Other
Defined Terms. In addition, each of the following terms is defined in the Section set forth opposite such term:
Term |
|
Section |
Acquisition Agreement |
|
Preamble |
Agreement |
|
Preamble |
Action |
|
3.10 |
Board of Directors |
|
Preamble |
Certificate of Designations |
|
2.1 |
Company |
|
Preamble |
Company Reserve Reports |
|
3.14 |
Company Stock Plan |
|
3.26 |
Conversion Shares |
|
2.1 |
Closing |
|
2.3 |
Effective Date |
|
Preamble |
Evaluation Date |
|
3.16 |
GAAP |
|
3.8 |
Material Adverse Effect |
|
3.2 |
Parties |
|
Preamble |
Party |
|
Preamble |
Preferred Stock |
|
Preamble |
Purchaser |
|
Preamble |
Report Preparer |
|
3.14 |
Required Approvals |
|
3.5 |
Rule 144 |
|
5.2 |
SEC Reports |
|
3.8 |
Securities Act |
|
Preamble |
Shares |
|
Preamble |
Stock Award |
|
3.26 |
Section 1.3 Interpretative
Provisions. The words “hereof”, “herein” and “hereunder” and words of like import used
in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Any initially
capitalized terms used in any exhibit, annex or schedule but not otherwise defined therein, shall have the meaning as defined
in this Agreement. Whenever the words “include”, “includes” or “including” are used in this
Agreement, they shall be deemed to be followed by the words “without limitation”, whether or not they are in fact
followed by those words or words of like import. “Writing”, “written” and comparable terms refer to printing,
typing and other means of reproducing words (including electronic media) in a visible form. References to any agreement or contract
are to that agreement or contract as amended, modified or supplemented from time to time in accordance with the terms hereof and
thereof. References to any Person include the successors and permitted assigns of that Person.
ARTICLE
II
PURCHASE AND SALE
Section 2.1 Authorization
of Shares. The Company has authorized (a) the sale and issuance to Purchaser of the Shares, and (b) the issuance
of shares of Common Stock to be issued upon conversion of the Shares (the “Conversion Shares”). Upon issuance
of the Preferred Stock, the Preferred Stock and the Common Stock shall have the rights, preferences, privileges and restrictions
set forth in the Restated Articles of Incorporation of the Company, as amended by the Certificate of Designations in the form
attached hereto as Exhibit A (the “Certificate of Designations”), which the Company shall file
with the Secretary of State of Wyoming prior to the Closing.
Section 2.2 Purchase
and Sale. Upon the terms and subject to the conditions set forth herein, at the Closing, the Company hereby agrees to issue
and sell to Purchaser, and Purchaser agrees to purchase from the Company, the Shares in exchange for $500 and Purchaser’s
performance of its obligations under the Acquisition Agreement, including accepting the Purchased Assets and replacing the Company
as the permittee and operator of the WTP.
Section 2.3 Closing.
The closing of the sale and purchase of the Shares (the “Closing”) shall occur at the offices of Hogan Lovells
US LLP in Denver, Colorado on the date hereof contemporaneously with the execution and delivery of this Agreement and the Acquisition
Agreement.
Section 2.4 Deliveries.
(a) At
the Closing, the Company shall deliver or cause to be delivered to Purchaser the following:
(i) the
Investor Rights Agreement duly executed by the Company;
(ii) a
certificate representing the Shares (in the form approved by the Board of Directors and prepared and executed in compliance with
the Wyoming Business Corporation Act and the Corporation’s Restated Articles of Incorporation and Bylaws), registered in
the name of Purchaser;
(iii) a
certified copy of evidence of filing of the Certificate of Designations with the Secretary of State of Wyoming;
(iv) written
evidence of the approval by NASDAQ of the Listing of Additional Shares Notification Form related to the Conversion Shares; and
(v) a
certificate of the Secretary of the Company certifying as complete and accurate as of the Closing and having attached thereto (A) the
Company’s Restated Articles of Incorporation (including the Certificate of Designations) as in effect on the Effective Date,
(B) the Company’s bylaws as in effect on the Effective Date, (C) resolutions approved by the Board of Directors
authorizing the transactions contemplated hereby and the other Transaction Documents and duly authorizing and reserving for issuance
the Conversion Shares, and (D) good standing certificates with respect to the Company from the applicable authority(ies) in
Wyoming and any other jurisdiction in which the Company is qualified to do business, dated as of the Effective Date or a recent
date before the Effective Date, and certifying to the incumbency and signatures of the Company’s officers executing the Transaction
Documents.
(b) At
the Closing, Purchaser shall deliver or cause to be delivered to the Company, as applicable, the following:
(i) the
Investor Rights Agreement duly executed by Purchaser;
(ii) $500
in immediately available funds; and
(iii) a
certificate of the Secretary of Purchaser certifying all requisite resolutions or actions of Purchaser’s board of directors
approving the execution and delivery of this Agreement and the Acquisition Agreement and the transactions contemplated hereby and
thereby, and certifying to the incumbency and signatures of the officers of Purchaser executing this Agreement and the Acquisition
Agreement and any other document relating to the transactions contemplated hereby and thereby.
ARTICLE
III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth
in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation made
herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company represents
and warrants as of the date hereof and as of the Closing to Purchaser as follows (unless as of a specific date therein):
Section 3.1 Subsidiaries.
All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1. The Company owns, directly
or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the
issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free
of preemptive and similar rights to subscribe for or purchase securities.
Section 3.2 Organization
and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power
and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company
nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation,
bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business
and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted
or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as
the case may be, has not resulted in and could not reasonably be expected to result in: (i) a material adverse effect on
the legality, validity or enforceability of any Transaction Document; (ii) a material adverse effect on the results of operations,
cash flow, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole;
or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no
Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail
such power and authority or qualification.
Section 3.3 Authorization;
Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder
and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company, the Board of Directors or the Company’s shareholders
in connection herewith or therewith other than the Required Approvals. This Agreement and each other Transaction Document to which
it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance
with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of creditors’ rights generally; and (ii) as
limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.
Section 3.4 No
Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to
which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby
and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational or charter documents; (ii) conflict with, or constitute
a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any
Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary
is a party or by which any property or asset of the Company or any Subsidiary is bound or affected; or (iii) subject to the
Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as has not resulted in and could not reasonably be expected to
result in a Material Adverse Effect.
Section 3.5 Filings,
Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice
to, or make any filing or registration with, any court or other Governmental Entity or other Person in connection with the execution,
delivery and performance by the Company of this Agreement, the Investor Rights Agreement and the Certificate of Designations,
other than: (i) the listing application to be filed with NASDAQ pursuant to Section 2.4(a)(iv), (ii) disclosures
required to be made under the Exchange Act as contemplated by Section 6.5, and (iii) the filing of the Certificate
of Designations with the Secretary of State of Wyoming (collectively, the “Required Approvals”).
Section 3.6 Issuance
of the Securities. The Shares are duly authorized and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens other than any restrictions
on transfer under federal or state securities laws and as set forth in Article V. The Conversion Shares, when issued in
accordance with the terms of the Certificate of Designations, will be validly issued, fully paid and nonassessable, free and clear
of all Liens other than any restrictions on transfer under federal or state securities laws and as set forth in Article V.
Section
3.7 Capitalization.
(a) The
authorized capital stock of the Company consists of an unlimited number of shares of Common Stock and 100,000 shares of preferred
stock, par value $0.01 per share, of which 50,000 have been designated as Series P Preferred Stock. As of the date of this Agreement,
there were 28,233,068 shares of Common Stock issued and outstanding, and no shares of preferred stock issued and outstanding. Since
the date of this Agreement until the Closing, no additional shares of Common Stock or other securities will have been issued other
than the issuance of shares of Common Stock upon the exercise or settlement of Stock Awards under a Company Stock Plan as disclosed
herein. All of the outstanding shares of capital stock of the Company are, and all Securities which may be issued as contemplated
or permitted by the Transaction Documents will be, when issued, duly authorized and validly issued, fully paid and non-assessable
and not subject to any pre-emptive rights. No Subsidiary of the Company owns any shares of capital stock of the Company.
(b) As
of the date of this Agreement, 66,667 shares of restricted stock had been granted to an officer of the Company and such shares
are excluded from issued and outstanding shares of Common Stock, and 2,343,022 shares of Common Stock were authorized for and subject
to issuance upon exercise of outstanding stock options (of which 2,227,355 were exercisable). There are no Contracts to which the
Company is a party obligating the Company to accelerate the vesting of any Stock Award as a result of the transactions contemplated
by the Transaction Documents. Other than the Stock Awards, there are no outstanding (i) securities of the Company or any Subsidiary
convertible into or exchangeable for shares of capital stock of the Company or any Subsidiary, (ii) options, warrants or other
agreements or commitments to acquire from the Company or any of its Subsidiaries, or obligations of the Company or any of its Subsidiaries
to issue, any shares of capital stock of (or securities convertible into or exchangeable for shares of capital stock of) the Company
or any Subsidiary or (iii) restricted shares, restricted stock units, stock appreciation rights, performance shares, profit
participation rights, contingent value rights, "phantom" stock or similar securities or rights that are derivative of,
or provide economic benefits based, directly or indirectly, on the value or price of, any shares of capital stock of the Company
or any Subsidiary, in each case that have been issued by the Company or any Subsidiary. All outstanding shares of Common Stock,
all outstanding Stock Awards, and all outstanding shares of capital stock, voting securities or other ownership interests in any
Subsidiary of the Company, have been issued or granted, as applicable, in compliance in all material respects with all applicable
securities Laws.
(c) There
are no outstanding Contracts requiring the Company or any Subsidiary to repurchase, redeem or otherwise acquire any capital stock
of the Company or any Subsidiary. Neither the Company nor any Subsidiary is a party to any voting agreement or shareholders agreement
with respect to any capital stock of the Company or any Subsidiary and to the Knowledge of the Company there are no such agreements
between or among any of the Company’s shareholders.
(d) No
bonds, debentures, notes or other indebtedness issued by the Company or any Subsidiary (i) having the right to vote on any
matters on which shareholders, members or equityholders of the Company or any Subsidiary may vote (or which is convertible into,
or exchangeable for, securities having such right), or (ii) the value of which is directly based upon or derived from the
capital stock, voting securities or other ownership interests of the Company or any Subsidiary, are issued or outstanding.
Section 3.8 SEC
Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required
to be filed by the Company under the Securities Act and the Exchange Act for the two years preceding the date of this Agreement,
and will file such documents through the Closing (the foregoing materials, including the exhibits thereto and documents incorporated
by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has
received or will receive a valid extension of such time of filing and has filed or will file any such SEC Reports prior to the
expiration of any such extension. As of their respective dates, the SEC Reports complied or will comply in all material respects
with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained
or will contain any untrue statement of a material fact or omitted or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading
(except to the extent superseded by subsequently filed SEC Reports filed prior to January 1, 2016). The financial statements
of the Company included in the SEC Reports comply or will comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements
have been or will be prepared in accordance with United States generally accepted accounting principles (“GAAP”)
applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or
the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present
or will fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of
and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.
Section 3.9 Material
Changes; Undisclosed Events, Liabilities or Developments. Since December 31, 2014, except as specifically disclosed in
an SEC Report filed after December 31, 2014 and prior to January 1, 2016: (i) there has been no event, occurrence
or development that has had or that could reasonably be expected to result in a Material Adverse Effect; and (ii) the Company
and its Subsidiaries have not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be
reflected in the Company’s consolidated financial statements pursuant to GAAP or disclosed in filings made with the Commission.
Section 3.10 Litigation.
Except as disclosed in Schedule 3.10, there is no Proceeding pending or, to the Knowledge of the Company, threatened
against, related to or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator,
or Governmental Entity (collectively, an “Action”) which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal
or state securities laws or a claim of breach of fiduciary duty. There has not been, and, to the Knowledge of the Company, there
is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or
officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act. Neither the Company nor any of
its Subsidiaries is subject to any proceeding or action under any applicable Law relating to bankruptcy, reorganization, insolvency,
moratorium, fraudulent conveyance or preferential transfers, or similar Law relating to or affecting creditors’ rights generally.
There is no Proceeding pending or, to the Knowledge of the Company, threatened against or affecting the Company or any of their
Affiliates, directors, officers or employees, involving any challenge to or seeking damages or other relief in connection with
any of the transactions contemplated by this Agreement, the Acquisition Agreement or the other Transaction Documents or that may,
to the Knowledge of the Company, have the effect of preventing, delaying, making illegal or otherwise interfering with the transactions
contemplated by this Agreement, the Acquisition Agreement or the other Transaction Documents.
Section 3.11 Labor.
Schedule 3.11 sets forth the names and titles of all of the Company’s executive officers as of the Effective Date.
To the Knowledge of the Company, no current or former executive officer of the Company or any Subsidiary, is, or is now expected
to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement
or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and
the continued employment of each such currently employed executive officer does not subject the Company or any of its Subsidiaries
to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all Laws
relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure
to be in compliance has not had and could not, individually or in the aggregate, reasonably be expected to have a Material Adverse
Effect.
Section 3.12 Compliance
with Laws; Permits. Except as set forth in the SEC Reports filed prior to January 1, 2016, or in each case as has not
resulted in and could not reasonably be expected to result in a Material Adverse Effect, since December 31, 2014:
(a) To
the Knowledge of the Company, the operations and activities of the Company comply and have complied, in all material respects,
with all applicable Laws and Permits;
(b) To
the Knowledge of the Company, the Company possesses all Permits that are required by Law to permit the operations and activities
of the Company as currently conducted or operated; all such Permits are valid and are in full force and effect; all applications
or notices required to have been filed for the renewal or extensions of such Permits have been duly filed on a timely basis with
the appropriate Governmental Entity, and the Company has not been notified in writing that such renewals or extensions will be
withheld or delayed.
(c) To
the Knowledge of the Company, except as set forth on Schedule 3.12(c), the Company has not received any written notice
from any Governmental Entity or Third Party regarding (i) any violation of or failure to comply with, in any material respect,
any Law or Permit, (ii) any withdrawal, suspension, cancellation, termination of, or modification to any Permit held by the Company
or any employee of the Company, or (iii) any obligation on the part of the Company to undertake, or to bear all or any portion
of the cost of, any remedial action; and
(d) To
the Knowledge of the Company, no event has occurred that, with or without notice or lapse of time or both, could reasonably be
expected to result in the revocation, suspension, lapse or limitation of any Permit.
Section 3.13 Title
to Assets; Properties. The Company and the Subsidiaries have good and marketable title in fee simple to all real property
owned by them except for unpatented mining claims and good and marketable title in all personal property owned by them that is
material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Permitted Liens.
Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting
and enforceable leases with which the Company and the Subsidiaries, and to the Knowledge of the Company the lessor(s), are in
compliance.
Section 3.14 Reserve
Reports. The Company has delivered or otherwise made available to Purchaser true and correct copies of all material written
reports requested or commissioned by the Company or any Subsidiary and delivered to the Company or any Subsidiary in writing on
or before the date of this Agreement estimating the Company’s and such Subsidiaries’ proved oil and gas reserves prepared
by any unaffiliated person (each, a “Report Preparer”) concerning the oil and gas interests of the Company
and such Subsidiaries as of December 31, 2014 (the “Company Reserve Reports”). The factual, non-interpretive
data provided by the Company and the Subsidiaries to each Report Preparer in connection with the preparation of the Company Reserve
Reports that was material to such Report Preparer’s estimates of the proved oil and gas reserves set forth in the Company
Reserve Reports was, to the Knowledge of the Company, as of the time provided (or as modified or amended prior to the issuance
of the Company Reserve Reports) accurate, and to the Knowledge of the Company there were no material errors in the assumptions
and estimates provided by the Company and its Subsidiaries to any Report Preparer in connection with their preparation of the
Company Reserve Reports. The Company’s internal proved reserve estimates prepared by management prior to the date of this
Agreement and prior to the Closing, copies of which have been provided to Purchaser were not, taken as a whole, materially lower
than the conclusions in such Company Reserve Reports. Except for changes generally affecting the oil and gas exploration, development
and production industry (including changes in commodity prices) and normal depletion by production, there has been no change in
respect of the matters addressed in the Company Reserve Reports that has resulted in and could reasonably be expected to result
in a Material Adverse Effect.
Section 3.15 Transactions
with Affiliates and Employees. Except as set forth in the SEC Reports filed prior to January 1, 2016, none of the officers
or directors of the Company or any Subsidiary and, to the Knowledge of the Company, none of the employees of the Company or any
Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers
and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or providing for the borrowing of money from or lending of money to, or otherwise
requiring payments to or from any officer, director or such employee or, to the Knowledge of the Company, any entity in which
any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, shareholder, member
or partner, in each case involving an amount in excess of $120,000 other than for: (i) payment of salary for services rendered;
(ii) reimbursement for expenses incurred on behalf of the Company; and (iii) other employee benefits, including Stock
Awards under a Company Stock Plan.
Section 3.16 Sarbanes-Oxley;
Internal Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicable requirements
of the Sarbanes-Oxley Act of 2002 that are applicable to the Company and are effective as of the date of this Agreement and as
of the Effective Date, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective
as of the date hereof and as of the Effective Date. The Company and the Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s
general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements
in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with
management’s general or specific authorization; and (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. The Company and the Subsidiaries
have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange
Act) for the Company and the Subsidiaries and designed such disclosure controls and procedures to provide reasonable assurance
that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s
certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries
as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation
Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the
certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation
Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is
defined in the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the internal control
over financial reporting of the Company and its Subsidiaries.
Section 3.17 No
Brokers. No broker, finder, investment banker, financial advisor or other person is entitled to any brokerage, finder’s,
or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of the Company.
Section 3.18 Private
Placement. Assuming the accuracy of Purchaser’s representations and warranties set forth in Article IV of this
Agreement, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to Purchaser
as contemplated hereby. The issuance and sale of the Securities does not contravene the rules and regulations of NASDAQ.
Section 3.19 Investment
Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will
not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as
amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject
to registration under the Investment Company Act of 1940, as amended.
Section 3.20 Registration
Rights. Except for any rights granted to Purchaser in the Transaction Documents, no Person has any right to cause the Company
to effect the registration under the Securities Act of any securities of the Company or any Subsidiaries.
Section 3.21 Listing
and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act,
and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration
of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating
terminating such registration. Except as disclosed in the Company’s Current Report on Form 8-K filed with the Commission
on July 14, 2015, the Company has not, in the twelve (12) months preceding the date hereof, received notice from NASDAQ to
the effect that the Company is not in compliance with NASDAQ’s listing or maintenance requirements.
Section 3.22 Application
of Takeover Protections. No poison pill (including any distribution under a rights agreement) or other similar anti-takeover
provision or arrangement is in effect, and no shares of the Company’s Series P Preferred Stock are issued and outstanding.
The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under a rights agreement) or other anti-takeover provision
under the Company’s Restated Articles of Incorporation, Bylaws, and the laws of the State of Wyoming including but not limited
to the Wyoming Management Stability Act, that is or could become applicable to Purchaser as a result of Purchaser and the Company
fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result
of the Company’s issuance of the Securities and Purchaser’s ownership of the Securities.
Section 3.23 Full
Disclosure. No representation or warranty by the Company in this Agreement and no statement contained in the Disclosure Schedules
to this Agreement or any certificate or other document furnished or to be furnished to Purchaser pursuant to this Agreement contains
any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading. The Company has disclosed to Purchaser, in the SEC Reports
filed prior to filed prior to January 1, 2016, and in this Agreement and the Acquisition Agreement (including the Disclosure
Schedules), all information regarding the Company and its Subsidiaries material to Purchaser’s decision to purchase the
Shares.
Section 3.24 No
Integrated Offering. Assuming the accuracy of Purchaser’s representations and warranties set forth in Article IV
of this Agreement, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly
or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that
would cause this offering of the Securities to be integrated with other offerings by the Company for purposes of the exemption
of the offer and sale of the Securities to Purchaser from registration under the Securities Act and state securities laws, and
any applicable shareholder approval provisions of NASDAQ.
Section 3.25 Accountants.
Hein & Associates LLP, who have audited certain consolidated financial statements of the Company and its Subsidiaries are
independent public accountants with respect to the Company and its Subsidiaries within the applicable rules and regulations adopted
by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act.
Section 3.26 Company
Stock Plans. All benefit, compensation and award plans administered by the Company that provide for the award of rights of
any kind to receive shares of Common Stock or benefits measured in whole or in part by reference to shares of Common Stock (each
a “Company Stock Plan”) are listed on Schedule 3.26 of the Disclosure Schedules. Each award granted
by the Company under a Company Stock Plan (each a “Stock Award”) was granted (i) in accordance with the
terms of the applicable Company Stock Plan and (ii) if applicable, with an exercise price at least equal to the fair market
value of the Common Stock on the date such Stock Award would be considered granted under GAAP and applicable law. No Stock Award
granted under a Company Stock Plan has been backdated. The Company has not knowingly granted, and there is no and has been no
Company policy or practice to knowingly grant, Stock Awards prior to, or otherwise knowingly coordinate the grant or vesting of
Stock Awards with, the release or other public announcement of material information regarding the Company or its Subsidiaries
or their financial results or prospects.
Section 3.27 Tax
Status. Except for matters that could not, individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company (i) has made or filed all United States federal, state and local income and all foreign
income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has
paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all
material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and to the Knowledge of the Company
no basis for any such claim exists.
ARTICLE
IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents
and warrants as of the date hereof and as of the Closing to the Company as follows:
Section 4.1 Organization;
Authority. Purchaser is an entity duly incorporated, validly existing and in good standing under the laws of the State of
Delaware with full right, corporate power and authority to enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents
and performance by Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary
corporate action, as applicable, on the part of Purchaser, and no further action is required by Purchaser, its board of directors
or its stockholder in connection herewith or therewith. Each Transaction Document to which it is a party has been (or upon delivery
will have been) duly executed by Purchaser, and when delivered by Purchaser in accordance with the terms hereof, will constitute
the valid and legally binding obligation of Purchaser, enforceable against it in accordance with its terms, except: (i) as
limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors’ rights generally; and (ii) as limited by laws relating to the availability
of specific performance, injunctive relief or other equitable remedies.
Section 4.2 Absence
of Conflicts. The execution and delivery of this Agreement by Purchaser does not, and the consummation of the transactions
contemplated hereby will not, (i) conflict with or violate the articles of incorporation or bylaws of Purchaser or (ii) conflict
with or violate in any material respect any Law or Governmental Order applicable to Purchaser.
Section 4.3 Own
Account. Purchaser understands that the Shares are “restricted securities” and have not been registered under
the Securities Act or any applicable state securities law and is acquiring the Shares as principal for its own account and not
with a view to or for distributing or reselling the Securities or any part thereof in violation of the Securities Act or any applicable
state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any
applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute
or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this
representation and warranty not limiting Purchaser’s right to sell the Securities in compliance with applicable federal
and state securities laws).
Section 4.4 Purchaser
Status. At the time Purchaser was offered the Shares, it was, and as of the date hereof it is an “accredited investor”
as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) promulgated under the Securities Act.
Section 4.5 General
Solicitation. Purchaser is not purchasing the Shares as a result of any advertisement, article, notice or other communication
regarding the Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented
at any seminar or any other general solicitation or general advertisement.
ARTICLE
V
RESTRICTIONS ON TRANSFERS
Section 5.1 Resales.
Purchaser agrees that the Securities may only be sold or transferred (i) pursuant to an effective registration statement
under the Securities Act (including the Registration Statement (as defined in the Investor Rights Agreement)); (ii) pursuant
to an exemption from registration under the Securities Act; or (iii) in a transaction not subject to the registration requirements
of the Securities Act.
Section 5.2 Rule 144.
Purchaser is aware of Rule 144 promulgated under the Securities Act (as such rule may be amended or interpreted from time
to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect
as such rule, “Rule 144”) and the restrictions imposed thereby.
Section 5.3 Legends.
Purchaser agrees to the imprinting, so long as is required by this Article V, of a legend on any of the certificates
representing the Securities in substantially the following form:
“THIS
SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.”
Section 5.4 Legend
Removal. The Company shall instruct the Transfer Agent, and shall cause its counsel to promptly issue a legal opinion to the
Transfer Agent, to remove the legend set forth in Section 5.3, (i) following any sale of such Securities pursuant
to an effective registration statement; (ii) following any sale of such Securities pursuant to Rule 144; and (iii) upon
request by the holder of such Securities and upon delivery to the Company of appropriate representations as to the non-affiliate
status of holder under Rule 144 when such Securities may be sold under Rule 144, without the requirement for the Company
to be in compliance with the current public information required under Rule 144 as to such Securities and without volume
or manner-of-sale restrictions.
ARTICLE
VI
OTHER AGREEMENTS
Section 6.1 Acknowledgement
of No Set Off. The Company acknowledges that its obligations under the Transaction Documents to issue the Conversion Shares
pursuant to the Certificate of Designations are unconditional and absolute and not subject to any right of set off, counterclaim,
delay or reduction, regardless of or any claim the Company may have against Purchaser and regardless of the dilutive effect that
such issuance may have on the ownership of the other shareholders of the Company.
Section 6.2 Survival.
(a) All
representations, warranties, covenants and obligations in this Agreement, the Disclosure Schedules, and any other document, certificate
or instrument delivered pursuant to this Agreement shall survive the Closing and the consummation of the transactions contemplated
by this Agreement, subject to Section 6.2(b).
(b) The
Company will have liability pursuant to this Agreement with respect to any breach of a representation or warranty in this Agreement
only if Purchaser notifies the Company of a claim in writing, specifying the factual basis of the claim in reasonable detail to
the extent then known by Purchaser, on or before August 10, 2017, except for claims of breaches of the representations and warranties
set forth in Sections 3.2, 3.3, 3.4, and 3.7, which shall survive indefinitely and as to which Purchaser
may notify the Company at any time after the Effective Date.
Section 6.3 Integration.
The Company shall not 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 would 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 or that would be integrated with the offer or
sale of the Securities for purposes of the rules and regulations of NASDAQ such that it would require shareholder approval prior
to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.
Section 6.4 Reservation
and Listing of Securities.
(a) The
Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance upon conversion of the Shares pursuant
to the Certificate of Designations in such amount as may then be required to fulfill its obligations in full under the Certificate
of Designations.
(b) The
Company shall take all steps necessary to (i) cause the Conversion Shares to be approved for listing or quotation on NASDAQ;
(ii) provide to Purchaser at the Closing evidence of such approval for listing or quotation; and (iii) use its reasonable
best efforts to maintain the listing or quotation of such Conversion Shares on NASDAQ or another national securities exchange.
Section 6.5 Securities
Laws Disclosure; Publicity. The Company shall file all required Current Reports on Form 8-K relating to the transactions
contemplated by the Transaction Documents, including all required exhibits thereto, with the Commission within the time required
by the Exchange Act; provided that the Company shall submit a draft of such Form 8-K(s) to Purchaser and provide Purchaser
with reasonable time to review and comment on such Form 8-K(s). The Parties shall consult with each other prior to issuing
any press releases with respect to the transactions contemplated by the Transaction Documents, and neither Party shall issue any
press release nor otherwise make any public statement with respect to the transactions contemplated by the Transaction Documents
without the prior consent of the other Party, which consent shall not unreasonably be withheld or delayed, except if such disclosure
is required by Law or NASDAQ, in which case the disclosing Party shall provide the other Party with notice of such press release
or public statement as promptly as possible. Notwithstanding anything else contained in this Section 6.5, except for any
press releases or public statements regarding the transactions contemplated by the Transaction Documents made in connection with
and immediately following the Closing, Purchaser shall not be required to consult with the Company regarding any press release
or other public statement after the Closing.
Section 6.6 Integrated
Agreements. The Parties acknowledge and agree that although this Agreement, the Acquisition Agreement and the other Transaction
Documents are separate documents, they form an integrated contract and the closing of one is contingent upon and subject to the
closing of all others. The Company will not issue, and Purchaser will not accept, the Shares if the Company is subject to any
proceeding or action under any applicable Law relating to bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance
or preferential transfers, or similar Law relating to or affecting creditors’ rights generally, and if Purchaser does not
accept the Shares, Purchaser shall not be obligated to close the Acquisition Agreement or the other Transaction Documents.
Section 6.7 Confidentiality The
Parties acknowledge and agree that the Confidentiality Agreement shall terminate at the Closing. From and after the Closing, the
Company shall, and shall cause its Affiliates to, hold, and shall use its reasonable best efforts to cause its or their respective
representatives to hold, in confidence any and all information, whether written or oral, related to the Project and the Transaction
Documents, except to the extent that the Company can show that such information (a) is generally available to and known by the
public through no fault of the Company, any of its Affiliates or their respective representatives; or (b) is lawfully acquired
by the Company, any of its Affiliates or their respective representatives from and after the Closing from sources which are not
prohibited from disclosing such information by a legal, contractual or fiduciary obligation. If the Company or any of its Affiliates
or their respective representatives are compelled to disclose any such information by judicial or administrative process or by
other requirements of Law, the Company shall promptly notify Purchaser in writing and shall disclose only that portion of such
information which the Company is advised by its counsel in writing is legally required to be disclosed; provided, that the Company
shall use reasonable best efforts to obtain an appropriate protective order or other reasonable assurance that confidential treatment
will be accorded such information.
ARTICLE
VII
MISCELLANEOUS
Section 7.1 Fees
and Expenses. Each Party shall pay the fees and expenses of its own advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such Party incident to the negotiation, preparation, execution, delivery and performance of
this Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with
the delivery of the Shares to Purchaser.
Section 7.2 Entire
Agreement. The Transaction Documents, together with the exhibits and schedules thereto, and the Confidentiality Agreement,
taken together, are expressly intended by the Parties to be, shall be and constitute the Parties’ single, entire, non-severable,
indivisible and integrated agreement, and none of the Parties would have entered into any of the Transaction Documents but for
the totality of terms and provisions of the Transaction Documents and the Confidentiality Agreement. The Transaction Documents,
together with the exhibits and schedules thereto, and the Confidentiality Agreement contain the entire understanding of the Parties
with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written,
with respect to such matters, which the Parties acknowledge have been merged into such documents, exhibits and schedules.
Section 7.3 Notices.
All notices, demands, and other communications hereunder shall be in writing, and shall be deemed to have been duly given if delivered
personally, or if mailed by certified mail, return receipt requested, postage prepaid, or sent by nationally recognized overnight
carrier, as follows:
If to Purchaser: |
Mt. Emmons Mining Company |
|
Attention: Scott Statham, Deputy General Counsel |
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333 North Central Avenue |
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Phoenix, Arizona 85004-2189 |
|
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with a copy to: |
Jones Walker, L.L.P. |
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Attention: Dionne Rousseau |
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8555 United Plaza Boulevard, Suite 500 |
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Baton Rouge, Louisiana 70809 |
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If to the Company: |
U.S. Energy Corp. |
|
Attention: David Veltri |
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4643 S. Ulster Street, Suite 970 |
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Denver, Colorado 80237 |
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with a copy to: |
Davis Graham & Stubbs LLP |
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Attention: John Elofson |
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1550 Seventeenth Street, Suite 500 |
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Denver, Colorado 80202 |
or to such other address and with such
other copies as such Party may hereafter reasonably specify for the purpose by notice to the other Party. Each such notice, demand
or other communication shall be effective upon delivery or refusal of delivery at the address specified in this Section 7.3.
Section 7.4 Amendments;
Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed
by the Company and Purchaser. No waiver of any default with respect to any provision, condition or requirement of this Agreement
shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any Party to exercise any right hereunder in any manner impair
the exercise of any such right.
Section 7.5 Headings;
Gender. When a reference is made in this Agreement to a section, exhibit or schedule, such reference shall be to a section,
exhibit or schedule of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All personal
pronouns used in this Agreement shall include the other genders, whether used in the masculine, feminine or neuter gender, and
the singular shall include the plural and vice versa, whenever and as often as may be appropriate.
Section 7.6 Successors
and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of
Purchaser. Purchaser may assign any or all of its rights under this Agreement to any Person to whom Purchaser assigns or transfers
any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the
provisions of the Transaction Documents that apply to “Purchaser.”
Section 7.7 No
Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors
and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person or entity.
Section 7.8 Governing
Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed
by the internal laws of the State of Wyoming, United States of America, without giving effect to any choice of law or conflict
of law provision or rule (whether of the State of Wyoming or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Wyoming.
Section 7.9 Severability.
If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain
in full force and effect and shall in no way be affected, impaired or invalidated, and the Parties shall use their commercially
reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction.
Section 7.10 Remedies
Cumulative. The rights and remedies of the Parties are cumulative and not alternative.
Section 7.11 Mutual
Drafting. This Agreement is the mutual product of the Parties and each provision hereof has been subject to the mutual consultation,
negotiation and agreement of each of the Parties, and shall not be construed for or against any Party hereto.
Section 7.12 Legal
Fees and Costs. In the event a Party elects to incur legal expenses to enforce or interpret any provision of this Agreement
by judicial proceedings, the prevailing Party shall be entitled to recover such legal expenses, including reasonable attorneys’
fees, costs, and necessary disbursements at all court levels, in addition to any other relief to which such Party shall be entitled.
Section 7.13 Enforcement
of Agreement. The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement
was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the Parties shall
be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of competent jurisdiction, this being in addition to any other remedy to which they are entitled at law or
in equity.
Section 7.14 Execution;
Counterparts. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered
one and the same agreement and shall become effective when counterparts have been signed by each Party and delivered to the other
Party, it being understood that the Parties need not sign the same counterpart. In the event that any signature is delivered by
e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the Party
executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature
page were an original thereof.
* * * * * * * * * *
IN WITNESS WHEREOF,
this Agreement has been executed by the parties hereto as of the day and year first written above.
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COMPANY: |
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U.S. ENERGY CORP. |
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By: |
/s/ David Veltri |
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Name: |
David Veltri |
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Title: |
Chief Executive Officer and President |
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PURCHASER: |
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MT. EMMONS MINING COMPANY |
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By: |
/s/ William E. Cobb |
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Name: |
William E. Cobb |
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Title: |
Vice President |
[Signature Page to Series A Convertible
Preferred Stock Purchase Agreement]
Exhibit
10.2
EXECUTION VERSION
INVESTOR RIGHTS AGREEMENT
by and between
U.S. ENERGY CORP.
and
MT. EMMONS MINING COMPANY
Dated as of February 11, 2016
Table
of Contents
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Page |
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ARTICLE I DEFINITIONS |
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1 |
Section 1.1 |
Definitions |
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1 |
Section 1.2 |
Other Defined Terms |
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3 |
Section 1.3 |
Interpretative Provisions |
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3 |
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ARTICLE II COVENANTS |
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4 |
Section 2.1 |
Information Access Rights |
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4 |
Section 2.2 |
Observer Rights |
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4 |
Section 2.3 |
Standstill |
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4 |
Section 2.4 |
Termination and Non-transferability of Covenants |
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5 |
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ARTICLE III REGISTRATION RIGHTS |
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5 |
Section 3.1 |
Demand Registration |
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5 |
Section 3.2 |
Registration Procedures |
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8 |
Section 3.3 |
Expenses |
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12 |
Section 3.4 |
Indemnification |
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13 |
Section 3.5 |
Participation in Underwritten Registrations |
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15 |
Section 3.6 |
Rule 144 Compliance |
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15 |
Section 3.7 |
Preservation of Rights |
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16 |
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ARTICLE IV MISCELLANEOUS |
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16 |
Section 4.1 |
Entire Agreement |
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16 |
Section 4.2 |
Notices |
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16 |
Section 4.3 |
Amendments; Waivers |
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17 |
Section 4.4 |
Headings; Gender |
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17 |
Section 4.5 |
Successors and Assigns; Transfer of Registration Rights |
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17 |
Section 4.6 |
No Third-Party Beneficiaries |
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17 |
Section 4.7 |
Governing Law |
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18 |
Section 4.8 |
Severability |
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18 |
Section 4.9 |
Remedies Cumulative |
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18 |
Section 4.10 |
Mutual Drafting |
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18 |
Section 4.11 |
Legal Fees and Costs |
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18 |
Section 4.12 |
Enforcement of Agreement |
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18 |
Section 4.13 |
Execution; Counterparts |
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18 |
Section 4.14 |
Further Assurances |
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18 |
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT
(this “Agreement”) is entered into by and between U.S. Energy Corp., a Wyoming corporation (the “Company”),
and Mt. Emmons Mining Company, a Delaware corporation (“Investor”), to be effective as of the Closing of the
Purchase Agreement defined below. The Company and Investor are hereinafter at times referred to individually as a “Party”
and collectively as the “Parties”.
WHEREAS, the Company and
Investor are parties to the Series A Convertible Preferred Stock Purchase Agreement, dated as of February 11, 2016 (the “Purchase
Agreement”), pursuant to which the Company has agreed to sell, and Investor has agreed to purchase, 50,000 shares of
Series A Convertible Preferred Stock of the Company, par value $0.01 per shares (the “Preferred Stock”),
subject to certain conditions, including the execution and delivery of this Agreement.
WHEREAS, the Company and
Investor desire, for their mutual benefit and protection, to set forth in this Agreement certain of their respective rights and
obligations with respect to the capital stock of the Company (whether the Preferred Stock or the Company’s common stock,
$.01 par value (the “Common Stock,” into which the Preferred Stock is convertible), whether outstanding or issued
or acquired hereafter).
NOW, THEREFORE, in consideration
of the mutual agreements and covenants contained in this Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company and Investor agree as follows:
ARTICLE
I
DEFINITIONS
Section
1.1 Definitions. Initially capitalized terms used
in this Agreement shall have the meanings assigned to them in this Section 1.1 or the applicable Section referenced
in Section 1.2, unless the context otherwise indicates:
“Affiliate”
of a Person means any other Person that directly, or indirectly through one or more intermediaries, controls or is controlled by,
or is under common control with, such Person. The term “control” (including the terms “controlling”, “controlled
by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.
“Board of Directors”
means the board of directors of the Company.
“Business Day”
means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Commission”
means the United States Securities and Exchange Commission.
“Confidentiality
Agreement” means that certain Confidentiality Agreement, dated June 24, 2015, by and among the Company, Investor, Freeport
Minerals Corporation and Cyprus Amax Minerals Company.
“Conversion Shares”
means the shares of Common Stock and any other securities issued or issuable upon conversion of the shares of Preferred Stock,
and any other shares of Common Stock and other securities issued in respect of such shares (because of stock splits, stock dividends,
reclassifications, recapitalizations or similar events).
“Exchange Act”
means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Person”
means any individual, company, partnership, limited liability company, joint venture, association, joint stock company, trust,
unincorporated organization, government or agency or political subdivision thereof or any other entity.
“Prospectus”
means the prospectus included in any Registration Statement, all amendments and supplements to such prospectus, including pre-
and post-effective amendments to such Registration Statement, and all other material incorporated by reference in such prospectus.
“Registrable Securities”
means the Conversion Shares; provided, that such Registrable Securities shall cease to be Registrable Securities (i) upon
any sale of such Registrable Shares pursuant to a Registration Statement or Rule 144 under the Securities Act,(ii) upon
any sale of such Registrable Shares in any manner to a person or entity which is not entitled, pursuant to Section 4.5,
to the registration rights under Article III of this Agreement or (iii) when such Registrable Securities become eligible
for resale without restriction and without the need for current public information pursuant to Rule 144 under the Securities Act,
provided, that if counsel to the holder of Conversion Shares opines that such securities may not be so eligible for resale, whether
because such holder may be deemed an Affiliate of the Company or otherwise, such Registrable Securities shall remain Registrable
Securities. A Person shall be deemed a holder of Registrable Securities whenever such Person has the right to then acquire or obtain
from the Company any Registrable Securities, whether or not such acquisition has actually been effected. Wherever reference is
made in this Agreement to a request or consent of holders of a certain percentage of Registrable Securities, the determination
of such percentage shall include the Conversion Shares issuable upon conversion of the shares of Preferred Stock even if such conversion
has not been effected.
“Registration
Statement” means any registration statement of the Company that covers Registrable Securities pursuant to the provisions
of this Agreement filed with, or to be filed with, the Commission under the rules and regulations promulgated under the Securities
Act, including the related Prospectus, amendments and supplements to such registration statement, including pre- and post-effective
amendments, and all exhibits and all material incorporated by reference in such registration statement.
“Rule 144”
means Rule 144 under the Securities Act or any successor rule thereto.
“Securities Act”
means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Selling Expenses”
means all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities,
and fees and disbursements of counsel for any holder of Registrable Securities, except for the fees and disbursements of counsel
for the holders of Registrable Securities required to be paid by the Company pursuant to Section 3.3.
“Transaction Documents”
shall have the meaning set forth in the Purchase Agreement.
Section
1.2 Other Defined Terms. In addition, each of the
following terms is defined in the Section set forth opposite such term:
Term |
|
Section |
Agreement |
|
Preamble |
Common Stock |
|
Preamble |
Company |
|
Preamble |
Controlling Person |
|
3.2(p) |
Demand Registration |
|
3.1(b) |
DTCDRS |
|
3.2(q) |
Initial Registrable Securities |
|
3.2 |
Initial Registration Statement |
|
3.2 |
Inspectors |
|
3.2(h) |
Investor |
|
Preamble |
Long-Form Registration |
|
3.1(a) |
New Registration Statement |
|
3.2 |
Observer |
|
2.2 |
Preferred Stock |
|
Preamble |
Purchase Agreement |
|
Preamble |
Records |
|
3.2(h) |
Shelf Registration |
|
3.1(c) |
Shelf Registration Statement |
|
3.1(c) |
Shelf Supplement |
|
3.1(d) |
Shelf Takedown |
|
3.1(d) |
Shelf Takedown Notice |
|
3.1(d) |
Short-Form Registration |
|
3.1(b) |
Suspension Period |
|
3.1(i) |
Section
1.3 Interpretative Provisions. The words “hereof”,
“herein” and “hereunder” and words of like import used in this Agreement shall refer to this Agreement
as a whole and not to any particular provision of this Agreement. Any initially capitalized terms used in any exhibit, annex or
schedule but not otherwise defined therein, shall have the meaning as defined in this Agreement. Whenever the words “include”,
“includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words
“without limitation”, whether or not they are in fact followed by those words or words of like import. “Writing,”
“written” and comparable terms refer to printing, typing and other means of reproducing words (including electronic
media) in a visible form. References to any agreement or contract are to that agreement or contract as amended, modified or supplemented
from time to time in accordance with the terms hereof and thereof. References to any Person include the successors and permitted
assigns of that Person.
ARTICLE
II
COVENANTS
Section
2.1 Information Access Rights. Investor and any
of its Affiliates holding Preferred Stock or Conversion Shares, along with their agents, attorneys and representatives, shall have
the right to access, inspect and copy, at their own expense, the books and records, including shareholder’s lists or record
of shareholders, of the Company and its subsidiaries at any time during normal business hours and for any reason with seven (7)
Business Days’ written notice to the Company. This provision shall not be in limitation of any other rights that any holder
of Preferred Stock or Conversion Shares may have to inspect and copy the books and records, including shareholder’s lists
or record of shareholders, of the Company and its subsidiaries pursuant to applicable law.
Section
2.2 Observer Rights. Investor and any of its Affiliates
holding Preferred Stock or Conversion Shares collectively shall have the right to appoint, and to remove and replace, at any time
with written notice to the Company, one individual as an observer of the Board of Directors (the “Observer”).
The Company shall invite the Observer to attend all meetings, regular and special, of the Board of Directors (including all meetings
of any committee thereof) in a nonvoting observer capacity and shall give the Observer copies of all notices, minutes, consents,
and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided,
that the Observer, Investor and its Affiliates holding Preferred Stock or Conversion Shares shall agree to hold in confidence all
information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude the
Observer from any meeting or portion thereof to the extent the Observer’s access to such information or attendance at such
meeting could adversely affect the attorney-client privilege between the Company and its counsel or result in disclosure of trade
secrets or a conflict of interest; and provided further, that the audit, nominating and compensation committees may exclude the
Observer from the proceedings of such committees at the discretion of the respective committee. For avoidance of doubt, no Observer
shall have voting rights or any fiduciary obligations to the Company or its shareholders.
Section
2.3 Standstill.
(a) Unless
approved by the Board of Directors, neither Investor nor any of its Affiliates shall purchase or acquire any additional shares
of Common Stock, if, after such purchase, the aggregate beneficial ownership (as determined in accordance with Rule 13d-3
under the Exchange Act) of Common Stock of Investor and its Affiliates would exceed 16.86% of the then-issued and outstanding shares
of Common Stock.
(b) Nothing
in this Section 2.3 shall affect the conversion privileges or prevent the application of the anti-dilution protections
afforded the Preferred Stock as set forth in the Company’s Restated Articles of Incorporation, as amended.
Section
2.4 Termination and Non-transferability of Covenants.
(a) The
covenants contained in this Article II shall terminate at such time as Investor and its Affiliates (i) no longer
own any shares of Preferred Stock; and (ii) no longer own Common Stock representing at least five percent (5%) of the then-issued
and outstanding shares of Common Stock as a result of the sale of shares of the Common Stock by Investor and/or its Affiliates
and not as a result of dilution from the issuance of shares by the Company; provided, that the covenants in Section 2.3
shall terminate no later than the tenth anniversary of the issuance of the Preferred Stock.
(b) Except
for transfers between or among Investor and its Affiliates, the covenants in this Article II are not transferable by
Investor or its Affiliates and do not transfer with the Preferred Stock or Conversion Shares.
ARTICLE
III
REGISTRATION RIGHTS
Section
3.1 Demand Registration.
(a) At
any time after the effective date of this Agreement, holders of a majority of the Registrable Securities (whether or not then outstanding)
may request registration under the Securities Act of all or any portion of their Registrable Securities pursuant to a Registration
Statement on Form S-1 or any successor form thereto (each, a “Long-Form Registration”). Each request for
a Long-Form Registration shall specify the number of Registrable Securities requested to be included in the Long-Form Registration.
Upon receipt of any such request, the Company shall promptly (but in no event later than five (5) days following receipt
thereof) deliver notice of such request to all other holders of Registrable Securities who shall then have ten (10) days
from the date such notice is given to notify the Company in writing of their desire to be included in such registration. The Company
shall prepare and file with the Commission a Registration Statement on Form S-1 or any successor form thereto covering all
of the Registrable Securities that the holders thereof have requested to be included in such Long-Form Registration within sixty (60) days
after the date on which the initial request is given and shall use its reasonable best efforts to cause such Registration Statement
to be declared effective by the Commission as soon as practicable thereafter.
(b) If
the Company is qualified for the use of a Registration Statement on Form S-3 or any successor form thereto, the holders of
Registrable Securities shall have the right to request registration under the Securities Act of all or any portion of their Registrable
Securities pursuant to a Registration Statement on Form S-3 or any similar short-form Registration Statement (each, a “Short-Form
Registration” and, collectively with each Long-Form Registration and Shelf Registration (as defined below), a “Demand
Registration”). Each request for a Short-Form Registration shall specify the number of Registrable Securities requested
to be included in the Short-Form Registration. Upon receipt of any such request, the Company shall promptly (but in no event later
than five (5) days following receipt thereof) deliver notice of such request to all other holders of Registrable Securities
who shall then have ten (10) days from the date such notice is given to notify the Company in writing of their desire
to be included in such registration. The Company shall prepare and file with the Commission a Registration Statement on Form S-3
or any successor form thereto covering all of the Registrable Securities that the holders thereof have requested to be included
in such Short-Form Registration within sixty (60) days after the date on which the initial request is given and shall
use its reasonable best efforts to cause such Registration Statement to be declared effective by the Commission as soon as practicable
thereafter.
(c) If
the Company is qualified for the use of a Registration Statement on Form S-3 or the then appropriate form for an offering
to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act or any successor rule thereto (a
“Shelf Registration Statement”), the holders of Registrable Securities shall have the right to request registration
under the Securities Act of all or any portion of their Registrable Securities for an offering on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act or any successor rule thereto (a “Shelf Registration”). Each
request for a Shelf Registration shall specify the number of Registrable Securities requested to be included in the Shelf Registration.
Upon receipt of any such request, the Company shall promptly (but in no event later than five (5) days following receipt
thereof) deliver notice of such request to all other holders of Registrable Securities who shall then have ten (10) days
from the date such notice is given to notify the Company in writing of their desire to be included in such registration. The Company
shall prepare and file with the Commission a Shelf Registration Statement covering all of the Registrable Securities that the holders
thereof have requested to be included in such Shelf Registration within sixty (60) days after the date on which the initial
request is given and shall use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective
by the Commission as soon as practicable thereafter.
(d) At
any time that a Shelf Registration Statement is effective, if a holder of Registrable Securities covered by such Shelf Registration
Statement delivers a notice to the Company (a “Shelf Takedown Notice”) stating that the holder intends to effect
an offering of all or part of its Registrable Securities included in such Shelf Registration Statement (a “Shelf Takedown”)
and the Company is eligible to use such Shelf Registration Statement for such Shelf Takedown, then the Company shall take all actions
reasonably required, including amending or supplementing (a “Shelf Supplement”) such Shelf Registration Statement,
to enable such Registrable Securities to be offered and sold as contemplated by such Shelf Takedown Notice. Each Shelf Takedown
Notice shall specify the number of Registrable Securities to be offered and sold under the Shelf Takedown.
(e) The
Company shall not be obligated to effect any Long-Form Registration within one hundred twenty (120) days after the effective
date of a previous Long-Form Registration or Shelf Takedown. The Company may postpone for up to forty-five (45) days the filing
or effectiveness of a Registration Statement for a Demand Registration or the filing of a Shelf Supplement for a Shelf Takedown
if the Board of Directors determines in its reasonable good faith judgment that such Demand Registration or Shelf Takedown would
(i) materially interfere with a significant acquisition, corporate organization, financing, securities offering or other similar
transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide
business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the
Securities Act or Exchange Act, provided that, in no event shall any such period exceed an aggregate of ninety (90) days in any
period of twelve (12) consecutive months.
(f) If
the holders of the Registrable Securities initially requesting a Demand Registration or Shelf Takedown elect to distribute the
Registrable Securities covered by their request in an underwritten offering, they shall so advise the Company as a part of their
request, and the Company shall include such information in its notice to the other holders of Registrable Securities. The holders
of a majority of the Registrable Securities initially requesting the Demand Registration or Shelf Takedown shall select the investment
banking firm or firms to act as the managing underwriter or underwriters in connection with such offering.
(g) The
Company shall not include in any Demand Registration or Shelf Takedown any securities which are not Registrable Securities without
the prior written consent of the holders of a majority of the Registrable Securities initially requesting such Demand Registration
or Shelf Takedown, which consent shall not be unreasonably withheld or delayed. If a Demand Registration or Shelf Takedown involves
an underwritten offering and the managing underwriter of the requested Demand Registration or Shelf Takedown advises the Company
and the holders of Registrable Securities in writing that in its reasonable and good faith opinion the number of shares of Registrable
Securities proposed to be included in the Demand Registration or Shelf Takedown, including all Registrable Securities and all other
securities proposed to be included in such underwritten offering, exceeds the number of Registrable Securities which can be sold
in such underwritten offering and/or the number of shares of Registrable Securities proposed to be included in such Demand Registration
or Shelf Takedown would adversely affect the price per share of the Registrable Securities proposed to be sold in such underwritten
offering, the Company shall include in such Demand Registration or Shelf Takedown (i) first, the shares of Registrable Securities
that the holders of Registrable Securities propose to sell, and (ii) second, the securities proposed to be included therein
by any other Persons (including shares of securities to be sold for the account of the Company and/or other holders) allocated
among such Persons in such manner as they may agree. If the managing underwriter determines that less than all of the Registrable
Securities proposed to be sold can be included in such offering, then the Registrable Securities that are included in such offering
shall be allocated pro rata among the respective holders thereof on the basis of the number of Registrable Securities owned by
each such holder.
(h) The
Company shall not effect any sale registered under the Securities Act or distribution of its equity securities, or any securities
convertible into, exercisable for or exchangeable for shares of such securities, during the sixty (60) days prior to
and during the 90-day period beginning on the effective date of any underwritten Demand Registration (other than a registration
(i) pursuant to a Registration Statement on Form S-8 (or other registration solely relating to an offering or sale to
employees or directors of the Company pursuant to any employee stock plan or other employee benefit arrangement), (ii) pursuant
to a Registration Statement on Form S-4 (or similar form that relates to a transaction subject to Rule 145 under the
Securities Act or any successor rule thereto), or (iii) in connection with any dividend or distribution reinvestment or similar
plan), unless the managing underwriter of any such underwritten registration otherwise agrees.
(i) The
holders of Registrable Securities agree that the Company may impose a Suspension Period due to, and each holder agrees that, upon
receipt of a notice from the Company of the occurrence of any event of the kind described in Section Section 3.2(g),
such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such
holder’s receipt of the copies of the supplemental prospectus or amended Registration Statement as contemplated by Section 3.2(g)
or until it is advised in writing by the Company that the use of the applicable prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference
in such prospectus or Registration Statement (a “Suspension Period”); provided, that the Company shall use
its reasonable best efforts to eliminate or cure the cause of the Suspension Period. The Company may provide appropriate stop
orders to enforce the provisions of this Section 3.1(i).
(j) At
any time prior to the effective date of a Registration Statement, the holders of a majority of the Registrable Securities participating
in the registration may withdraw such request by written notice of such withdrawal to the Company.
(k) Subject
to the other limitations contained in this Agreement, the Company is not obligated hereunder to effect (A) more than two Demand
Registrations in any 12 month period, (B) more than a total of three Demand Registrations pursuant to this Agreement or (C) a subsequent
Demand Registration if a Registration Statement covering all of the Registrable Securities held by the holders requesting the registration
shall have become effective under the Securities Act and remains effective under the Securities Act and is sufficient to permit
offers and sales of the number and type of Registrable Securities on substantially the terms and conditions specified in the request
for Demand Registration. In addition, the Company will not be required to file a Registration Statement at a time when filing a
Registration Statement would be prohibited by the terms of a customary “lock-up” or “market stand-off”
provision included in an underwriting agreement relating to an underwritten offering.
.
Section
3.2 Registration Procedures. If and whenever the
holders of Registrable Securities request that the offer and sale of any Registrable Securities be registered under the Securities
Act or any Registrable Securities be distributed in a Shelf Takedown pursuant to the provisions of this Agreement, the Company
shall use its reasonable best efforts to effect the registration of the offer and sale of such Registrable Securities under the
Securities Act in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall as soon as
practicable and as applicable:
(a) subject
to Sections 3.1(a), (b), (c), (d) and (e), prepare and file with the Commission a Registration
Statement covering such Registrable Securities and use its reasonable best efforts to cause such Registration Statement to be declared
effective;
(b) (i) in
the case of a Long-Form Registration or a Short-Form Registration, prepare and file with the Commission such amendments, post-effective
amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to
keep such Registration Statement effective for a period of not less than one hundred eighty (180) days, or if earlier, until
all of such Registrable Securities have been disposed of, and to comply with the provisions of the Securities Act with respect
to the disposition of such Registrable Securities in accordance with the intended methods of disposition set forth in such Registration
Statement; and (ii) in the case of a Shelf Registration, prepare and file with the Commission such amendments, post-effective
amendments and supplements, including Shelf Supplements, to such Registration Statement and the Prospectus used in connection therewith
as may be necessary to keep such Registration Statement effective and to comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities subject thereto for a period ending on the earlier of (A) thirty-six (36)
months after the effective date of such Registration Statement and (B) the date on which all the Registrable Securities subject
thereto have been sold pursuant to such Registration Statement or have ceased to be Registrable Securities;
(c) within
a reasonable time before filing such Registration Statement, Prospectus or amendments or supplements thereto with the Commission,
furnish to one counsel selected by holders of a majority of such selling holders of Registrable Securities copies of such documents
proposed to be filed, which documents shall be subject to the review, comment and approval of such counsel;
(d) notify
each selling holder of Registrable Securities, promptly after the Company receives notice thereof, of the time when such Registration
Statement has been declared effective, or a supplement, including a Shelf Supplement, to any Prospectus forming a part of such
Registration Statement has been filed with the Commission;
(e) furnish
to each selling holder of Registrable Securities such number of copies of the Prospectus included in such Registration Statement
(including each preliminary Prospectus) and any supplement thereto, including a Shelf Supplement (in each case including all exhibits
and documents incorporated by reference therein), and such other documents as such seller may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such seller;
(f) use
its reasonable best efforts to register or qualify such Registrable Securities under such other securities or “blue sky”
laws of such jurisdictions as any selling holder reasonably requests and do any and all other acts and things which may be reasonably
necessary or advisable to enable such holders to consummate the disposition in such jurisdictions of the Registrable Securities
owned by such holders; provided, that the Company shall not be required to qualify generally to do business, subject itself
to general taxation or consent to general service of process in any jurisdiction where it would not otherwise be required to do
so but for this Section 3.2(f);
(g) notify
each selling holder of Registrable Securities, if known, as promptly as reasonably practicable: (i) of any request by the SEC or
any other federal or state governmental authority for amendments or supplements to such Registration Statement or Prospectus or
for additional information that pertains to such holders as sellers of Registrable Securities; (ii) of the issuance by the SEC
of any stop order suspending the effectiveness of such Registration Statement covering any or all of the Registrable Securities
or the initiation of any proceedings for that purpose; (iii) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction,
or the initiation or threatening of any proceeding for such purpose; and (iv) of the occurrence of any event or passage of time
that makes any statement made in such Registration Statement or prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or
other documents so that, in the case of such Registration Statement or the Prospectus, as the case may be, it 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 under which they were made, not misleading; provided, however, that
no notice by the Company shall be required pursuant to this clause (iv) in the event that the Company either promptly files a prospectus
supplement to update the Prospectus or a Form 8-K or other appropriate Exchange Act report that is incorporated by reference into
the Registration Statement, which in either case, contains the requisite information that results in such Registration Statement
no longer containing any untrue statement of material fact or omitting to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not misleading);
(h) make
available for inspection by any selling holder of Registrable Securities, any underwriter participating in any disposition pursuant
to such Registration Statement and any attorney, accountant or other agent retained by any such holder or underwriter (collectively,
the “Inspectors”), all financial and other records, pertinent corporate documents and properties of the Company
(collectively, the “Records”), and cause the Company’s officers, directors and employees to supply all
information reasonably requested by any such Inspector in connection with such Registration Statement;
(i) provide
a transfer agent and registrar (which may be the same entity) for all such Registrable Securities not later than the effective
date of such registration;
(j) use
its reasonable best efforts to cause such Registrable Securities to be listed on each securities exchange on which the Common Stock
is then listed;
(k) in
connection with an underwritten offering, enter into such customary agreements (including underwriting and lock-up agreements in
customary form) and take all such other customary actions as the holders of such Registrable Securities or the managing underwriter
of such offering reasonably request in order to expedite or facilitate the disposition of such Registrable Securities, including,
without limitation, all commercially reasonable efforts to procure customary legal opinions and auditor “comfort letters”,
making appropriate officers of the Company available to participate in “road show” and other customary marketing activities
(including one-on-one meetings with prospective purchasers of the Registrable Securities);
(l) otherwise
use its reasonable best efforts to comply with all applicable rules and regulations of the Commission and make available to its
shareholders an earnings statement (in a form that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158
under the Securities Act or any successor rule thereto) no later than thirty (30) days after the end of the 12-month period beginning
with the first day of the Company’s first full fiscal quarter after the effective date of such Registration Statement, which
earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Company timely
files complete and accurate information on Forms 10-K, 10-Q and 8-K under the Exchange Act and otherwise complies with Rule 158
under the Securities Act or any successor rule thereto;
(m) without
limiting Section 3.2(f), use its reasonable best efforts to cause such Registrable Securities to be registered with
or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of
the Company to enable the holders of such Registrable Securities to consummate the disposition of such Registrable Securities in
accordance with their intended method of distribution thereof;
(n) notify
the holders of Registrable Securities promptly of any request by the Commission for the amending or supplementing of such Registration
Statement or Prospectus or for additional information;
(o) advise
the holders of Registrable Securities, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any
stop order by the Commission suspending the effectiveness of such Registration Statement or the initiation or threatening of any
proceeding for such purpose and promptly use its reasonable best efforts to prevent the issuance of any stop order or to obtain
its withdrawal at the earliest possible moment if such stop order should be issued;
(p) permit
any holder of Registrable Securities which holder, in its sole and exclusive judgment, might be deemed to be an underwriter or
a “controlling person” (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange
Act) (a “Controlling Person”) of the Company, to participate in the preparation of such Registration
Statement and to require the insertion therein of language, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included;
(q) cooperate
with the holders of the Registrable Securities to facilitate the timely preparation and delivery of certificates representing the
Registrable Securities to be sold pursuant to such Registration Statement or Rule 144 free of any restrictive legends and
representing such number of shares of Registrable Securities and registered in such names as the holders of the Registrable Securities
may reasonably request a reasonable period of time prior to sales of Registrable Securities pursuant to such Registration Statement
or Rule 144; provided, that the Company may satisfy its obligations hereunder without issuing physical stock certificates
through the use of The Depository Trust Company’s Direct Registration System (the “DTCDRS”);
(r) not
later than the effective date of such Registration Statement, provide a CUSIP number for all Registrable Securities and provide
the applicable transfer agent with printed certificates for the Registrable Securities which are in a form eligible for deposit
with The Depository Trust Company; provided, that the Company may satisfy its obligations hereunder without issuing physical
stock certificates through the use of the DTCDRS;
(s) take
no direct or indirect action prohibited by Regulation M under the Exchange Act; provided, that, to the extent that any prohibition
is applicable to the Company, the Company will take all reasonable action to make any such prohibition inapplicable; and
(t) otherwise
use its reasonable best efforts to take all other steps necessary to effect the registration of such Registrable Securities
contemplated hereby. If (i) the Company has filed a Registration Statement (the “Initial Registration
Statement”) with the Commission that covers Registrable Securities (the “Initial Registrable
Securities”), (ii) pursuant to Rule 415(a)(5) under the Securities Act or any successor rule thereto, the
Initial Registration Statement may no longer be used for offers and sales of any of the Initial Registrable Securities, and
(iii) any of the Initial Registrable Securities are Registrable Securities at the time that (ii) above occurs, the
Company shall prepare and file with the Commission within the time limits required by Rule 415 under the Securities Act
or any successor rule thereto a new Registration Statement covering any Initial Registrable Securities that have not ceased
to be Registrable Securities for an offering to be made on a delayed on continuous basis pursuant to Rule 415 under the
Securities Act or any successor rule thereto (a “New Registration Statement”) and shall use its reasonable
best efforts to cause such New Registration Statement to be declared effective by the Commission as soon as practicable
thereafter; provided, that, if at the time it is required to file a New Registration Statement with the Commission pursuant
to this provision the Company is not qualified to use a Registration Statement on Form S-3 or the then appropriate form
for an offering to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act or any
successor rule thereto, the Company shall not be required to file a New Registration Statement with the Commission and the
holders of Registrable Securities shall be permitted to request registration under the Securities Act of all or any
portion of their Initial Registrable Securities that have not ceased to be Registrable Securities pursuant to a Long-Form
Registration.
Section
3.3 Expenses. All expenses (other than Selling Expenses)
incurred by the Company in complying with its obligations pursuant to this Agreement and in connection with the registration and
disposition of Registrable Securities shall be paid by the Company, including, without limitation, all (i) registration and
filing fees (including, without limitation, any fees relating to filings required to be made with, or the listing of any Registrable
Securities on, any securities exchange or over-the-counter trading market on which the Registrable Securities are listed or quoted);
(ii) underwriting expenses (other than fees, commissions or discounts); (iii) expenses of any audits incident to or required
by any such registration; (iv) fees and expenses of complying with securities and “blue sky” laws (including,
without limitation, fees and disbursements of counsel for the Company in connection with “blue sky” qualifications
or exemptions of the Registrable Securities); (v) printing expenses; (vi) messenger, telephone and delivery expenses;
(vii) fees and expenses of the Company’s counsel and accountants; (viii) Financial Industry Regulatory Authority,
Inc. filing fees (if any); and (ix) fees and expenses of one counsel for the holders of Registrable Securities participating
in such registration as a group (selected by, in the case of a registration under Section 3.1(a), the holders of a
majority of the Registrable Securities initially requesting such registration, and, in the case of all other registrations hereunder,
the holders of a majority of the Registrable Securities included in the registration). In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties)
and the expense of any annual audits. All Selling Expenses relating to the offer and sale of Registrable Securities registered
under the Securities Act pursuant to this Agreement shall be borne and paid by the holders of such Registrable Securities, in proportion
to the number of Registrable Securities included in such registration for each such holder.
Section
3.4 Indemnification.
(a) The
Company shall indemnify and hold harmless, to the fullest extent permitted by law, each holder of Registrable Securities, such
holder’s officers, directors, managers, members, partners, shareholders and Affiliates, each underwriter, broker or any other
Person acting on behalf of such holder of Registrable Securities and each other Controlling Person, if any, who controls any of
the foregoing Persons, against all losses, claims, actions, damages, liabilities and expenses, joint or several, to which any of
the foregoing Persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, actions, damages,
liabilities or expenses arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus, preliminary Prospectus, free writing prospectus (as defined in Rule 405 under the Securities
Act or any successor rule thereto) or any amendment thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus, preliminary Prospectus
or free writing prospectus, in light of the circumstances under which they were made) not misleading, or any violation or alleged
violation by the Company of the Securities Act or any other similar federal or state securities laws or any rule or regulation
promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance; and shall reimburse such Persons promptly for any legal or other expenses reasonably
incurred by any of them, as incurred, in connection with investigating or defending any such loss, claim, action, damage or liability,
except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly
for use therein or by such holder’s failure to deliver a copy of the Registration Statement, Prospectus, preliminary Prospectus,
free writing prospectus (as defined in Rule 405 under the Securities Act or any successor rule thereto) or any amendments
or supplements thereto (if the same was required by applicable law to be so delivered) after the Company has furnished such holder
with a sufficient number of copies of the same prior to any written confirmation of the sale of Registrable Securities. This indemnity
shall be in addition to any liability the Company may otherwise have. The indemnification provided for under this Section 3.4
shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer,
director or Controlling Person of such indemnified party and shall survive the transfer of the Registrable Securities pursuant
to Section 4.5.
(b) In
connection with any registration in which a holder of Registrable Securities is participating, each such holder shall furnish to
the Company in writing such information as the Company reasonably requests for use in connection with any such Registration Statement
or Prospectus and, to the extent permitted by law, shall indemnify and hold harmless, the Company, each director of the Company,
each officer of the Company who shall sign such Registration Statement, each underwriter, broker or other Person acting on behalf
of the holders of Registrable Securities and each Controlling Person who controls any of the foregoing Persons against any losses,
claims, actions, damages, liabilities or expenses resulting from any untrue or alleged untrue statement of material fact contained
in the Registration Statement, Prospectus, preliminary Prospectus, free writing prospectus (as defined in Rule 405 under the
Securities Act or any successor rule thereto) or any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus, preliminary
Prospectus or free writing prospectus, in light of the circumstances under which they were made) not misleading, but only to the
extent that such untrue statement or omission is contained in any information so furnished in writing by such holder; provided,
that the obligation to indemnify shall be several, not joint and several, for each holder and shall not exceed an amount equal
to the net proceeds (after underwriting fees, commissions or discounts) actually received by such holder from the sale of Registrable
Securities pursuant to such Registration Statement. This indemnity shall be in addition to any liability the selling holder may
otherwise have.
(c) Promptly
after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in this Section 3.4,
such indemnified party shall, if a claim in respect thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. The failure of any indemnified party to notify an indemnifying party of any such action shall
not (unless such failure shall have a material adverse effect on the indemnifying party) relieve the indemnifying party from any
liability in respect of such action that it may have to such indemnified party hereunder. In case any such action is brought against
an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense of the claims in any
such action that are subject or potentially subject to indemnification hereunder, jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after written notice
from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party
shall not be responsible for any legal or other expenses subsequently incurred by the indemnified party in connection with the
defense thereof; provided, that, if (i) any indemnified party shall have reasonably concluded that there may be one
or more legal or equitable defenses available to such indemnified party which are additional to or conflict with those available
to the indemnifying party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the
indemnity provided hereunder, or (ii) such action seeks an injunction or equitable relief against any indemnified party or
involves actual or alleged criminal activity, the indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party without such indemnified party’s prior written consent (but, without such consent, shall
have the right to participate therein with counsel of its choice) and such indemnifying party shall reimburse such indemnified
party and any Controlling Person of such indemnified party for that portion of the fees and expenses of any counsel retained by
the indemnified party which is reasonably related to the matters covered by the indemnity provided hereunder. If the indemnifying
party is not entitled to, or elects not to, assume the defense of a claim, it shall not be obligated to pay the fees and expenses
of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified
parties with respect to such claim. In such instance, the conflicting indemnified parties shall have a right to retain one separate
counsel, chosen by the holders of a majority of the Registrable Securities included in the registration, at the expense of the
indemnifying party. Without the consent of the indemnified party, the indemnifying party shall not consent to a judgment or settlement
that does not contain a full and unconditional release of the indemnified party from all liability concerning the matter; that
includes a statement about or an admission of fault, culpability or a failure to act by or on behalf of the indemnified party;
or that commits the indemnified party to take, or not take, any action. An indemnifying party shall not be liable for any settlement
of any action or claim referred to in this Section 3.4 effected without its written consent, which may not be unreasonably
withheld or delayed.
(d) If
the indemnification provided for hereunder is held by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, claim, damage, liability or action referred to herein, then the indemnifying party, in lieu of indemnifying
such indemnified party hereunder, shall contribute to the amounts paid or payable by such indemnified party as a result of such
loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection with the statements or omissions which resulted in
such loss, claim, damage, liability or action as well as any other relevant equitable considerations; provided, that the
maximum amount of liability in respect of such contribution shall be limited, in the case of each holder of Registrable Securities,
to an amount equal to the net proceeds (after underwriting fees, commissions or discounts) actually received by such seller from
the sale of Registrable Securities effected pursuant to such registration. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of
a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying
party or by the indemnified party, whether the violation of the Securities Act or any other similar federal or state securities
laws or rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the
Company in connection with any applicable registration, qualification or compliance was perpetrated by the indemnifying party or
the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties agree that it would not be just and equitable if contribution pursuant hereto were determined
by pro rata allocation or by any other method or allocation which does not take account of the equitable considerations referred
to herein. No Person guilty or liable 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.
Section
3.5 Participation in Underwritten Registrations.
No Person may participate in any registration hereunder which is underwritten unless such Person (a) agrees to sell such Person’s
securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements; provided, that no holder of Registrable Securities
included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters
(other than representations and warranties regarding such holder, such holder’s ownership of its shares of Common Stock to
be sold in the offering and such holder’s intended method of distribution) or to undertake any indemnification obligations
to the Company or the underwriters with respect thereto, except as otherwise provided in Section 3.4.
Section
3.6 Rule 144 Compliance. With a view to making
available to the holders of Registrable Securities the benefits of Rule 144 and any other rule or regulation of the Commission
that may at any time permit a holder to sell securities of the Company to the public without registration, the Company shall:
(a) make
and keep current public information available, as those terms are understood and defined in Rule 144, at all times after the
effective date of this Agreement;
(b) use
reasonable best efforts to file with the Commission in a timely manner all reports and other documents required of the Company
under the Securities Act and the Exchange Act, at any time after the effective date of this Agreement; and
(c) furnish
to any holder so long as the holder owns Registrable Securities, promptly upon request, a written statement by the Company as to
its compliance with the current public information requirements of Rule 144, a copy of the most recent annual and quarterly
report of the Company, and such other reports and documents as such holder may reasonably request in connection with the sale of
Registrable Securities without registration.
Section
3.7 Preservation of Rights. The Company shall not
(a) grant any registration rights to third parties which are inconsistent with the rights granted hereunder or (b) enter
into any agreement, take any action, or permit any change to occur, with respect to its securities that violates or subordinates
the rights expressly granted to the holders of Registrable Securities in this Agreement. The Company represents and warrants that
it has not, prior to the effective date of this Agreement, granted any registration rights to third parties that remain in force
and effect as of the effective date of this Agreement.
ARTICLE
IV
MISCELLANEOUS
Section
4.1 Entire Agreement. The Transaction Documents,
together with the exhibits and schedules thereto, and the Confidentiality Agreement contain the entire understanding of the Parties
with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with
respect to such matters, which the Parties acknowledge have been merged into such documents, exhibits and schedules.
Section
4.2 Notices. All notices, demands, and other communications
hereunder shall be in writing, and shall be deemed to have been duly given if delivered personally, or if mailed by certified mail,
return receipt requested, postage prepaid, or sent by nationally recognized overnight carrier, as follows:
|
If to Investor: |
Mt. Emmons Mining Company |
|
|
|
Attention: Scott Statham, Deputy General Counsel |
|
|
|
333 North Central Avenue |
|
|
|
Phoenix, Arizona 85004-2189 |
|
|
|
|
|
|
with a copy to: |
Jones Walker, L.L.P. |
|
|
|
Attention: Dionne Rousseau |
|
|
|
8555 United Plaza Boulevard, Suite 500 |
|
|
|
Baton Rouge, Louisiana 70809 |
|
|
If to the Company: |
U.S. Energy Corp. |
|
|
|
Attention: David Veltri |
|
|
|
4643 S. Ulster Street, Suite 970 |
|
|
|
Denver, Colorado 80237 |
|
|
|
|
|
|
with a copy to: |
Davis Graham & Stubbs LLP |
|
|
|
Attention: John Elofson |
|
|
|
1550 Seventeenth Street, Suite 500 |
|
|
|
Denver, Colorado 80202 |
|
or to such other address and with such other
copies as such Party may hereafter reasonably specify for the purpose by notice to the other Party. Each such notice, demand or
other communication shall be effective upon delivery or refusal of delivery at the address specified in this Section 4.2.
Section
4.3 Amendments; Waivers. No provision of this Agreement
may be waived, modified, supplemented or amended except in a written instrument signed by the Company and Investor (or with respect
to Article III the holders at the time of a majority of the Registrable Securities). No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or
a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or
omission of any Party to exercise any right hereunder in any manner impair the exercise of any such right.
Section
4.4 Headings; Gender. When a reference is made in
this Agreement to a section, exhibit or schedule, such reference shall be to a section, exhibit or schedule of this Agreement unless
otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. All personal pronouns used in this Agreement shall include the
other genders, whether used in the masculine, feminine or neuter gender, and the singular shall include the plural and vice versa,
whenever and as often as may be appropriate.
Section
4.5 Successors and Assigns; Transfer of Registration
Rights. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of Investor.
The rights contained in Article III of Investor and its Affiliates owning Preferred Stock or Conversion Shares may
be assigned by them and any subsequent holder in connection with any transfer or assignment by a holder of Registrable Securities
provided that: (i) such transfer may otherwise be effected in accordance with applicable securities laws, and (ii) such
other party agrees in writing with the Company to be bound by all of the provisions relating to Article III of this
Agreement.
Section
4.6 No Third-Party Beneficiaries. This Agreement
is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit
of, nor may any provision hereof be enforced by, any other person or entity.
Section
4.7 Governing Law. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of
Wyoming, United States of America, without giving effect to any choice of law or conflict of law provision or rule (whether of
the State of Wyoming or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the
State of Wyoming.
Section
4.8 Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the Parties shall use their commercially reasonable efforts to find and employ
an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant
or restriction.
Section
4.9 Remedies Cumulative. The rights and remedies
of the Parties are cumulative and not alternative.
Section
4.10 Mutual Drafting. This Agreement is the mutual product of
the Parties and each provision hereof has been subject to the mutual consultation, negotiation and agreement of each of the Parties,
and shall not be construed for or against any Party hereto.
Section
4.11 Legal Fees and Costs. In the event a Party elects to incur
legal expenses to enforce or interpret any provision of this Agreement by judicial proceedings, the prevailing Party shall be entitled
to recover such legal expenses, including reasonable attorneys’ fees, costs, and necessary disbursements at all court levels,
in addition to any other relief to which such Party shall be entitled.
Section
4.12 Enforcement of Agreement. The Parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific
terms or was otherwise breached. It is accordingly agreed that the Parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction,
this being in addition to any other remedy to which they are entitled at law or in equity.
Section
4.13 Execution; Counterparts. This Agreement may be executed
in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not
sign the same counterpart. In the event that any signature is delivered by e-mail delivery of a “.pdf” format data
file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed)
with the same force and effect as if such “.pdf” signature page were an original thereof.
Section
4.14 Further Assurances. Each of the parties to this Agreement
shall, and shall cause their Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances
and take such further actions as may be reasonably required to carry out the provisions hereof and to give effect to the transactions
contemplated hereby.
* * * * * * * * *
IN WITNESS WHEREOF, this
Agreement has been executed by the parties hereto as of the day and year first written above.
|
COMPANY: |
|
|
|
U.S. ENERGY CORP. |
|
|
|
|
By: |
/s/ David Veltri |
|
Name: |
David Veltri |
|
Title: |
Chief Executive Officer and President |
|
INVESTOR: |
|
|
|
MT. EMMONS MINING COMPANY |
|
|
|
|
By: |
/s/ William E. Cobb |
|
Name: |
William E. Cobb |
|
Title: |
Vice President |
Signature Page to
Investor Rights Agreement
Exhibit 99.1
U.S. ENERGY CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
As discussed in its 2014 Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 12, 2015, in February 2006 U.S. Energy Corp. (the “Company”) reacquired
the Mt. Emmons molybdenum mining project (the “Project”) located in Gunnison County, Colorado. The Company’s
net capitalized costs related to the Project currently amount to approximately $22.8 million. The Company has not conducted any
extractive mining operations at the Project but for each of the three years in the period ended December 31, 2015, aggregate annual
expenses of approximately $3.0 million have been incurred related to operation of the related water treatment plant and holding
costs associated with the mining properties.
The market price for molybdenum oxide decreased significantly
from approximately $11 per pound during 2013 and 2014 to approximately $5 per pound by the fourth quarter of 2015. During 2015
oil and gas commodity prices have also remained at depressed levels which has significantly impacted the Company’s oil and
gas segment and has resulted in an erosion of the Company’s liquidity whereby operating cash flow may not be sufficient to
fund the ongoing annual expenses of the Project indefinitely.
In light of the deteriorating market for molybdenum and the
considerable ongoing costs related to the Project, during 2015 the Company began to consider the viability of alternative structures
to the development of the Project that could result in a sharing or elimination of the ongoing costs and liabilities of the Project.
In a meeting of the Company’s Board of Directors on
February 5, 2016, the decision was made to change from a long-term development strategy for the Project to the authorization for
the disposal of the Project, which triggered an evaluation for impairment of the net carrying value. Accordingly, in connection
with the disposition of assets discussed under Item 1.01 of the Company’s Current Report on Form 8-K (the “Form 8-K”),
the Company expects to record an aggregate impairment charge of approximately $22.8 million in the fourth quarter of 2015. Additionally,
the Company expects to recognize a charge of $2.0 million related to the issuance of the Preferred Stock discussed under Item 3.02
of the Form 8-K.
The accompanying pro forma balance sheet gives effect to
these transactions as if they occurred on September 30, 2015. The pro forma statements of operations for the nine months ended
September 30, 2015 and for the year ended December 31, 2014, are prepared to give effect to the impairment and termination costs,
and the elimination of operating losses associated with the Project, as if these transactions occurred on January 1, 2014.
The Company's unaudited pro forma condensed consolidated
financial statements should be read in conjunction with the historical financial statements and related notes thereto included
in the Company’s quarterly and annual reports filed with the Securities and Exchange Commission. The adjustments to the Company's
unaudited pro forma condensed consolidated financial statements are based on available information and assumptions that the Company
considers reasonable. The Company's unaudited pro forma condensed consolidated financial statements do not purport to (i) represent
the Company's financial position had these transactions occurred on September 30, 2015; (ii) represent the Company's results
of operations that would have actually occurred if these transactions had occurred on January 1, 2014, or (iii) project
the Company's financial position or results of operations as of any future date or for any future period, as applicable.
U.S. ENERGY CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE
SHEETS
September 30, 2015
(In Thousands, Except Share and Per
Share Amounts)
| |
| | |
Pro Forma | |
| |
| |
ASSETS | |
Historical (A) | | |
Adjustments | |
| |
Pro Forma | |
Current assets: | |
| | | |
| | |
| |
| | |
Cash and cash equivalents | |
$ | 3,877 | | |
$ | - | |
| |
$ | 3,877 | |
Accounts receivable trade | |
| 1,085 | | |
| - | |
| |
| 1,085 | |
Commodity risk management asset | |
| 1,002 | | |
| - | |
| |
| 1,002 | |
Other current assets | |
| 485 | | |
| - | |
| |
| 485 | |
Total current assets | |
| 6,449 | | |
| - | |
| |
| 6,449 | |
| |
| | | |
| | |
| |
| | |
Oil and gas properties under full cost method: | |
| | | |
| | |
| |
| | |
Proved oil and gas properties | |
| 109,054 | | |
| - | |
| |
| 109,054 | |
Unproved oil and gas properties | |
| 8,196 | | |
| - | |
| |
| 8,196 | |
Less accumulated depletion, depreciation and amortization | |
| (78,867 | ) | |
| - | |
| |
| (78,867 | ) |
Net oil and gas properties | |
| 38,383 | | |
| - | |
| |
| 38,383 | |
| |
| | | |
| | |
| |
| | |
Other assets: | |
| | | |
| | |
| |
| | |
Undeveloped mining claims | |
| 21,942 | | |
| (21,942 | ) |
(B) | |
| - | |
Property, plant and equipment, net | |
| 3,666 | | |
| (905 | ) |
(B) | |
| 2,761 | |
Other assets | |
| 1,062 | | |
| - | |
| |
| 1,062 | |
| |
| | | |
| | |
| |
| | |
Total assets | |
$ | 71,502 | | |
$ | (22,847 | ) |
| |
$ | 48,655 | |
| |
| | | |
| | |
| |
| | |
LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | | |
| | |
| |
| | |
Current liabilities: | |
| | | |
| | |
| |
| | |
Accounts payable | |
$ | 8,334 | | |
$ | - | |
| |
$ | 8,334 | |
Accrued compensation | |
| 1,194 | | |
| - | |
| |
| 1,194 | |
Current portion of debt | |
| 6,000 | | |
| - | |
| |
| 6,000 | |
Other current liabilities | |
| 72 | | |
| - | |
| |
| 72 | |
Total current liabilities | |
| 15,600 | | |
| - | |
| |
| 15,600 | |
| |
| | | |
| | |
| |
| | |
Noncurrent liabilities: | |
| | | |
| | |
| |
| | |
Asset retirement obligations | |
| 1,230 | | |
| (199 | ) |
(B) | |
| 1,031 | |
Other accrued liabilities | |
| 551 | | |
| - | |
| |
| 551 | |
Total noncurrent liabilities | |
| 1,781 | | |
| (199 | ) |
| |
| 1,582 | |
| |
| | | |
| | |
| |
| | |
Shareholders' equity: | |
| | | |
| | |
| |
| | |
Common stock, $0.01 par value; unlimited shares authorized; 28,110,311 shares issued and outstanding | |
| 281 | | |
| - | |
| |
| 281 | |
Preferred stock, par value $0.01 per share. Authorized 100,000 shares; historical none issued; pro forma 50,000 shares of Series A Convertible Preferred Stock issued and outstanding with a liquidiation preference of $2,000 | |
| - | | |
| 2,000 |
| (C) |
| | 2,000 |
Additional paid-in capital | |
| 124,344 | | |
| - | |
| |
| 124,344 | |
Accumulated deficit | |
| (70,443 | ) | |
| (24,648 | ) |
(D) | |
| (95,091 | ) |
Other comprehensive loss | |
| (61 | ) | |
| - | |
| |
| (61 | ) |
Total shareholders' equity | |
| 54,121 | | |
| (22,648 | ) |
| |
| 31,473 | |
| |
| | | |
| | |
| |
| | |
Total liabilities and shareholders' equity | |
$ | 71,502 | | |
$ | (22,847 | ) |
| |
$ | 48,655 | |
U.S. ENERGY CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended
September 30, 2015
(In Thousands, Except
Share and Per Share Amounts)
| |
| | |
Pro Forma | | |
| | |
| |
| |
Historical | | |
Adjustments | | |
| | |
Pro Forma | |
Revenues: | |
| | | |
| | | |
| | | |
| | |
Oil, natural gas and NGL sales | |
$ | 8,586 | | |
$ | - | | |
| | | |
$ | 8,586 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Oil and gas production: | |
| | | |
| | | |
| | | |
| | |
Lease operating expenses | |
| 5,438 | | |
| - | | |
| | | |
| 5,438 | |
Depreciation, depletion & amortization | |
| 7,013 | | |
| - | | |
| | | |
| 7,013 | |
Impairment expense | |
| 43,894 | | |
| - | | |
| | | |
| 43,894 | |
General and administrative: | |
| 4,524 | | |
| - | | |
| | | |
| 4,524 | |
Mining properties: | |
| | | |
| | | |
| | | |
| | |
Water treatment plant | |
| 1,383 | | |
| (1,383 | ) | |
| (AA) | | |
| - | |
Property holding costs and other | |
| 912 | | |
| (912 | ) | |
| (AA) | | |
| - | |
Depreciation | |
| 92 | | |
| (92 | ) | |
| (AA) | | |
| - | |
Total operating expenses | |
| 63,256 | | |
| (2,295 | ) | |
| | | |
| 60,869 | |
Loss from operations | |
| (54,670 | ) | |
| 2,295 | | |
| | | |
| (52,283 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income and (expenses): | |
| | | |
| | | |
| | | |
| | |
Net realized and unrealized gain on risk management activities | |
| 896 | | |
| - | | |
| | | |
| 896 | |
Gain on the sale of assets | |
| 57 | | |
| - | | |
| | | |
| 57 | |
Miscellaneous income | |
| 279 | | |
| - | | |
| | | |
| 279 | |
Interest expense | |
| (196 | ) | |
| - | | |
| | | |
| (196 | ) |
Net loss | |
$ | (53,634 | ) | |
$ | 2,295 | | |
| | | |
$ | (51,247 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net Loss Applicable to Common Shareholders (Basic and Diluted): | |
| | | |
| | | |
| | | |
| | |
Net Loss | |
$ | (53,634 | ) | |
$ | 2,295 | | |
| | | |
$ | (51,247 | ) |
Accrued dividends related to Series A Convertible Preferred Stock | |
| - | | |
| (186 | ) | |
| (BB) | | |
| (186 | ) |
Net Loss Applicable to Common Shareholders | |
$ | (53,634 | ) | |
$ | 2,109 | | |
| | | |
$ | (51,433 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss Per Share (Basic
and Diluted) | |
$ | (1.91 | ) | |
| | | |
| | | |
$ | (1.83 | ) |
Weighted Average Shares Outstanding (Basic
and Diluted) | |
| 28,049,000 | | |
| | | |
| | | |
| 28,049,000 | |
U.S. ENERGY CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December
31, 2014
(In Thousands, Except
Share and Per Share Amounts)
| |
| | |
Pro Forma | | |
| | |
| |
| |
Historical | | |
Adjustments | | |
| | |
Pro Forma | |
Revenues: | |
| | | |
| | | |
| | | |
| | |
Oil, natural gas and NGL sales | |
$ | 32,379 | | |
$ | - | | |
| | | |
$ | 32,379 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Oil and gas production: | |
| | | |
| | | |
| | | |
| | |
Lease operating expenses | |
| 10,638 | | |
| - | | |
| | | |
| 10,638 | |
Depreciation, depletion & amortization | |
| 14,562 | | |
| - | | |
| | | |
| 14,562 | |
General and administrative: | |
| 6,559 | | |
| - | | |
| | | |
| 6,559 | |
Mining properties: | |
| | | |
| | | |
| | | |
| | |
Water treatment plant | |
| 1,875 | | |
| (1,875 | ) | |
| (AA) | | |
| - | |
Property holding costs and other | |
| 1,110 | | |
| (1,110 | ) | |
| (AA) | | |
| - | |
Depreciation | |
| 123 | | |
| (123 | ) | |
| (AA) | | |
| - | |
Impairment expense | |
| - | | |
| 22,648 | | |
| (CC) | | |
| 22,648 | |
Termination costs | |
| - | | |
| 2,000 | | |
| (DD) | | |
| 2,000 | |
| |
| | | |
| | | |
| | | |
| | |
Total operating expenses | |
| 34,867 | | |
| 21,540 | | |
| | | |
| 56,407 | |
Loss from operations | |
| (2,488 | ) | |
| (21,540 | ) | |
| | | |
| (24,028 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income and (expenses): | |
| | | |
| | | |
| | | |
| | |
Realized and unrealized gains on risk management activities | |
| 582 | | |
| - | | |
| | | |
| 582 | |
Gain on the sale of assets | |
| 112 | | |
| - | | |
| | | |
| 112 | |
Miscellaneous income | |
| 88 | | |
| - | | |
| | | |
| 88 | |
Interest expense | |
| (385 | ) | |
| - | | |
| | | |
| (385 | ) |
Net loss | |
$ | (2,091 | ) | |
$ | (21,540 | ) | |
| | | |
$ | (23,631 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net Loss Applicable to Common Shareholders (Basic and Diluted): | |
| | | |
| | | |
| | | |
| | |
Net Loss | |
$ | (2,091 | ) | |
$ | (21,540 | ) | |
| | | |
$ | (23,631 | ) |
Accrued dividends related to Series A Convertible Preferred Stock | |
| - | | |
| (248 | ) | |
| (BB) | | |
| (245 | ) |
Net Loss Applicable to Common Shareholders | |
$ | (2,091 | ) | |
$ | (21,788 | ) | |
| | | |
$ | (23,876 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss Per Share (Basic
and Diluted) | |
$ | (0.08 | ) | |
| | | |
| | | |
$ | (0.86 | ) |
Weighted Average Shares Outstanding (Basic
and Diluted) | |
| 27,833,000 | | |
| | | |
| | | |
| 27,833,000 | |
U.S. ENERGY CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
| 1. | ADJUSTMENTS TO PRO FORMA BALANCE SHEET |
| (A) | Historical Balance Sheet. Represents the historical consolidated balance sheet of the Company as of September
30, 2015. |
| (B) | Disposition of Assets. In connection with the Acquisition Agreement described in Item 1.01, the Company transferred
ownership of the project to Mt. Emmons Mining Company (“MEM”) and MEM assume all future liabilities for the operation
of the Project. Accordingly, a pro forma adjustment is recorded to reflect the transfer of ownership of the undeveloped mining
claims and related mining equipment, and to eliminate the related asset retirement obligations assumed by MEM. |
| (C) | Issuance of Preferred Stock. As discussed in Item 1.01, the Company entered into a Series A Convertible Preferred
Stock Purchase Agreement whereby 50,000 shares of newly designated Series A Convertible Preferred Stock (the “Preferred Stock”)
in exchange for MEM’s assumption of the future liabilities of the WTP and the payment of $500 to the Company. The initial
liquidation preference of the Preferred Stock was equal to $40 per share for an aggregate of $2,000,000. |
| (D) | Accumulated Deficit. Consists of immediate charges for impairment of $21,648 as discussed under Pro Forma Adjustment
(CC) and termination costs of $2,000 as discussed under Pro Forma Adjustment (DD). |
| 2. | ADJUSTMENTS TO PRO FORMA STATEMENTS OF OPERATIONS |
| (AA) | Operating Expenses. Pro forma adjustment to give effect to the elimination of operating expenses for the water
treatment plant, property holding costs and other, and depreciation assuming that the Project was disposed of on January 1, 2014. |
| (BB) | Accrued Dividends. Pro forma adjustment for purposes of computing earnings per share to give effect to accrued
dividends on the Preferred Stock at the annual rate of 12.25%, assuming the Preferred Stock was issued on January 1, 2014. |
| (CC) | Impairment of Mining Properties. Pro forma adjustment to give effect to the disposition of the mining properties
on January 1, 2014, resulting in an impairment loss for the entire carrying value. |
| (DD) | Termination Costs. Pro forma adjustment to give effect to the issuance of the Preferred Stock discussed under
Adjustment (C) as consideration for the termination of the Company’s obligations under permits to operate the
water treatment plant and related mining properties. |
Exhibit
99.2
For
Immediate Release
U.S.
ENERGY CORP. PROVIDES CORPORATE UPDATE
U.S.
ENERGY CORP. CONTINUES TO EXECUTE ON ITS PREVIOUSLY STATED BUSINESS PLAN TO TRANSFORM THE COMPANY AND FOCUS ON OIL AND GAS AS
THE PRIMARY BUSINESS.
DENVER,
CO – February 12, 2016 - U.S. Energy Corp. (NASDAQ: USEG) a Wyoming corporation, entered into an Acquisition Agreement with
Mt. Emmons Mining Company (MEM), a subsidiary of Freeport-McMoRan Inc., whereby MEM acquired the Company’s Mt. Emmons mine
site located in Gunnison County, Colorado, including the Keystone Mine, a related water treatment plant and other related properties.
Under the Acquisition Agreement, MEM will replace the Company as the owner and permittee of the water treatment plant, the associated
mining assets and will discharge the obligation of the Company to operate the water treatment plant upon closing. Concurrent with
entry into the Acquisition Agreement, and as additional consideration for MEM to accept transfer of the properties, including
the water treatment plant, the Company entered into a Series A Convertible Preferred Stock Purchase Agreement, pursuant to which
the Company issued 50,000 shares of newly designated convertible preferred stock with a cumulative noncash dividend to MEM.
The
transaction is a continuation of the transformation of U.S. Energy Corp. to solely focus on its ongoing oil and gas business.
Previously, U.S. Energy Corp. announced a restructuring of the company by reducing its overhead costs significantly, moving the
corporate headquarters to Denver for better access to financial services and to improve access to oil and gas deal flow. U.S.
Energy Corp. intends to migrate from a traditionally non-operator of oil and gas assets to an oil and gas operating company going
forward.
With
the divestiture of the Mount Emmons Mining operations, U.S. Energy Corp. will have eliminated its mining related operating costs
of approximately $3 million per year, a portion of which relates to operation of the water treatment plant. Coupled with the overhead
reduction of $4 million at year end 2015, approximately $7 million savings can be realized on an annualized basis. The reductions
have been implemented to support the ongoing business plan of U.S. Energy Corp. during this industry downturn and low commodity
price environment.
The
company intends to focus on securing appropriate financial funding to replace its current Reserve Based Lender along with adding
growth capital for potential oil and gas asset acquisitions. U.S. Energy Corp. primarily owns interests in oil and gas assets
in the Williston Basin of North Dakota and South Texas Eagle Ford Trend. The Company intends to evaluate properties in a variety
of basins where it has operating expertise.
Further,
to address the stock listing compliance issue the Company has entered into a continued listing agreement with NASDAQ through June
2016.
Mr.
David Veltri, Chief Executive Officer, stated “This transaction will end our mining activities and together with the earlier
reductions and savings will position U.S. Energy Corp.to execute our strategy to transform the company to profitability and to
grow our oil and gas assets during 2016 and beyond.”
Disclosure
Regarding Forward- Looking Statement
This
news release includes statements which may constitute "forward-looking" statements, usually containing the words "will,"
"anticipates," "believe," "estimate," "project," "expect," "target,"
"goal," or similar expressions. Forward looking statements in this release relate to, among other things, U.S. Energy's
expected future plans, including plans to reduce costs, transition to an operating model and execute on its strategic plan, potential
future financing transactions and future growth. There is no assurance that any additional financing or other opportunities will
be available. The forward-looking statements are made pursuant to the safe harbor provision of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ
materially from the forward-looking statements. Factors that would cause or contribute to such differences include, but are not
limited to, dry holes and other unsuccessful development activities, higher than expected expenses or decline rates from production
wells, future trends in commodity and/or mineral prices, the availability of capital, competitive factors, and other risks described
in the Company's filings with the SEC (including, without limitation, the Form 10-K for the year ended December 31, 2014) all
of which are incorporated herein by reference. By making these forward-looking statements, the Company undertakes no obligation
to update these statements for revision or changes after the date of this release.
.....
For
Further Information, please contact:
David
Veltri
CEO
and President
U.S.
Energy Corp.
303
993 3200
David@usnrg.com
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